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New insurance products developed by experts from IFC, will help improve the quality of agricultural insurance
00:18 11/05/11

The situation in the agricultural insurance market remains difficult. Experts recognize that its fundamental improvement should make great efforts. Active work in this area holds the International Finance Corporation (IFC, World Bank Group) "Development of agricultural insurance in Ukraine." In particular, during the last few years he engaged in the development and implementation of new standard insurance products that have no analogues in the CIS.

The project recently suggested the Ukrainian market of agricultural insurance immediately 9 new insurance products. They apply to winter (wheat, rye, triticale, barley and rape) and spring (wheat and barley) and maize and sunflower. It is expected that these products will enhance the quality of domestic agricultural insurance and increase confidence in him.

About the real situation of agricultural insurance market, features of new insurance products and the economic feasibility of their introduction tells expert on agricultural insurance project IFC Roman Shynkarenko.

- Have our conversation started with the analysis of the situation in the agricultural insurance market. It is extremely important to understand how agricultural insurance in general was requested in Ukraine.

- Project IFC - the only structure that systematically collects data on agricultural insurance in Ukraine. In winter 2010-2011, we received data from 13 insurance companies. They apply to insurance winter crops, which was carried out last year, and crop insurance for spring-summer and autumn periods of the year. According to these data, all concluded insurance contracts in 1326. As for Ukraine, with its vast agricultural potential - a very few.

Altogether, according to insurers, insured was 546 thousand hectares. Of these, 341 thousand hectares for spring and summer and about 200 thousand - for winter crops. In principle, these figures are more or less match those of 2009. So much progress in this regard, we also observe.

The total amount of premiums collected by insurers last year was 84 million. The payments for Spring-Summer barely exceeded 10 million. Thus, the payments amounted to around 17.6%. This, in fact, a little bit.

Another indicator deserves special attention. Compared with 2009 total premiums last year doubled from 42 million to the already mentioned 84 million. Whereas the increase in premiums was not accompanied by a proportional increase in the insured premises, the jump was not the result of expansion of the insured premises, and building up its real part, ie, the desire of insurance companies to provide farmers better quality insurance protection. A high-quality and more expensive insurance costs. Accordingly, the amount of premiums increased by increasing premium rates (tariffs), higher inputs and higher prices for agricultural products.

- What businesses occupy leading positions in the agricultural insurance market?

- Leaders are Ukrainian agricultural insurance company, Orans, UNIQA, TAS, INGO-Ukraine, the biggest and Brokbusiness. Note that these companies were leaders in previous years. Actively started Ukrainian Fire Insurance Company and PZU Ukraine.

More than half the market by the amount of premiums collected Ukrainian agricultural insurance company. This company has insured a lot of sugar beets. And this culture is known to be high value. Hence most of the premiums.

- Farmers complain that the agricultural insurance often remains unavailable to them - too high premium rates offered for these insurers. Is it true?

- I will say at once - for the winter crops is real insurance. Premium rates are still quite high. They range from 5% to 7%.

Speaking of spring-summer, there are still enjoys a high level of formal insurance and mortgage banking. This is when the insured crops are provided as collateral for credit.

On average premium rates for Spring-Summer totaled 3.59%. Of the total context falls only some field crops and vines: for their insurance premiums offered rate from 5% to 10%.

Unfortunately, still remains a problem of dumping. Some companies offer unreasonably low bid premiums. And low rates usually indicate that the company is not going to make payments if the insured event, and this insurance is difficult to identify.

As you can see, the problem is not in high rates of premiums, and that farmers catastrophic lack of money to order high quality agricultural insurance.

- What makes your project work out standard insurance products?

- First of all, the desire to improve the quality of domestic agricultural insurance. When in 2008 our experts have reviewed the draft contract, which at that time (and in most cases it is observed even now) offered to farmers, they saw a number of shortcomings.

Index - insurers are developing agreements "for themselves." Mostly they are very complex. To understand them you have to have a law degree. So farmers do not understand the contract conditions.

Contracts of many pitfalls. Certain provisions of fault unclear. Therefore, insurers, based on their interests, treat them in their own way, and farmers - on its own. Hence - many controversial situations.

Often, farmers are forced to collect a large number of documents to prove the loss. And who will like it? Especially when a lack of time.

And, of course, mentioned the problem of dumping. Farmers think that with minimal costs could insure their crops, but in reality, then as it turns out, so only throw your money after bad. Because in case of occurrence are not getting the expected recoveries.

As a result - farmers do not trust insurers. Very cautiously they relate to insurance in general. Do not understand that without the current agricultural business has no future.

Given this negative experience, we have a goal to develop standard terms of insurance, transparent and clear agreements that exclude the possibility of manipulation and guarantee insurance coverage farmers. Terms of insurance designed considering the interests of both insurers and farmers. That is, set clear rules and each party undertakes to strictly observe them.

