Insurance for Risk Reduction: Challenges and Opportunities

Event: UKM-SEADPRI Forum 2016
Date: 6th October 2016

The presentation provides an understanding of the idiosyncratic and covariate risks associated with agriculture, provides an overview of the risk management approaches to address the risks in agriculture production and evaluates the risk insurance as an effective risk management approach for the most vulnerable in agriculture. Asia pacific region is highly vulnerable to climatic hazards. We have seen that farmers and governments are prone to the financial burden. While there are several risk management options, we have seen that risk insurance is slowly gaining importance in the Asia pacific region for the benefits we discussed. For the insurance to be effective, it is important that the insurance premium prices are kept affordable while still being profitable for insurance companies. However, there is a need to move from traditional indemnity insurance approaches to index-based approaches to avoid moral hazard, adverse selection, and other costs. In terms of long-term risk reduction, insurance in itself may not lead to long-term risk reduction if the risk price signal is not conveyed to the farmers and if the insurance is not mandatorily combined with risk mitigation options such as best management practices.