Agricultural%20Insurance%20An%20Overview%20and%20Way%20Forward

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Agricultural Insurance An Overview and Way
Forward
Rashad Ahmadov, Ph.D CEO, Azerbaijan Industrial
Insurance Company 2.7.15 Azerbaijan
International Insurance Forum
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Executive Summary

• Azerbaijani Agri-Insurance is growing rapidly
  with profit offering opportunities for local and
  international markets
• Azeri government is supporting agriculture
  financing and insurance
• There are major best-practices around the world
  which can be implemented for further exploitation
  of the opportunity

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Agricultural Production in Azerbaijan Decrease in
crop compensated by animal products, slow growth
in total
B AZN
CAGR 0,2
CAGR 2,5
CAGR -2,4
Total Agr. Production
Source Ministry of Agriculture Azerbaijan
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Quick Snapshot on the Agri-Industry Decrease in
crop compensated by animal products, slow growth
in total
Key Observations
Financial Support

• Government and financial institutions has
  provided following support
• Concessional Loans
• 14.8 M AZN
• State Aid (2007 Fig)
• 20.1 M AZN

• Agricultural corporations overtaking the
  dominance of individual farmers
• Big investors are entering into agriculture
  business to exploit opportunities. Individuals
  struggle compete.
• There is no established insurance pool in the
  market
• Unlike Turkey or other benchmarked countries
  there is no established pool (eg. Turkey-Tarsim)
• Purchasing Insurance is compulsory if any
  financing is involved
• Insurance capacity is provided thru facultative
  reinsurance
• Loss adjustment is made by third parties due to
  lack of resources

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Legislation on Agriculture Insurance
Government has issued legislation to protect
agriculture investors
Key Observations

• Regulation states that purchaser will be
  supported when obtaining agricultural insurance
• Although not compulsory, government financially
  supports agriculture insurance buyers
• Agricultural Insurance covers Crops, Animals,
  related equipment, etc
• Included covers are triggered in case of Fire,
  Flood, Hail, Lightning, Storm and etc.

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Legislation on Agriculture Financial
Aid Certain terms must be achieved to get
financial aid from Government
Terms for Financial Aid

• Insurance contract must be issued as per
  legislation
• Insurance risk, terms and conditions must be as
  per legislation
• Minimum half of the premium must be paid by the
  insured to get financial aid from the government
• Insurance rate must be under government-determined
  rate
• Insured must provide relevant documents
  demonstrating ownership

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Agr. Animal Insurance performance over time An.
Ins. Has grow 125 CAGR outperforming most of
other insurance LoB
Agriculture (Animal) Insurance Performance
2011-2014
K AZN
Despite growth, LR is lowest of all times
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Agr. Crop Insurance performance over time Crop.
Ins. Slowed down in the recent period with a LR
avg. 42
Agriculture (Crop) Insurance Performance 2011-2014
K AZN
4
13
83
69
Loss Ratio
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Current drawbacks on Agri-Insurance Key
Observations

• Agri-Insurance is a relatively risky line of
  business due to its nature (high PML)
• Not easy to apply and obtain both financial aid
  and insurance cover due to lack of know-how of
  stakeholders
• Lack of local Underwriting skills
• Shortage of experts and loss adjusters, hindering
  courage of Insurance companies to write risk
• Level of know-how in farming, hardening taking
  precautions to avoid probable risks
• Extended risk exposure due to late harvesting

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Why do we need a structured Agriculture Insurance
Market?

• Comprehensive offering of Insurance (like in
  every other industry) automatically adds value
  and brings certain standards
• Example 1 Farmers have to clear the land from
  salt to get insurance otherwise firms decline
  their request of cover
• Example 2 Vaccination of herds are required
  before insurance policy starts
• Insurance (due to the security being provided)
  will enable both farmers and corporations to
  invest and create value from agriculture which
  will result as positive balance in countries
  economy

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Global Practices in Agriculture
Insurance Examples from the World

• Developed and developing countries with
  significant Agriculture ratio on GDP tend to
  cover their risks via Risk Pools
• Insurance companies do not share the risk of the
  created risk pool. They act as insurance agency
  and only benefit from the sales
• Governance and management of the risk-pool is
  done by a single unit (mostly appointed by the
  government)
• Although reinsurance covers the pool with high
  limits, extra-limits are provided by the State
  itself

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Suggestions How to move forward

• Government shall promote agriculture insurance by
  providing more financial support
• General Agri-Insurance Conditions shall be
  improved by benchmarking other best-in-class
  practices around the world
• Additional risks and covers shall be inserted and
  some exclusions to be taken out, which will
  result in comprehensive protection to both
  farmers and corporations.
• Creation of a nation-wide risk pool can be setup
• Insurance must be compulsory for farms who gets
  financial aid

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Thank you for your attention