IMPORTANCE OF CROP INSURANCE - STATUS (Pt 2)

INSURANCE is an economical method to cope with the impacts of climate change on the economy. Based on the ways in which the insurance products are developed, the insurance can address a wide range of risks brought about by both non-climatic and climatic inception. Insurance, when present is largely subsidized in developing countries especially in the agriculture sector. Actually, by contrast the insurance is not mandatory or is largely absent in the urban sector. The fact that insurance also provides chances to build private-public partnerships and reduces dependencies on public resources during the post-disaster reconstruction and relief stages. Communities can rapidly reestablish and restore their business and living arrangements. Agricultural insurance has been shown to increase the rate of uptake of formal credit by farmers that enhance their agricultural operations and maximize profits. By contributing to the regularity and security of income, insurance could lead to an increase in inputs, including investment, in croplands. The availability of liquid capital after disasters also reduces the need for households to sell assets and reduces credit constraints. Such reduction helps farmers escape from a poverty-vulnerability cycle. This article in blog "Anim Agriculture Technology" I write about the importance of crop insurance for references.

Although insurance premiums in the agriculture sector in the Asia-Pacific region have doubled in recent years, the total value of premiums in the region is less than 20% of the total global value. Even in areas where insurance is available, the effectiveness of the current insurance products in terms of disaster risk reduction (DRR) and climate change adaptation (CCA) appears to be limited. DRR is “the process of reducing exposure, lessening underlying vulnerabilities, better management of resources and improved preparedness towards future hazards”. Therefore, DDR is clearly relevant to CCA. These definitions show that both CCA and DRR address the underlying causes of vulnerability to a hazard or risk. In addition to shocks that the climate change also addresses the need for long-term adjustment to slow down the onset of changes. Traditionally, the insured are not required to invest pay-outs in better risk mitigation practices. As a result of this issue every disaster and the resulting pay-outs can perpetuate the risk. Thus, the assessment of insurance effectiveness in the contexts of DRR and CCA requires consideration of appropriate indicators. In Malaysia's highly vulnerable state so that insurance is an essential tool for managing risk at every level. The first level was accentuates mitigation of risk, which the present reaction-driven systems are not capable of; followed bya (2) provides a practical method for adapting to the financial effects of atmosphere- and climate-actuated perils; (3) covers residual risks to reinforce CCA schemes, which are not secured by other risk mitigation components, including establishing regulations, land use planning, and disaster management planning; (4) balances out provincial earnings and then the consequently decreases the hostile impacts of negative shocks on earnings and economic and social improvement; (5) opens opportunities to build private-public partnerships; (6) reduces dependencies on public resources at post-disaster reconstruction and relief; (7) assists groups and people to rapidly re-establish and restore their business and living arrangements; and (8) addresses a wide range of risks stemming from both non-climatic and climatic inception, based on the ways the insurance products are developed.

Reported that with the numerous disasters that Malaysia has been experiencing, the people continue to face various risks, such as flood, severe haze, and landslide. In this regard, knowledge, education, and practices have a positive and significant influence on the reduction of disaster risks. The agricultural sector of Malaysia combines large-scale plantations with a huge number of small-scale manufacturers. However, large-scale enterprises are more concerned with buying insurance. Agriculture insurance coverage is accessible for oil palm, cocoa, rubber, and some types of timber trees, as well as tropical fruits like durian, mango, and mangosteen. Like many countries, Malaysia has several experiences with agriculture insurance. However, insurance companies need skilled personnel and appropriate insurance policies, according to the risks. Agriculture is the biggest sector in Malaysia, where agriculture insurance can cover existing hazards. Being a growing economy, agriculture insurance ensures probable risk reduction in crop production. However, most of the support comes from private insurance companies. Due to the competition among private insurance companies, a certain price advantage is given to plantation owners. The impact of calamities on Malaysian farmers calls for some practical financial support, particularly for those who cultivate food and cash crops. The United Nations International Strategy for Disaster Reduction (now: UNIDRR) confirms that Malaysia is prone to natural disasters. The impact of natural disasters, i.e. events triggered by natural processes such as floods or landslides, has often severe consequences and often reveal people and assets vulnerability. Natural disasters also entail storms, landslides, tsunamis, and floods. In the past 30 years, floods have caused the worst damage to the Malaysian economy. During this period, the Malaysian agricultural sector also has suffered losses due to floods. Malaysian farmers are exposed to various losses associated with natural perils, such as drought, crop disease, floods, and hails, changes in weather, pest outbreak, and windstorm. Usually, the coverage provided by the private insurance sector is not sufficient due to the limited insurance products and packages. However,  reported that the majority of the policyholders is large-scale plantation companies.

In the ASEAN region, an agricultural insurance program is generally accessible either in a pilot structure or a completely developed national-level system. Table 1 shows the estimated damages and losses in the agricultural sector in several ASEAN countries. The degree of exposure of the agriculture sector to hazards differs from country to country. The amount of losses and damages incurred by this sector varies across the countries. For example, recorded that about 4.57% of GDP is estimated to be lost in agricultural production annually in Vietnam. In Malaysia the value of USD 8.48 million of loss and damages were occurring due to calamities such as floods and landslides. Disaster in Malaysia is comparatively less than in other ASEAN countries, but the losses in agriculture need attention to ensure sufficient production. The Malaysian agricultural sector has suffered significant losses due to floods. The government has allocated huge amounts of compensation to cover the losses in agriculture due to flooding. In December 2006, flooding caused losses in the agricultural sector amounting to USD 18.9 million, which affected 6,797 farmers and 8,322 ha of arable lands. For these losses normally the government spent USD 2.5 million in financial aid for farmers. In the December 2007 flood fo example, the estimated losses amounted to nearly USD 18.4 million, 46% of which were covered by the government. The trend shows that the Malaysian government spent more in 2007, compared with 2006. These losses are a growing burden on government revenues, which otherwise could have been invested in other development sectors. Malaysia has one of the highest proportions of plantation crops in Asia. Most of these plantation crops need sufficient insurance coverage for overcoming major hazards. In particular, damages suffered by the paddy farmers in the Muda Agricultural Development Authority (MADA) area were estimated at 76,287 tons (on an average of 5.5 tons per hectare), with a total value of USD 13.8 million. The losses were due to the worst flood in 2005, in which 19,185 ha (20% of the area of MADA) were affected. This article divided in two 92) segment that is Part 1 ad Part 2 respectively. Thanks....

By,

M Anem,

Putrajaya,

Malaysia.

(January 2024).