Farmers in Extremadura have experienced hot summers, but probably very few like this one. Summer fruits and vegetables have been cooked – literally – in one of the hottest summers on record for the region. Some regions have suffered average maximum temperatures of more than 39 degrees, which means exceeding the average of the last 30 years by four points.
After the end of the summer, the first reports to agricultural insurance give a good outline of the disaster. Around 10,000 hectares of tomatoes (half of the area insured in the area) have suffered damage due to extreme heat in Extremadura, according to Agroseguro, the agreement that brings together the 18 agricultural insurers in the country. The call to insurance is, for many producers with devastated fields, the last resort to avoid red numbers. In the case of the Extremaduran tomato growers, Agroseguro has already announced an injection of nine million euros for the decrease in harvests.
In situations like this, agricultural insurance works as a kind of legal lifeline. Unlike a motorcycle or a car, the law does not require you to insure a field; however, the trend is that more and more owners decide not to take the risk and ensure the harvest year after year. The succession of torrid summers, with mercury exceeding 40 degrees day after day, has opened a debate in the sector. Unlike losses due to frost, hail or hurricane winds, even fires, insurers are reluctant to respond for the damage caused by the summer sun to crops such as pears, peaches, nectarine, figs, corn, almond or grape
The heat in summer is, after all, something predictable. But what has happened in recent years, the farmers denounce, goes beyond the limits. And not all policies include this risk. Farmers, faced with the new climate scenario, demand greater shielding against high temperatures to protect their crops. “There are agricultural productions that could not survive without insurance, and we are grateful. But the system is not prepared to adequately cover the damage caused by high temperatures in all crops”, remarks Jesús González, an agronomist and technician at the Extremadura Agro-Food Cooperatives. “We are talking,” he denounces, “of new claims, unprecedented situations that can cause more important losses than a hailstorm, a flood or a frost.”
The very high accident rate recorded this year is fueled by a Molotov cocktail of three ingredients: hail, drought and heat. Sergio de Andrés, director of the Department of Production and Communication of Agroseguro, believes that it is possible that “2022 will close as the year with the highest number of claims and compensation in the history of agricultural insurance.”
Higher accident rate
A look at the data serves to confirm the thesis of the highest accident rate. While between 2006 and 2010 insurance companies distributed 2,376 million euros in compensation, between 2017 and 2021 compensation for damage to crops amounted to 3,309 million. Although more and more owners choose to insure their crops, the increase in contracts (9% between 2006 and 2021) does not keep pace with the escalation in the amount of compensation (39% percent more in the same period).
These forecasts have put the legal profession on alert. Esther Álvarez, associate attorney at Gabeiras & Asociados, predicts that there will be more parties to the insurance due to “the extreme changes we are experiencing.” For his part, Miguel Relaño, a partner at the firm specializing in insurance Clyde & Co, confirms that his firm is already noticing “an increase in inquiries resulting from the drought.”
Will friction grow between farmers and insurers? Will there be an uptick in lawsuits? Relaño sees it as difficult. The agrarian insurance is, he explains, a niche of low conflict. It doesn’t seem likely that high temperatures, drought or hail will stir up the hornet’s nest. The low rate of litigation has its reason for being in the law. The agrarian insurance law, one of the first laws of democracy, provides for an amicable conflict resolution mechanism when the owner and the insurer do not agree on the quantification of the damage. If an agreement is not reached, the parties are obliged to call an independent expert as a prerequisite to going to court (third party, according to jargon). It is rare, therefore, that the blood reaches the river. Although there are cases and cases. “It is normal that there is no disagreement with the damage assessment since, in general, the appraisal criteria are clearly established in the law,” Relaño points out. The few conflicting scenarios, he adds, may be caused by the late notification of the incident (which makes it impossible to assess the damages), the damages that have many causes, the erroneous taking of samples by the owner for the appraisal or the lack of preventive measures.
Fires are, in general, a risk that is also covered by agricultural policies. Although they are more frequent in areas of virgin forest and mountainous terrain, according to Agroseguro records, this year compensation for fire damage to crops amounted to 4.7 million euros. These are worrying data. “The comparison gives a good example of the seriousness of the matter, because the average of the last five years stood at 1.4 million, which represents an increase of 235% in compensation,” remarks Sergio de Andrés.
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Not all farm insurance works the same. In Peru, for example, the cyclical climatic events of El Niño and La Niña have made parametric insurance fashionable. These are self-executing contracts that work through indexes. In other words, what is compensated is not the damage, but the fact of fulfilling a measurable condition, which grants a right to automatic compensation. Luis Alonso Fernández, partner in the insurance practice of Bird & Bird, explains it this way: “If it rains less than a number of liters per square meter, the insurance pays compensation”, assuming that there is damage. In Spain, he adds, it is a common formula to protect olive groves against high temperatures during flowering, when the plant is most vulnerable.
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