HISTORY AND INNOVATION IN AGRICULTURE INSURANCE WORLDWIDE: PART II

The overview of agricultural insurance in selected developed and developing economies.

Although there are two kinds of products are offered in the German insurance market: the crop hail insurance and the livestock insurance. Crop hail insurance has a long history in Germany. This product was first introduced in 1733 and is mainly marketed by mutual insurance companies and cooperatives. Sixty percent of the total crop area in the country is insured against hail. Cattle insurance was introduced in Germany in1830. Many mutual insurers have commercialized livestock insurance since the eighteenth century. Multi-peril crop insurance(MPCI) is also offered in Germany but is still undeveloped, mainly due to strict underwriting conditions. In Germany, crop insurance is underwritten by mutual insurance companies, private insurance companies, and public insurance companies. The competition for crop insurance products on the German market is very active with about fourteen insurance companies offering hail crop insurance and only one offering MPCI. Moreover, livestock insurance is very important in Germany. There are two of insurance for this product line which is a private-public fund covering animal losses due to epidemic diseases. The second type is the product provided by the private insurance companies, which offers insurance against production interruption due to accidents, fire, epidemic diseases, and movement restrictions, among others. Hail insurance is the most popular crop insurance product. Crops covered are: all arable crops plus vineyards, fruits plantations, and vegetables. Animal losses due to epidemic diseases and obligatory slaughter as well as culling and rendering costs in general are covered by the Animal Disease Fund. Livestock revenue insurance is available in Germany and widely accepted by the farmers. More than 50% of the farmers in Germany have a policy against consequential losses for animal diseases like foot and mouth disease and cow diseases. The Federal government of Germany does not want to subsidize the agricultural insurance program as it would require annual funding. The primary reason cited is that the state already contributes funds to cover for especially during severe crises when payments can be made for damages from floods and droughts without entailing high administrative costs. Accordingly the state is willing to support equally all sectors of the economy and the farmers should be responsible for their crops. The state further stressed out that the insurance products in the market can provide effective protection against major natural perils so there is no need in creating a special subsidized insurance program.

In New Zealand, Livestock insurance started in 1970s while crop insurance started expanding significantly after 1981, although it existed for cereal crops prior to that date. Four private sector insurers and one mutual insurer offer both crop and livestock insurance. One private company offers only livestock insurance. New Zealand has no public sector insurance. The Lloyd’s of London is also licensed as a direct insurer and offers equine and livestock insurance through three facilities. Forestry insurance is also offered. The private sector reinsurance is well developed in New Zealand and perhaps it in this reason that there is no form of public support for agricultural insurance in New Zealand. So there are no premium subsidies on agricultural insurance in New Zealand. Moreover, hail insurance is being offered and insurance policies are also being developed for different fruits and vegetables. Livestock insurance that covers accident and mortality is also offered in this country. Other important insurance program includes; forestry and aquaculture.

Crop insurance was first introduced in Sweden in1928 and livestock insurance in 1890. In 1952, Sweden introduced the first area-yield index crop insurance scheme, but this was subsequently terminated. The crop insurance program in Sweden started in1961 and was compulsory. Insurance premier are paid as levies on farm deliveries and the Swedish government provided a subsidy of more than double the farmers’ contribution. During the 1960’s, many farmers were not satisfied with the crop insurance programs, albeit having a loss ratio of 1.78, primarily because individual farmers’ losses are not always indemnified. During the 1961 to 1987 period, agricultural insurance was supervised by the government and was mandatory for farms with more than two hectares. Government crop insurance covered large losses, and the average deductible was15.5 percent. The system was abolished in 1987 and was replaced by a disaster aid program in case of total crop loss. The disaster aid program was administered by the Federation of Swedish Farmers. This system was abolished in 1994. Currently, agricultural production is regarded as any other sector of the national economy. The governmental risk management framework in Sweden has moved towards less government involvement. Assistance tools for agriculture in Sweden are limited to disaster relief, and this includes few regulated measures and some adhoc assistance. Today, agricultural crop and livestock insurance is provided by three private mutual insurance companies. The agricultural insurance market is dominated by Lansforsakringar with its subsidiary company Agria. Its market share is estimated at 80%-85%. The other insurance company Dina underwrites approximately 10%-15% of the agricultural insurance market. Both insurers have regional insurance subdivisions (companies) working in close cooperation within their conglomerates. The delivery channels for agriculture insurance are the producer and coop associations. It can also be said that there is high penetration rate of between 60-80 percent among farmers and is voluntary in nature. Agriculture reinsurance is done by the private players and thus no form of government support exists.