Contribution of Agricultural Insurances to Development of Livelihood of Rural Farmers
Sep 30, 2009 Posted by
Admin
The article on contribution of agricultural insurance on livelihood of rural farmers (click here to read the article) submitted by Agricultural and Agrarian Insurance Board (AAIB) to the Poverty Portal highlights importance of agricultural insurance for a farmer to withstand adverse conditions. Further, the article addresses issues which are important to consider in the efforts of poverty reduction and improvement of livelihoods of rural farmers.
1. Lower participation of private sector in the agricultural insurance sector
2. Less demand for agricultural insurance from farmers due to lack of awareness of farmers
With the above views we would like to lead the discussion on
1. What are the factors needed to get greater support from the private sector offer insurance services to farmers?
2. What are the innovations that can be introduced to align the insurance to farmer needs?
3. How can we create a culture of use among farmers?
Hiran Dias (Board Member , CEPA)Says : 2009-10-07 05:58:43
Agricultural insurance has been around Sri Lanka for several decades. It has not been successful as farmers who have low risk do not want to insure and no insurance scheme can work if only those with high risk insure. Also checking on insurance claims and settling them have been slow and problematical. More needs to be known on how to persuade farmers to insure - One possibility could be to bundle it with other risks farmers face and offer it as micro insurance linked to micro finance.
Priyanthi Fernando (Executive Director , CEPA)Says : 2009-10-08 02:13:30
I wonder if there are experiences from other parts of Asia or elsewhere in the developing world that might help inform this discussion. As one does these days I googled and discovered that in India and the Philippines national insurance for agriculture has not been hugely sucessful - but others might be better informed.
Check out
http://tinyurl.com/pfaginsure1
or http://tinyurl.com/pfaginsure2
Alex Hagon (Consultant Economist , CEPA)Says : 2009-10-13 06:16:22
The circumstances under which agricultural insurance is a viable long term proposition for private sector insurers is likely to be a combination of, amongst other factors, what sort of risks are covered, what innovative delivery mechanisms to reduce operating costs can be used, applying new technology to settle claims, or perhaps providing complementary forms of microfinance alongside. The number of clients covered is also an important, from the point of view of pooling risks.
In Sri Lanka every year farmers face numerous disasters and mostly affected by these disasters. Low income of farmers and low awareness of the role of agricultural insurance are discouraging farmers. There for farmers are not active in insurance. Also Agricultural insurance is a big business enterprise with more complicated, costly and low profit. Farmers are unable to insure high risk crops and animals. Need government intervention to support agricultural insurance. In Sri Lanka Agricultural insurance sector has not developed to cover all the sectors of agriculture even though an agricultural country. Need more scientific research in this field in undergraduate and postgraduate levels.
karin fernandoSays : 2009-11-24 05:57:12
This is a monetised coping strategy, that might be overlooked due to other informal coping strategies that are used by farmers/communities.
Literature has pointed out that the potential delivery channels for micro insurance in Sri Lanka are weak. One of the issues are lack of efficient means of connecting the demand with supply rather than lower levels of demand and supply for microinsurance.
It is important to have mechanisms in place to manage risks faced by the poor farmers. But, Agriculture insurance is only one of the tools among many. As agriculture is inherently risky, agriculture insurance is not attractive to the commercial insurers. It has both a price risk and a production risk. Due to the problem of adverse selection, the insurance companies try to reduce such exposures. As somebody mentioned earlier, this is the rationale for government intervention in agricultural insurance. But still it is an expensive way of managing the risk. So, emphasizing on alternative risk management tools (such as better flood prevention systems), along with crop insurance would be more effective and beneficial for countries like ours.
One of our studies (which is on microinsurance, not specifically of farmer households) shows that the households lack awareness of benefits insurance policies can bring in compared to other coping methods they use. When households have clear idea of the concept of insurance, they tend to obtain insurance more and when they have insurance, they often use it as a risk managing tool, with other financial tools (microfinance, informal finance). Poor households also rely a lot on family networks in managing risks rather than on financial tools. So awareness creation is one important aspect, not only in agric insurance but on overall insurance as well. As mentioned earlier in the blog, bundling agric risk (only certain elements) with other risks farmers face and offering it as microinsurance, linked to microfinance is a possibility. But the extent MFIs are able to handle it will be a question, as the same fears applying to the commercial insurers apply to the MFIs too, and to a greater extent. Further, the benefits offered by microinsurance in SL are low as MI is still at an infant stage in SL.
Hiran Dias (Board Member , CEPA)Says : 2009-12-11 08:15:13
Micro finance faced similar issues 30 years ago when Prof.Younus came up with a solution. May be people, working collectively, could insure themselves. Because it would be self-supervised by the Group, it could be cost-effective. They could re-insure with Govt organisation. Needs a lot of hard work to try out.... a good action research project if there is some donor to fund it.
Samanmala Dorabawila (Senior Lecturer , Deparment of Economics and Statistics, University of Peradeniya)Says : 2009-12-13 07:57:03
I agree with the point that the benefits offered by microinsurance in SL are low as MI is still at an infant stage in SL. For people to enter into a culture of insurance system the benefits offered should be attractive enough for them to feel that it is worth taking the risk especially in considering their low incomes. This is obviously seen in other areas of insurances such as the health. In addition, Insurance providers brings in various restrictions at the point of reimbursing. This also depends on how efficient the claim process is. In the developed world most of the insurance systems work with a relative efficiency in obtaining the claim.
