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Article
Publication date: 1 January 1988

RICS Insurance Services

This paper is contributed by RICS Insurance Services Ltd, the insurance brokers operating the official professional indemnity insurance scheme for the Royal Institution of…

Abstract

This paper is contributed by RICS Insurance Services Ltd, the insurance brokers operating the official professional indemnity insurance scheme for the Royal Institution of Chartered Surveyors. The Chairman of the Company, representing the RICS on the board, is a Past‐President of the Institution. The company handles insurance only for chartered surveyors and firms in which at least one of the principals is a chartered surveyor. The company was invited to prepare this paper following the publication in autumn 1986 of ‘Caveat Surveyor’ (Surveyors Publications), a booklet in which the stories of a selection of claims under the RICS scheme are told and attention is drawn to lessons to be learned from them. It was reviewed in Structural Survey Volume 5 No. 4 (p. 306).

Details

Structural Survey, vol. 6 no. 1
Type: Research Article
ISSN: 0263-080X

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Article
Publication date: 25 October 2018

Timothy A. Delbridge and Robert P. King

The USDA’s Risk Management Agency (RMA) made several changes to the crop insurance products available to organic growers for the 2014 crop year. Most notably, a 5 percent…

Abstract

Purpose

The USDA’s Risk Management Agency (RMA) made several changes to the crop insurance products available to organic growers for the 2014 crop year. Most notably, a 5 percent premium surcharge was removed and organic-specific transitional yields (t-yields) were issued for the first time. The purpose of this paper is to use farm-level organic crop yield data to analyze the impact of these reforms on producer insurance outcomes and compare the insurance options for new organic growers.

Design/methodology/approach

This study uses a unique panel data set of organic corn and soybean yields to analyze the impact of organic crop insurance reforms. Actual Production History values and premium rates are calculated for each farm and crop yield sequence. Producer loss ratios and subsidized premium wedges are compared for yield, revenue and area-risk products before and after the instituted reforms.

Findings

Results indicate that RMA succeeded in improving the actuarial soundness of the organic insurance program, though further refinement of organic t-yields may be necessary to accurately reflect the yield potential of organic producers and avoid reductions in program participation.

Originality/value

This paper provides insight into the effectiveness of reforms intended to improve the actuarial soundness of organic crop insurance and demonstrates the effect that the reforms are likely to have on new and existing organic farms. Because this analysis uses data collected independently of RMA and includes farms that may or may not have purchased crop insurance, it avoids the self-selection problems that might affect analyses using crop insurance program data.

Details

Agricultural Finance Review, vol. 79 no. 2
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 28 October 2014

Petri Liesivaara and Sami Myyrä

The purpose of this paper is to investigate the demand for crop insurance. Moreover, farmer willingness to pay (WTP) for crop insurance was derived. Factors affecting the…

Abstract

Purpose

The purpose of this paper is to investigate the demand for crop insurance. Moreover, farmer willingness to pay (WTP) for crop insurance was derived. Factors affecting the demand were also examined in a country where crop insurance products are not currently available. Sensitivity analysis was conducted by studying the price-anchoring effect.

Design/methodology/approach

Data from a choice experiment (CE) were analyzed with mixed logit models and the distribution of farmer WTP for crop insurance was derived. A split sample approach with varying premium vectors was used to analyze the price-anchoring effect.

Findings

Demand was revealed for crop insurance products in Finland. The demand was higher among younger farmers and farms with more arable land. WTP for crop insurance products was very sensitive to the premium interval presented in the CE design.

Research limitations/implications

The price-anchoring effect may disrupt the market development of crop insurance products, because insurance companies may take advantage of the lack of awareness among farmers of crop insurance pricing.

Practical implications

The insurance product expected indemnity was a more important factor than the deductible in determining farmer WTP for crop insurance. Therefore, the 30 percent deductible level set for subsidized crop insurance products is not an obstacle for the development of such products in the EU.

Originality/value

The study applied a well-known method (CE) to crop insurance in a country where these products are non-existent. The split sample approach was used to examine the price-anchoring effect on crop insurance.

