Rethinking crop insurance for a resilient agri-food system in a hotter Europe
Europe has already faced successive heatwaves this summer, demonstrating the intensified climate and nature risk landscape facing farmers – and the insufficient coverage of private and public insurance for the scale of disruption they now face. Building on a recent report with co-authors Daisy Jameson and Madeleine Tron, Wallis Greenslade argues that now is the moment for governments to build more effective insurance mechanisms that reward farmers for adopting climate adaptation measures, in the process safeguarding governments’ fiscal position.
The 2026 summer of extreme heat in Europe has illustrated the increasing frequency and severity of climate- and nature-related risks facing the agri-food system – and it is not over yet. As the Financial Times reported last week, nine million tonnes of grain production were removed from projections in the period following the June heatwave, wiping out roughly €2 billion of expected production of wheat, barley and maize, key grain crops for the region. Almost half of the grain crop damage has been in France, with potential losses there estimated at around €891 million. The heat struck during the critical growth period for wheat, drying out soils and significantly affecting the plant’s growth cycle. And as well as disrupting domestic markets, this crisis impacts countries dependent on European exports, and other sectors in the supply chain reliant on agricultural outputs as key inputs. These risks to the agri-food system carry both fiscal sustainability and food security implications that need to be higher on the economic policy agenda.
Not an isolated ‘bad season’
While it may seem an unusually difficult summer for farmers, this is part of a clear trend that our recent report, Rooted in Resilience, sought to highlight. Climate change and nature degradation are driving more frequent and severe crop losses across Europe. All of the four perils that drive 80% of European agricultural losses – drought, excess rainfall, frost and hail – are set to intensify. Without stronger adaptation of the agri-food system, average crop losses across Europe could rise by up to two-thirds by 2050. Compounding these factors right now is the developing El Niño, which is likely to deliver more record-breaking global temperatures over the coming year.
In the UK, three of the five worst harvests since detailed records began in 1984 have occurred this decade (in 2020, 2024 and 2025), as the weather has swung from delivering heavy rain that has flooded fields to parching them through record heat and drought. The poor 2025 harvest alone cost British arable farmers an estimated £828 million. One farmer commented last week to the BBC that “we might as well not bother growing things”, such was the likelihood of loss and the cost of failure. After extreme weather in 2025, another said that “as a crop farmer, it’s getting to the point with climate change where I can’t take the risk of investing in a new crop of wheat or barley because the return on that investment is just so uncertain”.
Cascading impacts beyond the farm gate
When crop yields fail across a state or wider geographical region, risks to the crop sector can translate into risk to the macroeconomy through several channels, our research finds. Food-price inflation affects the lowest-income households the most; disrupted supply chains impact a range of downstream industries; weaker trade balances affect export strength; and the pressure on rural lending and the insurers that underpin it reflects the challenges at the core of the insurance-banking nexus. Food-price shocks are also persistent; household inflation expectations are more sensitive to food prices than to any other component, energy-price shocks included, making them relevant not only to agricultural ministries, but to finance ministries and central banks too.
The fiscal implications of shocks to the agri-food system are no less important. In the EU, 70–80% of climate-related crop losses are uninsured. Without insurance to serve as a financial buffer, farmers are left acutely vulnerable to extreme weather events, and large-scale or persistent losses can become a regional or national policy issue. The bloc’s agricultural sector is already losing over €28 billion a year to extreme weather. When an underinsured sector with deep cultural and political significance is hit by disaster, governments often step in as insurers of last resort, as France did in 2022–2023 with €500 million in drought aid, and as Ireland did in 2023 after catastrophic rainfall. These interventions are rarely budgeted on governments’ balance sheets, creating undue fiscal pressure from unbudgeted and unplanned expenditure. They form instead something called implicit contingent liabilities: potential fiscal obligations that governments do not formally acknowledge, with limited actuarial planning underpinning them.
This kind of government intervention can also generate risks through moral hazard, whereby farmers may expect public support in the event of a disaster and therefore may not adequately protect themselves through crop insurance. As climate and nature risks intensify and private insurers are less willing to underwrite the most exposed areas and the riskiest risks, governments playing this role of ‘insurer of last resort’ becomes a growing threat to fiscal sustainability, in times of already high fiscal constraints. While this issue is increasingly being explored for property underinsurance, the role of crop underinsurance as a potential origin for macroeconomic risk remains overlooked.
Crop insurance as one tool for responding to this changing risk landscape
The logic of insurance can shift risk off public balance sheets, spread exposure across geographies and portfolios, and provide farmers with a financial buffer to rebuild after a shock rather than waiting on potential discretionary state aid, our research finds. Insurance, reimagined, can go further still. It can build in adaptive resilience measures to reduce on-farm and community-level risk to reduce the price of insurance premiums and promote greater uptake of crop insurance as an adaptive mechanism for farmers.
However, current crop insurance models do not do this, with most European crop insurance being applicable only to a single peril, leaving farmers exposed to hazards unnamed within their policy. Insurance premiums in the EU are heavily subsidised through Common Agricultural Policy funds, which addresses the symptom of unaffordability but dampens the risk signal that would otherwise be incentivising farmers to adapt, and insurers to reward those who do. In the UK, low crop insurance uptake leaves many farmers vulnerable to shocks, without the financial capacity to respond after a climate- or nature-related disaster.
This summer has shown us that increasing insurance coverage for arable farmers is only part of the policy response needed. The problem is not only that too few crops are insured, but that crop insurance as currently designed does not address the underlying risk. Crop insurance might provide financial support to farmers after a shock, but it does not reduce overall climate- and nature- driven yield decreases.
But if intentionally designed to encourage adaptation to climate change and nature degradation, insurance can be considered a useful tool in the adaptation toolkit. That means moving beyond a reactive indemnity model towards one where underwriting actively incentivises resilience: where farms that can demonstrate adaptation measures such as cover cropping, improved drainage and drought-resistant varieties are able to see that reflected in their premiums. Finance ministries, supervisors and the insurance industry will need to collectively build a standardised framework for recognising and pricing on-farm adaptation, alongside continued public investment in the climate change mitigation and adaptation measures that reduce the underlying risk in the first place.
Crop insurance cannot prevent a heatwave, nor does insurance substitute for an urgent reduction in greenhouse gas emissions, or public investment in adaptation. But it can play a part in supporting the transition for farmers and shifting some of the risk off governments’ balance sheets when their budgets are already strained. When designed with adaptation in mind, crop insurance can form an important part of agri-food system resilience and deliver wider spillover benefits to economic security.
For the EU, the upcoming decisions about the post-2027 Common Agricultural Policy are a clear opportunity to embed this thinking. For the UK, ongoing reforms of agricultural policy and a limited crop insurance market create an opportunity to design insurance that rewards adaptation and places resilience, not just risk transfer, at the centre of the agri-food system.
The author would like to thank co-authors Daisy Jameson and Madeleine Tron for their input, and Maria Waaifoort for her review of this work.