# Agricultural Insurance.pptx

AGRICULTURAL INSURANCE
INTRODUCTION
• Agricultural insurance protects against loss of or damage to crops and
livestock. it has great potential to provide value to low-income
farmers and their communities, both by protecting farmers when
shocks occur and by encouraging greater investment in agriculture.
Agricultural insurance can indemnify policy holders for losses, though
such indemnity products are relatively rare due to high costs of
administration and the risk of fraud.
• Ethiopian insurance corporation (EIC) is committed to provide
adequate insurance covers for all agricultural projects that are
financed by financial institutions and individual farmers (commercial
& small holder ).

OBJECTIVES;
 Tocreate awareness about agricultural insurance
 Tomanage the risks of the insurance product
 Toboost EIC’S production
 Toincrease market demand
RISK IN AGRICULTURE
Agriculture is without doubt one of the riskiest sectors of economic
activity.
Production
 Weather peril –drought
 Disease & insect pests
Strategic
 Enterprise selection
 Marketing channel selection
Financial/market
 Commodity price fluctuations
 Exchange rate
 Input cost fluctuations

Individuals /producers
Illness
Accident
Death
Management
Skills
Investment decisions-choice of enterprise
Cultivation methods
Risk management methods
agriculture risk management
Methods of farmer employee in managing risk in thefarm:
 Avoid the risk , plant early to avoid pest and disease attack on rainy season to harvest during dry
season….?(e.g sesame ,tomato….
 Minimize the risk ,plant windbreak trees , firebreak (within 10-15m gap),soil dike etc…
 Retain the risk ,don’t plant without regard to weather information…
SHARE YOUR FARMS RISK TO INSURANCE
- crop insurance
- cotton insurance
- coffee plantation insurance
- livestock insurance
-horticulturalist’s/green house insurance
-ornamental plants & herbs ,vegetables
-poultry insurance
- tea plantation insurance

key challenges in agricultural insurance
• Moral hazard, adverse selection, fraud
• (insurance) literacy
• Trust
• Geography: Distribution, after-sales service,
monitoring and claims assessment…
• Covariant risks
• Information asymmetry:
• Lack of baseline: often no production data

Reasons for increasing demand for
agricultural insurance
• Increasing investment in Agro enterprises
• Increasing demand for agro- products.
• Increased movement across borders (imports and exports)
• Increase in farm sizes
• Increased disease exposure
• New and aggressive viral & bacterial strains
• Specialized & intensive farm production
• Market fluctuations (input cost/market price)

Role/Benefits of agricultural Insurance
• Stabilisation of farmers’ income
• Risk management tool for financial institutions
• Collateral
• Adoption of innovative technology
• Loss prevention and minimisation

AGRICULTURE INSURANCE CAN NOT
COMPENSATE;
For poor management & cultivation practices
For inadequate agricultural policy of government
(infrastructure, subsidies)
AGRICULTURAL INSURANCE DIFFER FROM OTHER
INSURANCES;
 Risk sensitivity
 Exposure to climate change
 Land as a production asset that can not be
relocated

Requirements for a crop Insurer
• Experience and Expertise
• Infrastructure & Systems
• Proven Assessment Procedures
• Financial Backing
• Adequate Reinsurance – Good securities

THERE IS AN UNDER SUPPLY OF INSURANCE
on insured (demand)side:
– Lack of skills & inadequate/ inequitable access to support services
– High costs of production / Cost price squeeze (cost of insurance is one
such factor of production affecting our competitiveness)
 Premium rates are too high
on insurers (supply) side:
– Asymmetry /irregularity of information brings adverse selection
– Risks are hard to quantify as no sufficient data is available
 Premium rates are high

Importance of pre-risk assessment.
Pre-risk assessment entails surveys, physical
assessment of a risk to establish if the risk is suitable
for admittance by Insurers:
• Crops and animals are growing risks – nature of risks
is continuously changing.
• Verifies that risks are of insurable stands.
• Validates risk management and husbandry practices.
• Enables determination of terms and conditions
• Acceptance/rejection of the risk.
• NB : Pre-risk assessment is very important for agro
risks.

RISK EVALUATION
Evaluate ;
osoil
o Climate
o Husbandry practices
o Management skill
o Variety
oarea
o Seed quality etc…….

Perils in Crop Production
ADVERSE WEATHER CONDITIONS:
• Hail
• Storm, Wind , Sandstorm
• Floods, excessive rainfall
• Drought, heat wave
• Fire & lightning
• Uncontrollable disease and pets

HAIL
Hail is solid precipitation – falling ice particles . These often
cause visible and quantifiable damage on plants. Severety of
damage is influenced by size of pellet and intensity when
striking the plant.

