ACADEMY OF ECONOMIC STUDIES IN BUCHAREST

FACULTY OF BUSINESS ADMINISTRATION

Comparative Analysis between

Agricultural and Environmental
Insurance Policies

Contents
Introduction
1. Agricultural insurance
Short History
1.1. Insurance of agricultural crops at ASTRA
1.2. Insurance of agricultural crops at GROUPAMA
1.3. Comparison between an ASTRA and GROUPAMA agricultural crop insurance

2. Environmental insurance
2.1. Pollution Legal Liability at AIG
2.2. Pollution Legal Liability at ACE
2.3. Comparison between an AIG and ACE pollution liability insurance
References

Introduction

One of the most basic and necessary human activities was agriculture, and there is a need for
practicing agricultural insurance.
Also, people who belonged to the upper social class were not greatly affected by damage and
thus, itwas not considered a necessary to have an insurance that would not create an extra value.
Meanwhile, natural disasters were considered by individuals as the punishment of the gods,
which held back the creation and adaptation of methods of protection against natural disasters.
Prior to the establishment of companies that meet specific characteristics of an insurance
company, was born the idea of self-help for people who hold a small portion of land. Although
the foundations were not yet strong, itmade farmers keep some of the harvest so that they can
help those of which whohad damages occurring. In these circumstances, owners affected by
various atmospheric phenomena, received aid in the form of seeds or food which partially
covered the losses that occurred.
The owners would have to show a lot more interest in ensuring against atmospheric phenomena,
especially since they cannot be caused intentionally as other types of insurance (such as life
insurance). However, prospective policyholders were more reserved because:

It was almost impossible to determine the size of the damage immediately after the event

occurred;
It was difficult to determine insurance premiums through mathematical calculations and
probabilities.

However, mutuality between peasants remained the only way of assistance in the middle Ages
since it was not possible to form an insurance company to cover these risks.

1. Agricultural insurance

Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for
payment.
Risk is something inevitable but can be managed with regard to agricultural activity. Agricultural
production can vary greatly from year to year due to unforeseen weather conditions, disease,
insect infestation and causes fluctuations in the market price of raw materials and crops.
Short History
The first clues to the establishment of livestock insurance emerged in Spain in 1556, but they
were made in close connection with the provision of slaves on the one hand, and ensuring the
transport of animals by sea, on the other hand. Subsequently, in 1710, was established insurance
for horses in London, covering theft, natural death and disability insured animal. Around the
same period dates the first formal policy on ensuring animal deaths, illness, theft and accidents.
More specifically, they were completed in Hamburg, around the 1720s.
Between 1740-1750 there has been a significant increase in pet insurance need of local regions,
due to the occurrence of fever which occurred in the countries of Europe and led to the deaths of
millions of cattle. Due to lack of financial resources, most countries have left this issue on behalf
of private institutions, which in turn were overcome by the situation.Moreover, the foundation of
the first agricultural insurance companies were established by Frederick the Great which requires
all cattle owners to purchase such insurance policy.
Thus, damage to the liability was determined on each beef in part as follows: a steer - 10 plates, a
cow - 6 taels. Thanks very good recording results, this has led to the creation of similar
companies in Eastern friezes. Afterwards institutions were also established in Denmark (1774)
and Austria (1782).Given that these were mandatory agricultural insurance need to become more
pronounced with increasing land reform and agricultural culture. In Scotland took the form of
insurance against hail and were first practiced by landowners.
Simultaneously, were established in France two insurance companies against hail, one for corn
and one for cattle. Starter insurance company was Barrau Toulouse grain and required the use of
a fixed premium of 3%.
1.1. Insurance of agricultural crops at ASTRA

The comparison we chose was for an agricultural land of wheat, with a production of 6
tones per hectar.
What is insured for a typical crop insurance policy?
all agricultural crops;
cereal, technical plants, medicinal and aromatic plants, edible legumes, feed
plants, potato and vegetables, seedage, vineyard, fruit tree and hop products, fruit
trees, greenhouse crops, solariums, seed beds and tunnels, fruit tree and vineyard
farms, stock plantations.
What is insured in our situation?
the wheat crop
Insurance contract
The insurance contract may be concluded as such:
by March 1st, for the insured in the Standard risk group;
Insured amount
The insured amount is established by the Insured, which is the farmer together with the
Insurer, ASTRA and it stands for the total technological expenses, except for the harvest
expenses.In our example for a crop of wheat, the insured amount is 1200 euro.
Covered risks

late spring frost, pail, torrential rain, storm/heavy wind, fire, cultivated land slide
and crashes/cave-ins, early autumn frost, generically entitled Standard risks or
only: pail, torrential rain, storm/heavy wind, generally entitled Low standard
risks.

