Background

Agriculture is an integral component in the economy of many countries worldwide.

The “liberalization” of international trade has heightened government interest in risk management strategies which promote local agriculture yet comply with global trade agreements. Crop insurance has a myriad of forms addressing a wide spectrum of agricultural risk management demands, from supporting governmental aid for regional disasters to stabilizing farm-level credit or revenue. Risk management in its most basic form may provide agricultural insurance that can be used to insure governments against regional crop failure. These governments can then use insurance proceeds to provide regional disaster aid packages (e.g., food and feed supply regional assistance). When sufficient individual data are available, sophisticated, individual, farm-level revenue insurance can provide a safety net for individual agricultural producers. A whole range of options between these approaches is appropriate for specific situations, but only if the insurance can be developed in an appropriate manner to address local circumstances and if the local infrastructure is developed.

Many private insurance and reinsurance firms see agricultural insurance in rapidly growing emerging markets as an opportunity to expand their business operations and diversify risk portfolios with potentially uncorrelated exposures. However, to be effective, viable, and attractive to insurance markets, crop insurance programs need to be designed for local conditions, be useful to the agricultural community, follow sound actuarial and operating principles, and be appropriately priced for the risk exposures. While interest in agricultural risk management is expanding, design knowledge and practical operating experience is very limited. A recent article by Swiss Re in their industry report, sigma, suggests that the emerging agricultural insurance markets in developing countries have the potential to increase from the current estimate of USD 1 billion to as much as USD 10 billion in a relatively short period, with private and public sector interactions.

This document describes the value of the International Institute for Agriculture Risk Management to efficiently provide the knowledge and technical capacity to develop the local expertise and operational support required by private industry and government involved in the development, administration, and delivery of appropriately designed crop insurance programs worldwide. The Institute provides a mechanism for private firms, non-profit organizations/foundations, and governments to support the training, educational and research needs of agricultural insurance practitioners who are integral to the future viability of a sound risk management strategy in developed and emerging markets.

The Institute will provide focused courses for crop insurance executives and interested senior government officials to outline the principles of risk management and insurance solutions, the need for skilled practitioners and the role of governance, legislation and agriculture policy frameworks to support development. A separate curriculum focused on participatory learning experiences and interactive practical development of insurance/risk management solutions will be developed for beginning, intermediate, and advanced level personnel in operations and management. Collectively, the courses provide the knowledge and experience to establish appropriate feasibility parameters for insurance plans and a local network of knowledgeable agriculture insurance practitioners and the corresponding infrastructure to support insurance in unique situations. For example, in countries where data paucity, budget limitations, and infrastructure constraints are concerns, index-based, area-yield and area-price plans are a fundamental element of Institute coursework. In developing countries where crop insurance programs already exist, the Institute can provide technology transfer and training to support improved program design, operational efficiencies, and data management, as well as training to support modeling and transfer of risk to the reinsurance industry and capital markets. In addition, the Institute can partner with local delivery and design networks providing third-party advice and liaison among stakeholders as well as an interactive link among international client groups to provide ongoing support and a potential for practical work exchange experiences.

The International Institute for Agriculture Risk Management will also offer training for participants from countries with advanced crop insurance systems, providing an environment for upgrading personnel skills and practical succession planning; a means for professionals to stay current with new design and operating technologies; and an interactive forum to gain practical knowledge of crop insurance research, programs and operating systems underway or in development in other jurisdictions. The course curriculum can be customized by the Institute faculty for the participants and will include case studies from around the world that compare and contrast alternative design and delivery solutions. Active, participatory learning will help participants develop real-world solutions to contribute to economic stability and improved conditions for populations who currently have limited access to risk management tools.