The Spanish Agricultural Insurance System
Agroseguro is responsible for the management of agricultural insurance in the name and on behalf of insurance companies that are part of the co-insurance pool. It is not, therefore, an insurance company, but a management entity.
Following that objective, its main activities include managing and processing insurance policies, issuance and collection of receipts to and from policyholders, as well as receiving claim statements from insured parties and carrying out adjustment procedures, assessment and payment of claims on behalf of the co-insurers.
It is based on private contracts in which one party - the insurer - agrees to cover certain risks which the other party - the insured - wishes to protect, by paying a price established by the insurer according to the characteristics of this activity. The producer receives a (State and Regional) subsidy to pay that price.
Regarding subsidies for agricultural insurance premiums, it is important to note that these subsidies are given to each producer to underwrite their insurance policy. In order to make the system more efficient and the process more agile, Agroseguro manages the subsidy on behalf of the producer. Therefore, the producer only pays his part of the premium after deducting the subsidy; Agroseguro then applies for the remaining amount needed to complete the total cost of the insurance from the State (ENESA) and the Autonomous Regions.
The main institutions that comprise the agricultural insurance structure in Spain are:
- On the public side:
- The State, through the National Agency for Agricultural Insurance (ENESA, from the Ministry of Agriculture, Fisheries and Food), the General Directorate for Insurance and Pension Funds (DGSFP) and the Insurance Compensation Consortium (CCS), both from the Ministry of Economic Affairs and Digital Transformation.
- The Autonomous Community’s regional government, which supplements the subsidies to agricultural insurance.
- On the private side:
- Professional Agricultural Organizations, which represent agricultural and livestock producers.
- Insurance companies, which are grouped together in AGROSEGURO.
Currently, agricultural, livestock, forestry and aquaculture production are covered against most of the climate risks that may affect them. Insurable productions and covers are set, annually, in the Agricultural Insurance Annual Plan elaborated by ENESA and approved by the Council of Ministers.
This system is considered as an international benchmark in the field of agricultural insurance, both for the public-private partnership model and for its wide covers and development.
Background and origin of the current agricultural insurance system
The severe weather events in Spain were the catalyst for the creation of agricultural insurance and its subsequent development. Since the beginning of the 20th Century until the 50s, there were many attempts to implement some kind of system to protect agricultural farms: insurance companies that covered fire damages, benefit societies and mutual insurance companies insuring livestock production or some foreign capital companies that offered insurance cover against hail. Many of these projects started with the aim of offer covers against all agricultural risks, but they always ended up focusing in the most common: Hail, fire and livestock mortality.
In 1919, the National Mutual Insurance Company for Agriculture was created with the ambitious goal of covering all risks, but consequently it ended up focusing exclusively on hail. However, the Government was obliged to come to its aid only two years later as the claims that this Society was responsible for were much higher than the premiums paid. In 1929, the Society became the Commissioner’s office of Rural Insurance, which in turn became the Agricultural Insurance Service in 1930, which in reality acted as a Reinsurance and Compensation Fund.
In 1934, the Agricultural Insurance Service became the National Rural Insurance Service. This entity operated until 1953, offering reinsurance cover to private insurance companies that insured against hail, fire and livestock mortality.
Unfortunately, this Organization carried a permanent deficit, given the impossibility of balancing insurance premiums with indemnities paid for claims, which depleted its reserves and forced it to request access to special credits.
This situation led to the enactment of the 1953 Rural Insurance Law, which entrusted agricultural insurance to private initiative. The Insurance Compensation Consortium Law was subsequently approved in 1954. Thereafter an increasingly popular need began to grow for comprehensive agricultural insurance capable of covering multiple risks.
However, it would not be until the 1970s that national agricultural insurance underwent another significant change. The agricultural campaigns of 1973 and 1974 were at the origin of the creation of a Cereal Pool (A Pool of Co-insurers for National Cereal Insurance) which grouped together the insurance companies in order to manage combined insurance and which also offered fire and hail cover for cereals.
Years from 1977 to 1979 were crucial for setting up the current Agricultural Insurance System. The so-called Moncloa Pacts, approved on the 27th October 1977, included an agreement to present an Agricultural Insurance Law to the Congress of Deputies. The new legal text would replace the 1953 and, finally, in December 1978, Law 87/1978 on Agricultural Insurance was approved. Almost a year later, in September 1979, the Royal Decree No. 2329/1979 was pushed through, approving the implementation of the Law.
The new Law led to the creation of a series of institutions that, in addition to other important stakeholders, have contributed unique value and important stability to the Spanish Agricultural Insurance System.