Details

Agricultural Finance Review, vol. 74 no. 4
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 5 May 2004

James G. Pritchett, George F. Patrick, Kurt J. Collins and Ana Rios

Returns to a model farm are simulated to assess the impact of marketing and insurance risk management tools as measured by mean net returns and returns at 5% value‐at‐risk…

Abstract

Returns to a model farm are simulated to assess the impact of marketing and insurance risk management tools as measured by mean net returns and returns at 5% value‐at‐risk (VaR). Results indicate that revenue insurance strategies and strategies involving a combination of price and yield protection provide substantial downside revenue protection, while mean net returns only modestly differ from the benchmark harvest sale strategy when considering all years between 1986 and 2000.

Details

Agricultural Finance Review, vol. 64 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 1 November 2002

Calum G. Turvey, Michael Hoy and Zahirul Islam

We develop a theoretical model of input use by agricultural producers who purchase crop insurance, and thus may engage in moral hazard. Through simulations, our findings…

Abstract

We develop a theoretical model of input use by agricultural producers who purchase crop insurance, and thus may engage in moral hazard. Through simulations, our findings show a combination of partial insurance coverage and partial monitoring of inputs may reduce substantially the problems associated with moral hazard. The minimum level of input use that must be required by regulation is determined to be substantially lower than the optimal or actual input level chosen by producers. Because the use of inputs for crop production occurs in many stages over the pre‐planting, planting, and growing seasons, only a minimal input requirement is needed. Thus, the cost of implementing such a regulation can be kept much lower than would be the case for a regulation of complete monitoring of input usage.

Details

Agricultural Finance Review, vol. 62 no. 2
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 2 November 2015

Claire Mosnier

From the perspectives of the probable replacement of the national calamity funds by multi-peril grassland insurance, the purpose of this paper is to estimate demand for…

Abstract

Purpose

From the perspectives of the probable replacement of the national calamity funds by multi-peril grassland insurance, the purpose of this paper is to estimate demand for grassland production insurance.

Design/methodology/approach

A discrete stochastic programming model with a three-year planning horizon was used to run simulations for farms raising suckler cows primarily with grasslands. In this model, the annual area insured and some production decisions are optimized under grasland yield uncertainty, with possible ex post production-system adjustments. The effects of insurance loading cost (14 levels), insurance coverage level (three levels), risk aversion (two levels) and stock levels (forage and animal stocks vary according to grassland yields and to farm management of the previous years) were analyzed.

Findings

The results show that grassland insurance could be used as a flexible risk management tool, when farm becomes vulnerable to fodder shortfall. According to previous years’ grassland yields and to the subsequent states of hay stock and animal liveweight, the area insured could vary between nearly the none and full. Farmers with low-average stocking rate and important hay storage capacity have less incentive to buy grassland insurance. The author also demonstrates that for a given loading cost, more insurance is purchased at a coverage level of 70 percent of average yield than at higher coverage levels. The cost of self-insurance increases for important and rare losses while multi-peril grassland insurance premium decreases. Higher levels of risk aversion also raise the quantity of insurance subscribed. Eventually, insurance price is a key factor. Almost no insurance is bought for loading costs greater than 1.1 under low-risk aversion and for loading costs greater than 1.3 under moderate risk aversion.

Research limitations/implications

The willingness to pay for insurance could have been overestimated for different reasons. First, basis risks have not been introduced in the simulation framework. Although the Forage Production Index performed quite well, basis risks are high enough to trigger inappropriate indemnifications in some cases. Consequences of these risks should be estimated in further research. Second, other self-insurance options and public emergency measures such as subsidized loan or reduction in social security contributions should also be considered to assess and reduce farmers vulnerability to risks.

Practical implications

The launching of the multi-peril grassland insurance is likely to be successful thanks to the 65 percent of public subsidies on insurance premiuml. However, considering that the loading cost is likely to be high and that demand for grassland production insurance is rather low, multi-peril grassland production insurance may struggle to continue unsubsidized.

