AGRICULTURAL INSURANCE

Agricultural insurance is an insurance policy which provides compensation to farmers for losses suffered.

For example, the loss of their crops due to natural disasters such as hail, drought and floods or the loss of revenue due to declines in the prices of agricultural commodities.

Insurance is one of the tools that farmers and other stakeholders can use to manage risks that are too large for them to bear/manage on their own. Part of the risk is transferred to another, who takes it in return for a fee (or premium)

IMPORTANCE OF AGRICULTURAL INSURANCE

1. Agricultural insurance plays an important role in stimulating investment in agriculture and in stabilising farmers’ income.
2. Insurance can assist farmers in accessing new opportunities by improving their ability to borrow either in cash or in kind as credit facilities. In doing so, farmers may potentially experience safer and possibly higher returns
3. Another area where insurance is of relevance is in improving agricultural technology. With the security of insurance, the farmers might be more willing to take a chance with efficient technology as their risks are now being shared.
4. It stimulates investment in agriculture
5. Help to stabilise farmers’ income
6. Assist farmers in accessing new opportunities by improving their ability to borrow.
7. It helps to improve the development of new technology in agriculture.
8. It boosts farmers willingness to take a chance with efficient technology.

VARIOUS AGRICULTURAL RISKS

1. Human or personal risk: The farm operator can get health problems or even die.
2. Asset risk: This includes theft, fire and other damage or loss.
3. Production or yield risk: Most of the time, the weather is responsible, but it also includes risks like plant and animal diseases.
4. Price risk: risk resulting from a fall in price after production modification has been done
5. Institutional risk: this is associated with policy changes, which can havea negative impact on production and farm revenue
6. Financial risk: this refers to the possibility of an increase in interest on a mortgage, insufficient liquidity and loss of equity

EVALUATION

1. Define agricultural insurance.
2. State three important aspects of agricultural insurance
3. Briefly explain five agricultural risks

TYPES OF INSURANCE POLICIES FOR AGRICULTURAL PRODUCTION

Specific enterprise insurance:

This is an insurance policy that covers a particular farming enterprise. It protects the farmer against any form of loss due to disasters or calamities. It is further divided into

Crop insurance:

This is purchased by crop farmers, ranchers and anyone whose enterprise is based on crop production to protect themselves against loss of crop due to natural disasters such as flood, drought, and convulsion of nature (earthquakes, volcanic eruptions, pests and diseases) or from malicious damages. The policy may be to protect against a particular peril or collection of perils or all.

Livestock insurance:

To protect animal farmers and their allies against foreseeable and unforeseen disasters. It also gives the insurance industry the opportunity to make a meaningful entry into the rural areas.

Farmer’s vehicle insurance:

This insurance covers machinery used on the farm, such as tractors, harvesters, pumps, windmill mill etc. The premium rates in some countries are determined by the motor insurance tariff.

Life assurance

This is insuring human life in the event of death, accidents, retirement or disability. The policyholders are assured that in the event of any of the above, financial compensation will be paid to their dependents or them, as the case may be.

Insurance premium:

This is the consideration (a fee paid at a regular interval) given by the insured (farmer) in return for the insurer’s (insurance company) undertaking to compensate the insured in the manner agreed on the happening of a specified occurrence.

Indemnity:

This is the mode of compensation that the insurer employs to honour the agreement they had, put the insured back in his position before the loss.

PROBLEM OF AGRICULTURAL INSURANCE

1. Lack of skilled personnel at both the managerial and operational levels
2. Lack of awareness of the benefits of insurance to convince farmers of the benefits.
3. Uncertain weather conditions
4. Limited capacity of insurance businesses to assume risks
5. Illiteracy and the conservatism of farmers in rural areas.

EVALUATION

1. Differentiate between the following: a) Premiu,m b) Indemnity
2. State different forms of agricultural insurance policies
3. State five problems of agricultural insurance.

GENERAL EVALUATION

1. State three important aspects of agricultural insurance.
2. Explain briefly five risks of agricultural insurance.
3. State four forms of agricultural insurance policy.

WEEKEND ASSIGNMENT

1. ___ is the mechanism by which the insurer provides financial compensation to the insured in an attempt to place the insured back in the position he was before the loss. A. Premium B. Loan C. Indemnity D. Subsidy
2. All these are forms of agricultural insurance policy except A. Crop insurance, B. Livestock insurance, C. Marine insurance, D. Motor vehicle insurance
3. ___ deals with the insurance of human life, either in death, retirement or disability. A. Crop insurance B. Specific enterprise insurance C. Livestock insurance D. Life assurance
4. ___ is the consideration given by the insured in return for the insurer’s undertaking to indemnify the insured in the manner agreed on the happening of a specified occurrence. A. Premium B. Loan C. Indemnity D. Subsidy
5. Agricultural risk includes the following except A. Personal risk B. Yield risk C. Price risk
6. Premium risk

THEORY

1. What is agricultural insurance?
2. Explain briefly the following types of insurance policies for agricultural production
3. Specific enterprise insurance
4. Life assurance
5. Fire disaster insurance (WASSCE 2016 question 5 a and b).
6. Give four reasons why agricultural insurance is important (WASSCE 2017 question 6b)

See also

AGRICULTURAL FINANCING

ARTIFICIAL INSEMINATION

ANIMAL IMPROVEMENT

FISH POND

AGRICULTURAL FINANCING