acreage is managed using smart farming techniques and is currently dominated ... As a consequence risk transfer solution
RISK FOCUS SPECIALTY, PROPERTY & CASUALTY BULLETIN NOVEMBER 2016
The impact of smart farming on risk management Smart farming, otherwise known as precision agriculture, is the use of advanced technology to increase productivity and yields whilst reducing losses and cutting costs in both traditional arable and livestock farming. Using various data collection methods farmers are able to make more informed and faster decisions when monitoring disease, fertilising requirements, harvesting, irrigation, animal health and much more.
Today, only 20% of global farmed acreage is managed using smart farming techniques and is currently dominated by larger firms with access to the robust IT infrastructure required. That said, in 2015 global smart farming was estimated to be worth USD 2.81 million with the expectation to grow at a compound annual growth rate (CAGR) of 12.5% to reach USD 6.43 million in 2022. These new techniques are transforming the practice of farming and therefore risk management. As a consequence risk transfer solutions will have to respond accordingly.
There are a number of smart farming techniques that can be implemented by farmers. For instance precision livestock farming (PLF) enables farmers to care for a large number of animals per farm whilst providing individual attention to each animal through the use of a microchip. This technology measures body temperature, activity, tissue resistivity, pulse and global positioning system (GPS) per animal. PLF management can raise milk yields in cows, increase their life expectancy and decrease methane emissions by up to 30%. At pig farms, acoustic sensors can be implemented that identify respiratory illnesses by monitoring coughing pigs.
In addition, farmers can use a variety of monitoring systems to track their livestock. Solar-powered wireless collars are now available to monitor behaviour and track locations and ‘walk over weighing stations’ can be deployed to measure cattle conditions and monitor growth rates. This market is expected to grow from its current value at USD 1 billion to USD 2.5 billion by 2025. Sensor and tracking technologies collate data from a distance in order to evaluate soil and crop health i.e moisture, nutrients and crop diseases. Drones can be deployed to collect detailed images of crop and field characteristics and
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SPECIALTY, PROPERTY & CASUALTY BULLETIN | November 2016
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consequently assist with calculations of fertiliser requirements and delineating the presence of disease. As well as collating detailed images, the sensor technology in drones can be used to identify unusual body temperature and conditions whilst monitoring herds. The worldwide market for agricultural drones is currently USD 494 million and expected to reach USD 3.96 billion by 2022. Japan already has 2,400 drones in operation to spray 40% of their rice crops.
with you, our network and the market to deliver responses which are carefully considered from all angles. Our Specialty Property & Casualty (SP&C) division has enhanced focus on property and casualty programmes for complex, risk managed clients worldwide, with particular knowledge and experience in the following sectors: power, mining, professions, life science, transport, food & agri and communications, technology & media.
CONTACTS Simon Lusher Food & Agri Practice Leader, JLT Specialty +44 20 7459 5550
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Use of smart farming practices are currently concentrated in the US, Northern and Central Europe. Around 60% of tillable land in the US is managed using smart farming practices and similarly 60% of farmland in the UK is managed using these methods. The expectation is that smaller farms will start to follow suit and countries in the Asia-Pacific region are also rapidly adopting these practices. In this region China and India currently hold the greatest market shares in the smart farming market. There is still some time before smart farming practices become business as usual but it is clear that these practices already have significant implications for risk management on farms and consequently those adopting these techniques need an insurance product that goes beyond a traditional livestock or crop policy. Primarily the increase in available data information will benefit how well an underwriter can price a risk and provide the correct coverages. As farm management gets further driven by big data and increases in farm intelligence, the scope of a traditional crop product will become inappropriate to meet the needs of farmers. For instance, the ability to differentiate between soil types across one farm will enable underwriters to view
an insured’s risk as multi-site rather than single-site. Livestock underwriters will have access to detailed health data and hence be able to customise coverages and pricing using more reliable data. This increase in consistent data capture is likely to lead to a gradual shift from traditional indemnity products to index based products. This type of insurance coverage is based on historical sets of data which are then used to determine an agreed pay-out if certain triggers are met. This is more efficient as there is no requirement for a loss adjuster in the event of a claim but is also a cost effective way of providing insurance cover for multiple smaller farms. For instance the Kenyan Government supports livestock farmers with an index product based on the normalised difference vegetation index (NDVI) coupled with mortality data from Kenya Arid Lands Management. This combination of data is then used to predict livestock deaths which then formed the basis of an insurance policy to protect against cattle deaths in the event of a drought. This product has already been taken up by 11,800 local farmers this year. JLT are encouraging insurers to recognise that the technology already available is making a huge contribution to agricultural risk management both as a loss prevention tool and as a means to allow early detection of problems and deliver rapid and precise solutions. It is fair to assume that in the future the contribution made by technological innovation and data capture will be even more powerful. In response to this changing risk landscape, JLT are working on bespoke wordings and coverages to better reflect the needs of farmers now using smart farming techniques.
This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this bulletin, you should first seek specific professional advice.
