Crop Insurance Payouts on the Rise Due to Climate Change
Ever notice how the weather just doesn’t seem to cooperate anymore? Scorching droughts shrivel crops, while downpours turn fields into mud baths. These weather extremes, once outliers, are becoming the norm, wreaking havoc as Canadian farm insurance companies are facing a tough reality: crop insurance payouts are skyrocketing.
Farm insurance, the financial safety net meant to protect farmers from bad weather and pests, is straining under the weight of climate change.
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Rising Costs, Rising Concerns
A recent report by the Canadian Broadcasting Corporation (CBC) highlights a concerning trend: crop insurance payouts in Canada are on the rise. Crop insurance is a financial safety net for farmers, protecting them from losses due to weather events, pests, and diseases.
However, the increasing frequency and intensity of extreme weather events linked to climate change are straining these programs.
Financial Strain in Saskatchewan
The recent Saskatchewan budget documents reveal a significant impact: a projected surplus exceeding $1 billion was completely depleted, resulting in a deficit of approximately $482 million, due primarily to unforeseen crop insurance payouts.
“We are going to see more droughts, more pests, the yields won’t be as good. For me, the question is, who should pay for that? I do foresee that the government will be solicited more and more.”
The Rising Cost of Crop Insurance Payouts
Canadian government data highlights a notable increase in crop insurance payouts over the past decade. These payouts are often triggered by extreme weather events such as droughts, floods, and heatwaves, which are becoming more frequent due to climate change.
Key Financial Impacts of Extreme Weather:
3x
Increase in crop insurance payouts in Saskatchewan between 2010 – 2020.
11%
Decrease in crop output following last year’s severe drought.
Furthermore, the financial impact of these payouts is not evenly distributed across regions. While some areas experience more frequent extreme weather events, others are hit particularly hard by specific instances.
For example, the severe drought in Saskatchewan last year led the provincial government to spend almost $1.2 billion more than budgeted through its Ministry of Agriculture to address the situation.
Wildfires, Snowpack, and Cat Claims
It is now expected that Canada’s warm winter weather may increase the frequency of wildfires in the province and surrounding areas. Snowpack, a key indicator of wildfire severity, is at a low level this year, causing concern among experts. Lower snowpack levels could lead to drier ground and an earlier start to the wildfire season.
Canadian Underwriter’s recent article on “How Canada’s winter weather predicts 2024 Cat claims” mentions that while climate change is causing Canada to warm at an alarming rate, some experts believe it could also reduce springtime flooding.
The problem is that less snowpack means the ground is generally drier and more flammable when wildfire season rolls around. And after last year’s record wildfire season, Michael Galea, Sedgwick’s senior vice president of national operations, is wary about 2024.
“On the [west] coast, we are seeing very mild and dry conditions which [could lead to] a potential earlier start to wildfire season”
-Michael Galea
Potential Solutions and Next Steps
The rise in crop insurance payouts presents a challenge for both farmers and insurance companies. Farmers face increasing financial insecurity as extreme weather events become more common. Insurance companies, on the other hand, are struggling to keep premiums affordable while managing the rising costs of payouts.
Several potential solutions can help address this challenge:
- For farmers: Review their crop insurance limits to ensure they have enough coverage to recoup losses caused by severe weather events.
- For insurance companies: Adjusting premiums based on more accurate risk assessments and modelling.
- Exploring discount options and proactive risk management advice to help offset policy rate changes.
This surge in payouts is a clear sign that climate change is affecting Canadian agriculture. Here’s where you, the farmer, come in. The off-season is a perfect time to review your crop insurance coverage.
Talk to your advisor, and make sure your policy reflects your needs. By taking charge now, you can ensure your farm is well-protected for whatever Mother Nature throws your way.
Frequently Asked Questions
Does crop insurance cover losses from pests or disease, or only weather?
Crop insurance is designed as a broad financial safety net. It provides protection for losses due to weather events (like drought, flood, and hail), as well as losses caused by pests and diseases.
Why is the government paying so much for crop insurance payouts?
The strain on government-backed programs is primarily due to the increasing frequency and intensity of extreme weather events linked to climate change. These severe events lead to larger, more widespread claims than typical weather variability, drastically increasing the unbudgeted cost to taxpayers.
What is the single most important thing a farmer can do right now to prepare?
The most critical action is to review your crop insurance limits with your advisor during the off-season. Given rising input costs and higher risk, you must ensure your policy reflects the current value of your crops to adequately recoup potential losses from severe events.
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Posted in Farm on April 19, 2024 by Hope Prost
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