Fire : visible damage caused by fire

Frost
Visible quantifiable damage caused by freezing of
the plant or parts
of the plant.

Excessive Rainfall
Excessive rainfall

FLOOD
Where the water of a river and/or stream overflow the river and/or stream bank due
to excessive rain in the catchment area and the overflow water cause damage to the
insured crops.

Excessive Heat Waves (Irrigation excluded)
An event where irreversible damage is caused
to the growth or developmental process in the
crop resulting from a persistent hot
temperature spells above the upper lethal
temperature threshold values of the crop/crop
development stage.

WIND STORM
An event where
mechanical damage is
evident to such an
extent that
the plant is permanently
damaged or the harvest
severely lodged.

Application of insurance products vary for commercial
and smallholder farming:
 Named Peril Crop Insurance  Weather-/satellite
index insurance
Product alternatives:
•Fixed sum insured
Application:
•Named perils (e.g. hail,frost)
Advantages:
• Simple product design
• Individual lossadjustment
based on % loss
• Reliable, scientifically based
loss adjustment procedure
used
Application:
• Perils: Excessive or rainfall deficit,extreme
temperatures, wind
• Payouts based on weather station measurements
Advantages:
• Low administration costs, low loss assessment
expenses: independently verifiable
• No adverse selection and moral hazards
• Ideal for catastrophic losses: can be reinsured

CONTINUED…….
Named Peril Crop
Insurance
Disadvantages:
• Only applicable to few risks
insurance
• Weather-/satellite index
Disadvantages :
• Considerable basis risk remains with the farmer:
Limited suitability to serve as collateral.
• Development and marketing costs are high.
• Product based on meteorological trigger or
vegetation indices for farmers is oftendifficult
to understand. Therefore low acceptance,
especially amongst smaller and less skilled
farmers.
• Integrity of weather stations
• Difficult/complex setting of index parameters

Yield Guarantee Insurance (MPCI)
• Area-yield insurance
• Yield Guarantee Insurance (MPCI)
• Individual historic yield (farm level)
Application:
• Applicable for all climate risks
Advantages:
• Comprehensive cover, all climate risks
• Easy to understand
• Very good correlation between yield and
indemnification
Disadvantages:
• Determination of yield guarantee is a
challenge
• All climate risks have to be insured.
• Indemnification of non-insured perils (e.g.
pest and diseases)
Product alternatives
Advantages
• Regional average yield
Application :
• Farmers are treated in groups over a wide
area, district, province or country.
• Effective in areas with similar exposures.
• Low administration costs
• No adverse selection and moral hazards
• Ideal for catastrophic losses
• Low loss assessment expenses
• Can handle large farmer groups
Disadvantages :
• Lack of reliable local yield information/
stats.
• Basis risks: eg, localized perils like fire/hail
will not result in pay-outs.

BASIS OF SUM-INSURED
• YIELD BASE ;5years average yield x
price(market price)x cultivated land
• COST BASE ;
-production cost
- production credit
-market value

RATING IS BASED ON;
• Susceptibility
• Type of crop
• Location
• Growth cycle
• Spread
• Loss experience

Loss Cost or “purepremium”
• Actual or expected cost to an insurer of
indemnity payments and allocated loss
adjustment expenses
• Loss costs do not include overhead costs or
profit loadings.
• Historical loss costs reflect only the costs and
assessment costs associated with past
claims.
• Prospective loss costs are estimates of future
loss costs, which are derived by trending and
developing historical loss costs.
A. MULTIPERIL CROP INSURANCE
It covers crop loss due to:-
 Fire and Lightning
 hail and Storm
 Excessive rainfall
 Frost
 flood
 Uncontrollable disease & pests(additional premium is needed)
EIC OFFERS

GENERAL EXCLUSIONS;
GENERAL EXCLUSIONS:-
The Insurance does not cover
• Any crop which has been harvested prior to inspection by the Assessor
• Hay and Straw
• Theft except whilst in direct transit to the insured’s permanent storage
• Loss or damage occasioned by or through or in consequence directly or indirectly
of any of the following occurrence namely:
 War, Invasion, act of foreign enemy, hostilities or warlike operations.
 Volcanic eruption, subsidence, landslide, erosion, or other convulsion ofnature.
 Infestation, vermin, pests animals, birds, insects and other natural enemies or disease of
every description whether evident in the crop before or after an insuredevent.

