New insurance system in the agricultural sector

In 2020, a new insurance system was introduced in the agricultural sector. The Fund of Financial Support for Agriculture - the subsidiary of KazAgro Holding - is the insurance operator.

In contrast to the mandatory form of insurance in crop production since 2004, the new one is somewhat innovative.

First, insurance in the agricultural sector is voluntary.

Secondly, there are no restrictions on industries - you can insure any areas within the agricultural sector.

Third, state support is provided in the form of subsidizing insurance premiums. It is aimed at stimulating agricultural producers and reducing the cost of the insurance contract by half: 50% of the insurance premium amount will be subsidized by the state, for which about KZT 2.5 bln. was allocated from the republican budget in 2020, and about KZT 1 bln. is planned to be allocated in 2021.

When developing the new system, the problematic issues of mandatory insurance in crop production were taken into account. Thus, to protect the interests of agricultural producers, only insurance companies licensed by the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan will be able to work in the system.

The system involves three international reinsurance companies with A rating in the global insurance market. They reinsure the risks that domestic companies take on. This will ensure guaranteed payments in the event of insurance risks.

All procedures from contract to payment are performed on the electronic platform based on the electronic digital signature of the agricultural producer. Automation of processes will minimize human factor and ensure transparency.

The following insurance products are currently available:

1) Insurance in crop production, based on the soil moisture index – its lack and overabundance. In other words, an agricultural producer can insure their crops against summer droughts and autumn rains.

The insurance covers cereals (wheat, barley, corn, oats) and oilseeds (sunflower, rape, flax). For monitoring purposes, soil moisture deficiency and shortage indices were changed in 2021, where data are obtained from remote land-sensing sources. The moisture level is monitored on an ongoing basis, and the occurrence of an insured event is recorded automatically.

After receiving the notification in the personal account of system and on the personal e-mail about the occurrence of the insurance event, the policy holder (agricultural producer) with EDS forms the request for payment to the insurer (insurance company), which ensures payment.

End dates of the phase are also subject to changes. Thus, to insure against the risk of moisture shortage, the agricultural producer should conclude an insurance contract before May 15 of this year. The insurance period will cover 3 months – May 15 to August 14, 2021 for cereals, and June 15 to September 14, 2021 for oilseeds.

Insurance contracts against excess moisture should be concluded before August 15, the insurance cover will be valid August 15 to October 14, 2021;

2) Insurance in animal production, which provides insurance against death, slaughter and loss of cattle due to diseases, fire, accidents, natural disasters and theft both on the territory of his own farm (basic coverage) and on the territory of neighboring farms within a radius of 5 km (extended coverage).

Depending on the insurance coverage and the number of insured livestock (at least 30 heads), the insurance rate ranges 1.54 to 4.62%.

Insurance processes are also automated, and the algorithm of actions is similar to the above.

The list of insurance products will expand with the development of the insurance system in the agricultural sector, taking into account the relevance and demand in the market.