Conference Insurance in Azerbaijan: New perspecties Agricultural insurance in Russia: the deelopment and future perspecties Korney Bizhdo NAAI President Baku, 21 June 1
Agriculture in Russia 2 4,4 % of Russian GDP $ 97 billion agricultural production +69% growth in production (2017/2012) 5,8 % of Russian export ($ 20,7 Billion, +21,1%) Financial indicators: $ 4,3 billon state subsidies $ 20,6 billion olume of short-term crediting $ 6,4 billion inestment in fixed assets Market participants: 36 thousand agricultural organizations 175 thousand indiidual farms Agricultural resources 10% of arable land of the world Crop acreage: 80,6 million ha Liestock: 627 million heads Sources: Ministry of Agriculture, Rosstat
Agricultural insurance deelopment as a key element of agricultural policy of Russia Agricultural policy Second State Agriculture Deelopment Program (2013-2020) The Law on agricultural insurance First State Agriculture Deelopment Program (2008-2012) The Law On the Deelopment of Agriculture 2007 The NAAI is established 2012 Cardinal reision of the agricultural policy principles 2016 Start of statesupported agricultural insurance system Transition to an unified insurance system 2017 2018 The single subsidy problem; legislation changes are prepared Elaborating the III State Agriculture Deelopment Program for 2020-2030 Search for new directions of deelopment Agricultural insurance The creation of the NAAI in 2007 was the response of the insurance industry to Russia's transition to long-term agricultural policy based on the law. From 2016, there is a reision of the principles of state support for agriculture in Russia. The NAAI s opinion: agricultural insurance needs to be included in the State Agriculture Deelopment Program as the most important risk management tool. 3
The main agricultural risk eents in Russia, 2007-2017 4 African Swine Feer, 2007-2017: $ 1,5 billion estimated direct economic damage $ 1,2 bln Catastrophic Drought in Russia $ 1,4 bln The first outbreak of ASF 2007 Drought in Siberia 2010 Flooding in the Far East $ 207 million 2012 2013 2014-2017: a faorable period for crops Realization of price risk 2014-2017 Regional-scale emergency eents in 2017 32 regions has declared emergency state 20 regions were authorized for state compensations $ 62 million olume of state compensations paid Created after the period of the seere weather conditions for Russian agriculture, the agricultural insurance has to work in the most faorable period for crops Regional-scale emergency eents were registered annually during the 10 years
The role of agricultural insurance in compensation for the disasters, 2012-2017 5 Total, 2012-2017: Billion rubles $719 $423 2012-2017: $1,1 billion direct economic damage caused by the natural disasters $423 million olume of the state compensations paid to farmers $719 million claims paid by insurers Sources: Ministry of Agriculture, Bank of Russia, NAAI
State-supported insurance Key indicators (2012-2017) 6 Legal and regulatory framework $1,7 billion insurance premiums > 30 thousand policies Up to 6-7 thousand policies per year $0,7 billion losses paid Completed Guarantee system Functioning Unified rules and standards Implemented State support for crop and liestock insurance both allocated State support for liestock insurance only Farmers did not insure agricultural risks State support for crop insurance only Agricultural risks insured without state support Use of agricultural insurance in 2017 Territorial penetration: 76 regions used agricultural insurance 55 regions proided state support: - 36 regions for crop insurance - 49 regions for liestock insurance
Agricultural Insurance Main Principles of the State-Supported Program 7 Supported insurance programs are Crop and Perennial plants insurance Liestock insurance (since 2013) Aquaculture insurance (since 2019) Voluntary insurance Main conditions are set by Federal Law Premium subsidies are 50 % of the insurance premium Insurer must be a member of NAAI 80 % of the insurance premium forms reseres (75 %) and compensation fund (5 %)
NAAI main responsibilities are defined by the Federal Law on State- Supported Agroinsurance 8 To deelop Standards of professional actiity Approed by the Central Bank of Russia To deelop unified Insurance Proisions Approed by the Ministry of Agriculture, the Ministry of Finance, the Central Bank of Russia To control members compliance with the standards and rules of professional actiity To form and operate a compensation fund for cases of an agroinsurer s bankruptcy To suggest the Ministry of Agriculture with The Annual Insurance Plan The Methods for calculating insured alue and claims To collect and publish agroinsurance statistics
State-Supported Insurance Insured Objects 9 Crop insurance Liestock insurance Objects insurable with State-support specified by the Law Aquaculture insurance (from 2019) Includes 14 groups of crops Includes 9 groups cereal, legumes, oilseeds, technical, forage, melons, potato, egetables, grape, fruits, berries, nuts, hop, tea cattle; sheep and goats; swine; horses; camels; deer; rabbits and fur animals; poultry; families of bees Fish, inertebrates, seaweed Groups of crops could be specified by the Ministry of Agriculture in the Annual Insurance Plan Insurance Plan for 2017 includes all groups and oer 100 species Insurance Plan for 2017 includes all groups with some age limitations (except cales under 2 months for example) To be included in Insurance Plan for 2019 Policy should be issued within 15 days after the end of seeding Period of insurance should be at least 1 year Period of insurance should be at least 1 year
