Less than 10% of arable land in Serbia insured – Public-private partnerships a possible solution model

Less than 10% of arable land and fewer than 5% of registered farms are insured in Serbia. The agricultural insurance premium in the amount of RSD 2.04 billion makes up less than 3% of the total insurance market, and around 40% of the premium is being subsidized by the state, which in 2016 amounted to RSD 450 million of subsidized agricultural insurance.

As professor Dr Jelena Kocovic of the Faculty of Economics in Belgrade says for eKapija, the agricultural production is by definition highly susceptible to various factors outside the control of the producer. The key risk factors are natural disasters, whose intensity and frequency, under the influence of climate changes, are gaining calamitous proportions.

- The reasons for undeveloped agricultural insurance are the low standard of living of rural populace, the producers’ not being well informed on the advantages of insurance, low insurance culture, limited capacities of insurers and the deeply set attitude that the state is supposed to make up for all the damage. In such conditions, the damage made by natural disasters is still for the most part compensated by the state. Ultimately, the adverse effects are also felt by the people as tax payers and consumers of agricultural products – explains professor Kocovic.

Fundamental risk insurance the most common type

The low level of agricultural insurance is confirmed by the data from the company Dunav Osiguranje which in 2015 had a crop insurance premium of RSD 772,088,542, or 3.6% of the total premium, whereas the animal insurance premium was RSD 88,942,823 or 0.41%. The agricultural insurance premium constitutes 4.01% of the total premium of Dunav Osiguranje.

- The percentage is insufficient, considering the possibilities and potentials of agricultural insurance. That is, the participation should exceed 10% - says Jovica Jovic, coordinator for agricultural insurance at the company Dunav Osiguranje, for eKapija.

Our interviewee points out that agricultural producers mainly insure their crops against fundamental risks (hail, fire and lightning strikes) and this makes up 95% to 98% of all insurance agreements, and as for additional risks, they mostly take insurance against spring frost and storms.

- There’s very little interest among agricultural producers. They only become interested once hail or some other cause damages their crops so much that they can’t compensate for it themselves. There’s more interest in areas prone to hailstorms, where hail does more or less damage to the crops every year, whereas in areas where hail is a rare occurrence, the interest in the insurance is nearly non-existent – says Jovic.

Continual education of farmers needed

(Dunav Osiguranje has been educating farmers for five years) eKapija’s interviewee believes that the awareness of the importance of insurance in farmers can only be raised by working hard to educate them, continually, year by year. Producers need to be explained how insurance works, and that its goal is long-term protection of their production.

- Insurance needs to be voluntary and no difference should be made between producers based on whether they are big and small, or whether they are organized or work individually. Each hectare is equally significant to the society as a whole and should be treated as such. The state should encourage insurance so that the scope and the quality of production may increase year by year. So organized, insurance would take its rightful place, which is surely above 10% or even 15% of insured agricultural, that is, arable area in the Republic of Serbia – says Jovica Jovic from Dunav Osiguranje.

Professor Jelena Kocovic also wonders how to get farmers to insure their crops, considering the large budget deficit and low insurance culture. Her proposal is a public-private partnership in agricultural insurance.

- The model would include mandatory agricultural insurance as a pre-requisite for state subsidies and help. The introduction of mandatory insurance would also mean more insured farmers, which, in turn, would lead to lower insurance premiums. What’s also needed is the accreditation of insurers who could insure against catastrophic risks and the formation of an insurance pool. Reinsurance might be carried out by Europa Re, one of whose shareholders is Serbia, or by other reinsurance companies offering more favorable conditions – says professor Kocovic.

She adds that the insurance premium would be subsidized using this model, with 50% coming from the state budget in poorer regions, and 40% coming from the state budget and 10% from the local budget in more prosperous regions.

- The sum insured would be 80% of the value of agricultural production, and the state would initially be covering 20% of the damage. This model would require the formation of an association of agricultural insurers which would be in charge of, among other things, forming agricultural insurance tariffs, which would be authorized by a state supervisory body – concludes eKapija’s interviewee and notes that the formation of such an association would enable the formation of an insured farm database and the preparation of a risk map, which is a prerequisite for determining real tariffs in the future.

Marko Andrejic