Crop insurance unpopular
From B10
Moral hazard High administration costs
Record keeping and other manpower requirements needed to verify individual production histories and to adjust individual yield-loss claims raise insurer expenditures and impose high transactions costs.
Systemic risk
Systemic risk in agriculture stems primarily from the impact of geographically extensive unfavourable weather events, such as drought or extreme temperatures, which induce significant correlation among individual farmlevel yields.
Insurers of random events such as automobile insurance need not keep high reserves as claims can be paid by premiums received even over relatively short periods. Insurers of non-random events such as drought need to keep large reserves which are costly.
is lack of stochastic independence among individual yields defeats insurer efforts to pool crop loss risk across farms, causing crop insurers to bear substantially higher risk per unit of premium than other property liability and business insurers.
Without adequate reinsurance or government subsidies, crop insurers pass the cost of bearing the additional risk onto farmers, rendering individual crop insurance extremely, if not prohibitively, expensive. In conclusion, droughts are a common phenomenon in Southern Africa. It is therefore important to be pro-active rather than reactive and government’s concern regarding risk management strategies is a wise decision.
is risk protection can facilitate access to operating loans by offering some financial security to a lender.
ere is need to encourage farmers to insure their crops to mitigate the impacts of drought.
In the face of escalating climate variability and change, smallholders need crops insurance more than ever before to manage weather related risk to enhance their resilience against income shocks. Awareness and training on crop insurance, density of automated weather stations and ownership of savings accounts are integral factors in enhancing its insurance uptake.
ere is clear evidence of the need to educate farmers on the principles of crop insurance and different products that exist. Similarly, designing of crop insurance products and selection of target crop enterprises should involve all stakeholders to enhance uptake.
In Zimbabwe, the Insurance and Pensions Commission (Ipec) is focused on developing the local insurance industry and supporting financial inclusion initiatives. e Commission has partnered the World Bank for technical and financial support in the development of a regulatory framework for weather-index insurance.
In addition to the development of a regulatory framework, the Commission and industry players will also receive capacity building in weatherindex insurance.
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