Specific exclusions:-
• Consequential loss due to delay, detention or confiscation.
• Weight losses unless due to theft or fortuitous circumstances.
• Theft by the insured or its employees.
• Transit risks outside the borders of Ethiopia
• Theft of the crop whilst in or on a road vehicle which has been left
unattended.
• Unexplained disappearance or unaccountable losses of any form or
kind whatsoever or normal shrinkage or normal loss of weight.
• Loss or damage due to bad state of roads or rail.

SUM-INSURED CALCULATION
EXAMPLE ; Sidama seed enterprise notify to insure its seed maize as follows;
TOTAL LAND -500HA
CULTIVATED LAND-300HA
YIELD -30QL/HA
MARKET PRICE-1800/QL
PREMIUM RATE-3.2%
DEDUCTIBLE-25% OF EACH &EVERY LOSS
1,pre-risk assessment = to decide whether it is insurable or not
2 ,sum insured calculation , SI=CULTIVATED LAND*YIELD /HA*MARKET PRICE
=100HA*30QL*1800
=5,400,000.00BIRR
3,PREMIUM = 5,400,000.00*3.2%
=172,800.00BIRR

B. Weather- Index Crop Insurance
• Insurance policy based on an independent measure of
weather(rainfall) outcome.
-Local weather station: keeps record of daily rainfall
-Index: a function of rainfall data
• Eliminates moral hazard
-Farmer’s behavior does not affect rainfall outcome
• Adverse selection
-There is no relevant asymmetric information , e.g. type of farmers
• Cheaper to provide
-Avoids individual costly verification

Satellite rainfall data…
Thelocation of the area should be
marked using a GPS device.
The longitude and latitude of the
specific area has to be determined from
the GPS and entered into the computer i
the form of (23.29N,32.45E)
n

•The maximum payout point is called “exit”.
•The payout would be:- 1.Full
payment, if rainfall < exit
2.Partial payment, if trigger > rainfall > exit
3.No payment, if rainfall > trigger
• Trigger point…rainfall at which payout begins.
• Exit point… rainfall at which 100% payout begins.
• Capped millimeters…every 10 day period, the rainfall amount is
totaled ,any thing above agreed amount will not be counted.

Example :- Given rainfall data for eight dekads and ,If trigger = 70mm,
Exit=35mm,Cap=15mm
1 2 3 4 5 6 7 8 dekads
20mm 3mm
0mm 9mm 40mm 5mm 10mm 45mm RF
 Amount of rainfall(ARF)= 15+3+0+9+15+5+10+15=72mm(no payout)
 (ARF)=10+3+0+9+10+5+10+10=57mm(partial payout)
 (ARF)=5+3+0+5+5+5+5+5=33mm(full payout)

Exit Strike
Czndvi_pos
Maximum
Payout (%)
Minimum
Payout (%)
Graphical presentation of the payout function
Seasonal Payout (% insured value)
Max payout
•
Higher –ve values
Partial payout Min payout No payout
Smaller –ve values & towards +ve

Loss Assessment
• Best and scientific way of solving claims
• accurate damage determination
• Includes all growth stages
• Quantify damage
• Objective measurement
• Create trust
• International procedures
• Backed by research

LIVESTOCK INSURANCE
.Like any insurance product, the purpose of livestock
insurance is to compensate clients for the death of animals
due to disease or accident .
As a general rule all animals of the same group on the farm must be
insured because :
• insurers obtain a better spread of risk
• minimization of moral risks
• Animals to be uniquely identified
• Stock values to be homogeneous

LIVESTOCK PERILS
Health factors ;
Mortality (death)
Low production
Climate;
Drought
Lightning
Accident
Fire
Poison
swel

LIVESTOCK INSURANCE
Mortality / herd insurance
Application:
• All risk of mortality for large and small
stock.
Advantages:
•Simple product design
•Loss adjustment only conducted by qualified
vets.
Disadvantages :
•High moral risk
•Expensive form of insurance
•Deductible require minimum size of stock
Application
Advantages:
Disadvantages:
Grassland index insurance
Perils:
• Loss of grazing as a result of drought/ rainfall
deficit
• Payouts based on value of grazing loss per
millimeter of rainfall deficit.
• Low administration costs, low loss assessment
expenses
• No moral hazards: independently verifiable
• Ideal for catastrophic losses, can be reinsured
• Considerable basis risk remains with the
farmer
• Development and marketing costs are high
• Huge anti-selection risks

The major type of insured objects in the Livestock
Insurance policy is an animal for domestic
purposes. The animals type are listed below:
1. Fattening steer
2. Draft ox
3. Dairy cow
4. Bulls/bullock
5. Draft horse
6. Sheep & Goats
Types of animal

