The chaos of agricultural insurance premium rebates urgently needs to be addressed

In order to attract farmers to insure, some insurance companies have resorted to the tactic of “premium rebates”, promising insured farmers a rebate of 1 times or even 2 times the premium. If a disaster occurs, the “rebate” can be “honored” in the form of disaster loss compensation or even ex-gratia payment; if no disaster occurs, then they can only fabricate fake claims to give the insured farmers their rebate. The “premium rebate” returns the premiums the farmers paid themselves. It appears to give farmers a benefit, but in fact the insurance company still profits, because premium subsidies given to farmers by governments at all levels end up in the insurance company's hands.

It is an unavoidable fact that collecting premiums from scattered farmers is difficult. But difficulty in collecting premiums is only a surface phenomenon. The spread of the “premium rebate” problem is not entirely an inevitable consequence of “difficulty in collecting premiums”. The main reasons are:

First, the decision-making goals of small farmers operating agricultural production are inconsistent with the decision-making goals of national agricultural development. For most small farmers, especially farmers in the eastern region, their household's main income comes from non-agricultural industries, and the harvest from farming has little impact on their household income. Therefore, their interest in farming is not high, and some even give up cultivation. Measured from the perspective of their own economic interests, agricultural insurance is dispensable to them, and naturally they do not attach much importance to agricultural risk management. The state, however, needs agricultural modernization to bring about sustainable agricultural development. As an indispensable means of risk management, agricultural insurance can provide risk protection for the state's agricultural development strategy.

Second, the decision-making goals of some insurance companies operating agricultural insurance are inconsistent with the government's principle and desire of adopting “market operation” in the development of agricultural insurance. The government intends to reduce farmers' premium burden through fiscal premium subsidies, increase effective demand for agricultural insurance, and support the development of agricultural insurance, while insurance companies are mainly driven by premium scale and profit goals. In order to tap this pot of gold, they even do not hesitate to operate in violation of laws and regulations.

Third, for scattered farmers who lack the desire to insure, persuading them to pay part of the premium requires a great deal of work and relatively high costs. The purpose of fiscal subsidies for part of agricultural insurance premiums is to encourage farmers to insure. But if such a policy creates the wrong incentive direction and violates the original intent of formulating this policy, then the effect of the policy needs to be re-examined and evaluated.

In fact, the chaos of “premium rebates” is not incurable. According to the author's investigation, it can be addressed at least from the following aspects:

First, insurance companies operating agricultural insurance need correct guiding principles. Although government-supported projects will not make participating insurance companies bear excessively high operational risks, nor will they easily let insurance companies go bankrupt, they also cannot give them huge profit margins.

Government finances can adjust the structure of agricultural subsidies, appropriately increase the subsidy intensity of central and provincial finances for agricultural insurance premiums, and can also, within the scope of agricultural subsidies, allow the portion of agricultural insurance premiums that should be borne by farmers to be deducted and paid from other agricultural subsidy funds (such as the “three subsidies”), simplifying the payment procedure.

Second, solve the problem of small farmers' low enthusiasm for insuring through innovation. As far as the author understands, some companies, through innovative products or innovative insurance services, have provided farmers with products and services of relatively high “added value”, mobilizing farmers' enthusiasm for insuring. Other channels to help farmers pay insurance premiums can be developed. For example, some leading agricultural enterprises or agriculture-related enterprises are willing to pay insurance premiums for farmers, and under the condition of obtaining farmers' consent, it can be attempted to realize zero-premium insurance for farmers. Of course, in this case, when disaster losses occur, the indemnity can only be requested and enjoyed by the insured farmers, that is, the indemnity has nothing to do with the enterprise paying the premium on their behalf.

In areas with the necessary conditions, useful experience from the United States can be drawn on to develop insurance types similar to the U.S. “CAT” (agricultural catastrophic risk insurance). For farmers who are very small in scale and lack enthusiasm for insuring, agricultural insurance products with relatively low protection can be provided, with most or all of the premium borne by the government, and farmers paying only a small part or no premium at all.

Finally, companies operating agricultural insurance should strengthen self-discipline, and regulatory authorities should also increase the intensity of accountability, strictly governing and punishing the chaos of “premium rebates” in agricultural insurance. Whenever an insurance institution is found to have engaged in “premium rebates” or obtained fiscal subsidies through fake insurance contracts, not only should the responsible persons and actors at the provincial, prefectural and county levels of the company concerned be severely punished in accordance with laws and regulations, but responsibility may even be pursued up to the head office. For companies that repeatedly commit serious violations, consideration might as well be given to suspending business in that county or even that province, and not allowing them to enter the local agricultural insurance market for several years.

(The author is a professor in the Department of Insurance at Capital University of Economics and Business and director of the Rural Insurance Research Institute)