Agricultural insurance

There are numerous reasons why risk transfer out of developing countries is important. Natural disasters impede the development process, push households into poverty, and drain fiscal resources of developing countries. Many of these natural disasters are directly tied to extreme weather events. Bad weather events have devastating impacts on agriculture and consequently on all those who depend on agriculture for a living. Despite this strong link between weather, the livelihoods of the poor, and development, there is a void in effective ex ante solutions for weather risks in developing countries.

Farmers around the world utilize various risk coping and risk management strategies. However, many of these strategies are inefficient. The two major challenges which obstruct the development of risk transfer markets for agricultural losses caused by extreme weather events are: 1) organizing ex ante financing for highly correlated losses that result in extremely large financial exposure; and, 2) high transaction costs due to asymmetric information problems such as moral hazard and adverse selection. The latter also makes it nearly impossible to provide traditional agricultural insurance for small farmers given large fixed transaction costs.

Governments are seeking ways to address these problems and new conceptual models are being developed to facilitate the transfer of extreme weather risk out of developing countries.

Library Resources

resource title type year resource
Experimental Identification of Asymmetric Information: Evidence on Crop Insurance in the Philippines Paper 2018

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Asymmetric information imposes costs on a wide range of markets and may explain why some important markets, such as most agricultural insurance markets, have failed to develop. It is hard to empirically identify the different dimensions of asymmetric information but doing so is crucial for improving efficiency and solving market failures. In this paper  asymmetric information in crop insurance in the Philippines using a randomized field experiment. Using a combination of preference elicitation, a two-level randomized allocation of insurance and detailed data collection, tested for adverse selection, moral hazard and their interaction – that is, selection on anticipated moral hazard behavior. Findings shows that farmers behave very strategically and the data shows strong evidence of both adverse selection and moral hazard. Moral hazard is greater among those who report high trust in the insurance company. Direct tests of selection on moral hazard are inconclusive but findings shows that farmers prefer insurance on plots far from their home, an indirect indication that this effect is present. In conclusion information asymmetry problems are large and complex in this context and that they will be hard to overcome in a way that allows a self sustaining market.

Author Snaebjorn Gunnsteinsson
Number of Pages 69 pp.
Primary Language English (en)
Region / Country Asia
Philippines
Keywords Insurance, adverse selection, Moral Hazard, selection on moral hazard, information asymmetries, selective trials, Crop Insurance, experiment, Philippines, Agriculture
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Facing Risk. Options and challenges in ensuring that climate/disaster risk finance and insurance deliver for poor people Paper 2018

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Disasters resulting from natural hazards are becoming more frequent and more harmful. They push an estimated 26 million people into extreme poverty each year. They also drive increasing inequality, as poor people are hit hardest and find it far harder to recover than wealthier people. For all these reasons, the goal of reducing the impact of disasters on poor people is absolutely vital. This report asks if and how the international investment on climate/disaster risk financing (CDRF) and climate/disaster insurance (not other forms of insurance such as health or life cover) can contribute to this.

In 2015, the G7 agreed a target to provide climate risk insurance for 400 million more poor and vulnerable people in developing countries by 2020, and this has now developed into the InsuResilience Global Partnership (IGP). In less than three years, $715m has been raised, the vast majority of it to support insurance schemes.

Our rapidly warming world suggests a focus is required on proven solutions. There is still, however, relatively little empirical evidence that insurance is effective in supporting poor people in the face of disasters. Well over 100 disaster insurance schemes targeting lowincome populations have been set up around the world,4 yet remarkably few evaluations have considered their impact.5 It could well be argued that the InsuResilience target on quantity – without an equally clear focus on quality – is premature.

Author Debbie Hillier
Publisher Oxfam International
Number of Pages 52 pp.
Primary Language English (en)
Region / Country Global
Keywords Climate Insurance, Agriculture Insurance
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Protecting growing prosperity: Agricultural insurance in the developing world Report 2018

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In the past ten years, the field of smallholder finance has grown in both size and complexity. As new players and products have entered the market around the world, there is an ever-present need to understand the many innovative business models and product classes that are developing to support smallholder farmers in their quest for economic advancement.

