Crop insurance market needs a boost

Vietnam, where 70 percent of the population earns a living in agriculture, is among the top 10 countries facing the most natural disasters in the world. However, crop insurance has not yet been developed to benefit farmers.

Do Anh Truong, an official from the Ministry of Finance, says crop insurance makes a small contribution to the agricultural sector. The number of insured farmers remains low, and most crops, cattle, livestock and aquaculture (fish and shrimp) are not insured. The value of this service comprises only a small proportion of the total non-life insurance premiums, just 0.069 percent in 2004, 0.008 percent in 2005, 0.012 percent in 2006 and 0.01 percent in 2007.

The fact is that few businesses are involved in providing this kind of service. Currently, there are only two crop insurers: the Vietnam Insurance Corporation (Bao Viet) and France’s Groupama Insurance Company. The Insurance Joint Stock Company of the Bank for Agriculture and Rural Development (BARD) and the Bao Minh Joint Stock Corporation are planning to join this market in the near future.

There are two types of crop insurance: traditional (calculated on the actual damage) and risk-based (for example, based on weather to calculate compensation).

The Ministry of Finance has submitted to the Government a pilot crop insurance plan for the 2010-2012 period to help farmers who are at risk from severe natural disasters minimize damage. Under the plan, farmers will receive subsidies from the State which is expected to cover 80-90 percent of the premiums for poor farmers, 60 percent for ordinary farmers and 50 percent for organisations.

In case of massive cash payouts beyond the insurers’ capacity, the government will give specific instructions on subsidies for both insurers and the insured.

The project will be piloted in extensive rice farming areas in Nam Dinh, Thai Binh, Nghe An, Ha Tinh, Binh Thuan, An Giang and Dong Thap provinces, livestock breeding areas in Bac Ninh, Nghe An, Dong Nai, Vinh Phuc, Hai Phong, Thanh Hoa, Binh Dinh, Binh Duong and Hanoi, and aquaculture areas in Ben Tre, Soc Trang, Tra Vinh, Bac Lieu and Ca Mau.

Do Minh Hoang, deputy general director of the Insurance Joint Stock Company of the Bank for Agriculture and Rural Development, says his company has provided life insurance for loan borrowers. It is designing insurance products for crops, with top priority given to rice. The company is awaiting approval from the Ministry of Finance before launching the service on the market.

Hoang points out the fact that very few businesses are involved in crop insurance due to high costs of the service and high risks in agricultural production. In addition, most farmers cannot afford to buy premiums, given their low incomes.

Hoang suggests that risk-based insurance should be developed for large groups of buyers, instead of individuals to lower premiums and encourage farmers to buy insurance.

To develop sustainable crop insurance, the government should apply compulsory sales and purchase of the service in the initial period to lower premiums. In the following phase, the government should introduce measures, such as subsidies, to encourage farmers to pay the premiums.

Nguyen Van Chinh, head of the economic board of the Vietnam Farmers Association, explains that farmers do not buy this type of service because they are not aware of the role and benefits of purchasing such insurance. They maintain their self-sufficient practices and they take responsibility for crop failures.

Also, there are few providers of crop insurance in the areas where natural disasters and epidemics occur frequently.

The Ministry of Finance hopes its scheme will receive a good response from farmers in the trial run if the government offers them subsidies. The Vietnam Farmers Association plays an important role in encouraging farmers to join the service and ironing out snags to protect their interests.

Nguyen Ngoc Anh, deputy director of the Bao Minh Joint Stock Corporation, says his corporation has been assigned to carry out the first stage of the scheme. It has studied the product, worked with re-insurers to share risks, trained staff and taken part in communications campaigns to raise farmers’ awareness of their interests.

Bao Minh wants to cooperate with other crop insurance providers in establishing venture funds, offering re- and co-insurance services, says Anh.

Anh says Vietnam could learn from India’s and Mongolia’s experience in developing risk-based insurance in the initial period. It should consider establishing insurance funds and encouraging more insurance companies to get involved in this market. – VOV

Tags: Vietnam crop insurance