Traditional Insurance in Agriculture Development Dr. Erich Kasten ARC – Agriculture Reinsurance...

Traditional Insurance inTraditional Insurance inAgriculture DevelopmentAgriculture Development

Dr. Erich KastenDr. Erich Kasten

ARC – Agriculture Reinsurance ConsultantsARC – Agriculture Reinsurance Consultants

SwitzerlandSwitzerland

Managing Risk in Financing AgricultureManaging Risk in Financing AgricultureFAO - World Bank – AFRACA FAO - World Bank – AFRACA

April 1-3, 2009 Johannesburg, RSAApril 1-3, 2009 Johannesburg, RSA

Traditional Insurance in Agriculture Traditional Insurance in Agriculture DevelopmentDevelopment

Agriculture Insurance MarketAgriculture Insurance Market

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

Agriculture Insurance MarketAgriculture Insurance Market Traditional & Index ProductsTraditional & Index Products

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

Traditional Insurance ProductsTraditional Insurance Products

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

Damage based ProductsDamage based Products

Fire Fire HailHail

Hail plus Named PerilsHail plus Named Perils

Named PerilsNamed Perils FrostFrost FloodFlood WindstormWindstorm Other perilsOther perils

Yield Guarantee based ProductsYield Guarantee based Products

Multi Peril Crop Insurance (MPCI)Multi Peril Crop Insurance (MPCI) Individual farm based policyIndividual farm based policy Area based policyArea based policy

Crop Revenue InsuranceCrop Revenue Insurance Yield and/orYield and/or Market PriceMarket Price

Multi Peril Crop InsuranceMulti Peril Crop Insurance Underwriting RequirementsUnderwriting 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 ProcessComplex Underwriting Process

Multi Peril Crop InsuranceMulti Peril Crop InsuranceCommon Underwriting ProblemsCommon Underwriting Problems

Individual farm yield guaranteeIndividual farm yield guarantee Yield data qualityYield data quality Farm management assessmentFarm management assessment Underwriting & Risk monitoring costUnderwriting & Risk monitoring cost

Asymmetric risk informationAsymmetric risk information Adverse selectionAdverse selection Moral hazardMoral hazard

High premium costHigh premium cost Low market penetrationLow market penetration Premium subsidy requiredPremium subsidy required

High Operating Requirements High Operating Requirements

Multi Peril Crop InsuranceMulti Peril Crop Insurance

Only viable with strongOnly viable with strong

Government supportGovernment support

Insurance Requirement - Insurance Requirement - FarmerFarmer

Insurance Requirement - Insurance Requirement - BankBank

Product Requirement - Product Requirement - InsurerInsurer

Limited aligned InterestLimited aligned Interest

Holistic Insurance Approach Holistic Insurance Approach

Agriculture DevelopmentAgriculture Development

Most Important Key DriversMost Important Key Drivers

Holistic Agricultural DevelopmentHolistic Agricultural Development

Full cooperation isFull cooperation isrequired from all required from all stakeholder forstakeholder forsuccessful & holistic successful & holistic agricultural development agricultural development

ConclusionsConclusions (1/2)(1/2)

Traditional Insurance Traditional Insurance in Agriculture Developmentin Agriculture Development

facilitates agriculture developmentfacilitates agriculture development act’s as catalystact’s as catalyst has shortcomingshas shortcomings is expensiveis expensive requires skilled insurance operationsrequires skilled insurance operations

Conclusions Conclusions (2/2)(2/2)Traditional Insurance in Traditional Insurance in Agriculture DevelopmentAgriculture Development

Access to resources & markets vitalAccess to resources & markets vital Education & know-how transfer centralEducation & know-how transfer central

Government support and holistic Government support and holistic agriculture development strategy is agriculture development strategy is needed for developing countriesneeded for developing countries

Thank youThank youfor your attentionfor your attention

Dr. Erich KastenDr. Erich Kasten

Agriculture Reinsurance Consultants GmbHAgriculture Reinsurance Consultants GmbHSwitzerlandSwitzerland

dr.e.kasten@bluewin.ch