The four pillars of SystemAgro

SystemAgro is based on four pillars, each of which helps to ensure the system’s success. If one of the pillars has weaknesses or is absent altogether, the stability of the whole system is at risk. Security and sustainable success can only be guaranteed through public regulation in the form of laws and ordinances.

SystemAgro provides for individual crop yield coverage. If one combines the governmental involvement with agricultural and insurance structures, SystemAgro becomes a central instrument of agricultural policy.

Backing
Subsidised premiums

Large loss events occur much more frequently in agriculture than in other sectors. This produces a much higher claims expenditure ratio, which in turn affects the premium level. Farmers could not afford these premiums without financial help. It is only the subsidies that can provide a stable and sustainable crop insurance system. Most countries already have subsidised premiums. They have to be an integral part of the national budget and firmly anchored in agricultural insurance law. This then provides farmers with a reliable basis for working out and planning their costs.

Loss Sharing
Public participation in insured catastrophe losses

Loss sharing between government and insurance means that crop insurance will continue to be available even after years of extremely high loss ratios. Many governments currently have public catastrophe aid in place, which is provided ad hoc following large-scale losses caused by drought, flood or frost but is not being made available on a reliable basis. The major advantage that crop insurance has over ad hoc assistance is that the farmer has a legal right to compensation in the event of a loss. The farmer’s actual loss is determined and indemnified accordingly, i.e. the right amount is paid at the right time. And another advantage for the farmer is that crop insurance with a high level of protection is a constant and therefore plannable factor.

Open
Available to all farmers

SystemAgro allows that every farmer can take out crop insurance. Each and every farmer thus benefits from public financial support. Furthermore, it is recommended linking premium subsidies to other agropolitical measures. For example, in the USA purchase of crop insurance is a prerequisite for participation in other state-supported risk management programmes. The USA has now achieved market penetration of over 80%. The system there has become an effective and needs-based agropolitical instrument.

Central and uniform
Centralised structure and uniform insurance conditions

A centralised structure is needed to ensure the transparency and efficiency of a crop insurance system: the government needs to know how its funds are deployed. Only risk-adequate premiums based on uniform rate making, consistent marketing and obligatory guidelines for claims settlement can ensure that the system works across the board. In this centralised structure, laws can be implemented, insurers licensed to sell products and the system consistently optimised. Competition on premiums or products would be counterproductive for the system and jeopardise its long-term viability. Despite its centralised and uniform structure, the system still offers the flexibility of being adjustable to the specific features of individual countries. In the USA, Spain and Turkey, centrally structured systems have already emerged which are cost-effective, efficient and work in the interests of the farmers and tax payers.