ASEANDISASTERRISKFINANCING &INSURANCEFORUM

ASEANDISASTERRISKFINANCING&INSURANCEFORUM
Session1

AgriculturalInsurance
LauraBoudreau Analyst,DisasterRiskFinancingandInsurance,TheWorldBank November8 10,2011 November 8 10, 2011 Jakarta,Indonesia

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

Agriculturalinsurance(AI)
Overview:Developcosteffective,sustainable andaffordableagriculturalinsuranceprograms forfarmers,herders,andagriculturalfinancing institutions Primarybeneficiaries:Farmers,herders,rural financeinstitutions,cooperatives

Agricultural Insurance

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

Agriculturalsectorisparticularlyexposedto adversenaturalevents
Agricultureisanimportantsocioeconomicsector inASEANCountries
Greaterthan2/3populationisruralinCambodia,Lao PDR,Myanmar,andVietNam; SignificantcontributiontoGDPinmanyASEAN Countries.

GDP growth in agriculture is 2X as effective in GDPgrowthinagricultureis2Xaseffectivein reducingpovertyasnonagriculturalGDPgrowth Agriculturalproducersarehighlyexposedto Agricultural producers are highly exposed to weatherrisks,pests,anddisease

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

BenefitsofdevelopingAImarkets
Agricultural Producers Government Insurance Market
Increaseagriculturalproductivity(e.g.,help farmersaccessagriculturalcredit) Provideincentivesforimprovementofproduction methods

Reducecontingentliabilitytonaturaldisasters Increaseagriculturalproductivity

PPPsolutionscanaddressmarketfailuresinthe provisionofagriculturalinsurance

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

Agriculturalsectorisunderservicedbyinsurers inmanydevelopingcountries

Agriculturalinsuranceiscurrentlyavailablein5 ASEANcountries:
Indonesia,Malaysia,Philippines,Thailand,VietNam

Source:Mahul&Stutley 2010.

Most developed ASEAN markets are Philippines MostdevelopedASEANmarketsarePhilippines andThailand(<2%ricecropinsured)

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

AIisclassifiedaseitherindemnitybasedor indexbased
IndemnitybasedInsurance:Losses assessedatindividualagricultural producer level producerlevel. IndexbasedInsurance:Losses assessedusingmeasureofanindex assumed to proxy actual losses. assumedtoproxyactuallosses.

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

Interestinindexinsurancehasgrowninrecentyears
Welldevelopedaggregateindexinsurancemarketsinsomecountries p p g g p Parametricindexinsurancepilotshaveprovedchallengingtoscaleup
KeyAdvantagesofIndexInsurance
Objectiveandtransparent(mitigates moral hazardandadverseselection issues) W th i d i Weatherindex insuranceprovides id timelypayout Reducesadministrativecosts Facilitatesaccesstointernational reinsurance

KeyDisadvantagesofIndex Insurance
Basisrisk thepotentialmismatch betweenlossesandpayouts Weatherindexcoverageprovidessingle riskprotection p Aggregate indexcoveragecanhave delayedclaimspayment Highinputsrequiredduring developmentphase p p Requireslocaladaptation slowsscaling up

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

PublicsectoractivelysupportsAI
Mostcommonformofinterventionispremiumsubsidies, f f b d providedin63%ofcountries In 2009, public sector expenditures in AI(US$ 11.5 billion) In2009,publicsectorexpendituresinAI(US$11.5billion) accountedfor59%ofthetotalpremiumswrittenworldwide
EstimatedGovernmentExpendituresinAgriculturalInsurance:GeographicDistribution
Europe:US$1,500Mio (37%oftotalAIPremiums) Asia:US$1,800Mio (50%oftotalAIPremiums) (50% of total AI Premiums)

USA&Canada:US$7,800Mio (73%oftotalAIPremiums)

Africa:US$1Mio (3%oftotalAIPremiums) LAC:US$260Mio (36%oftotalAIPremiums) Australia&NZ:US$0Mio Australia & NZ: US$ 0 Mio (0%oftotalAIPremiums)

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

AIhelpsmanageresidualproductionrisksthat cannotbemitigated.

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

IndiasNationalAgriculturalInsuranceScheme(NAIS)
Worldslargestcropinsuranceschemebynumberoffarmers insured; Areayieldbasedindexprogram(NAIS)inplacesince1999
Indemnitypayoutbasedonthedifferencebetweenthethresholdyield andtheactualyieldmeasuredintheinsuranceunit(e.g.,block) and the actual yield measured in the insurance unit (e.g., block) Allfarmersinagiveninsuranceunitreceivedthesamerateofindemnity payout

IndianGovernmentwithtechnicalassistancefromWorld BankstrengthenedtheNAIS Bank strengthened the NAIS

toreducedelaysinclaimspayments Toprovideimprovedcoverage

ModifiedNAISwasimplementedin2010onapilotbasis withimportantmodifications:
Actuarialpremiumratemakingwithgovernmentpremiumsubsidiesand internationalreinsurancesupport; WeatherindexcropinsurancetocomplementNAIS p p Useofmobilephonetechnologytoimprovedataqualityandexpedite datatransferofcropcuttingexperiments(CCEs) UseofsatelliteimagerytoimproveCCEsqualityandtimeliness

ASEANDISASTERRISKFINANCING &INSURANCEFORUM

IndexbasedlivestockinsuranceinMongolia
APPPtoprotectherdersagainstdzuds (drysummerfollowedbyharshwinter) A PPP to protect herders against dzuds (dry summer followed by harsh winter) Alivestockinsuranceschemewasdevelopedin2005throughwhichprivate insurersprovidetheherderswithinsurancecoveragebasedonalivestock mortalityrateindex. Apublic privatepartnershipwasestablishedto: A publicprivate partnership was established to:
Pooltheriskunderwrittenbyinsurers; Isolatetherisktoprotectthebroaderinsuranceindustryfromfinancialcontagiondueto extremelivestockmortality; Allowthegovernmenttoactasreinsurerandtofacilitateaccesstointernationalreinsurance markets. k t

Theschemehasprovedsuccessful,andhasscaledupto15provincesin2011from theoriginalthreepiloted.