Insurance Premium

The altitude of premium rates in crop insurance depends on:

The frequency of risks in time and on area
The type of risk (e.g. hail as a very local risk, drought as a large area risk)
The sensitiveness of crops

 The number of risks covered (single- risk, multi- risk insurance)

The number of insured, to spread the risks
Other technicalities like deductibles
The annual premium would be somewhere around 36 euros per hectare to an insured sum of
1,200 euros (we considered a production of 6 tonnes of wheat per hectare the current average
price of 200 euros per tonne).
In the following table we can see some common risks encountered in agriculture:
Agricultural Risks
Climate
Sanitary

frost, drought, flood, wind, fire, snow, ice

Plagues and diseases
Controllable
Uncontrollable
Geological
earthquakes, volcanic eruptions
Market
Fluctuating market prices and changes in quality standards
Man Made
War, financial crisis
Controllable
Uncontrollable
These changes in yields and output prices generate large changes in farmers' income. Thus, the
uncertainty of future revenue production so difficult in the short term and long term planning to
expand or reduce production, to invest in the purchase of fixed and mobile assets or remain in
agriculture or to redirect to another domain.
Given that these changes significantly reduce the proceeds in the short term there may be serious
repercussions in the absence of effective tools for risk management, especially when these
changes are systemic shocks of the entire sector.
To mitigate common risks in agriculture, farm owners must use a range of strategies and
techniques for managing them, such as:

crop diversification;
maintaining financial reserves;
hiring production;
buying futures or options contracts;
end a lease with specific characteristics;

1.2. Insurance of agricultural crops at GROUPAMA

The same as in the ASTRA insurance policy, the insured item is the same.
What is insured in our situation?
the wheat crop
Insured amount
The insured amount is established by the Insured, which is the farmer together with the
Insurer, and is the same as for ASTRA, having the insured amount at 1200 euro.
Covered risks

Agricultural insurance covers the following risks:

hail
fire (from any cause)
storm / hurricane
heavy rain
collapsing / sliding of cultivated land
late spring frost and early autumn frost.

Insurance Premium
The premium can be paid in installments.
The annual premium higher than for ASTRA, of around45 euro per hectare to an insured sum of
1,200 euros, which means 900 euro in total.

1.3. Comparison between an ASTRA and GROUPAMA agricultural crop insurance

What is insured
Insured amount
Covered risks

ASTRA
The wheat crop
1,200 euro
spring frost, pail, torrential

GROUPAMA
The wheat crop
1,200 euro
heavy rain, storm, hail,

rain, storm/heavy wind,

early and late frosts, fire,

fire, cultivated land slide

landslides

and crashes/cave-ins, early

autumn frost, pail,

torrential rain,
storm/heavy wind,
generally entitled Low
Insurance Premium

standard risks.
36 euro/ha, 720 euro in 45 euro per hectare, 900
total, paid on an yearly euro in total paid on an
basis

yearly basis.

Deductibles in agricultural insurances

The higher the risk, the higher the deductibles. This can mean that the risk is high (high
frequency in time or on area) or the products are covered have a high sensitiveness (e.g. fruits,
vegetables).
To create individual insurance schemes tailored to the demands of customers, there are different
deductibles used, so its on the farmers judgment to choose a higher deductible and paying less
of the premium.
General new insurance products with less on experience have higher deductibles.

Loss assessment
Usually the loss assessment is done by loss adjusters in the field. To estimate the loss they use
standardized directives developed for different crops. Thus it can be assumed,that loss
assessment for single risk insurance is international comparable
There are two different approaches for the assessment of loss.
1. Based on loss:
In the single risk insurance, the loss adjuster estimates a percentage of the loss. For this
procedure they take samples in the field and use standardized directives for different crops.

The estimated percentage minimized with the deductible is the result for the indemnity, as a
percentage of the insured value (sum insured).
2. Based on yield:
The loss adjuster estimates the yield by taking some samples in the field or in another way for
example in indirect index based insurances (e.g. meteorological trigger, vegetation index). The
estimated yield will be referred to an average yield in time on farm or on arealevel.

2. Environmental insurance
Environmental insurance is a specialist form of insurance providing cover against losses that
could be incurred as a result of third party and regulatoryaction arising from pollution or
contamination. It is increasingly used as aneffective mechanism to transfer environmental
liabilities associated withcorporate and property transactions as well as ongoing operations.
Environmental insurance is a risk management tool for project financers and sponsors to transfer
their risk to the insurer (insurance company) for potential cleanup costs or liability related to
environmental conditions at a property or project.
Types of environmental insurance
There are two common types of environmental insurance Cost Cap and Pollution Legal
Liability.

