role of governments in agricultural insurance ramiro iturrioz insurance for the poor the world bank...
Post on 12-Jan-2016
220 Views
Preview:
TRANSCRIPT
Role of Governments in Agricultural Insurance
Ramiro IturriozInsurance for the PoorThe World Bank
October, 2010
1
Contents
Overview of the Agricultural Insurance Market
Government expenditures in agricultural insurance
Characterization of agricultural insurance systems
Rationale for Government intervention in agricultural insurance
Why Government support to agricultural insurance is needed?
Potential roles of the Government in providing support to agricultural insurance
Agricultural Insurance Premium subsidies
Government involvement in agricultural risk financing
Lessons and Conclusions
2
Agricultural Insurance Overview (2009)
3
Aus & NZ, US$ 112 Mio (0.6%)
Asia, US$ 3.,800 Mio (19,7%)
Europe, US$ 3,900 Mio (20.1%)
Africa, US$ 55MM(0,3%)
LAC, US$ 721 Mio (3.5%)
USA & Canada, US$ 10,700 Mio (55,6%)
Agricultural Insurance Premiums: Geographic Distribution
Premiums : US$ 19.4 billons (estimated)
USA , China, and Canada: 66% of the premium volume
BRIC countries are gaining importance (US$ 3. billons)
MPCI is the most agricultural insurance product
Government expenditures in agricultural insurance
4
USA & Canada: US$ 7,800 Mio (73% of the total Agricultural Insurance Premiums)
LAC: US$ 260 Mio (36% of the total Agricultural Insurance Premiums)
Asia: US$ 1,800 Mio (50% of the total Agricultural Insurance Premiums)
Europe: US$ 1,500 Mio (37% of the total Agricultural Insurance Premiums)
Africa: US$ 1 Mio (3% of the total Agricultural Insurance Premiums)
Australia & NZ: US$ 0 Mio (0% of the total Agricultural Insurance Premiums)
In average, the estimated public sector expenditures in agricultural insurance (US$ 11.5 billions) accounting for 59% of the total
premiums written worldwide in 2009
Estimated Government Expenditures in Agricultural Insurance: Geographic Distribution
Characterization of agricultural insurance systems
5
Pure Market Based
Pure Market Based
Public Sector based
Public Sector based
High Insurance penetration levelsWell Diversified PortfoliosSocial criteria prevails over Technical criteriaMonopolies. Several issues with the service..Government assumes full liability (not reinsured)High Fiscal Cost
High Insurance penetration levelsWell Diversified PortfoliosTechnical criteria over commercial criteriaThe competition is for service.Government adds stability to the systemPrivate Sector adds know how.Reasonable Fiscal Cost
Low to moderate penetration.Low risk diversification.Commercial prevails over technical criteria.
The competition is for priceNo fiscal cost
Public Private-Partnership is a suitable market model for agricultural insurance
Rationale for Government intervention in agricultural insurance
6
Rationale for
GovernmentIntervention
in agricultural insurance
Why government support to agricultural insurance is needed?
7
Why government support to
agricultural insurance is
needed?
The above Constraints are most applicable to Developing Countries?
BUT…. The highest levels of Government Financial support to Agricultural Insurance are found in High Income Countries (North America and Europe)
Potential roles of the Government in providing support to agricultural insurance
8
Potential Government
rolesin
supporting agricultural insurance
Government support to agricultural insurance in key countries
9
Agricultural insurance premium subsidies
10
Usual Justificatio
n for premium subsidies
HOWEVER,
Premium subsidies are not necessarily a pre-condition for high agricultural insurance penetration rates
Even in heavily subsidized markets it may take many years to achieve high levels of agricultural insurance uptake
That currently nearly all Public Private Partnership crop insurance schemes are dependent on premium subsidies to cover their claims costs
Agricultural insurance premium subsidies
Premium subsidies are the most widely practiced form of government support to agricultural insurance
WTO legislation exempts (permits) premium subsidies
BUT,
Premium subsidies can create moral hazard,
Premium subsidies can promote agriculture in unsuitable (marginal) areas,
Premium subsidies can benefit larger farmers disproportionately,
Premium subsidies can create huge financial costs to society (e.g. USA/Europe)
Few developing countries could afford to fund high level of subsidisation of premiums
Government funding can be better used in:
Developing agricultural risk management infrastructure (enhancing data & information, training & education, R&D)
Catastrophe Risk Financing / acting as a reinsurer of last resort
11
Government involvement in agricultural risk financing
• Wherever possible promote private sector insurance and reinsurance
Certain levels of catastrophic loss (e.g. drought, flood, hurricane) will not be possible to insure / reinsure without government help
Government involvement in catastrophe risk financing (reinsurance) represents an ex-ante planned activity
Government catastrophe reinsurance is a more effective way of using limited financial resources than premium subsidies
12
Retained on farm
Return Period
20-30 years
3-5 years
Government catastrophe reinsurance
Insurance or funding
Insurance and Reinsurance
5-7 years
Ind
ep
en
den
t ri
skIn
term
ed
iate
ris
kC
ata
stro
ph
ic r
isk
Risk Layering
Government involvement in agricultural risk financing
• United States — A special public/private reinsurance agreement (Standard Reinsurance Agreement) with global reinsurance participation
• South Korea— Government provide a crop insurance loss cap for the insurance and reinsurance industry for loss ratios above 200%
• India — AIC, a national public agricultural insurance company that is jointly reinsured by central and state governments
• Brazil — Individual companies can contract stop loss reinsurance from “Fundo de Catastrofe” (managed by IRB) + global reinsurance + public sector
• Portugal — Private commercial insurers can purchase government Stop Loss Treaty protection under SIPAC + global reinsurance.
• Spain — An agricultural insurance pool (Agroseguro) protected by a national reinsurance insurance company (Consorcio de Compensaçion de Seguros) + involvement of global reinsurers
• Mexico — A national public reinsurance company (Agroasemex) providing voluntary reinsurance to private agricultural insurers + global reinsurers
• Canada — Government insurance which is shared between provincial and central governments with some global reinsurance participation
13
Key lessons and Conclusions on Government support to agricultural insurance
• 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
14
top related