Originality/value

This paper provides a framework that enables to estimate demand for grassland production insurance factoring in substitution with self-insurance and taking into account successive risks.

Details

Agricultural Finance Review, vol. 75 no. 4
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 3 May 2016

Ana Marr, Anne Winkel, Marcel van Asseldonk, Robert Lensink and Erwin Bulte

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance

Abstract

Purpose

The purpose of this paper is to review the most recent scientific literature on the determinants explaining the demand for index-insurance, the impact of index-insurance and the existing links between insurance and credit. In this meta-analysis, the authors identify key discoveries on the potential of index-insurance in enhancing credit supply for smallholders and thus farm productivity.

Design/methodology/approach

Following a systematic literature search in Scopus and Web of Science, relevant empirical articles were identified by using the following criteria search algorithm: “insurance” and (“weather” or “micro” or “area?based” or “rain*” or “livestock” or “index”), and ((“empiric*” or “experiment” or “trial” or “RCT” or “impact”) or (“credit” or “loan*” or “debt” or “finance”)). The authors identified 1,133 related papers, 110 of which were selected as closely matching the study criteria. After removing duplicates and analysing each document, 45 papers were included in the current analysis. The framework for addressing insurance and credit issues, in the paper, entails three subsequent themes, namely, adoption of insurance, impact of insurance and links between insurance and credit.

Findings

It is not confirmed yet that demand for insurance is indeed hump-shaped in risk aversion and the functional form of this relationship should be tested in more detail. This also holds for the magnitude of the effect of trust and education on actual demand. Furthermore, it is unclear to what extent other risk mitigation strategies form complements or substitutes to index-insurance. Lastly, the interaction between basis risk and price is important to the design of index-insurance products. If basis risk and price elasticity are indeed highly correlated, products that diminish basis risk are crucial in increasing demand. On the impact of bundled products, e.g. combination of insurance and credit, limited empirical research has been conducted. For example, it is unknown to what extent credit suppliers would react to the insured status of farmers or what the preferences of farmers are when it comes to a mix of financial products. In addition, several researchers have suggested that microfinance institutions or banks could insure themselves against covariate risk, yet no empirical evidence about this insurance mechanism has been conducted so far.

Research limitations/implications

The authors based the research on scientific literature uploaded in Scopus and Web of Science. Other potentially insightful grey literature was not included due to lack of accessibility. Given the research findings, there is plenty of opportunity for further research particularly with regard to the effects of bundled products, e.g. insurance plus credit, on demand for index-insurance, supply of credit, loan conditions and impact on farm productivity and farmers’ well-being.

Practical implications

Microfinance institutions, insurance companies, NGOs, research institutions and universities, particularly in developing countries, will be interested to learn about the systematic review of scientific research done in the area of insurance and credit for agriculture and the possibilities for application in their own practice of supplying these financial products.

Social implications

A rigorous understanding of the potential of index-insurance and credit is essential for identifying the right mix of financial products that help smallholder farmers to increase farm productivity and their own well-being.

Originality/value

The paper is valuable due to its rigorous evaluation of existing theoretical and empirical research around issues explaining the degree of adoption and impact of index-insurance and that of bundled financial products (i.e. index-insurance plus credit). The paper has the potential to become essential reading for academics, practitioners and policy-makers interested in researching and putting in practice the best options leading to greater farm productivity and well-being in developing countries.

Details

Agricultural Finance Review, vol. 76 no. 1
Type: Research Article
ISSN: 0002-1466

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Article
Publication date: 2 February 2010

Calum G. Turvey and Rong Kong

The purpose of this paper is to investigate weather risks facing Chinese farmers, and to determine whether farmers would have a preference for weather insurance over other…

Abstract

Purpose

The purpose of this paper is to investigate weather risks facing Chinese farmers, and to determine whether farmers would have a preference for weather insurance over other types of agricultural insurance.

Design/methodology/approach

The data are based on 1,564 farm households surveyed in Shaanxi, Henan, and Gansu provinces in Central China between October 2007 and 2008.

