Progress on agriculture insurance scheme - CGM Gallagher conducting study
Published: Wednesday | December 10, 2008
Matthew Pragnell, chief executive officer of CGM Gallagher, the firm hired to do a prefeasibility study on setting up a national agriculture insurance scheme. - File
Jamaica, backed by World Bank funding, has hired the CGM Gallagher group to conduct a study on whether it is financially feasible to provide insurance coverage for the agriculture sector pummelled by four years of unforgiving storms.
CGM Gallagher which is being paid US$80,000 - approximately J$6.3 million - for the job, was contracted by the Ministry of Agriculture in October and is to wrap up the study in February, says Deigo Arias Carballo, task manager for the study at World Bank.
The results will inform the design of a parametric model that would determine the level of coverage required for Jamaican farms.
Long overdue reaction
"This is a long overdue reaction to the problem that the agriculture sector faces from natural disasters," said Matthew Pragnell, chief executive officer of CGM Gallagher.
"The study will propose the initial framework for managing the cap coverage provided to farmers."
The insurance company won the bid over Otscorp, the only other company of four that put in a serious bid after initial expressions of interest from six companies.
The other four were Finanicere Agricole du Quebec of Canada, Pasco Corporation of Canada, Assurance Brokers Jamaica Limited and RMSI Limited.
CGM, prior to its takeover by Gallagher, was the company that designed the operational model now used by the World Bank-sponsored Caribbean Catastrophe Insurance Risk Facility, which offers coverage to 16 member countries for major hurricanes and earthquakes.
The company that now manages CCRIF, CaribRM, is a subsidiary of CGM Gallagher.
The regional insurance scheme covers public infrastructure but does not compensate for damage to industries or sectors.
There are 16 participating Caribbean countries to the facility. CCRIF's mandate is to provide liquidity support for member governments to assist with their recovery from disasters without derailing fiscal targets.
Jamaica last year, after being hit by four hurricanes or storms three years in succession - decimating the banana sector, uprooting coffee and damaging other crops and infrastructure - ramped up its lobbying at the World Bank for specialised insurance to assist coffee and banana farmers, for example, put their fields back into production after a disaster.
This year, agriculture suffered another $1.6 billion of losses when Gustav hit in August.
These sectors now are dependent on government assistance to recover from major one-off events.
CCRIF is not involved in the agriculture insurance study, and it is yet to be determined whether it will have a role to play in the roll-out of the new scheme, said Marsha Smith, communications manager at CGM Gallagher.
"... It is hoped that parametric insurance products will be developed for farmers in Jamaica and then the wider Caribbean," said Smith. "Parametric policies would need to have a primary underwriter either in the state or private sector, but CCRIF would be able to assist in the onward transfer of risk to the international markets at best cost."
The agriculture insurance project is being funded by the World Bank for US$100,000 to US$150,000 - prefeasibility study included, said Carballo.
The prefeasibility work to be done covers four areas: risk mapping, market research, weather and agricultural data quality assessment and access as well as distribution channels and required government expenditure.
Risk mapping entails the identification of specific regions and the level of exposure to a catastrophe, and determination of loss curves linked to the frequency of events - whether a catastrophe is likely to occur one in five, or a one in 10 year event.
Data are being drawn from the Ministry of Agriculture, National Water Commission, Water Resources Authority, and meteorological services, both locally and internationally.
The market research will determine the size of farms, technology employed, the areas that storms tend to impact, and the types of farms, whether commercial or subsistence, livestock or crops.
"A parametric product will provide a quicker response time for farmers, and allow them to restore their land very quickly," said Pragnell.
"We will identify historical and current institutional and physical distribution channels in order to determine the best way to design and distribute post-disaster relief to the agricultural sector."
The agriculture insurance facility will likely mimic the model used by CCRIF, and likely replace what he called "semi-autonomous coverage" offered by different agencies, for example, the banana and coffee boards.
"Like CCRIF we want to provide something that is robust for the agriculture sector," he said.
Not a takeover
THE EDITOR Sir:
Just a note about the CGM Gallagher deal that was mentioned in the story 'Progress on agriculture insurance scheme' published December 10, 2008. Late last year, US-based Arthur J. Gallagher acquired a significant minority interest in the CGM Group (38.5%). The majority of the Group is still owned by regional interests: ICD & Partners and senior management (61.5%). So in truth we were not ‘taken over’ by Gallagher.
Group Communications Executive
CGM Gallagher Group