1227275252048 Agricultural Microinsurance

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    Global Practices and ProspectsMicroinsurance

    Agricultural

    Authors Jim Roth & Michael J McCordEditorRobert Berold 2008

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    AgriculturalMicroinsurance

    Global Practices and Prospects

    Authors

    Roth, J & McCord, MJ

    Editor

    Berold, R

    Published by

    The MicroInsurance Centre, LLC;

    1045 N. Lynndale Drive, Ste. 2A5; Appleton, WI 54914 USA

    Design

    Smallgoodthing, www.smallgoodthing.net

    This book may be reely reproduced and transmitted in any orm,

    by any means, electronic or mechanical, including photocopying,

    recording or by any inormation storage and retrieval system.

    First Edition, 2008

    Published in the United States o America

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    Agricultural Microinsurance Global Practices and Prospects 2

    Acknowledgements

    This book was created thanks to the nancial support rom the Ford Foundation. In par-

    ticular the authors are appreciative o the support and assistance provided by David Myhre

    o the Ford Foundation. The authors would like to express their gratitude to all o thosewho played a part in creating this book. Without the many months o dedicated work rom

    the researchers who pulled out the data on agricultural microinsurance, this book would

    not have been possible. Thanks go to Laura Sochas, who in addition to pulling out data on

    microinsurance in Francophone countries also developed a series o new case studies. The

    case study on pig insurance in Vietnam in this text is taken directly rom her work. Cara

    Forster ound large numbers o agricultural insurance products available to small scale arm-

    ers in Latin America, through her painstaking trawling o oten obscure and hard to obtain

    secondary sources. Nina Shand provided the bulk o the examples rom the English speaking

    countries and surveyed all o the many index insurance pilots. Thanks, to those members

    o the CGAP Agricultural Microinsurance Working Group Sub-Committee who provided

    eedback on the list o products and providers. We appreciate the work o the reviewers Lena

    Heron, Ake Olosson, Maria Pagura and Craig Churchill or their comments and suggestions

    which greatly improved this text.

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    Agricultural Microinsurance Global Practices and Prospects 3

    Table o contents

    Acknowledgements 2

    Table o contents 3

    Acronyms 5

    About this book 6

    Introduction to agricultural microinsurance 7

    Some defnitions 7

    The basics o insurance 7

    What is (and isnt) an insurable event? 8 Adverse selection 8 Fraud 9 Moral hazard 9

    Covariant risk 9

    Agricultural insurance 10 Animal insurance 12 Crop insurance 13 Index-based insurance 13 Agricultural insurance versus agricultural microinsurance 15

    The agricultural microinsurance supply chain 15

    The demand or agricultural microinsurance 17

    Four case studies o agricultural microinsurance 18

    Case 1. Livestock insurance in India 18

    Case 2. Plough oxen insurance in Burkina Faso 20

    Case 3. Index insurance to mitigate the impact o crop losses in Ukraine 22

    Case 4. Pig mortality insurance in Vietnam 24

    The landscape o agricultural microinsurance 27

    Methodology 27

    Survey results: agricultural insurance 27

    Survey results: agricultural microinsurance 28

    Regional distribution o agricultural microinsurance 28 Agricultural microinsurance sales and distribution methods 29 Types o agricultural microinsurance cover 30

    Agricultural microinsurance compulsory or voluntary? 31 Agricultural microinsurance who carries the risk? 32 Index insurance 33

    The state o agricultural microinsurance regulations 34

    Conclusions 35

    Increasing access to agricultural microinsurance 37

    Non-insurance interventions 37

    Macro level 38

    Meso level 39

    Micro level 40

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    Agricultural Microinsurance Global Practices and Prospects 4

    Conclusions 44

    Appendix 1: methodology 45

    Appendix 2: agricultural insurance premiums in emerging markets 46

    Guide to urther reading 47

    Reerences 48

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    Agricultural Microinsurance Global Practices and Prospects 5