State-Supported Insurance Main Conditions 10 Crop insurance Liestock insurance Insurance eent Loss of Yield exceeding (franchise): 20 % (25 % in 2015, 30 % till 2015) of 5-year aerage Death Forced slaughter Deductibles 0-30 % of Sum Insured (up to 40 % before 2015) Sum Insured 100-80 % of Insured Value Methods for calculating insured alues and losses are set by the Ministry of Agriculture
State-Supported Crop Insurance in 2017 Market Structure Insured Objects 11 Crops In total premiums Liestock The main trends: - The share of technical crops insurance increased from 4% (2012) to 27% (2017) - The share of pigs insurance increased from 21% (2013) to 59% (2017)
State-Supported Insurance Insured Risks 12 Crop insurance Liestock insurance Perils insured with State-support specified by the Law Natural hazards (21 phenomena): drought, winter kill, frost, hail, waterlogging, hurricane, earthquake, natural fire, flooding, etc. Epiphytotic spread of noxious organisms Additionally for irrigated crops and greenhouses Electricity, heat or water supply breakdowns due to natural hazards Contagious diseases Natural hazards: lighting, earthquake, hurricane, blizzard, flooding, etc. Electricity, heat or water supply breakdown due to natural hazards Fire List of the contagious diseases is set by the Ministry of Agriculture
Insured agricultural losses, 2012-2017 NAAI Members 13 Claims paid Crops Liestock 98% of losses were paid for contagious diseases outbreaks 2% of losses: - Power/water supply failure - Fire - Aalanches The main risks for the insured crops in Russia: 65,1% of claims are related to the draught & dry wind eents 15,8% to the hydrologic eents 8,6% to the winter period risks
Agriculture Insurance Insurance Penetration Aerage subsidies in 2012-2015 14 $13 $61 (Billion RUB) $115 million for crops $10 million for liestock Subsidies has dramatically declined since 2016 $ 16 $ 145 $ 67 $ 14 Strong growth in agricultural production was not supported by sufficient growth in agroinsurance Actual subsidies do not coer demand for agroinsurance Sources: the Central Bank of Russia; Rosstat; State-Supported and Non-Subsidised combined
Agriculture Insurance Premiums +25 % 15 In the non-subsidized segment, the standard insurance products for the indiidual liestock were deeloped by the market $ 84 $ 344 $ 52 $ 389-55 % 2010 catastrophic drought Boosts demand for agroinsurance Accelerate changes in the state-support legislation 2012 new conditions in the state-support for agroinsurance 2015 - new policy on insurers financial stability Withdrawal of some financially unstable agroinsurers Source: the Central Bank of Russia; Crop and Liestock insurance combined; *- 2009-2011 State-Supported and Non- Subsidized combined 2017 reforms in the agricultural policy in Russia Switch to the United Subsidy
Agricultural Insurance Premiums and Payments 16 $ 419 $ 248 $ 442 $ 141 Faorable weather conditions since 2012 aerage cereals yield has increased by 61 % number of regions with declared emergencies has decreased 2-fold Source: NAAI, Rosstat, the Ministry of Agriculture
State-Supported Insurance Aerage Figures 17 Crop insurance Liestock insurance Aerage rate, % Aerage premium and sum insured, $ thousand NAAI members only
Reinsurance of agricultural risks in Russia, 2017 18 Ceded to reinsurance from Russia: Agricultural insurance, total: - $ 16 million - 21% of direct premiums written State-supported insurance: - $ 8,6 million - 18% of direct premiums Non-supported insurance: - $ 7,4 million - 28% of direct premiums The establishment of the Russian National Reinsurance Company (July 2016) has diminished the share of agricultural insurance premiums ceded abroad. In 2017, RNRC has become the leading agriculture reinsurer in Russia with the market share of 36%.
Expected Legislation Changes 19 Crop insurance Insurance eent Liestock insurance Loss of Yield exceeding of 5-year aerage (instead of 20 % franchise) additionally: forced slaughter of healthy animals due to goernmental outbreak control measures Insured perils additionally: ery heay rain, long lasting heay rain, early appearance of snow coer, freezing of the top layer of soil Deductibles (without changes) 10-50 % of Sum Insured (instead of 0-30 %) (without changes) Sum Insured 100-70 % of Insured Value (instead of 100-80 %) Independent expert are able to use satellite data for examinations and dispute resolutions
NAAI Programs for Agricultural Insurance Deelopment 20 The programs could be partly financed by the 25 % income from inesting compensation fund s assets upon approal from the Ministry of Agriculture, the Ministry of Finance and the Central Bank of Russia Insurance Programs Proposals for the improement of existing state-supported insurance programs Deelopment and testing of new programs: index, micro-insurance, etc. Financial Literacy Regional seminars for farmers and goernmental bodies Educational materials Risk Office Identification of risk areas Modeling and prediction of risks Improing the accuracy of calculation of insurance rates Improing the quality of risk management Satellite Monitoring Clear and objectie data on the crops condition Reducing the cost of inspections Additional serices to farmers
NAAI Satellite Monitoring for Members 21 All NAAI members hae access to satellite monitoring since 2016 Insurers analyze crop conditions using satellite images and weather data Insurers can monitor crop performance, identify risk areas, target scouting efforts and etc. NAAI members hae tested mobile app for loss adjusters since 2017 Objectie Relatiely inexpensie Makes loss settlement transparent Reduces costs of policy monitoring
Concepts of the Agricultural Insurance Deelopment 22
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