The current system of agricultural insurance is unsustainable, according to Zhu Junsheng 朱俊生 State Council Development Research Centre (DRC) Institute of Financial Research professor, due to high administrative costs and high levels of insurance fraud.
In an editorial published on DRC's website, Zhu proposes adjustments to ensure profitable and sustainable operation of the agricultural insurance industry.
Zhu identifies the following problems
- high costs to set up policies and assess claims due to
- multiple risk insurance structure
- policies extended to individual farming households
- high rates of insurance fraud due to
- poor internal control and high levels of local authority result in extending inappropriate coverage
- false or exaggerated claims prevalent in some areas
- overcharging by local staff prevalent in other areas
- arising due to
- mismatch between China's small scale, decentralised farming structure, and traditional agricultural insurance products designed with large-scale farming operations in mind
In order to build a sustainable agriculture insurance industry, Zhu recommends
- establishing a public-benefit agricultural insurance system in which
- government supports a basic policy for all farming households
- individual farmers can pay to expand scope of coverage
- replacing traditional insurance products with index insurance
- bases coverage on regional yield or weather indicators rather than individual claims
- greatly reduces investigative burden
Zhu says the development of agricultural insurance needs more policy support, including
- financial support for piloting innovations in agricultural insurance
- include index insurance in the scope of central financial subsidies so companies can actively explore the approach
- provide subsidies to establish a public-benefit agricultural insurance system
- build the infrastructure needed for an index insurance system, including meteorological data collection sites
- National Bureau of Statistics, Ministry of Agriculture, and China Meteorological Administration should strengthen coordination and improve data availability and quality through data-sharing and verification
- revise 'Agricultural insurance regulations' to reduce institutional risk for companies that want to innovate by
- better defining and constraining the government’s rights and role in agricultural insurance
- incentivising farmers to participate in agricultural insurance while disincentivising fraud