One of these emerging product classes is agricultural insurance in developing nations. Historically, smallholders have had limited access to risk-management options, but increasingly, formalized agricultural insurance is offering them a chance to avoid devastating financial losses and securely invest in their own productive capacity. This report focuses on the current status and future development of agricultural insurance for smallholder farmers around the world.

Different countries and regions have had vastly divergent experiences and approaches to developing this crucial suite of formal risk-management products. With the support of the Syngenta Foundation for Sustainable Agriculture, ISF is committed to shining light on this emerging marketplace. 

This research focused on micro- and meso-level crop and livestock insurance schemes that address ‘occasional events with large economic impact’ on smallholder farmers in Latin America, sub-Saharan Africa, and South and Southeast Asia. We begin by providing a snapshot of the market’s existing scale and dynamics, then move to a discussion of key market constraints and 'leverage points' that can support the development of agricultural insurance for smallholder farmers around the world. The hope is that future action by donors, practitioners, governments, and consumers can be informed by the experiences and insights of the market pioneers.

Insuring against droughts: Evidence on agricultural intensification and index insurance demand from a randomized evaluation in rural Bangladesh Paper 2017

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It is widely acknowledged that unmitigated risks provide a disincentive for otherwise optimal investments in modern farm inputs. Index insurance provides a means for managing risk without the burdens of asymmetric information and high transaction costs that plague traditional indemnity-based crop insurance programs. Yet many index insurance programs that have been piloted around the world have met with rather limited success, so the potential for insurance to foster more intensive agricultural production has yet to be realized. This study assesses both the demand for and the effectiveness of an innovative index insurance product designed to help smallholder farmers in Bangladesh manage risk to crop yields and the increased production costs associated with drought. Villages were randomized into either an insurance treatment or a comparison group, and discounts and rebates were randomly allocated across treatment villages to encourage insurance take-up and to allow for the estimation of the price elasticity of insurance demand. Among those offered insurance, we find insurance demand to be moderately price elastic, with discounts significantly more successful in stimulating demand than rebates. Farmers who are highly risk averse or sensitive to basis risk prefer a rebate to a discount, suggesting that the rebate may partially offset some of the implicit costs associated with insurance contract nonperformance. Having insurance yields both ex ante risk management effects and ex post income effects on agricultural input use. The risk management effects lead to increased expenditures on inputs during the aman rice-growing season, including expenditures for risky inputs such as fertilizers, as well as those for irrigation and pesticides. The income effects lead to increased seed expenditures during the boro rice-growing season, which may signal insured farmers’ higher rates of seed replacement, which broadens their access to technological improvements embodied in newer seeds as well as enhancing the genetic purity of cultivated seeds.

Author Hill, R. V.; Kumar, N. et al.
Publisher The International Food Policy Research Institute (IFPRI)
Washington, DC
Number of Pages 40 pp.
Primary Language English (en)
Region / Country Global, Asia
Bangladesh
Keywords Index Insurance, Insurance, Risk Management
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Risk modeling for appraising named peril index insurance products: a guide for practitioners Paper 2017 English (en)

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Index insurance is commonly perceived to be complicated and difficult to evaluate. This is one reason index insurance products have not yet achieved high penetration in developing countries, despite their clear potential to improve the risk management options for vulnerable populations. This guide attempts to close the knowledge gap to grow this important market and provide protection to more low-income customers. A central goal of this guide is to promote clear communication of the features of products developed to facilitate informed decision making by new and existing buyers of index-based insurance products, insurers, reinsurers, regulators charged with approving new products, and other affected stakeholders. As such, it supports actuaries and other professionals involved in designing and pricing index-based insurance products in following the principles outlined in the Actuaries’ Code of the Institute and Faculty of Actuaries, United Kingdom. This book is arranged as follows: (i) Part one of this guide provides a summary of the insights and decisions required for the insurer to make an informed decision to launch and expand an index insurance business line; and (ii) Part two of this guide provides a step-by-step guide to calculating the decision metrics used by the insurance manager in part 1

Risk modeling for appraising named peril index insurance products : a guide for practitioners  -  English (en)

Bundling to Make Agriculture Insurance Work Paper 2017

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Bundling agriculture insurance with other services like credit and better farm inputs is fast emerging as a possible solution to help agriculture insurance to achieve better social outcomes, make insurance more tangible and enable schemes to scale faster. 