Pollution Legal Liability

The comparison we decided to do in terms of Environmental Insurance policy, is between a an
AIG policy and an ACE pollution liability policy. The company seeking insurance is a
corporation.
Pollution Legal Liability environmental insurance can be used to:

replace an escrow for the unexpected cost of remediation, which would insure against:
the chance of discovering new contamination;
third party lawsuits/claims; and/or
the environmental legacy of the operation.
provide protection from costs that could destabilize your business or municipal budget

due to unexpected cleanup;

provide a tool to establish financial stability for estimated clean-up costs

2.1. Pollution Legal Liability at AIG

Targeted Policy Holder

Large Corporation

Coverage Explanation

Third party claims for cleanup, bodily injury, and property damage
First party claims for bodily injury and property damage
Defense costs
Optional: Contractual liability, Business Interruption, Extra expense, and Non-owned
disposal site
Key Exclusions

Owned property (i.e., property owned, leased, or operated by the policy holder)

Contractual liability

Certain types of indoor air pollution

Periods

1 to 10 years

Premiums

More than 5,000 euro, paid on an yearly basis

Features & Benefits of the Pollution Legal Liability policy

The Commercial Pollution Legal Liability insuring agreements provide coverage for
clean-up costs resulting from the discovery of pollution conditions on sites owned or
operated by the insured at inception date or added to the policy, as well as third-party
claims for bodily injury, property damage or clean-up costs that result from pollution

conditions for which the insured is legally obligated.

Coverage tailored to a broad range of target classes including but not limited to higher

education institutions, municipalities and healthcare facilities

No retroactive date, except for waste disposal activities
Emergency response costs included in coverage
Coverage provided for legal liability resulting from pollution conditions with no site

scheduling required
Options for expanded coverage for microbial matter, legionella pneumophila, clean-up
costs for viruses and bacteria, Crisis Response and crisis management

2.2. Pollution Legal Liability at ACE

Targeted Policy Holder

Large Corporation

Coverage

Business interruption and soft costs by endorsement

Known conditions by endorsement

Liabilities encountered in mergers and acquisitions

Acquired and divested properties by endorsement

Available for natural resource damages claims

Available for mold-related and legionella claims

Available for Illicit Abandonment

Available for claims arising from non-owned disposal sites

Available during the transportation of wastes or products

Available for Products Pollution

Available for Catastrophe Management

Periods

1 to 10 years

Premiums
More than 10,000 euro, paid on an yearly basis

1.3. Comparison between AIG and POLLUTION LEGAL LIABILITY INSURANCE

AIG
Coverage

Third party claims for

cleanup,

Explanation

bodily

injury,

and property damage

First party claims for
bodily injury and property

and soft costs by

endorsement

damage
Defense costs
Optional:
Contractual
liability,

Business

Interruption,
disposal site

Liabilities
encountered in mergers and
acquisitions
Acquired and
divested properties by

Extra

expense, and Non-owned

Business interruption

endorsement

Available for natural

resource damages claims

Available for moldrelated and legionella

claims

Available during the

transportation of wastes or
products

Available for
Products Pollution

Available
for Catastrophe
Management

Key Exclusions

Owned property (i.e., property

owned,

leased, or operated by
the policy holder)

Contractual liability

Certain

types

indoor air pollution

of

Periods

1 to 10 years

Premiums

More than 5,000 euro,

paid on an yearly basis

1 to 10 years

More than 10,000

euro, paid on an
yearly basis

References
1.
2.
3.
4.

Dumitru G. Badea- Insurance & Reinsurance, Bucuresti: EdituraEconomica, 2003

http://www.basis.wisc.edu/live/rfc/cs_03b.pdf
http://en.wikipedia.org/wiki/Insurance
http://www.epa.ohio.gov/portals/30/vap/docs/VAP%20INS/What%20is
%20Environmental%20Insurance.pdf
5. http://www.microinsurancecentre.org/resources/documents/doc_download/330-trends-inagricultural-insurance-in-the-european-union.html
6. http://www.google.ro/url?sa=t&rct=j&q=agricultural
%20insurance&source=web&cd=3&ved=0CDUQFjAC&url=http%3A%2F
%2Fen.wikipedia.org%2Fwiki%2FCategory
%3AAgricultural_insurance&ei=J7l7UaFYfS4QS7h4HYAg&usg=AFQjCNFOnzHMFF
8Du_vvn2mX9jd1IxHksw&bvm=bv.45645796,d.ZWU
7. https://www.astrasig.ro/en/insurances/corporate/agricultural-insurance
8. http://ec.europa.eu/agriculture/analysis/external/insurance/
9. http://www.aig.com/Environmental_3171_416861.html
10. http://www.epa.gov/brownfields/insurance/ei_insurance_coverage_012405.pdf
11. http://www.dldins.com/files/Environmental%20Insurance%20Products.pdf
12. http://www.aon.com/risk-services/environmental.jsp
13. http://en.wikipedia.org/wiki/Insurance#Other_types
14. http://www.allianztiriac.ro/asigurari-persoane-juridice/asigurare-culturi-agricole-sianimale.aspx
15. http://www.studentie.ro/campus/asigurari_agricole___polite_de_asigurare_agricola/c847-a-47113
16. http://www.groupama.ro/produse/persoane-juridice/asigurariagricole/asigurari-agricole-@/article.jspz?id=19231
17.http://www.aig.com/Pollution-Legal-Liability_3171_417738.html