Findings

Results suggest that the greater risk for farmers is drought followed by excessive rain. Heat is less critical as a risk but more significant than cool weather. Results suggest a strong interest in precipitation insurance with 50 and 44 percent of respondents indicating strong interest in the product. Supplementary results indicate that interest is equal between planting, cultivating, and harvesting. Furthermore, results suggest that farmers are willing to adopt new ideas, and where possible action has already been taken to self‐insure through diversification and other means.

Research limitations/implications

This research is based on primary data gathered in China. However, the authors are limited in the access to Chinese weather station data to illustrate how weather insurance operates. Instead, the authors use weather data from the weather station in Ashland, Kansas which has similarities to the wheat growing regions of China. While the example is for illustrative purposes only, the authors cannot claim that it actually represents premiums that might actually be found in China.

Practical implications

The Chinese Government has within the past year authorized an investigation into agricultural insurance. The burst of research and applications of weather insurance in both developed and developing countries suggest that a wide array of applications could be feasible in China. The results are encouraging because they suggest that farmers in China would have an interest in purchasing weather insurance.

Originality/value

The authors believe that this is the first study conducted on weather insurance in China. The survey instrument is designed to specifically determine what weather risks are important to Chinese farmers and the interest that farmers would have in using such a product.

Details

China Agricultural Economic Review, vol. 2 no. 1
Type: Research Article
ISSN: 1756-137X

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Article
Publication date: 7 July 2020

Roman Hohl, Ze Jiang, Minh Tue Vu, Srivatsan Vijayaraghavan and Shie-Yui Liong

Examine the usability of rainfall and temperature outputs of a regional climate model (RCM) and meteorological drought indices to develop a macro-level risk transfer…

Abstract

Purpose

Examine the usability of rainfall and temperature outputs of a regional climate model (RCM) and meteorological drought indices to develop a macro-level risk transfer product to compensate the government of Central Java, Indonesia, for drought-related disaster payments to rice farmers.

Design/methodology/approach

Based on 0.5° gridded rainfall and temperature data (1960–2015) and projections of the WRF-RCM (2016–2040), the Standardized Precipitation Index (SPI) and the Standardized Precipitation Evapotranspiration Index (SPEI) are calculated for Central Java over different time spans. The drought indices are correlated to annual and seasonal rice production, based on which a weather index insurance structure is developed.

Findings

The six-month SPI correlates best with the wet season rice production, which generates most output in Central Java. The SPI time series reveals that drought severity increases in future years (2016–2040) and leads to higher payouts from the weather index structure compared to the historical period (1960–2015).

Practical implications

The developed methodology in using SPI for historical and projected periods allows the development of weather index insurance in other regions which have a clear link between rainfall deficit and agricultural production volatility.

Originality/value

Meteorological drought indices are a viable alternative for weather index insurance, which is usually based on rainfall amounts. RCM outputs provide valuable insights into future climate variability and drought risk and prolong the time series, which should result in more robust weather index insurance products.

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Book part
Publication date: 19 October 2016

Marcus Taylor

Conceptualizing development in terms of risk management has become a prominent feature of mainstream development discourse. This has led to a convergence between the…

Abstract

Conceptualizing development in terms of risk management has become a prominent feature of mainstream development discourse. This has led to a convergence between the rubrics of financial inclusion and risk management whereby improved access for poor households to private sector credit, insurance and savings products is represented as a necessary step toward building “resilience.” This convergence, however, is notable for a shallow understanding of the production and distribution of risks. By naturalizing risk as an inevitable product of complex systems, the approach fails to interrogate how risk is produced and displaced unevenly between social groups. Ignoring the structural and relational dimensions of risk production leads to an overly technical approach to risk management that is willfully blind to the intersection of risk and social power. A case study of the promotion of index-based livestock insurance in Mongolia – held as a model for innovative risk management via financial inclusion – is used to indicate the tensions and contradictions of this projected synthesis of development and risk management.

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