Flood risk in agriculture

• Torrential rains within a very short space of time. These are so-called cut-off lows, more widely known as gota fría in Spain. Above all, they occur on the Mediterranean coast and in inland zones, and the risk of them is particularly high in late summer.
• Rapid thawing of snow built up in winter, mainly in the Ebro valley.

As a basic means of managing risks on farms, there is the so-called Combined Agricultural Insurance system, which is regulated by Law 87/1978, in turn implemented through the regulations approved by Royal Decree 2329/1979, which is substantiated in the annual agricultural insurance plans approved by the government at the suggestion of the State Agricultural Insurance Agency (Entidad Estatal de Seguros Agrarios, ENESA), which is a body under the Ministry of Agriculture, Fisheries and Foods, that draws up these plans in conjunction with the Ministry of Economy and Business (Directorate General for Insurance and Pension Funds and Consorcio de Compensación de Seguros), and under professional agricultural organisations, agriculture and food cooperatives, and the insurance industry, represented by Agroseguro.

Since its inception, the core aim of this insurance system in Spain is to universalise agricultural sector cover against adverse weather conditions and other uncontrollable natural phenomena. In consonance with this goal, in our agricultural insurance model, all production is insurable and all sorts of risk can be insured against. Even so, including a crop or a risk as insurable in the annual agricultural insurance plans is conditional upon ENESA carrying out the relevant technical and financial feasibility study beforehand.

Given its particular significance, the risk of flooding was considered with the aim being that any insured production should have coverage for any damage caused, irrespective of the type of policy taken out and the geographical area. This meant including basic cover in all policies, which should come at a reasonable cost that farmers could afford. To this end, the corresponding initial feasibility study was conducted, which took into account statistical data sets from 1969 to 1997, including meteorological data, information on floods, damage recorded at municipal level and how the risk affected the various different crop types.

As is only to be expected, for flood cover to be feasible, it was necessary to apply a correct rating ensuring that the amount collected from premiums was enough to provide for the loss rate that might occur. It was essential to measure the risk level very well and to propose the basic premiums to apply. For this purpose and using the information analysed, the Peninsula was carved up into seven zones which were assigned an equivalent risk level and a benchmark rate (rates in percentage terms), as the table below shows:

Risk zone	Benchmark rate
I	0.30
II	0.35
III	0.45
IV	0.55
V	0.70
VI	0.85
VII	1.00

After measuring the risk level, the effects of the flooding/torrential rain had to be adjusted for the specific circumstances of each crop by obtaining a factor to apply to each of them. The factor calculated for each crop according to its sensitivity to flood risk was thus:

Crop	Factor
Grain legumes	0.40
Cereals	0.50
Fruit	0.80
Olives	0.80
Wine grapes	0.80
Fodder crops	1.00
Industrial crops	1.20
Citric crops	1.40
Table grapes	1.40
Vegetable and flowers	1.50

This factor, together with the zone rate, is what determines the premium that is appropriate for each crop in each district, according to types, options and products insurable, for each line of insurance. In other words, to obtain the basic premium for floods/torrential rain for each region and crop, the benchmark rate for the relevant zone (Table 1) should be multiplied by the crop factor (Table 2).

The aforementioned study brought about the Agricultural Insurance Plan for 1998, which was approved under a cabinet resolution of 28 November 1997 and included the risk of flood/torrential rain for all crops and in all lines of insurance.

With regard to the definition of the risk covered, this was done through referring to the damage occasioned, meaning that caused by downfalls triggering overflowing of rivers, sea inlets, streams, watercourses, lakes and lagoons, that originates currents which sweep away objects, river surges and spates. They must also produce certain self-evident effects in the zone where the plot of land is located (property being carried away, items being covered in mud…). The loss event must leave obvious signs of flooding on the plot of land and in its surrounding area. 

After the occurrence of the loss event has been accepted, losses are covered that relate to the waterlogging of roots, items being caked in mud, the physical impossibility of harvesting throughout the event or the 10 days afterwards and blight and diseases that appear throughout the event or within the 10 days subsequently due to the physical impossibility of applying appropriate remedies, whenever this is as a result of the loss event.

Nowadays, flood/torrential rain cover is included in all policies and covers losses not just of crops, but also of planted items due to the death of trees or seedlings. Furthermore, if the appropriate cover has been chosen, losses involving facilities are also insured (greenhouses, vine arbours, trellises and espaliers, and irrigation equipment).

The table below shows the current conditions for coverage:

		MODULE 1	MODULE 2	MODULES 3 and P
CROPS	Sum insured	100%	100%	100%
	Indemnity	Per farm	Per farm/plot of land	Per plot of land
	Deductible	20%-30%	20%	20%
PLANTATION	Sum insured	100%	100%	100%
	Indemnity	Per farm	Per farm/plot of land	Per plot of land
	Deductible	20%-30%	20%-30%	20%
FACILITIES	Sum insured	100%	100%	100%
	Indemnity	Per plot of land	Per plot of land	Per plot of land
	Deductible	Without a deductible	Without a deductible	Without a deductible

The experience acquired by the agricultural insurance system with respect to covering flood risk has shown that it is feasible and sustainable and that the insurance has worked and adjusted indemnity to actual losses in agricultural production. Particularly in recent years, there was an unbroken chain of flood/torrential rain phenomena. We experienced loss events due to cut-off lows, such as those which took place in the 2012, 2016, 2018 and 2019 seasons on the East of Spain (Levante), and phenomena involving rivers overflowing due to torrential rains at their head or exceptionally fast thawing of snow in the Pyrenees, such as the overflowing of the river Ebro in 2013, 2015 and 2018. As regards the latter, it can be seen in Figure 1 how compensation was paid in keeping with the severity of overflows, which indicates a marked upward trend.

