Need for Sustainable Service Model to Promote Agriculture Insurance

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Agricultural crop insurance is a restricted instrument in that it only addresses production and yield losses because of weather and natural risks, providing limited coverage for the growing crop from the time of sowing or crop emergency through to completion of harvest.
--By Meekha Tuladhar
The government introduced crop and livestock insurance programme in early 2013 to encourage farmers as well as to bring new investment in the agriculture sector. The programme aims to build resilience among farmers against climate- and weather-related risks. Binding credit market constraints and incomplete insurance have reduced investment in agriculture/livestock, leading to lower riskier production choices. Insurance Board (IB), Nepal has already introduced a crops, livestock, and poultry insurance directive which makes it mandatory for all non-life insurance companies to come up with insurance products on crops, livestock and poultry. The directive was supposed to provide relief to individuals and firms engaged in agriculture business, while paving way for banks and financial institutions to channel more funds into the agriculture sector, which has remained neglected for long. The government announced 50% subsidy followed by 75% and is said to be planning to hike it to 90%. However, it is still getting a lukewarm response. 
Why have farmers in Nepal made a lukewarm response to crop insurance? Officials at the Ministry of Agricultural Development cite the lack of awareness as the reason behind the crop insurance policy not gaining popularity among farmers. But that is not the only reason. No doubt that the crop and livestock insurance in Nepal is still in its infancy. There are several reasons for its unpopularity among the real targeted farmers; such as the policy covers only the cost of production making it not so attractive. Next, there’s an inadequate awareness campaign as well as lack of transferring technical know-how to local officers overseeing the agriculture and livestock sector. Advertisements, awareness and capacity building (training of trainers) to the agriculture officers are not enough to achieve the targeted result of crop insurance in Nepal. 
Further, there is the lack of a clear distribution channel i.e. insurance agents and insurance service providers. Moreover, there are difficulties to collect all requirements (documents) to claim insurance viz. Muchulka, photographs, and recommendations (from District Agriculture Development Office, Municipality and VDC). Most importantly, the insurance companies do not look motivated despite the 75% premium subsidy announcements. The farmers are either unaware of the scheme or have no access to the insurance services in the field level. Cost of production per crop is unidentified and varies widely. The insurance companies find it too risky to invest due to the lack of reinsurance service and difficulty to breakeven the huge transaction and other related costs. Hence, unless a clear and sustainable crop insurance service distribution model is planned, designed and delivered, the future of crop insurance will remain questionable.
Although the demand for insurance in Nepal is weakly increasing, the receipt of insurance pay-outs by some farmers has helped to encourage others. For instance, a premium pay-out of Rs 69,000 to a tomato farmer in Nepalgunj has attracted a lot of other farmers in the area to farm tomatoes. Similarly, some projects in Nepal are trying to boost awareness in their project areas. High Value Agriculture Project (HVAP) in the hills and mountains facilitates insurance companies and financial institutions to explore piloting on crop and livestock insurance in the rural project areas. Multiple insurance companies are invited regularly during the multi-stakeholders platform workshop to prioritise and strategize ways to work on the strengths, weakness, opportunities & threats of the selected commodities’ value chain development. They are oriented on project modalities and plenary discussions. This has sensitized the stakeholders to explore the importance of agriculture insurance and helped insurance companies to explore the profitable entry points. 
The project has also helped them to make strategic alliances with the local agriculture and livestock service centers. The results have started to show with increase in farmers’ number insuring apple orchards, goats and vegetables - three of the seven commodities the project is currently developing value chains of. The project has been able to show the scope to the companies, create a service model, make the farmers aware, and identify the cost of production.
Of course, insurance is not a universal solution to the risks and uncertainties which farmers and other actors in agriculture face. It can only address part of the losses resulting from some perils and is not a substitute for good on-farm risk-management techniques, sound production and farm management practices, early weather forecasts and investment in technology. Agricultural crop insurance is a restricted instrument in that it only addresses production and yield losses because of weather and natural risks, providing limited coverage for the growing crop from the time of sowing or crop emergency through to completion of harvest. It does not however usually address downstream sources of risks including post-harvest storage losses, or market price risk. However, since climate change and poverty reduction remain the most important challenges of this decade, and mountain areas are particularly vulnerable to the impact of climate change, farmers can surely benefit from crop insurance to some extent. 
Both the government and the insurance companies need to think out of the box to penetrate the market and make it a win-win situation for themselves and the farmers. There’s a need to design a plan of actions, institutional set-up for implementation, standard monitoring and evaluation arrangements for effective implementation and arrangement of high level coordination mechanism at not just the central, regional and district level but also at the farmer’s level. Such a move will indicate the Insurance Board’s commitment to the agenda of developing, systemizing, regularizing and regulating the insurance business of Nepal and its commitment to help farmers build resilience against risks. 
There’s a need to avail trained insurance agents at grass-root level. There is a need to send insurance agents at the doorsteps of farmers to make the latter aware of the benefits of insurance and take the services, just like the life-insurance agents who approach person to person selling the product. There is a huge potential to use lead-farmers, local resource persons (LRPs), agro-vets, students and local leaders as insurance agents to expedite the insurance service distribution. The government seems to put a good effort to develop the crop insurance culture in Nepal and it’s a high time that the private sector insurance companies became proactive to develop and implement a sustainable service model at the farmers’ level. If high risk-low profit and huge transaction and administrative costs are some issues, strategic alliances with micro-finance companies, local organisations, development projects etc should be explored.
To conclude, there’s a need for change in attitude in both the demand- and supply-side of the crop insurance service; the embezzlement temptation in the former and the lack of willingness in the latter is widening the gap. Hence, since awareness and easy availability of service can stimulate the demand for crop insurance, responsible institutions have to immediately take steps to develop and enforce a sustainable service model. In the meantime, the Ministry of Agricultural Development and the Insurance Board should enforce strengthened supply of crop insurance services by supporting insurance companies to design and deliver commercially-viable products and services.
The writer is Value Chain Development Advisor at SNV Netherlands Development Organisation, Nepal.

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