There is evidence that states that access to agricultural insurance leads to significantly larger agricultural investment and riskier, yet more rewarding, production choices in agriculture. However, insurance as a standalone product may not be sufficient to overcome the binding constraints of farmers. Hence, bundling provides more value for all the players in the value chain. 

This paper considers the entire value chain for smallholder farming in the market of focus in order to better understand how value alignment can be achieved. It aims to understand not only how bundling should make sustainable business sense for each stakeholder but also how to offer real client value to smallholder farmers, while being accessible and affordable. The paper provides details on the generic value chain, which forms the basis for the specific value chain discussed later in the cases. It then draws key insights from four cases in India, Kenya and Zambia.

When and How Should Agricultural Insurance be Subsidized? Issues and Good Practices Report 2017

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This study explores the reasons why governments and donors subsidize agricultural insurance and asks the following questions: is this a worthwhile way to spend public money, and if insurance must be subsidized are there smarter ways of doing it that can achieve the same objectives, but at lower cost, and which avoid some of the economic and institutional pitfalls that have plagued subsidized agricultural insurance in the past. The paper is structured as follows: after the introduction, the next section reviews existing types and levels of subsidies for agricultural insurance, both globally and for the developing world. Section three reviews the various arguments that have been offered for subsidizing agricultural insurance, while section four discusses some of the key challenges that have arisen when insurance subsidies are poorly designed. Section five seeks to balance the benefits and costs of subsidized agricultural insurance, and asks whether this has proven to be a worthwhile way of spending public funds. Section six presents a set of guiding principles and best practices to be used in their design and implementation. Finally, the last section concludes and provides general recommendations and guidelines.

Author Hazell, P., Varangis, P., Sberro-Kessler, R.
Publisher International Labour Organization (“ILO”) and International Finance Corporation (“IFC”)
Number of Pages 60 pp.
Primary Language English (en)
Region / Country Global
Keywords Agriculture, Agricultural Insurance
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How agricultural insurance can improve food security – and why regulation matters Technical Note 2016 English (en)

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These notes make the case for agricultural insurance in the context of food security, explaining some of the challenges and options in regulating innovative index-based insurance approaches. Unfavorable weather events cause heavy losses to farmers every year and contribute to rural poverty. However, key barriers still need to be addressed and most products are still in pilot stage. An area that has not received much attention yet is the essential role that regulation and supervision plays in supporting and enabling wider access to index-based agricultural insurance products. The paper provides an overview of the benefits of agricultural insurance, explains why regulation matters and highlights some of the challenges faced by supervisors when seeking to regulate index-based agricultural insurance.

How agricultural insurance can improve food security – and why regulation matters  -  English (en)

Innovations and Emerging Trends in Aricultural Insurance Report 2016

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The GIZ new report explores the trends in agricultural insurance and public relief as risk management tools in rural areas of developing countries. It then takes a closer look at the challenges in scaling up index-based insurance, linked to the demand form farmers, the design of indexes, the distribution of the insurance products, and the changing climate, among other. The authors then go on to propose solutions to the challenges in scaling up index insurance.

Agricultural Insurance – How can we make insurance work for food security Conference Proceedings 2015

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The Final Conference Report from the Agricultural Insurance Conference held in Berlin in November 2014 on the topic “Agricultural Insurance – How can we make insurance work for food security?” summarizes in detail the informative presentations and rich expert discussions during the event, which highlight how agricultural insurance contributes to food security:: it can reinforce various efforts to increase food production and food security. 

