Crop insurance requires serious investment in the form of infrastructure. When we discussed the introduction of a new system last year, we agreed to do everything in an institutional, proper way, deputy governor of the Central Bank of Armenia (CBA), Armen Nurbekyan, said at Thursday’s Cabinet meeting of the government.

Nurbekyan noted that when it comes to hail damage, the loss ratio stands at 250–300 percent.

“If something has a loss ratio of 250–300 percent for four or five consecutive years, it’s not an insurable risk because the point of insurance is that in one year it might be 50 percent, in another year 150 percent, and on average, insurance companies can assume that risk. We [i.e. Armenia] need serious investment related to calculations, actual insurance coverage there, which we are currently working on.

We are now considering two models — the world’s two best examples are the Spanish Agroseguro model and the Turkish TARSIM [model], which in fact was largely inspired by the Spanish one.

It’s clear that institutional changes are needed, particularly the idea of a reinsurance phase, which does not currently exist in our legislation, needs to be introduced. The idea is that insurers collectively assume the risk as a whole, rather than individually — which, from the standpoint of risk distribution, is much more predictable for insurance companies,” said the deputy governor of the CBA said.

In turn, Deputy Prime Minister Tigran Khachatryan emphasized the importance of ensuring that potential beneficiaries who may participate in the system are informed in advance about its main parameters and have the opportunity to express their willingness to join.

Nurbekyan added: “Just yesterday we were speaking with the Turkish TARSIM to comprehend their experience.

Our main consultants say that one of the biggest problems in our insurance sector is so-called ‘anti-selection.’ What this means is that, since in many cases farmers know where there is a higher risk, the problems there will arise with 95–100 percent probability, they insure only those specific plots among their several farmlands, and as a result, the insurance system suffers major losses; also, the logic of insurance is disrupted.

For example, one of the proposed solutions is that a farmer will not be able to choose. If he decides that he must insure something, he must insure all of his land plots.”

Source - News Armenia