CLIMATE PROTECTION GAP: METHODOLOGICAL TOOLBOX FOR THE AGRIBUSINESS

Climate change represents a relatively new risk compared with other traditional insurance and financial risks. Nevertheless, it gained priority in the agendas of governments, public institutions, and private stakeholders. Climate change mainly involves two kinds of risks: the physical and the transitional risks. The former determines effects directly from climate change due to the physical impact of increasing severity and frequency of extreme climate change-related weather events, and the latter effects arising from the change to a carbon-neutral economy, to meet the objectives of the Paris Climate Agreement. The main features of climate-related risks rely on the long-term nature of the related events, being the impact likely structural, irreversible, and non-linear (European Insurance and Occupational Pensions Authority [EIOPA], 2022). They affect the insurability of risks, impacting on affordability and availability of financial and insurance products, also determining the protection gap. Typically protection gaps are areas in which societal risks are not covered by the insurance industry, either because of lack of penetration, or because the risks are uninsurable in profit-oriented markets. In this chapter, we support the early identification of protection gaps and the development of shared resilience solutions between the insurance industry and public protection facilities, by setting out methodological toolboxes in the agribusiness context. Agriculture both contributes to climate change and is affected by climate change. Crops need suitable soil, water, sunlight, and heat to grow. Warmer air temperatures have already affected the length of the growing season over large parts of Europe. Flowering and harvest dates for cereal crops are now happening several days earlier in the season. These changes are expected to continue in many regions. In general, agriculture and forestry are highly exposed to the impact of rising global temperatures: increased fluctuations in seasonality disrupt farming cycles, while substantial challenges arise from changing rainfall patterns and extreme weather events, such as heat waves, droughts, storms, and floods. In other terms, agriculture has a key passive and active role in climate change and resilience against adverse climate events can start from this important sector. The insurance industry can pilot climate resilience solutions, by providing parametric insurance bundled with loan contracts can reduce also credit rationing in this sector (Biffis et al., 2022). The chapter aims to set out a methodological tool-box for supporting the insurance industry in developing contractual solutions for adverse climate events, in the agribusiness field. The toolbox is based on the copula approach for describing the dependence between yields in agribusiness and bioclimatic indicator trends.