Given these developments, premiums for flood risk have managed to bear this loss rate well. The 2019 cut-off low event which we have just suffered was of such a magnitude that, in all likelihood, it will mean a greater volume of indemnity than was associated with all previous events; yet, even in these circumstances, the insurance policy has proved to be fit for its purpose and risk cover to be adequate.

• Unusually heavy torrential rains.
• The overflowing of rivers, watercourses and streams.
• The vastness of the affected area. 
• The fact that it lasted for several days.
• Storms with hail.

The situation was exceptional in La Vega Baja del Segura, where it had been unprecedented in the past 100 years. In only a few hours, an amount of rain equal to the fall for a whole year collected, giving rise to huge flood.

The wide area flooded is of great agricultural significance, a substantial number of crops being hit there and of high economic worth besides. 

Several weeks after the cut-off low occurred, claim forms are still being received. Figure 4 shows the distribution and high concentration of losses, as well as their location by lines of insurance in the provinces of Albacete, Alicante and Murcia.

The range of symptoms of the damage caused by flood/torrential rain loss events in the agricultural sector can be broad depending on the characteristics of the loss event occurring and the crop affected.

Direct loss or damage involving crops and plantations

By way of direct loss or damage in those zones where the water has built up in large amounts and over an extended time-frame, the main symptoms for citric crops and grains were mud-covering, drying out and later defoliation of trees, and the falling of fruit which has remained in contact with the water. 

Other of the crops worst affected by the build-up of water on plots are horticultural produce due to being cultivated flush with the ground. Symptoms here include plant death, burial, covering in mud and carrying-off of fruit, as well as it becoming impossible to gather crops such as melons and watermelons, which will take weeks to get rid of all the accumulated water.

Other major symptoms observed were the dragging away of branches and other materials covered in mud, even falling over or uprooting of trees and structures due to the force of the spate. In the case of trees where branches and debris accumulated around the lower part, fruit was pierced and grazed, even carried away. Damage also occurred to structures such as vine arbours, for example, to grapes.

With the rice crop, the rains prompted seeds to germinate in the case of early varieties such as short-grain Valencia rice, which had started to be harvested.

On the other hand, with respect to the table grape crop, there was splitting of the fruit, which is known as cracking, followed by grey mould appearing (botrytis). 

In the first month after the cut-off low happened, loss claims were received in relation to 37,869 ha, although they will still arrive beyond this period, on account of, among other things, the developmental nature of damage from the loss event. Shown below is the distribution of claims received per crop:

Crop	Affected area (ha)
Citric crops	9,670
Wine grapes	9,120
Vegetables	6,368
Olives	3,114
Herbaceous plants	2,704
Table grapes	2,444
Nuts and dried fruit	1,922
Other crops	2,527
TOTAL	37,869

The worst affected areas were Alicante and Murcia, although there was also damage in inland areas in Albacete, Ciudad Real, Cuenca, Granada, Madrid and Zaragoza.  

As claim forms come in, tasks are entrusted to freelance professionals who, in suitable numbers, perform appraisal work. Final appraisal is generally carried out for crops due to be harvested imminently or where the damage is to such an extent that this prevents the crop from continuing. For other crops, such as citric fruit, an immediate inspection is made to confirm that damage exists, quantify the losses (damage by amount) as a result of the loss event and the final appraisal is postponed until close to harvesting, when the ultimate damage to holdings is specified.

It is important to point out that, in agricultural insurance, appraisals are conducted pursuant to regulated adjustment rules that are familiar to all agents participating in the insurance, which provides legal security for all the parties in the insurance contract.

The intensive use of technology which Agroseguro has made, both in receiving claims and in handling assignments, and the utilisation of computerised tools such as tablet devices by adjusters, is a huge help towards handling information from the results of appraisals almost in real time, which allows compensation to be paid out within the space of no more than 30 days from when the final appraisal is made. 

Quantification of the development of damage from a loss event of this kind becomes necessary over the weeks after it. In the case of the September 2019 cut-off low, as of mid October, the estimate stood at around 84 million euros.

This therefore concerns a loss event of exceptional magnitude that is a one-off but which has come on top of the set of claims in a year that has been characterised by, among other things, a notable lack of rain, and this with one quarter still to go in which there is a considerable volume of crops that are exposed to risk. After two years running which are among the most severe on record for agricultural insurance, it is more than likely that, once again and in view of the potency of this cut-off low, the re-insurance cover provided by the Consorcio de Compensación de Seguros will have to be activated as financial guarantor of last resort in the system. Given the potentially catastrophic nature of the risks that affect agricultural and livestock activity and, by extension, the extremely high volatility of the results, this re-insurance mechanism is the one that endows agricultural insurance with long-term stability.