Agricultural insurance will gradually play an important role in Vietnam in which more than 60% of the population live in rural areas and are largely dependent on agricultural production, according to Mr Ngo Trung Dung, Insurance Association of Vietnam (IAV) deputy secretary-general.
In an interview published by Vietnam Economic Magazine, Mr Ngo said that the reasons for this prediction include:
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Agriculture is a sector that is greatly affected by natural disasters, epidemics and climate change. Having a protection insurance product will help reduce the financial burden of farmers who may suffer from the impact of unforeseen risks, thereby protecting their income and stabilising their economic life.
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When farmers see that their assets are protected against risks by insurance, they will be more confident in developing farming and increasing production.
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When agricultural insurance is strengthened and developed, it will contribute to the overall development of the Vietnamese insurance market. Many insurance companies will participate in providing agricultural insurance products, constantly expanding and diversifying products will create a healthy competitive environment between insurance companies, will increasingly launch products that are suitable to the needs of farmers and offer more choices to farmers and agricultural enterprises.
However, currently, insurers are hesitant about offering agricultural insurance even though the state has a subsidy scheme for agricultural insurance premiums. The subsidies range from 20% to 100% of the premiums, depending on the participants (poor, near-poor, and ordinary farmers).
The compensation rate in agricultural insurance in Vietnam is often quite high, andcan be up to 70-90% for severe damage, especially in fields such as rice, aquaculture (shrimp, etc) and ,livestock. At times, the loss rate is over 100% or even over 200%. In addition, insurance companies face difficulties in placing business with reinsurers because of the huge risks.
On the demand side, many Vietnamese farmers have low incomes, so it is difficult for them to afford the insurance premiums, especially when there is no full support from the State; or the farmers do not see clear short-term and long-term benefits from taking up insurance. The appraisal work and the lack of accurate data to assess the extent of damage led to delays in compensation payouts.
On the supply side, insurance companies must carefully consider the level of risk, the level of insurance premiums to be charged, the deductible, and other terms and conditions.
To boost the penetration of agricultural insurance, Mr Ngo said, “There needs to be promotion campaigns to raise farmers’ awareness of agricultural insurance. In addition, there needs to be appropriate financial support solutions from the state.”
On a brighter note, many insurance companies have strengthened their capital position and created reserve funds to be able to respond to natural disasters and set aside reserves for unusual, large claims caused by disasters. Mr Ngo said.
The Vietnamese insurance industry also strengthens cooperation with international and regional organisations to share experiences and receive financial and technical support to respond to natural disaster risks.