Commercial forests in the south of Brazil cover an area nearly the size of Ireland. Protecting them against fire and storms with insurance policies helps farmers and the remaining virgin forests in Brazil’s north, explains Luiz Meleiro from Allianz Seguros in Brazil.
 | Luis Carlos Meleiro, Head of Agriculture Business, Allianz Seguros"Most of the forest losses we see are due to fires. The climate in some parts of Brazil is getting drier and in other places it is raining too much." (Photo: Allianz) |
What is forest insurance all about?
Fire, lightning, drought, hail, frost, and strong winds can lead to huge financial and environmental losses in reforested areas. Currently, however, commercial plantations with eucalyptus, pine, and rubber trees stretch over some 5.5 million hectares, but only about 10 percent of these have some sort of risk coverage. That is why we and some other insurers here in Brazil offer coverage for those risks, especially against fire, the most important source of claims.
Allianz Brasil was one of the first insurance companies to develop a forest insurance product. We market it mostly in the country’s southern region. Our country is very large, so we developed a multi-risk product to meet the needs of every Brazilian region and its particular climate.
The farmers we insure have to show business plans. We check, for example, if they have a fire brigade and the right equipment to fight fires. That is also why we can be pretty sure that our clients are not involved in 'slash and burn' land clearing or the felling of tropical forest.
How does your forest insurance work?
Forest insurance has its peculiarities. The aim of a planted forest is most often to sell timber. On average, a eucalyptus forest reaches its full maturity after seven years. From then on its growth slows down. The timber itself is marketable after four years. So there are two stages in any reforestation project: a non-marketable stage up to four years and a marketable stage for older plantations.
To cover both stages, we have developed two kinds of insurance policy. For younger forests, we cover the full cost, that is all the farmer’s investments including seedlings, production inputs, fertilizers, pesticides and his expenses during the growth period for thinning and clearing, applying agrochemicals, fighting ants and so forth. The second policy is cheaper and covers only the price of the actual timber. This kind of insurance is for older forests that have already reached marketable value.
 | Picture Gallery (click on the image to start)Find out more about the world's largest forests (Photo: Reuters) |
How important are commercial forests in Brazil?
They are small compared to the Amazon Forest, but rather large when compared on an international scale. And there has been significant growth in industries that use timber, which has encouraged farmers to further expand their commercial forests. By 2010, Brazil’s reforested area is expected to reach almost 8 million hectares, about two thirds of this is eucalyptus trees and one third is pine trees.
From these 8 million hectares, only 12 percent will be secured by forest-specific insurance, so there is a real growth potential in this market. It is a new concept of insurance and definitely meets the needs of the investors and producers.
What are the key challenges faced by insurers?
For a long time, farmers weren’t offered specialized insurances and there were no subsidies available. Many farmers were also subject to delayed claim payments and lost trust in insurance products.
Until 2004 we had a rural insurance monopoly operated by one state-owned insurer and many people weren’t happy with their work. Brazilian authorities then dismantled this monopoly and introduced a subsidy scheme for rural insurance premiums that has increased year after year. The estimated value of these subsidies in 2009 is almost 100 million U.S. dollars.
The challenge for us insurers is now to win back the trust of farmers and convince them that our products are worth the investment. And it works, the market is growing. In 2007, we had only 90 policies running, but now we have more than 230 policies covering a little less than one thousand square kilometers, that is approximately 150 million trees.
How about climate change, could it affect your business?
Most of the forest losses we see are due to fires. We didn’t have so many fires before in Brazil, but the climate in some parts of Brazil is getting drier and in other places it is raining too much. For the last few years it was really, really dry in the south of Brazil. This year it is raining so much that we are having problems in some areas.
Two years ago we had our first tropical hurricane in Brazil, we never used to have hurricanes here. But it is hard for us to calculate how things change, because we just have data for the recent years and the experts have different opinions on how the climate is going to be.
What we need is catastrophe reinsurance. The great news is that the Brazilian authorities, together with the insurers and reinsurers, are trying to set up a federal catastrophe fund. This fund would then guarantee the recovery of claims paid to rural producers after a catastrophic climate event.
editor: Thilo Kunzemann
publishing date: January 28, 2009
Do you have something interesting to add? Write a comment and discuss this topic with other readers. Comments should be on-topic, non-commercial, and not contain abuse of any kind.
Comment Policy
