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Insurance is a risk management strategy. Loans may help a household to increase its income but they do not reduce the household's vulnerability or exposure to risks. Easily available savings may help to address this need as households can build reserves from which they can draw in emergency or to smooth cash flow imbalances. However, this still does not help if they are exposed to risks which cause losses that are beyond their means.
In farming, disasters can hit hard. It may not be possible to prevent disasters from happening, but people can try to mitigate losses. Insurance can assist in doing this by spreading risks across place and time. Insurance is a business with products that are bought and sold. The purchasers must perceive that the premiums and expected benefits offer value; the sellers must see opportunity for a positive actuarial outcome, over time, and profit. Crop insurance is the branch of this financial mechanism that is especially geared to covering losses from adverse weather and similar events beyond the control of farmers. It should not be perceived as a universal solution to the risk and uncertainties of farming. Insurance can only address part of the losses resulting from some perils.
At present, crop insurance is primarily a business which involves developed country farmers with only a minor percentage of global premiums paid in the developing world. However, the development of new insurance products that are more suitable to developing country farmers may however significantly change the current scenario.
The FAO Rural Finance Group provides advice to member countries on this issue. |