Author Federal Ministry für Economic Cooperation and Development (BMZ)
Publisher Federal Ministry für Economic Cooperation and Development (BMZ)
Berlin, Germany
Number of Pages 24 pp.
Primary Language English (en)
Region / Country Global
Keywords Agricultural Insurance, Risk Management
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The Emergence and Development of Agriculture Insurance Paper 2014 English (en) French (fr)

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This paper produced by the Microinsurance Network's Agriculture Insurance Working Group traces the origins of agriculture insurance and provides an overview of products, the current agricultural microinsurance landscape and its relevance to development, environmental issues and disaster relief. The paper also focuses on the debates, value and challenges of index-based insurance schemes, as well as:

-Case studies from Brazil, Morocco, Senegal and China

-Overview of the different players in microinsurance and their roles

- Strategies used by farmers to manage risks

Document  -  English (en)

Document  -  French (fr)

Agricultural Livelihoods and Crop Insurance in India Report 2013

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This report has been prepared in the framework of the study project “Identifying feasible concepts for enhancing rural. Insurance services and literacy in India”, which has been funded by the Ministry for Economic Cooperation and Development(BMZ), Federal Republic of Germany, and has been supported by the Department of Financial Services, Ministry of Finance, Government of India. The report is an input for the preparation of a new development cooperation project “Risk Reduction through Rural Insurance Services”.

Challenges and Lessons Learned in implementing a sustainable agricultural insurance system Presentation 2013 English (en)

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This is the presentation on "Challenges and Lessons Learned in implementing a sustainable agricultural insurance system" by Susan Gille, Agricultural Insurance Advisor, GIZ Ghana

The case of Ghana | Innovative Insurance Products  -  English (en)

Background Paper on the Situation of Agricultural Insurance in Kenya with Reference to International Best Practices Paper 2013

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In the document it is mentioned that the agricultural sector presents two opportunities for Microinsurers:

a)    An opportunity to develop Microinsurance products to cover agricultural risk.

b)    Use of agricultural value chains to distribute not only agricultural insurance but also other relevant life, health asset products.

The policy paper is aimed at improving the regulatory framework for (micro-) insurance providers only. Agricultural insurance is a very complex issue which touches not only upon regulatory issues of insurance providers, but rather requires a coordinated effort by all relevant actors in the agricultural and insurance sectors. The policy paper, therefore, provides a useful regulatory framework for micro-insurance in general, but a more dedicated policy for agricultural insurance is needed additionally.

This background paper provides an overview of the areas which require further analysis during the development of the Situational Analysis and the National Agricultural Insurance Policy.

Author Jan Kerer
Publisher Adaptation to Climate Change and Insurance (ACCI), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) & Ministry of Agriculture (MoA)
Number of Pages 76 pp.
Primary Language English (en)
Region / Country Global, Africa
Kenya
Keywords Agricultural Insurance
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Agricultural Insurance Training - Manual and Lesson Plans Training Guide 2012

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The trainings conducted with this manual are intended to introduce smallholder farmers to the concept of farming as a business and in particular focus on how farmers can mitigate the risks that are associated with farming. Like any other business, the farmer needs to know what is required to get started, how the business will be conducted, risks that could make him lose his investment and how much he is expecting at the end of the growing season.

This manual will discuss index based agricultural insurance [the most appropriate agricultural insurance for smallholder farmers] as a tool for development which can help farmers protect their investment. Index insurance can play an important role in protecting productive assets thereby encouraging small holder farmers to pursue riskier but potentially more profitable farming strategies.

The training manual consists of six (6) modules: Module 1 provides guidance for trainers on how to prepare for the training. Module 2 to 5 takes the trainees through a process of appreciating the importance of understanding farming as business, risks involved in farming, risk transfer mechanisms, weather index insurance, the process of purchasing the products and basic consumer protection issues. Module 6 provides some exercises aimed at strengthening the farmers’ understanding of what is covered under Module 2 to 5.

