Capacity Building for Agriculture Insurance: Lessons from Developed Economies

Abstract

Purpose: Agricultural insurance has been offered in some developed economies for more than a century. In contrast, the sector remains underserviced in low and middle-income economies. Penetration of agricultural insurance exceeds 1 percent in developed economies but in low and middle- income countries, the agricultural insurance penetration is less than 0.3 percent. The gap between the penetration of non-life insurance and agricultural insurance increases as development status decreases. The purpose of this research work is to outline lessons from developed economies on how capacity building for agriculture insurance is done. Methodology: Relevant books references and journal articles for the study were identified using Google Scholar. The inclusion criteria entailed papers that were not over five years old. Findings: The study findings showed that insurance company' in enveloped economies sell crop insurance policies through financial institutions or cooperatives, which are particularly important in marketing crop hail insurance. It was also found that in the developed economies, there is a national climate change policy as a means of capacity building for agriculture insurance. This policy helps the government to plan for training of staff and policymakers on how to advise farmers to take agricultural insurance. This policy also help in enhancement of the administrative and technical capacity of government institutions responsible for handling climate change related issues that affect agriculture insurance Recommendations: The study recommend policymakers in developing countries to focus on imperfections on the pricing of agricultural insurance products. This will help policymakers designing public support programs aimed at reducing the cost of insurance thus developing insurance products that are attractive and affordable to farmers and financially viable and sustainable for insurers. The study also recommend developing countries to embrace modern insurance pricing approaches that are based on the credibility theory such as the experience-based approach. This approach has been promoted in several developed countries to cover systemic risks because it allows for the adjustment of the expected loss based on additional credible information such as insured losses of other products. The study further recommend developing countries to promote insurer- insured partnerships.