Period of insurance and renewals
Type of animal Age at entry Period of cover (
cannot be lessthan
fixed period )
Draft ox or dairy cows 2 ½ or 3 years 5 years
4 years 4 years
5 Years 3 years
6 years 2 years
7 years 1 year
Draft horses 6-8 years 4 years
9 years 3 years

Type of animal Age at entry Period of cover
(cannot be less
than fixed
period )
Bulls/bullock
2 up to 3 years 5 years
from 3 up to 4 4 years
from 3 up to 4 3 years
from 5 up to 6 2 year
from 6 up to 7 1 year

Type of animal Age at entry Period of cover
(cannot be less
than fixed
period )
Draft horses 6-8 years 4 years
9 years 3 years
10 years 2 years
11 years 1 year
Fattening steer 2 ½ -8 3,6 or 12
months

Renewals, therefore, apply to insurance issued
in respect of ;
- fattening steers which can be insured for
further periods of 3,6 or 12 months until the
animal attains age 9 years; and
- Draft horses which can be insured for further
periods of 1 or 2 years until the animal attains
age 12 years.
Renewals

Rating considerations
• Type of animal
• Susceptibility
• Location
• Age ( Growth cycle )
• Overall Management
• Spread
• Loss Experience
• Normal Mortality
• The excess structure

A.MULTIPERIL LIVESTOCK INSURANCE
 Covers more than one peril.
 It covers livestock death due to disease or accident.
 Possibly extension be made to such risks of death due to surgical
operations, breeding and parturition and permanent total disability
of draught animals ,Dairy and Breeding animals.
 This does not cover : Injury, Loss of use , Emergency slaughter .
EIC OFFERS

• EXCLUSIONS
• Moral hazard
• Pre-existing conditions
• Theft ,Disappearance
• Sales
• Accumulations of :-
- Drought
- Famine
- War like risks

Multi Peril Livestock Insurance -Dairy cows

MULTIPERIL LIVESTOCK INSURANCE-Fattening Steers
Coverage for 3,6 and 12 months

Underwriting Conditions
Selection: the basic selection factor are age and state of health of the animal;
an animal to be considered for cover should fall within the range specified
above.
Vaccination :Vaccination at least three communicable diseases of the area. It
may be Anthrax, Black leg or pasteurellosis .
Ear –tagging or deep skin tag
• Distinctive natural mark and ear-tag number need to be registered.
Other considerations
• Photo graph shall be taken for high value animals from three dimensions.
• Healthy and free from any injury.
• Absence of pre existing diseases
• Zero-grazing in urban and may be field grazing in rural.

Example
• Let say Kebede insured 20 Goats,10 Sheep and
20 Cattle in yirgalem.
• 1cattle = Br.15,000
• 1Goat = Br.800 and
• 1sheep= Br. 700
TIHV = [800*20+700*10+15,000*20]
= [16,000+7,000+300,000.00]
= 323,000.00
Premium = ETB 7.54%* 323,000.00
= ETB 24,354.2

B. INDEX BASED LIVESTOCK INSURANCE
is used to protect against shared rather than individual risk
such as the risks associated with weather fluctuations,
disease out breaks or price loss.

1. The geographical area that the contract covers.
2. The “premium” or the price paid for insurance coverage.
3. The “strike point,” meaning the index level at which the insurance is
activated and payouts begin.
4. The value that will be paid for each livestock unit that is later
estimated to have been lost.
5. The length of time for which paid coverage lasts.
The IBLI contract stipulates five key parameters:

 Unlike traditional insurance which assesses loses on a case by case basis and makes
payouts based on individual client’s loss realizations, IBI offers policy holders a
payout based on the external indicator which triggers a payment to all insured
clients within a geographically defined space.
E.g:-damot gale family insures an index insurance for there cattle as follows;
1TLU= Br.10,000.00 and
 Damot gale has 10TLU,then the
Sum insured=10*10,000 =Br.100,000.
Premium=100,000*3.5%(assumed) = Br. 3,500.00
Strike point = 15%(assumed)
First period predicted mortality rate = 12%
Second period predicted mortality rate =20%
First period=nill
Second period=20-15%=5% there fore damot gale family will receive 5%*100,000.00=5000 birr
each

- Insured to report loss immediately
- Responsible for loss prevention
- The animal is the property of the insurer following a
loss
- Post- mortem, to be conducted by a vet to
determine cause of loss.
- Quantum determined, agreed and claim settled

THANK YOU !!!
Legal framework:
agricultural Insurance
Government
Farmers

# Agricultural Insurance.pptx

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# Agricultural Insurance.pptx