Author Adaptation to Climate Change and Insurance (ACCI), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) & Ministry of Agriculture (MoA)
Publisher Adaptation to Climate Change and Insurance (ACCI), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) & Ministry of Agriculture (MoA)
Number of Pages 73 pp.
Primary Language English (en)
Region / Country Global
Keywords Agricultural Insurance, Training Guide, Training Materials, Training Methodology
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Los seguros agropecuarios en las Américas: un instrumento para la gestión del riesgo Document 2012 English (en)

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Este documento, brindado por Alasa (Asociación Latino Americana para el desarrollo del Seguro Agropecuario) y IICA (Instituto Interamericano de Cooperación para la Agricultura), recoge las principales normativas relacionadas con la gestión del riesgo y los seguros agrícolas en América Latina, además de las instituciones con competencia en el tema y los sistemas de información que nutren la labor de esas instituciones. El objetivo es ofrecer una caracterización conceptual de los riesgos a los que está expuesta la agricultura, y de los seguros agropecuarios como uno de los instrumentos que contribuyen a amortiguar los efectos negativos causados por las adversidades climáticas.

Los seguros agropecuarios en las Américas  -  English (en)

Author Hatch, D.; Núñez, M.; Vila, F.; Stephenson, K.
Publisher Instituto Interamericano de Cooperación para la Agricultura (IICA)
San José, Costa Rica
Number of Pages 108 pp.
Primary Language French (fr)
Region / Country Global, Americas, Central America, Caribbean, South America
Keywords Seguros agropecuarios
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Weather Index Insurance For Agriculture: Guidance for Development Practitioners Paper 2011 English (en)

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The following paper is a distillation of the findings of the work undertaken by the World Bank. It is deliberately not a collation of case studies, but rather a practical overview of the subject. The purpose of this paper is to introduce task managers and development professionals, who are not insurance sector specialists, to weather index insurance. The paper seeks to place this relatively new insurance product in a broader context of agricultural risk management and more specifically within the context of agricultural insurance. Ultimately, the paper seeks to take the reader through the main decision points that would lead to a decision to embark upon a weather index insurance pilot and then assists them to understand the technical procedures and requirements that are involved with it. In addition, the paper seeks to advise the reader of the practical challenges and implications that are involved with a pilot of this nature and what they might expect to encounter during the initial stages of implementation.

Weather Index Insurance  -  English (en)

Agricultural Insurance in Asia and the Pacific Region Paper 2011 English (en)

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Asia and the Pacific region has one of the highest exposures of any region in the world to natural hazards. Weather-related risks, particularly hurricanes, flooding and drought, are a frequent occurrence and affect crop yields, livelihoods and assets, and the personal safety of vulnerable groups across the region. The frequency with which these disasters occur often taxes the ability of such groups to rebound quickly, increasing their risk of hunger and malnutrition. Low-cost agricultural insurance schemes are increasingly viewed as mechanisms for providing social protection to the increasing numbers of people affected by such risks and in helping to lessen the impacts they suffer owing to such shocks. This publication is based largely on the outcome of a study commissioned by FAO to provide a comprehensive up-to-date review and assessment of different models of agricultural insurance provision in Asia and the Pacific region, together with guidelines and recommendations for policy-makers seeking to introduce agricultural insurance programmes. The information is presented in a comprehensive but easy-to-read format that allows direct comparisons to be made between countries. The document also provides valuable insights into the sustainable implementation of insurance programmes in the region.

Agricultural Insurance in Asia and the Pacific Region  -  English (en)

Author FAO
Publisher Food and Agriculture Organization of the United Nations (FAO)
Number of Pages 226 pp.
Primary Language English (en)
Region / Country Global, Asia, Central Asia, Eastern Asia, South-eastern Asia, Southern Asia, Western Asia, Oceania, Australia and New Zealand, Melanesia, Micronesian Region, Polynesia
Keywords Agricultural Insurance
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Government Support to Agricultural Insurance – challenges and options for developing countries Book 2010

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Based on a unique review of agricultural insurance programs in 65 advanced and emerging countries, this book pulls together collective knowledge and experiences to help policy makers promote sound agricultural insurance programs. It provides policy makers with a current picture of the spectrum of institutional frameworks and experiences with agricultural insurance, ranging from countries in which the public sector provides no support to those in which governments heavily subsidize agricultural insurance.