The second reason that makes our project to engage in developing new insurance products - a desire to fully contribute to strengthen the position of agricultural insurance in Ukraine. So far, and it's no a secret, they remain quite uncertain. And this is all that our country has enormous reserves for the development of agriculture, to increase its agricultural exports.

- But it seems not all the benefits of new insurance products. At a press conference on March 17 held in Kiev, you, in particular, said that their peculiarity consists in the fact that insurers do not now offer insurance conditions, and farmers themselves decide how they insure certain culture.

- Our products are being standardized, is thus very flexible. Farmers alone can choose the level of coverage. If he prefers low coverage, then the insurance will pay less money. But in case of occurrence insurance benefits will be lower. With a greater choice of coverage will pay more, but payments will be, respectively, higher. The rule is simple and understandable for all. It makes us think about, and whether to save on quality assurance? In any case, the farmer was able to make a conscious decision.

The level of cover for winter crops is 50-70%. For corn, sunflower and sugar beet offered coverage level from 50% to 85% from five percent step.

Also, he can choose agrarian unit price increase, for which he insures his crops. For example, the corn we give option prices from 60 to 140 USD. We felt that if agrarian choose a low price option (within 60-80 USD per hundredweight), then get insurance production costs. If you choose a higher price option (120-140 USD per hundredweight), it would be the cost of insurance for the future harvest.

- How is the settlement of losses on new insurance products? For insurers and farmers question whether the most difficult and at the same time - most painful. Because each party is trying to find their own benefit.

- Evaluation of the yield is 10-15 days before harvesting. This approach is entirely justified. If agrarian agrees with the first assessment of damage caused to him, he can still make a re-evaluation. You can also invite independent experts to help them set realistic yield.

It is very important - to the maximum were taken into account the interests and farmers, and insurers. What we often see? Harvest, the parties to prove anything to each other can not, but occasionally accused each other of all the deadly sins. Is willing to insure thereafter agrarian conflict in this insurer? I think not.

- Can the gradual settlement of losses?

- Not only possible, it is - is envisaged. For example, settlement of losses in corn and sunflower is proposed to carry out in three stages. For this purpose it is desirable to enter into contracts of insurance as soon as possible.

In case of loss of crops, and this is due to drought, frost, strong wind or excessive sediments, crops can be destroyed in May. So the first period loss adjustment continues until June 1. In case of crops lost, the insurer pays 30% of the sum insured. In the second stage - from June 1 to July 1 - in case of loss of crops insurer pays almost 50%. Afterward comes the third phase, which lasts until harvest.

The logic of action is simple - if the crops were lost, for example, in May, you can implement agrarian pereposiv. But if they died in June, the agrarian decide whether he should oversow culture, because it incurred costs in this period can not always pay off even.

- What are the odds you offer bonuses for new insurance products?

- During the development of tariffs on our products, we used data on crop yield (Form 29-SH and 4-SH) for the period from 1980 in terms of areas and since 2004 in terms of households. Rates were calculated by special mathematical methods (Actuary) using simulation models. Thus, the rate reflects the probability of occurrence in a particular area. On the basis of these data, the calculation made in premium rates that insurers must use for new insurance products.

Question - How much insurance sunflower? Answer - when 65% of th cover in the economy, which is located in the Poltava region and has an average yield for the last 5 years of 23-25 ​​quintals per hectare, the rate of premiums amount to only 2.77%.

But remember that the rate directly depends on the option price. If agrarian insure crop seeds to 100 USD per hundredweight, he will have to pay the insurer 45 UAH per hectare, and if insure the same crop of 300 USD per hundredweight, then the amount of its contribution will be higher - 134 UAH per hectare.

Terms of insurance provides for the possibility of applying correction factors to the rates of premiums for our insurance products. For example, for new farms and those farms which have no sufficient experience to grow certain crops, apply upward adjustments in rates. For farms that consistently achieve high yields, insurers can reduce premium rates by 10-15 percentage points.

- What will your project in order to the possibility of new insurance products as much as they learned of potential users?

- With the active support of the Ministry of Agriculture and Food, we conduct an information campaign for farmers. In 11 regions will conduct 50 training seminars. Their participation actively involve representatives of local authorities, financial institutions, extension services, farmers, insurers, insurance agents and journalists. We plan also to train representatives of insurance companies. So before we have a lot of work.

In addition, soon we will hold 5 round tables. They will be held in Zhytomyr, Kirovograd, Odessa, Poltava and Kharkiv.

Nicholas Meadow,
National Press Club "Ukrainian Perspective"

 

See also
10/22/11 Created an Agricultural Insurance Bureau - an organization designed to bring local farmers insurance at a new level
02/15/10 Farmers involved in modern agri-insurance
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