Traditional Insurance in Agriculture Development Dr. Erich Kasten ARC – Agriculture Reinsurance Consultants Switzerland Managing Risk in Financing Agriculture.

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Presentation transcript:

Traditional Insurance in Agriculture Development Dr. Erich Kasten ARC – Agriculture Reinsurance Consultants Switzerland Managing Risk in Financing Agriculture FAO - World Bank – AFRACA April 1-3, 2009 Johannesburg, RSA

Traditional Insurance in Agriculture Development Content Global Agriculture Insurance MarketGlobal Agriculture Insurance Market Traditional Insurance ProductsTraditional Insurance Products Operational RequirementsOperational Requirements Requirements of Farmer, Banks & InsurerRequirements of Farmer, Banks & Insurer Requirements for Agriculture DevelopmentRequirements for Agriculture Development ConclusionsConclusions

Agriculture Insurance Market Global Market estimated at USD 10 billion (2008)

Agriculture Insurance Market Traditional & Index Products Global Agriculture Insurance Market est. USD 10 billion (2008)

Traditional Insurance Products Global Agriculture Insurance Market est. USD 10 billion (2008)

Damage based Products  Fire  Hail  Hail plus Named Perils  Named Perils  Frost  Flood  Windstorm  Other perils  Fire  Hail  Hail plus Named Perils  Named Perils  Frost  Flood  Windstorm  Other perils

Yield Guarantee based Products  Multi Peril Crop Insurance (MPCI)  Individual farm based policy  Area based policy  Crop Revenue Insurance  Yield and/or  Market Price  Multi Peril Crop Insurance (MPCI)  Individual farm based policy  Area based policy  Crop Revenue Insurance  Yield and/or  Market Price

Multi Peril Crop Insurance Underwriting Requirements Multi Peril Crop Insurance Underwriting Requirements  Specialist Underwriting  Quality farm risk information  Actuarial based risk pricing  Insurance infrastructure at grass-root level  Skilled agriculture producer  Strong Government support  Premium subsidy  Extension Service  Supply of available data Complex Underwriting Process

Multi Peril Crop Insurance Common Underwriting Problems Multi Peril Crop Insurance Common Underwriting Problems  Individual farm yield guarantee  Yield data quality  Farm management assessment  Underwriting & Risk monitoring cost  Asymmetric risk information  Adverse selection  Moral hazard  High premium cost  Low market penetration  Premium subsidy required High Operating Requirements

Multi Peril Crop Insurance Only viable with strong Government support Only viable with strong Government support

Insurance Requirement - Farmer Cover Comprehensive No Exclusions Customized Transparent Handling Hassle free Convenient Limited paperwork Immediate loss payment Cost Low Premium State support Premium payment in arrears

Insurance Requirement - Bank Cover Comprehensive All Risks No Exclusions Handling Hassle free Fast Easy Cost Low admin. cost No premium contribution

Product Requirement - Insurer Cover Data based Actuarial sound Standardized Transparent Exclusions Handling Uncomplicated Fast Hassle free Low cost Cost Marketable Profitable Upfront payment

Limited aligned Interest

Holistic Insurance Approach Farmer Insurer State Support Banks

Agriculture Development Key Drivers ResourcesResources KnowledgeKnowledge Access to technologyAccess to technology Access to marketsAccess to markets InsuranceInsurance Government supportGovernment support

Most Important Key Drivers Catalyst for Development Productivity Profitability Insurance Human Resource DevelopmentHuman Resource Development SkillsSkills Advisory ServiceAdvisory Service Knowledge CapitalCapital TechnologyTechnology LandLand Resources

Holistic Agricultural Development Banks Insurer Farmer State Full cooperation is required from all stakeholder for successful & holistic agricultural development

Conclusions (1/2) Traditional Insurance in Agriculture Development  facilitates agriculture development  act’s as catalyst  has shortcomings  is expensive  requires skilled insurance operations  facilitates agriculture development  act’s as catalyst  has shortcomings  is expensive  requires skilled insurance operations

Conclusions (2/2) Traditional Insurance in Agriculture Development  Access to resources & markets vital  Education & know-how transfer central  Government support and holistic agriculture development strategy is needed for developing countries  Access to resources & markets vital  Education & know-how transfer central  Government support and holistic agriculture development strategy is needed for developing countries

Thank you for your attention Dr. Erich Kasten Agriculture Reinsurance Consultants GmbH Switzerland