This book makes a compelling case for public-private partnerships in the promotion of agricultural insurance, supported by the donor community and international financial institutions like the World Bank. It provides a systemic approach to making agricultural insurance markets more stable, efficient, and accessible.

Agricultural Insurance Document 2009

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Agricultural production faces a myriad of risks. Nevertheless, two major risks are of concern to the agricultural sector—price risk caused by potential volatility in prices and production risk resulting from uncertainty about the levels of production that primary producers can achieve from their current activities. It is likely that these major risks will increase in the future—price risk due to liberalization of trade and production risk caused by the effects of climate change. The trend towards agricultural specialization is likely to continue which will increase these risks as producers rely on the production of a smaller range of crops and consequently cannot diversify risks as effectively.

Agricultural risks not only affect farmers, they also affect the whole agribusiness value chain. Each of the participants along the supply chain, from the suppliers of inputs to the end consumer, are subject to these risks. As the interconnections between the participants in the value chain are becoming more close and complex, the possibilities of adverse events being transmitted between participants are increasing.

Agricultural risk management relies on an optimal combination of technical and financial tools. Agricultural value chain participants can use several tools, whenever they are available, to deal with these multiple sources of agricultural risk. Agricultural value chain participants may avoid risk; for instance, by choosing not to select a particular crop or crops which they consider of high risk for the area in which their farms are located. They may also mitigate risks; they may seek to lessen the risk through, for example, planting crops only in very favourable conditions or developing further their infrastructure to improve irrigation or minimize the effects of frost. Lastly, they may transfer all or part of the risks to a third party through an insurance contract. Of course, they may mitigate the financial effects of these risks by creating emergency reserves from profits in good years—a form of self-insurance.

This primer is concerned exclusively with the use of agricultural insurance by firms in the agribusiness value chain to manage their risks. The primer defines what is meant by agricultural insurance, gives an overview of the market and explains the challenges of this type of insurance. Further, it discusses the range of agricultural insurance products and their practical application in the sector. It concludes with a description of the reinsurance market for agricultural insurance and an overview of public sector participation.

Agricultural Insurance Feasibility Study for Nepal Report 2009

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This work aims to provide an overall framework for the development of sustainable market-based agricultural insurance for small and marginal farmers in Nepal. It relies on the following components:

  • Review of agricultural insurance in Nepal. While the formal insurance sector does not offer agricultural insurance products, some entities are involved in providing insurance protection, which is usually linked directly to their credit operations.
  • Agricultural risk assessment. A formal crop and livestock risk assessment is performed. It is intended to assist policy makers and insurance practitioners in the planning, design and rating of crop and livestock insurance. This assessment is essential in developing technically and financially sound agricultural insurance products.
  • Agricultural product development. An analysis of suitable agricultural insurance products is conducted, for both crops and livestock. It identifies products that could be developed and piloted in a second phase.
  • Operational issues for agricultural insurance. Operational challenges for the development of agricultural insurance are discussed, including underwriting, distribution, and loss assessment.
  • Institutional challenges. The emergence of a sustainable market-based agricultural insurance program entails support from the government in creating an economic and legal environment that attracts private insurers and provides farmers with the incentives to engage in risk-financing strategies. It includes, among others, the development of risk market infrastructure, such as efficient data collection and management systems, appropriate regulatory and legal framework, effective information and education programs, and the development of local technical expertise.
Agricultural Insurance in India Problems and Prospects Paper 2008

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This present study looks at the genesis of agricultural insurance in India, examines various agricultural insurance schemes launched in the country from time to time and the coverage provided by them. Major issues and problems faced in implementing agricultural insurance in the country are discussed in detail.

