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Effective execution of crop insurance policy required

Agricultural insurance is undeveloped in Pakistan. Livestock insurance was the first as crop insurance is new and was introduced in 2008 under a public private partnership for a national (in scope) crop loan insurance scheme. The State Bank of Pakistan had announced a crop insurance policy, which has yet to be implemented in a thoroughly manner. Livestock and poultry insurance has been written on a small-scale in the past by various private insurance companies. It is available on a limited basis and includes both livestock cattle, buffalo, small ruminants and poultry insurance.

Individual grower multiple peril crop insurance has been available for field cereal crops and sugar cane. The policy adopts a unique two-trigger indemnity procedure. For crop insurance, the most important delivery channel is through linkage to agricultural credit for farmers through the banks.

Agricultural insurance is compulsory for farmers who have taken seasonal loans from the banks. The crop loan insurance scheme has only been operating for the past two years.

According to State Bank of Pakistan (SBP) the scheme written premium was US$3.8 million against paid claims up to December 2009 of US$0.28 million with an implied loss ratio of about 73 percent. In 2010, Pakistan incurred devastating flooding that has destroyed much of the kharif 2010 crop. It is understood that the 2009/10 premium may be in the order of about US$6 to 8 million, and that the value of crop losses resulting from these floods may be as high as between US$10 to 20 million.

These preliminary and informal estimates need to be confirmed. It is also understood that there have been severe flood losses in the livestock and poultry sectors in 2010 and that at least part of these losses are insured. No further details are available. In spite of various initiatives taken in the past to introduce crop insurance, no fruitful result could be come out mainly due to little involvement of private sector insurance companies and non availability of reliable data on calamities, cropping pattern, etc.

The risk of losses of natural calamities to farming community remained without insurance cover and also banks considered agriculture credit a high risk and non-viable business which hampered the expansion of credit to the farming community.

Therefore, in order to improve access to credit to the farming community especially to the small farmers, SBP initiated the task of development of crop loan insurance framework with the help of stakeholders.

The member insurance companies of the Working Group reviewed the existing structure of agriculture financing and various schemes and products of agricultural production loans with the objective of perspective risk portfolio and size of the business to develop a workable market based insurance framework.

The biggest challenge was the acquisition of data on calamities, district wise & crop wise agri disbursements/recoveries, NPLs, cropping cycles, etc.

The required data was collected and compiled by SBP to facilitate insurance companies in assessing potential risks and negotiating with reinsurers abroad.

Agricultural production and farm incomes in Pakistan are frequently affected by natural disasters such as droughts, floods, cyclones, storms, landslides and earthquakes.

Destruction to agriculture is often combined by the outbreak of epidemics and man-made disasters such as fire, sale of unauthentic seeds, fertilizers and pesticides, etc.

Farmers across the country had suffered losses of billions of rupees due to floods. Small farmers have yet to receive any relief in the absence any effective crop insurance policy in the country.

Agricultural insurance is one of the most important method by which farmers can steadily increase farm income and investment and guard against fatal consequences of losses due to natural calamities or low market prices.

Crop insurance not only braces the farm income but also helps the farmers to start production activity after a worst agricultural year. It helps farmers make more investments in agriculture.

Crop insurance is introduced in all liberal countries including the US, Germany and India. It is the need of the hour that government should immediately launch crop insurance policy for small farmers in the country.

Bankers are somewhat unwilling to give crop insurance to rural areas growers and only they are providing agriculture crop insurance loans to small big land owners.

Oxfam-GB and the European Commission, agriculture experts and participants have sincerely urged the government that a public subsidy programme should be developed to create incentives for agricultural insurers to expand their services to small farmers.


The public support should stress on the development of risk market infrastructure and public goods that would offer low-cost and effective insurance to farmers, and specifically small farmers.

The federal government should develop a suitable and forceful legal and regulatory framework to support agriculture insurance.

The government along with private banks and insurance companies should sketch a program to educate the small farmers about the procedures to avail different crop insurance products to be launched in future and those existing.

The government should prepare a mechanism for coordination among different existing pilot crop insurance schemes. The successes and failures of these pilots should be assessed and the schemes should be freshened up accordingly.

In countries having a number of risk insurance schemes, government`s interference or its support to agricultural insurance operations has been regarded justifiable and necessary due to market unsuccessful operations.

The method of treatment also varies from country to country. For example in Canada, Japan and Philippines the insurance schemes are operating under a central government or local government body, while in the United States, Spain and Mexico, they are operated under a relationship between government and private insurance companies with the state taking the role of re-insurer.

In India, the governments permits 50 percent subsidy on premium to small and fragile farmers. Crop insurance is purchased by agricultural producers, including farmers, and others, to protect themselves against either the loss of their crops due to natural calamities , such as hail, drought, cyclone and floods, or the loss of revenue due to declines in the prices of agricultural commodities.

WTO`s regulations also support subsidization of crop insurance premiums by the governments. However, generally the government holds up programmes are often financially botheration.

Experts see crop insurance as a powerful tool in promoting and adopting modern techniques in agriculture especially by small farmers.

Despite through exercises crossing about thirty years economic and agricultural experts in Pakistan are still looking for a model crop insurance scheme, while India and Sri Lanka have been insuring crops for decades. India experimentally launched crop insurance in 1979 and officially introduced it in 1985.

Business communities have urged the government to introduce a mandatory crop insurance scheme immediately to save the farming community from financial losses.

Better insurance coverage is necessary for the development of agricultural economy which will reduce uncertainty among farming communities.

Sound agriculture insurance system would help strengthen the agriculture sector of country and successfully address the menace of food insecurity in Pakistan.

Farmers will be saved from negative impact of disease, drought, flood, pests, natural disasters, weather, rains and other risks through a proper insurance cover.

Agricultural yields can go up significantly and livestock position can also be improved if cultivators act upon improved methods which should also be covered under insurance scheme.

Insurance companies needed to be encouraged to offer wide range of products to the rural population that felt them unsafe due to frequent floods, calamities and pest attacks.

There is necessity for a mechanism to provide agricultural risk management training to people and equip them to identify opportunities and develop products that help mitigate risks.

There is a need to build the capacity of the institutions by providing knowledge and skills required to design, price and implement agricultural insurance programmes.

Success of insurance scheme cannot be achieved in a state of separation; it depends on the reforms and improvements in the whole system.

Crop insurance was launched in a meaningful manner from Kharif 2008. The National Insurance Company Ltd (NICL) and the National Bank of Pakistan agreed to enter into an agreement to provide insurance cover to farmers against crop losses from natural calamities and their exposure to bank loan risks.

Different companies are providing insurance policies for specific crops in particular areas. Many companies are offering insurance for seasonal crops which only covers for certain season and crops.

Preferably it is best to get a crop insurance policy on annual basis which will provide insurance cover for all the crops during a year.

The Ministry of Textile Industry has proposed introduction of ‘crop insurance policy’ with the objective to boost agricultural sector. Farmers taking loans from banks on short-term, their crops were also insured, but those who didn’t take loans were not provided with the same facility.

Insurance companies are asking for government subsidy to run the scheme as it has to do more as a social objective than as a business orientation.

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