China encouraging trials of weather-index insurance for agriculture

by Artemis on April 21, 2011

The China Insurance Regulatory Commission (CIRC) is encouraging insurers to trial methods to extend agricultural insurance cover to include greater protection against weather related insurance losses in the country. There has been a lot of discussion of the importance of food security recently and China, with its climate and huge population, is particularly exposed.

The CIRC has published some guidelines which encourage insurers to actively trial pilot products for agriculture insurance including the use of weather-index insurance, micro-credit guarantee insurance and insurance guaranteeing the quality of agricultural products.

China is particularly exposed to a number of perils which affect agricultural production ranging from rainfall to flooding and even drought. Some cover is available currently in certain areas of the country, but the CIRC wants this to become more widespread and for insurance products linked to the weather to become commonly available.

Insurers are encouraged to make sure that any weather-index products are affordable and accessible by farmers in rural areas so it seems likely that a microinsurance approach will be taken. The advantage of weather-index insurance is the predictable nature of the triggers that activate a claim which also makes it easier for farmers to understand the value of insuring.

The CIRC also note that adequate reinsurance must be in place to protect insurers offering agricultural products in case of major disasters.

You can read a translated copy of the release from the CIRC here.

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