OBJECTIVES OF THE STUDY

  • To estimate price / yield risk involved in different crops at national level and at disaggregate level
  • To examine the performance of the existing and earlier national agricultural insurance schemes implemented in India
  • To discuss and explore the problems and prospects of agriculture insurance in the country
  • To look into the role of government in implementing various agricultural insurance schemes
  • To suggest effective agriculture insurance programme in India

The report is organized as follows. Literature on agriculture insurance is reviewed in Chapter 2 and sources of data and method used in the study are described in Chapter 3. Risk involved in agriculture production is discussed in Chapter 4. Fifth chapter presents progress and performance of various agriculture insurance schemes launched from time to time. It also includes discussion on private sector participation in agriculture insurance. Sixth Chapter discusses various issues related to agricultural insurance in India and also suggests changes in working of various schemes to make them more effective and to increase their scope and coverage. Ground level experience of agriculture insurance based on micro level investigations in Andhra Pradesh is presented in Chapter 7. Global picture of agriculture insurance is discussed in Chapter 8. Conclusions and policy suggestions are presented in the last Chapter.

Agricultural Microinsurance: Global Practices and Prospects Book 2008

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This book has been written for people who would like to know how agricultural insurance could play a role in improving the livelihoods of the rural poor. It will be useful for development agents such as donors, development banks and development workers in NGOs, co-operatives, credit unions and microfinance institutions (MFIs). It is written for a reader who has no prior knowledge of insurance.

The first chapter introduces the principles of insurance. The second chapter presents four agricultural microinsurance case studies – three case studies, India, Burkina Faso and Vietnam, are examples of livestock insurance and fourth case study looks at an index insurance scheme in the Ukraine. The third chapter summarizes a comprehensive literature survey to establish what kinds of agricultural microinsurance products exist worldwide, and how they function. The fourth and final chapter discusses whether, given all the challenges, agricultural microinsurance can play a role in improving the livelihoods of the rural poor. The chapter concludes by looking at what kinds of microinsurance interventions are most likely to succeed in improving rural livelihoods.

China: Innovations in Agricultural Insurance: Promoting Access to Agricultural Report 2007

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The report explains why agricultural insurance is expensive to deliver to small farm households in china. This backdrop, coupled with the detailed risk assessment in four provinces, leads to a key finding that China should put more resources in developing products that are more suited to an agricultural economy that is dominated by small farm households. In particular, named-peril and index-based crop insurance products could be developed for less cost than MPCI products. The report discusses the important role of government in supporting the legal and regulatory environment, access to data for new product development, risk sharing, and broader education of all stakeholders about the benefits of agricultural insurance. It also explains why this form of subsidy could provide improved incentives versus a direct subsidy for farmer premium.

Innovative agricultural insurance products and schemes Paper 2007

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There has been a considerable revival of interest in agricultural insurance recently. Reasons for this include:

  1. An increasing incidence of crop-damaging weather events of extreme severity, exacerbated by global warming and increased specialization and market integration.
  2. Increasing commercialisation of farming, with greater levels of financial investment. As a part of this commercialization trend, greater use is now being made of contract farming arrangements, where insurance is one of many services provided to growers, along with inputs.
  3. The WTO regulations which exempt governments from subsidy reduction commitments as far as assistance to agricultural insurance is concerned.
  4. The availability of new insurance products. To reflect the dynamism of the farming sector and its environment, some new insurance products have been introduced in the last decade, such as crop revenue products and index or derivative products.
  5. Accidental introduction of exotic pests/diseases. This affects all countries where agriculture is an important part of the economy. Insurance can help to address risk of a breakdown of protection measures.
  6. Expanded quality and food safety concerns for farm products and increasing environmental protection requirements, such as stricter rules for use of fertilizers, herbicides and medicines for animals. These trends increase production risk.
  7. Liberalization of agricultural trade. This can be expected to lead to price volatility and to greater exposure of farmers to competitive market forces and income instability.

In light of this renewed interest in and demand for agricultural insurance, this paper first reviews how agricultural insurance products have evolved and then examines innovative products which have recently been developed and how they have been applied in practice. Chapter II reviews the evolution of traditional products of agricultural insurance, mainly insurance against yield risk and their inherent problems. Chapters III then examines a range of insurance products and schemes that have been developed in the past decade and gives examples of their application. Chapter IV provides details of a number of alternatives to insurance which farmers may use and Chapter V includes a summary and policy recommendations.

