1. Traditional Insurance in Agriculture Development Dr. Erich Kasten ARC – Agriculture Reinsurance Consultants Switzerland Managing Risk in Financing Agriculture FAO - World Bank – AFRACA April 1-3, 2009 Johannesburg, RSA

2. Traditional Insurance in Agriculture Development Content Global Agriculture Insurance MarketGlobal Agriculture Insurance Market Traditional Insurance ProductsTraditional Insurance Products Operational RequirementsOperational Requirements Requirements of Farmer, Banks & InsurerRequirements of Farmer, Banks & Insurer Requirements for Agriculture DevelopmentRequirements for Agriculture Development ConclusionsConclusions

3. Agriculture Insurance Market Global Market estimated at USD 10 billion (2008)

4. Agriculture Insurance Market Traditional & Index Products Global Agriculture Insurance Market est. USD 10 billion (2008)

5. Traditional Insurance Products Global Agriculture Insurance Market est. USD 10 billion (2008)

6. Damage based Products  Fire  Hail  Hail plus Named Perils  Named Perils  Frost  Flood  Windstorm  Other perils  Fire  Hail  Hail plus Named Perils  Named Perils  Frost  Flood  Windstorm  Other perils

7. Yield Guarantee based Products  Multi Peril Crop Insurance (MPCI)  Individual farm based policy  Area based policy  Crop Revenue Insurance  Yield and/or  Market Price  Multi Peril Crop Insurance (MPCI)  Individual farm based policy  Area based policy  Crop Revenue Insurance  Yield and/or  Market Price

8. Multi Peril Crop Insurance Underwriting Requirements Multi Peril Crop Insurance Underwriting Requirements  Specialist Underwriting  Quality farm risk information  Actuarial based risk pricing  Insurance infrastructure at grass-root level  Skilled agriculture producer  Strong Government support  Premium subsidy  Extension Service  Supply of available data Complex Underwriting Process

9. Multi Peril Crop Insurance Common Underwriting Problems Multi Peril Crop Insurance Common Underwriting Problems  Individual farm yield guarantee  Yield data quality  Farm management assessment  Underwriting & Risk monitoring cost  Asymmetric risk information  Adverse selection  Moral hazard  High premium cost  Low market penetration  Premium subsidy required High Operating Requirements

10. Multi Peril Crop Insurance Only viable with strong Government support Only viable with strong Government support

11. Insurance Requirement - Farmer Cover Comprehensive No Exclusions Customized Transparent Handling Hassle free Convenient Limited paperwork Immediate loss payment Cost Low Premium State support Premium payment in arrears

12. Insurance Requirement - Bank Cover Comprehensive All Risks No Exclusions Handling Hassle free Fast Easy Cost Low admin. cost No premium contribution

13. Product Requirement - Insurer Cover Data based Actuarial sound Standardized Transparent Exclusions Handling Uncomplicated Fast Hassle free Low cost Cost Marketable Profitable Upfront payment

14. Limited aligned Interest

15. Holistic Insurance Approach Farmer Insurer State Support Banks

16. Agriculture Development Key Drivers ResourcesResources KnowledgeKnowledge Access to technologyAccess to technology Access to marketsAccess to markets InsuranceInsurance Government supportGovernment support

17. Most Important Key Drivers Catalyst for Development Productivity Profitability Insurance Human Resource DevelopmentHuman Resource Development SkillsSkills Advisory ServiceAdvisory Service Knowledge CapitalCapital TechnologyTechnology LandLand Resources

18. Holistic Agricultural Development Banks Insurer Farmer State Full cooperation is required from all stakeholder for successful & holistic agricultural development

19. Conclusions (1/2) Traditional Insurance in Agriculture Development  facilitates agriculture development  act’s as catalyst  has shortcomings  is expensive  requires skilled insurance operations  facilitates agriculture development  act’s as catalyst  has shortcomings  is expensive  requires skilled insurance operations

20. Conclusions (2/2) Traditional Insurance in Agriculture Development  Access to resources & markets vital  Education & know-how transfer central  Government support and holistic agriculture development strategy is needed for developing countries  Access to resources & markets vital  Education & know-how transfer central  Government support and holistic agriculture development strategy is needed for developing countries

21. Thank you for your attention Dr. Erich Kasten Agriculture Reinsurance Consultants GmbH Switzerland dr.e.kasten@bluewin.ch