 I'm Salve TurboBonus, an associate professor at the University of Sydney, and I'm here to talk today about drought insurance. Now Australia is a farming country, but you can't have farms without insurance. Australian farmers are able to insure everyday risks like hail and fire in the private marketplace, but they can't buy drought insurance at any price, and the reason is that private insurers simply don't offer it. Now in the United States where I'm from, the federal government has stepped in and for 80 years has been offering drought insurance to farmers at a reasonable price they can afford, and the government supports that marketplace over the long term to insure the long term viability of American farming. In Australia, the government has left that to the private sector, and there's just a big gap where the market should be. And the reason is simple. Private insurers rely on diversification, and drought can't be diversified. There are two reasons for that. First is the high correlation of drought across the entire continent. If you've got drought, chances are your neighbor's got drought, chances are your competitor a thousand miles away another state has drought at the same time. As a result, insurers can't offset losses in one area with premiums from another area. Now even in a terrible fire season, like the one we've just come through, most farmers were unaffected by fires, that is most people were not making claims under fire insurance, even in a devastating fire season. Same thing with hail. There might be a massive hail storm, but only a small fraction of farmers are affected. When there's a drought, it affects everyone, and thus private insurers can't balance those who are paying premiums against those who are taking out claims. It can only be done at a broad international level. So you do have reinsurance markets for drought, where international reinsurers will pick up national drought coverage, but you don't have that primary level of insurance at the national level for drought. Now there's a second reason why private insurers avoid the drought market, which is a long time horizon. It's not just that you'll be paying out to every farmer in the country, so you might be paying out for 10 or 12 or 15 years in a row, and private insurers just can't operate on that kind of timescale. Every government can say that, well, we'll pay out for 15 years, but then we'll collect premiums for 70 years to make up for it. That is, government can take a long-term approach that private insurers simply can't.