May 29, 2018
The first index to cover the effects of a drought or flood, a development of the company S4 together with reinsurer Munich Re andRofex, paid indemnities for U$ 7.5 million due to this season’s drought.
In March the index managed to cover U$82 million total dollars (U$55 million for drought and U$27 million for flood). The data on coverage comes from the provinces: Buenos Aires, Cordoba, Santa Fe, Santiago del Estero, Entre Rios, Chaco, Salta, La Pampa, San Luis and Tucumán which represent 0.7% of the total investment (U$ 12 billion) made in the country to plant more than 30 million hectares with soy, corn and wheat.
“It costs the grower 3% (U$3 dollars of everyU$100) of the capital he wanted to cover and he was paid 14% (U$14 dollars of everyU$100),” said Santiago González Venzano, director and founder of S4. “Fromacountry average perspective, for every dollar that paid in premiums, six were paid back, as an example, the highest payments were received in the counties of Entre Ríos and Santiago del Estero and exceeded 60% with a premium of 3%,” he said.
The agronomist and former CREA consultant, explained that three years ago they achieved a coverage based on satellite information (green index during the critical period of the crop) that aims to transfer the risk of drought to a reinsurance company. The index is built with satellite information from NASA and is settled by assessing the actual damages, unlike multi-peril insurance where, as explained by the professional, “it is very expensive to review all the fields and, in addition, there is a subjective component in the evaluation”.
S4 created algorithms using data from satellites that can recognize what type of crop is located in each pixel, evaluate the stages of development and determine the time window of the critical period. The director of S4 clarified that the system does not use all the pixels: first there is a spatial selection of them and then the time window is defined that is not fixed for each location, but depends on the combination of planting dates and the groups of maturity that farmers choose for each environment.
The coverage is consolidated at county level. “We calculate the index, Rofex registers the contracts and publishes the indices. This is a product with a strong demand for transparency and objectivity, and that’s what we work for. The contract holders were companies such as Syngenta and also producers through Rofex, among others, “González Venzano concluded.