In this edition of Peak Insights, we look at agricultural insurance in China, where premiums have grown substantially in the past ten years to become the world’s second largest agricultural insurance market after the United States. The rapid transformation of the agricultural insurance market in China can be traced back to the introduction of premium subsidies in 2007. The Central government had started to view insurance as a financial tool to help stabilise farmers’ incomes, achieve its goal of food self-sufficiency and maintain social stability.
Crop insurance plays a vital role in protecting the rural population against the impact of weather-related catastrophe events, which reduce yields and destroy assets and livelihoods.
To continuously narrow the protection gap, the Chinese government has launched an effective public-private partnership, subsidising agricultural insurance premiums and continuously implementing initiatives to better protect the interest of the rural households.
Under the government subsidy scheme farmers pay only 20% of the premium, making agricultural insurance feasible for insurers and affordable for farmers. Until subsidies were introduced, agricultural insurance was viewed as prohibitively expensive by farmers.
From a premium growth and covered area perspective, the subsidy scheme can be regarded as a success story.
However, despite its rapid growth, the scheme only covers 16% of the total value of China’s agricultural production. Clearly, much remains to be done to narrow the agricultural insurance protection gap in China. Making agricultural insurance more attractive to Chinese farmers is a difficult task as it needs to strike a balance between the buyers’ needs and the reality of government budgets.
The Central government is well aware of the challenges associated with narrowing the protection gap in rural areas. Hence, it may also steadily increase its share of the total subsidy, which would relieve the financial pressure for local governments and facilitate a meaningful reduction of the agricultural insurance protection gap in China.
Closing the insurance protection gap goes to the heart of Peak Re’s mission to support its clients in offering effective risk transfer and financing solutions for sustainable economic growth.
We hope this publication provides useful insights, in particular for insurers already operating in the market or considering entering this important segment.
