1 / 12

Agricultural Risk Financing

Agricultural Risk Financing. Ramiro Iturrioz Senior Agricultural Insurance Specialist Insurance for the Poor Program The World Bank. Agricultural Insurance Symposium Antigua, June 2010. Country Agricultural Risk Management Framework. Institutional Capacity Building Data management

presley
Download Presentation

Agricultural Risk Financing

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Agricultural Risk Financing Ramiro Iturrioz Senior Agricultural Insurance Specialist Insurance for the Poor Program The World Bank Agricultural Insurance Symposium Antigua, June 2010

  2. Country Agricultural Risk Management Framework Institutional Capacity Building Data management Regulatory/supervisory framework Information and education Technical expertise Agri-Business Segmentation Social vs. commercial insurance Traditional farming sector Emerging farming sector Commercial farming sector CountryAgriculturalRisk Management Agricultural Risk Financing Risk layering Product development Institutional framework (public vs. private) Insurance and Reinsurance Agricultural Risk Assessment Risk identification Risk Quantification Probabilistic agricultural risk model

  3. Risk Financing Strategy The outputs of the risk assessment are used to define Risk Financing Strategy • Objectives: • To identify the players and their potential value added. • To identify which player can bear with which share of the risk • To identify the agricultural insurance products that are most suitable to transfer the risks

  4. Roles in Agricultural Risk Financing Farmers’ Donors Credit/Input Suppliers Governments Insurers’ Reinsurers

  5. Risk Layering is a key for a successful risk financing strategy

  6. Why government support is needed? • Market failure: non-availability of private-sector agricultural crop & livestock insurance. • Capacity constraints: of private commercial insurers, particularly for systemic risk (hurricanes,drought, flood, epidemic diseases, etc). • High costs insurance administration: for small farmers. • Affordability: Inability of farmers to afford agricultural crop & livestock insurance premiums. Constraints most applicable to Developing Countries? BUT…. The highest levels of Government Financial support to Agricultural Insurance are found in High Income Countries (N. America / Europe)

  7. What role does government play in risk financing? Objective • To stabilize their financial cash flows • To Stabilize Income in Rural Areas • To Avoid Ad-Hoc Disaster Relief Payments • To Budget Stability • To use agricultural insurance as a development tool Mechanism • Through enabling an appropriate framework for the development of agricultural insurance Roles • Provide legal and regulatory framework • Enhancing data and information • Education and Capacity building • Research and Development (Products) • Public Premium Subsidies • Catastrophic Risk Sharing / Risk Financing Issues • Potential Fiscal Constraints

  8. Examples of Government Support Mahul & Stutley ,2009

  9. Agricultural Risk Financing: Product Development • Assessment of suitability of any product also has to consider crop type, key peril exposures and localisation, data availability, farmer size, distribution channels, and delivery and loss adjustment needs • There is no agricultural insurance product better than other; they are different. • Need to develop a balanced range of products including: • Named peril damage-based products; • Explore opportunities for Area-based Yield Index Insurance (GRP) • Continue to conduct R&D and pilot projects into crop weather index products • Seek ways of scaling-up these products to reach small farmers • Seek options for aggregated index products as a means to reach small farmers • Caution against over-reliance on costly Individual Grower MPCI

  10. Models of Governments Support to Agriculture Insurance • Normally High Penetration (compulsory) • Well Diversified Portfolios • Social over Technical criteria • Monopoly. Issues with the service.. • Government assumes full liability • High Fiscal Cost LEVEL OF GOVERNMENT INTERVENITON Fully Intervened System • High Penetration • Well Diversified Portfolios • Technical over commercial criteria • Competition for service. • Government adds stability to the system • Private Sector adds know how. • Reasonable Fiscal Cost Public–Private Partnership NUMBER OF PLAYERS & PRODUCT DIVERSIFICATION • Low to moderate penetration. • Low risk diversification. • Commercial over technical criteria. • Competition for price • No fiscal cost Pure Market Based

  11. Agricultural Insurance Pool • Advantages: • Economies of scale • Reduce default risk; • System Stability • Center of technical excellence • Provides incentives to collaborate on the integrity of the program; • Ensure efficient local retention by pooling non-retainable risks; • Get optimal pricing from international reinsurers • Limit government fiscal exposure

  12. Conclusions • Underwrite agricultural insurance through Private Commercial Insurers wherever possible • Promote Private-Public Partnerships (PPPs) • Promote agricultural reinsurance through local and global international reinsurance markets • Important areas of government support: • Creation of enabling legal & regulatory framework • Education and training • Data & information enhancement and dissemination • Product design & rating (technical support) • Exercise extreme caution with agricultural insurance premium subsidies • In some circumstances, government support as a reinsurer of last resort may be justified

More Related