Agricultural insurance paid out 74.4 billion yuan in 7 years; a catastrophe risk diversification mechanism urgently needs to be established
Since the first pilot in 2004, agricultural insurance has now been developing for more than 10 years. Data released by the China Insurance Regulatory Commission on August 28 show that over the 7 years from 2007 to 2013, China's agricultural insurance cumulatively provided 4.07 trillion yuan in risk protection and paid 74.4 billion yuan in compensation to 147 million disaster-affected farming households.
According to the reporter's understanding, agricultural insurance has not yet established a “full-chain” catastrophe risk diversification mechanism, and both the level of protection and the coverage still need to be further improved. Under local governments' strong demand to obtain subsidies, how to establish a mature central-local responsibility-sharing mechanism has become an issue that must be resolved.
Xiong Zhiguo, director of the Policy Research Office of the China Insurance Regulatory Commission, believes that as an effective tool for the government to improve rural public services and strengthen social management, the agricultural insurance system still needs to be further deepened through reform. The reporter learned that relevant departments will next attempt to gradually expand the scope of risk protection to all direct materialized costs, and carry out pilot programs for target price insurance for agricultural products such as hogs and vegetables.
Will pilot target price insurance for hogs
On August 13, the State Council issued the "Several Opinions on Accelerating the Development of the Modern Insurance Service Industry" (hereinafter referred to as the "Opinions"), which clarified the overall requirements, key tasks and policy measures for the development of the insurance industry over a relatively long period to come, and proposed vigorously developing insurance for “agriculture, rural areas and farmers”, following the principle that the central government supports insurance for bulk commodities and costs, local governments support insurance for distinctive products and yields, and where conditions permit, price and income insurance should be provided, to actively develop agricultural insurance and expand the breadth and depth of insurance for “agriculture, rural areas and farmers”.
Statistics show that in 2013 China's insured area for major crops exceeded 1 billion mu, the insured amount exceeded 1 trillion yuan, the number of insured farming households exceeded 200 million household-times, and insurance payouts exceeded 20 billion yuan. The insurance coverage rates for the three major staple grain crops of rice, corn and wheat reached 64.9%, 67.3% and 61.8% respectively. Livestock agricultural insurance performed equally prominently. On August 28, Chen Wenhui, vice chairman of the China Insurance Regulatory Commission, said at the experience exchange meeting on insurance supporting the development of the livestock industry that livestock insurance has covered all provinces across the country, and China has become the world's largest livestock insurance market.
At present, China has become the world's second-largest and Asia's largest agricultural insurance market, and is a “major” agricultural insurance country. But according to the requirements of the "Opinions", by 2020 it must also achieve the transformation into an insurance “powerhouse”.
In evaluating the agricultural insurance system, Xiong Zhiguo said that agricultural insurance is a stabilizer and booster for agricultural production. Now, grassroots agricultural insurance service outlets have covered 48% of the country's administrative villages, and innovative products such as insurance for locally distinctive advantageous agricultural products, price insurance and index insurance are constantly emerging, deepening cooperation between agricultural insurance and rural credit and also raising the scientific and technological level of agricultural insurance.
Data released by the China Insurance Regulatory Commission on August 28 show that from 2007 to 2013, China's agricultural insurance cumulatively provided 4.07 trillion yuan in risk protection and paid 74.4 billion yuan in compensation to 147 million disaster-affected farming households. At present, agricultural insurance covers nearly 100 crop varieties.
The reporter learned that relevant departments will next carry out attempts to gradually expand the scope of risk protection to all direct materialized costs, and carry out pilot programs for target price insurance for hogs, vegetables and other products, so as to resolve the contradiction of sharp fluctuations in agricultural product prices, where “low prices hurt farmers and high prices hurt the people”.
A catastrophe risk diversification mechanism needs to be established
Over the 11 years since the agricultural insurance pilot was launched, the construction and reconstruction of the system has always been the theme of development.
Xiong Zhiguo believes that because China's agricultural insurance started late and has a weak foundation, along with its rapid development there have also emerged problems such as a weak agricultural basic information management system, a level of protection and service capacity that cannot yet meet farmers' diverse risk needs, and an unsound catastrophe risk diversification mechanism.
Feng Yonghui, chief analyst at Soozhu.com, told the reporter, “Agriculture is greatly affected by natural disasters, but the occurrence of natural disasters is a low-probability event. This requires the use of some financial tools to reduce market risk, and increasing the coverage of agricultural insurance for agricultural products is also an important part of this year's No. 1 Central Document.”
The 2014 No. 1 Central Document pointed out that the proportion of premium subsidies from central and provincial finances for insurance on major grain crops should be increased, county-level premium subsidies in major grain-producing counties should be gradually reduced or abolished, and the coverage and risk protection level of insurance for the three major grain varieties of rice, wheat and corn should be continuously raised.
Data show that the varieties subsidized under agricultural insurance have expanded from the initial 5 in the planting sector to 15 across the three major categories of planting, breeding and forestry, and the subsidized regions have steadily expanded from 6 provinces to the whole country, while the subsidy ratio has also been gradually raised. At present, the combined premium subsidy ratio at all levels of government averages 75% to 80%. In 2013, the central government allocated 12.688 billion yuan in premium subsidy funds, 6 times that of 2007, with an average annual growth of 34%, and support has continued to increase.
In fact, how to smoothly pay insured farmers after a catastrophe occurs, how to establish responsibility-sharing between local and central governments, and how the fiscal authorities at all levels divide the burden of agricultural insurance premium subsidies have always been issues that the agricultural insurance system has sought to straighten out through reform.
“The actual level of protection of current agricultural insurance is in fact relatively low. For example, for insurance on the three major grain crops, the level of protection is about 300 yuan per mu, but the actual average cost is more than 400 yuan. In addition, the insurance participation rate for grain crops is about 50%, among which the average participation rate for the three major grain crops is 65%, leaving much room for improvement compared with developed countries.” Feng Yonghui told the Daily Economic News reporter, “However, as the level of protection and the participation rate rise, the amount of premium subsidies will increase, so some local governments, out of financial considerations, face certain difficulties in raising the level of protection and the participation rate, which creates a contradiction.”
On the other hand, a “full-chain” agricultural catastrophe risk diversification mechanism also needs to be established. A sound catastrophe risk diversification mechanism for agricultural insurance generally includes multiple levels such as the direct insurance market, the reinsurance market, and local and central levels, so as to effectively diversify major agricultural catastrophe risks.
According to the reporter's understanding, the catastrophe risk diversification mechanisms at the local and central levels have still not been fully established.