The FINANCIAL — Since the agriculture sector has become one of the priorities of the new government in Georgia experts expect agricultural insurance to soon become one of the leading insurance products in Georgia.
The main challenges are overcoming the problems related to risk management, since no proper database exists for statistical information about possible natural disasters. Another problem is that agri-insurance in Georgia is very expensive and farmers, including agricultural producers, are sceptical about the insurance packages being offered to them.
“There are 50-10,000 identified farmers with land plots in Georgia which should be insured,” said Archil Tsertsvadze, expert in agri-insurance and risk management issues. “Can you imagine how massive this product could soon become? It is absolutely right and logical that it might become a leading insurance product in the future,” he added.
“We do expect for agri-insurance to soon become the leading product in Georgia,” said Devi Khechinashvili, Head of the Georgian Insurance Association. “The first hail agreements were done in 1997. The number of agreements has been declining since then. So far, there have only been 10-15 people interested in having agri-insurance. After the Georgian Government became involved in the agriculture sector and introduced initiatives in this direction such as giving out vouchers for example, it seems that demand will rise. It also appears that the Government is going to finance this sector systematically which gives us hope that the agri-insurance product has a good future ahead of it in the country,” he added.
“Agri-insurance will become one of the leading products in Georgia,” said Giorgi Gigolashvili, President of the Insurance Institute of Georgia. “There will be demand for it as well, but if we take into consideration how demand for insurance is generally low in Georgia, it is possible that agri-insurance will not be in particularly high demand. I would call agri-insurance the leading insurance product in Georgia if 50-60 percent of farmers were to be insured. This is in a 10-15 year perspective I would say,” he added.
In the event a natural disaster wipes out all crops and profits, Georgian insurance companies offer policies to insure farmers against yield losses. Crop insurance protects them against crop losses due to natural disasters such as hail, drought, excessive precipitation or any other natural causes.
GPI Holding has been offering an agri-insurance product for six or seven years. In the past, the product’s target segment was large farmers. But nowadays it is planned for agri-insurance products to become more widespread. “As nowadays the whole direction of agriculture in the country is developing so fast, this product has become more popular and in demand,” said Paata Lomadze, General Director of GPI Holding. “The state plans to begin some incentive programmes for agriculture together with concessional loans. It is possible for agri-insurance to become the leading insurance product in Georgia if the country follows the same course as many leading European countries have,” he added.
“Aldagi BCI was one of the first insurance companies to offer agri-insurance to customers,” said Nutsa Koguashvili, Deputy Director-General. “Demand for the product is increasing every year. Demand is especially high in those regions where natural disasters are common, like Kakheti for example. Despite high demand for agri-insurance, it cannot become the leading insurance product in Georgia any time in the near future considering the current popularity of auto insurance, health and property insurance. Over time, however, it will carve out for itself an important place in the insurance industry. Agri-insurance is one of the directions most prioritized by Aldagi BCI. Nowadays, this product has thousands of insured customers but as there are 800,000 registered farmers in Georgia, the number of insured customers is set to increase significantly over the years,” she added.
Agri-insurance is one of the most complicated products in the insurance sphere in general, experts say. The insurance companies should therefore study all the regions and their individual risks and learn them in detail.
“The problem in Georgia is that it has a small territory and risks cannot be properly distributed. There is no database with statistical information about possible natural disasters to be prepared against. Another problem is that agri-insurance is very expensive in Georgia. The tariff varies from 6-8 percent. For example, if it is expected for a farmer to get a harvest of GEL 10,000 then they will be paying 6-8 percent for insurance, which is about GEL 600-1,000. This is a significant amount of money for Georgian farmers or smallholders. For that reason it is difficult to persuade them to buy an agri-insurance product,” said Gigolashvili.
All three experts consider the involvement of the state and financial institutions as one of the best ways forward out of the current situation. “The government has two choices: to pay half of the premium and help the farmers, or to ask the insurance companies to lower the prices and then when a loss occurs, to help the companies pay for the loss,” Gigolashvili said.
“Financial institutions today are not putting emphasis on the need for agri-insurance. When issuing a loan financial institutions like banks and micro financial organizations should use agri-insurance for managing risks, avoiding or reducing them. Of course, the state should take part in managing risks as well,” said Khechinashvili.
“In general, the insurance sector needs support from the state. It is necessary for the state and insurance sector to cooperate more, for the Government to create proper legislative bases, and for the insurance sector to have more initiatives,” said Lomadze.
Marneuli Food Factory and Gori Baby Feeding Cannery Kula do not yet have agri-insurance. Both companies say that they have not been able to find a proper package so far and this is the reason why they are not yet insured. “The offers that we are being given by the insurance companies are unacceptable. We are not being offered full packages. Marneuli Food Factory is a large company and of course requires a complete insurance package that is unfortunately not available in the current Georgian reality,” said Viktoria Jijko of Marneuli Food Factory.
Businesspeople mostly use agri-insurance nowadays as well as farmers who have taken out bank loans. But their number is very low as just 5 percent of agribusiness might be insured in Georgia, this according to various sources.
The latest data about the number of crop insurance policies sold and value of total crop insurance premiums was done in 2011. The number of crop insurance policies sold that year was 1,225, according to the statistics provided by the Georgian Insurance Association. As for the value of total crop insurance premiums, it amounted to GEL 654,566.
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