    Acronyms

    ADR-TOM Association pour le Dveloppement de la Rgion de Toma

    CGAP Consultative Group to Assist the Poor

    CIMA Conerence Interaricaine des Marches dAssurance

    FAO Food and Agriculture Organization (o the United Nations)

    GRET Groupe dEchange et de Recherches Technologiques

    IAIS International Association o Insurance Supervisors

    IFAD International Fund or Agricultural Development

    MFI Micronance Institution

    NAIS National Agriculture Insurance Scheme

    NGO Non Governmental Organization

    SHEPHERD Sel Help Promotion or Health and Rural Development

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    Agricultural Microinsurance Global Practices and Prospects 6

    About this book

    This book has been written or people who would like to know how agricultural insurance

    could play a role in improving the livelihoods o the rural poor. It will be useul or develop-

    ment agents such as donors, development banks and development workers in NGOs, co-operatives, credit unions and micronance institutions (MFIs). It is written or a reader who

    has no prior knowledge o insurance.

    The rst chapter introduces the principles o insurance (i you have a good sense o how

    insurance works, you could probably skip this chapter). We explain some o the challenges

    inherent in the design o insurance products and show how these challenges become greater

    when insurance is applied to agriculture and greater still when applied to agricultural

    microinsurance. We discuss the supply o agricultural insurance and the various parties in-

    volved in the supply chain. We also discuss the demand or agricultural microinsurance.

    The second chapter presents our agricultural microinsurance case studies, using the prin-

    ciples described in the rst chapter to analyze the successes, ailures and challenges o provid-

    ing agricultural microinsurance in practice. The rst o case study is o large NGO in India

    that works in partnership with a commercial insurer to provide livestock insurance or its

    members. The second one, based in Burkino Faso, is an example o how livestock insurance

    can be run on a small scale as a mutual insurer. The next one was a micronance institution

    (MFI) in Vietnam that created a scheme or armers to insure pigs that had been bought

    with loans rom the MFI. These three case studies are all examples o livestock insurance.

    We were not able to nd microinsurance schemes specically covering crops. But a new type

    o insurance known as index based insurance has some application to crop microinsurance,

    and the ourth case study looks at an index insurance scheme in the Ukraine aimed at low

    income crop armers.

    The third chapter summarizes a comprehensive literature survey to establish what kinds

    o agricultural microinsurance products exist worldwide, and how they unction. It nds

    that there is very little agricultural microinsurance in existence. Most o what does exist,

    are products that are scaled down versions o traditional agricultural insurance, delivered

    through conventional distribution channels i.e. agents. A situation that is ar rom ideal.The ourth and nal chapter discusses whether, given all the challenges, agricultural mi-

    croinsurance can play a role in improving the livelihoods o the rural poor. The chapter con-

    cludes by looking at what kinds o microinsurance interventions are most likely to succeed in

    improving rural livelihoods.

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    Agricultural Microinsurance Global Practices and Prospects 7

    Introduction to agricultural microinsurance

    Some defnitions

    This book is about agricultural microinsurance. Microinsurance is ...insurance that is accessed

    by the low-income population, provided by a variety o dierent entities, but run in accordancewith generally accepted insurance practices ... Importantly this means that the risk insured

    under a microinsurance policy is managed based on insurance principles and unded by pre-

    miums (International Association o Insurance Supervisors 2007). In essence agricultural

    microinsurance is about providing agricultural insurance to small-scale armers in developing

    countries. Most o the principles and practices o providing regular agricultural insurance apply

    in this sector. There are however some dierences, but beore exploring these dierences, it is

    useul to examine some o the undamental principles o agricultural insurance.

    The basics o insurance1Insurance can be described as the reimbursement o an individual or business or all or part

    o the nancial loss caused by an unpredictable event or risk. This protection is accomplished

    through a pooling mechanism: each person who is vulnerable to the risk pays a small amount

    o money (the premium) into the pool, which is then used to compensate those who suer

    a loss. The risk-pooling mechanism makes it possible or the benet amount to be much

    greater than an individuals premium pa