Page 38 - Azerbaijan State University of Economics

Y.V. Aleskerovа: Governmental support to agricultural insurance in the countries of the world

The survey results thus do not support the argument that premium subsidies are a

precondition for farmers and herders to purchase agricultural insurance. PPPs in agricultural

insurance tend to improve the financial performance of government-sponsored agricultural

insurance programs. Loss ratios (a simple measure of the financial performance of an insurance

program) seem to be lower when programs are managed by the private sector, sometimes with

support from the government through PPPs. This may be a consequence of better implementation

of insurance principles, such as sound underwriting procedures and better pricing of risk; lower

administrative costs; and greater financial discipline of private insurers [7].

Agricultural insurance is a complex line of business that requires highly technical expertise,

both in development and operational phases. Private insurance markets have proved to be efficient,

without public intervention, for dealing with non-systemic risk and large farmers, but purely

commercial insurance may not be viable for systemic risks or smaller farmers. The primary role of

governments should be to address market and regulatory imperfections in order to encourage

participation by the private insurance and reinsurance industry. In competitive markets, insurance

premiums should be risk based and differentiated, thus reflecting the underlying risk exposure [8].

Actuarially sound rates draw attention to the agricultural production risk exposure of individuals,

firms, or governments and allow them to evaluate the benefits of agricultural risk management

programs by comparing the cost of risk reduction investments with the resulting reduction in potential

losses. They inform farmers and herders about their risk exposure and provide them with incentives to

invest in risk mitigation activities (for example, irrigation) or to shift from nonviable crops to more

viable crops. Risk-based premiums can also assist governments in the financial planning of agricultural

losses through improved assessment of their contingent liability. By understanding their exposure,

governments can 14 Government Support to Agricultural Insurance: Challenges and Options for

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