Agriculture Sector Risk Management

Background And Purpose

In October 2021, the Society of Actuaries Research Institute (SOA) formally launched its Catastrophe & Climate Strategic Research Program, building on several years of research on climate-related risk, including four principal launch projects and a series of research papers on environmental risk. In 2022, the SOA would like to extend this research in various ways, including further investigation into the implications of climate change on agriculture.

Climate change is having an increasing effect on agriculture through more severe droughts, floods and heatwaves. Agricultural yields may be adversely affected, and the continued viability of traditional crop and livestock husbandry has been brought into question. Inasmuch as climate-related crop loss distributions are shifting, historical data may be of less relevance today than in the past. Hence, there is a need for fresh risk management thinking, in the context of the impact of climate on agriculture.

Research Objective

The SOA Catastrophe & Climate Strategic Research Program Steering Committee (CCPSC) is seeking researchers to examine the financial effect of climate change on the agriculture sector. The research project’s objective is to identify new approaches to agricultural risk management that include a demonstrable actuarial component.

For the purpose of this research project, the agriculture sector comprises its entire value chain: the production of agricultural commodities, their processing into retail foodstuffs, and eventual distribution to consumers. Analyzing the sector’s risk exposures and identifying emerging perils may prompt the need for new types of data or new uses of data. It may also be necessary to develop new ways of assessing climate risks and designing tools, processes, and systems to effectively respond to such risks.

The principal focus of the research is anticipated to be the American and/or Canadian agriculture sectors, although perspectives on agriculture sectors elsewhere in the world may also be considered.

The following are examples of possible topics:

• Crop Insurance – New crop insurance methodologies or product designs that incorporate a more prospective outlook, and consequently have less dependence on historical claims experience, could be a possible topic. For example, an innovative approach to risk rating could be part of a new crop insurance premium setting methodology.
• Systemic Risks – Addressing the systemic risks that climate change poses to the agriculture sector is also a possible topic. Systemic risks have the potential to spread within or translate across inter-related food production systems, resulting in widespread and potentially catastrophic consequences. For example, the retail food shortages associated with the Covid-19 pandemic (although admittedly not climate-related) illustrate the apparent fragility of agriculture sector logistics.
• Changes in Food Production Capacity – Climate change will likely alter food production capacity around the world. Certain regions will be capable of harvesting products that were not previously possible, while other areas will have to abandon products that are no longer cultivatable. For example, rising sea levels could flood land and render it unproductive due to salt contamination. On the other hand, the adoption of higher-value agricultural products could offer new risks and opportunities.

Note that the above list is not meant to be exhaustive, but merely to offer examples of topics that may be researched. Other proposed topics within the scope of the Research Objective will be reviewed with interest.

Proposal

To facilitate the evaluation of proposals, the following information should be submitted:

1. Please limit proposals to 5 pages (exclusive of resumes and citations).
2. Resumes of the researcher(s), including any graduate student(s) expected to participate, indicating how their background, education and experience bear on their qualifications to undertake the research. If more than one researcher is involved, a single individual should be designated as the lead researcher and primary contact. The person submitting the proposal must be authorized to speak on behalf of all the researchers as well as for the firm or institution on whose behalf the proposal is submitted.
3. An outline of the approach to be used (e.g. literature search, model, etc.), emphasizing issues that require special consideration. Details should be given regarding the techniques to be used, collateral material to be consulted, and possible limitations of the analysis.
4. A description of the expected deliverables and any supporting data, tools or other resources.
5. Cost estimates for the research, including computer time, salaries, report preparation, material costs, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor.
6. A schedule for completion of the research, identifying key dates or time frames for research completion and report submissions. The CCPSC is interested in completing this project in a timely manner. Suggestions in the proposal for ensuring timely delivery, such as fee adjustments, are encouraged.
7. Other related factors that give evidence of a proposer's capabilities to perform in a superior fashion should be detailed.

Selection Process

The CCPSC will appoint a Project Oversight Group (POG) to oversee the project. The CCPSC is responsible for recommending the proposal to be funded. Input from other knowledgeable individuals also may be sought, but the CCPSC will make the final recommendation, subject to SOA leadership approval. The SOA's Research Project Manager will provide staff actuarial support.

Questions

Any questions regarding this RFP should be directed to Rob Montgomery, SOA Research Project Manager (phone: +1-740-258-2977; email: rmontgomery@soa.org

Notification Of Intent To Submit Proposal

If you intend to submit a proposal, please e-mail written notification as soon as practical to Erika Schulty.

Submission Of Proposal

Please e-mail a copy of the proposal to Erika Schulty.

Proposals must be received no later than March 31, 2022. It is anticipated that all proposers will be informed of the status of their proposal by the end of April 2022.

Note: Proposals are considered confidential and proprietary.

Conditions

The selection of a proposal is conditioned upon and not considered final until a Letter of Agreement is executed by both the SOA and the researcher.

The SOA reserves the right to not award a contract for this research. Reasons for not awarding a contract could include, but are not limited to, a lack of acceptable proposals or a finding that insufficient funds are available. The SOA also reserves the right to redirect the project as is deemed advisable.

The SOA plans to hold the copyright to the research and to publish the results with appropriate credit given to the researcher(s).

The SOA may choose to seek public exposure or media attention for the research. By submitting a proposal, you agree to cooperate with the SOA in publicizing or promoting the research and responding to media requests.

The SOA may also choose to market and promote the research to members, candidates and other interested parties. You agree to perform promotional communication requested by the SOA which may include, but is not limited to, leading a webcast on the research, presenting the research at an SOA meeting, and/or writing an article on the research for an SOA newsletter.