One major conclusion is that encouraging insurance mechanisms is preferable to ad hoc disaster aid. Disaster aid has counterproductive effects since it encourages farmers to neglect their responsibility for managing their own business risk. It tends to encourage production in marginal situations by indiscriminately covering crop losses, e.g. in fragile, arid countryside or flood-prone wetlands. In contrast, crop insurance actively reduces risk exposure by promoting public and private risk management.

Author Myong Goo KANG
Publisher Food and Agriculture Organization of the United Nations (FAO)
Number of Pages 64 pp.
Primary Language English (en)
Region / Country Global
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Agricultural Insurance in Mesoamerica: an opportunity to deepen rural financial markets Paper 2006

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This study analyses the opportunities and challenges presented by agricultural insurance instruments in the deepening of financial services in rural areas in Mesoamerica. It presents a public policy framework to guide the decision making process of public support and interventions. The focus is primarily on the role of insurance to financially manage (and transfer) agricultural production risks that are too large for self-insurance to cover, yet not catastrophic to the point that government and international disaster aid would be necessary.

Conclusion is that, in order to support the competitiveness of the agricultural sector in the light of increasing trade liberalization and natural hazard risks, agricultural insurance should be at the forefront of the set of financial instruments to be developed.

Agricultural Insurance Revisited: New Developments and Perspectives in Latin America and the Caribbean Paper 2005

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The introduction to this paper states that agricultural insurance is emerging as a topic of interest to farmers, policy makers, insurance companies, and development finance institutions in Latin America and the Caribbean after a long hiatus – with agricultural insurance being more widespread in Latin America and other developing regions of the world during the 1960s and 1970s. During the intervening period, financial difficulties encountered meant most of the programs were either scaled back or completely closed.

This paper focuses on production risk management, explaining key concepts, understanding why crop insurance markets have been slow to develop, and making recommendations about how to build sustainable markets in developing country contexts.

The challenge, noted in the paper, is to overcome obstacles and deliver efficient and sustainable agricultural insurance products. The principle obstacles highlighted and discussed in the paper are lack of quality information, inadequate regulatory frameworks, weak supervision, lack of actuarial expertise, lack of professional expertise in designing and monitoring agricultural insurance products, a mass of low-income, dispersed clients, who may not be willing or able to pay actuarially sound premiums for multiple peril products, and the tendency of governments to undermine market development through inappropriate use of subsidies and disaster relief funds.

Case studies on Uruguay, the Dominican Republic, and Peru are used to show how crop insurance products are evolving and/or what government-supported initiatives are under the way to expand coverage. Recommendations of how to build markets step-by-step and the importance of applying new technology to lower costs are also made.

The author states that the purpose of this paper is to provide Bank staff interested in agricultural yield insurance market development, public officials responsible for financial market policy formulation and supervision, and insurance industry practitioners in Latin America and the Caribbean with a basic primer on the topic, an overview of previous experiences, and a set of guidelines and recommendations on how to develop viable and sustainable agricultural yield insurance markets.

Agricultural Insurance in Latin America: Were Are We? Paper 2003

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This resource appears in: Agricultural insurance

This paper reviews the weaknesses of traditional crop insurance programs and highlights new developments, especially as they regard Latin America, that hold promise of making agricultural insurance more accessible, more efficient, and more sustainable.

The paper explains that traditional multiple peril agricultural insurance products, both in developed and developing countries have been plagued with incentive problems (moral hazard and adverse selection), high administrative costs, and political interference in price setting. However, the best case of innovation, in the developing world seems to be Mexico. The principal lesson learned from the experience of developed countries, is not to replicate their expensive systems, rather to use their extensive knowledge in designing and implementing insurance programs that avoid the classic obstacles to an efficient delivery of agricultural insurance.

Agro Insurance Website English (en)

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This resource appears in: Agricultural insurance
agroinsurance.com  -  English (en)

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