Brazil's farming sector is booming, and it already accounts for almost one-third of the country's GDP. This is also why Allianz, Brazil's top insurer of farm equipment, is planning to expand its agribusiness.

57 million tons of soybean were produced in 2007, making Brazil the world number two producer and exporter . Brazil is the fifth biggest country by land mass, after Russia, Canada, the US and China, covering 8.5 million square kilometers.

A quick aerial scan over Brazil will reveal acre upon acre of farmland devoted to growing big volume crops: soybean, cotton, rice, corn, wheat, sugar cane, coffee and fruits. Add sales of agricultural equipment, chemicals, fertilizers and related agribusiness products and services and you're looking at the source of 28 per cent of Brazil's GDP. Planted forests also count as agribusiness in Brazil, as do the large amounts of meat and poultry which are produced.

With 100,000 pieces of farm machinery insured, Allianz is the top insurer of farm equipment in Brazil, having 26 percent market share, as measured by premium income. Impressive as this may sound, it's only a fraction of the potential agri-market: only a minuscule two percent of the potential market has crop insurance.

This is changing: in part due to government subsidies to support farmers in buying crop, bovine, forest and fish insurance, and in part due to better educated farmers who bring a business approach to farming and have a clearer appreciation for the risks they run.

Allianz has plans to increase its farm business – equipment, crop and property – by as much as 30 per cent this year and has a three-year strategy which will see it consolidate relationships with farm equipment dealers. In addition, it will start selling crop insurance through banks, penetrate further into new regions, and make greater inroads into rural property insurance, which it began targeting last year, gaining business from sugar processing plants – key players in the manufacture of ethanol, the fuel on which 70 per cent of cars in Brazil now run.

It will also work on cross-selling (Auto and Life) to farmers. In crop insurance business, which Allianz Brasil first ventured into in 2005, selling soybean and corn insurance, it is now fifth in this market, having added insurance for all main crops to its portfolio. Technology will play a growing role in the administration and management of farm insurance.

Eye in the sky
"We've invested in several IT enhancements to support our overall insurance business," says IT and operations director Emilio Vian Vieira. "For our farm insurance, we're in the process of running a satellite imaging pilot scheme in two of the states with the greatest concentration of farm business – São Paulo and Paraná," explains Luiz Carlos Meleiro, head of Agribusiness at Allianz Brasil. "We will run the pilot for three years. This will give us adequate time to build a mathematical model on which to build actuarial assessments." Seven-hundred and fifty farms are involved in the pilot.

Satellite imaging is used in many markets, mostly for risk management planning in flood and severe weather regions; in Brazil, it will provide factual information about what is actually happening on farms. "Brazil is a huge country, with a poor infrastructure in remote areas," explains Meleiro. "This makes it impossible for risk inspectors or loss adjustors to visit every farm to confirm which crops or trees have been planted, or to assess the damage following a fire or a storm. Having our 'eye in the sky' will allow us to get a much better picture of what we are insuring. It will also help us to monitor fraud. You do come across instances of farmers telling you crops were destroyed by rain or hail, when in fact nothing had been planted in the first place!"

Farm equipment and crop insurance is a growing business for Allianz. 52,000 new tractors were sold in Brazil in 2007 – a jump of 42 percent from 2006
Planted forest business is growing

For each crop insured, the cover may vary: for soybean, corn or wheat, which can be affected by most conditions; fire, strong wind, hail, frost and excessive rain are features of the main policy. Additional cover can be bought for flood, drought and non-germination of seeds. For sugar cane and forests, where fire is the greatest threat, fire is the primary cover, all other options are extra.

The planted forest business is growing to meet Brazil's home requirements and to fulfill an export need for pulp, furniture and charcoal. Planted forest is legitimate agribusiness, as opposed to the felling of trees in Brazil's equatorial jungles. "The farmers we insure have mortgages through banks," explains Meleiro's colleague, Marcio Martinati. "They have to show business plans: they are not likely to be involved in 'slash and burn' land clearing or the felling of tropical forest – which for the most part, takes place in the north of the country, largely outside the areas we insure."

The forest insurance claims ratio is expected to come in at under 15 percent in the coming years. The claims ratio for crop insurance was 37.6 percent in 2007 – about the industry average – and in 2008 for the summer season, which is already past in Brazil, results indicate it will be a low single-digit figure.

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