Research Of Agricultural Insurance Under Government Subsidy

Agricultural insurance, which has received more and more attentions from theorists and policy departments recent years, has become one of the most important international non-price agricultural protection tools as a mechanism of decentralizing agricultural production risks, compensating economic losses, stabilizing farmers' income and promoting agriculture development. China's agricultural insurance has long been in the failure state of "lack of demand, supply is limited" due to lack of institutional supply from the policy level. Since 2004, the central government has continuously formulated 6 "the first file" to carry out policy-oriented agricultural insurance pilot project, clearly require the establishment of a sound agricultural insurance system, increase support for agricultural insurance premiums and try to change China's agricultural insurance market' failure situation of "lack of demand, supply is limited" through effective policy system arrangement. The reason of existing "failure" and "insufficient demand" in agricultural insurance market is that there is a contradiction between the high cost with high rates of agricultural insurance and the real purchasing power of farmers. Government provides subsidies to farmers for the intention of improving the need of agricultural insurance of rural households, particularly the large number of small-scale farmers'by lowering the premium. The reason of existing "failure" and "supply limited" in Agricultural insurance market is that the supply of agricultural insurance is facing systemic risk, information asymmetry and positive externalities. The agricultural insurance loss ratio and operating costs are relatively high, operators of agricultural insurance face heavy losses, the private marginal revenue is very low due to systemic risk, information asymmetry and the difficulty of insuring, fixing losses and claims. Similarly to international practice in many countries, Chinese central and local governments also provide subsidies to producers and hope to increase the supply of agricultural insurance by the advantage of public sector and private sector. Since 2007, Chinese government has selected several provinces in the country to carry out pilot program. Regions have developed many types of business model according to their own financial capacity, socio-economic background and characteristics of agricultural production. Jiangsu is one of the first provinces to carry out the agricultural insurance pilot program, creating the agricultural insurance mode of "Alliance and Coinsurance". This study is based on the model of "Alliance and Coinsurance" in Jiangsu Province. The objective of this study is to analyze to resolve the long-standing market failure of "insufficient demand, limited supply" in agriculture insurance market and the rational function of government through institutional supply and institutional innovation by means of government subsidies. This thesis mainly analyzes policy-oriented agricultural insurance's mode selection and changes and incentives they bring to households, government and insurance company under the policy of government subsidies, ultimately establishing a "farmers can afford to pay premiums, insurance companies can afford to pay losses, government's finance can afford to pay Subsidies", tripartite cooperation and win-win policy-oriented agricultural insurance system. This thesis is divided into eight parts, main contents and conclusions are as follows:Part 1:Financial subsidies' incentives to households in decision-making of being insuredThis thesis empirically analyzes the survey data of 572 households'insured status from Jinhu and Sihong in Jiangsu and studies financial premium subsidies'incentives to households in decision-making of being insured. Empirical analysis shows that: the premium subsidy is the main factor to improve households'participation in agricultural insurance. Households'knowledge of the premium subsidies has a statistically significant positive effect on their insurance decision.55.2% of households make the decision to participate in agricultural insurance after being aware of the government's premium subsidy policy. Variables reflecting the risk of farmers' production and the awareness of the importance of agricultural insurance have a significant effect on the farmers' willingness in participating. the greater the potential risks, the smaller the expected benefits' volatility distribution after insurance coverage, the more willing the farmers to participate in agricultural insurance. Farmers involved in agricultural insurance raise the awareness of insurance and therefore also have higher willingness to pay, which shows that agricultural insurance still has a certain degree of sustainability. The two variables, the variable of production risk and the awareness of the importance of agricultural insurance, reflect that the risk aversion incentive is an important factor affecting farmers'participation in agricultural insurance at the same time.Part 2:Evaluation of agricultural insurance system mode after the financial subsidiesComparative study through agricultural insurance modes in different regions of Jiangsu finds that:limited by the level of economic development between different regions and the government's financial capacities are significantly different, the higher the local economic development level and government revenue are, the agricultural insurance mode of higher level of protection and higher risks afforded by the government is chosen; Operating rules of "Alliance and Coinsurance" mode in different areas differ, mainly in the premium subsidy and management fee subsidies. By the comparison of the internal rules in 4 cities' modes in the north of Jiangsu, our preliminary belief is that, in the initial stage of agricultural insurance pilot program, management fee incentives biased in favor of local government can play very well in the promotion of advocacy and mobilization capacity of local government, especially the village committees; the use of insurance management fee subsidies to establish "Farmers Insurance service station" in towns and villages in local areas enhances the penetration of agricultural insurance, rapidly increases the coverage of agricultural insurance in a short term, relieves information asymmetry between insurance companies and households, reduces transaction costs of agricultural insurance business and ultimately improves the operating efficiency of agricultural insurance.Part 3:The dynamic changes of agricultural insurance system and the feasibilityTaking "Alliance and Coinsurance" mode in Jiangsu as an example, this thesis explores the agricultural insurance system modes'changes with public-private partnership, government spending changes with the change of the protection level of agricultural insurance and risk-sharing ratio between government and insurance companies. The study finds that the current average level of protection of Jiangsu Province is 300 yuan per mu, raising the level of protection has little effect on government spending, the restriction of ability to pay of farmers is the key part, it is feasible to increase to the protection level of 400 yuan per mu in a short term, but the higher level of protection is difficult for the households in economically less developed regions in the north part of Jiangsu. Therefore, stabilizing current protection level and gradually raising to 400 yuan per mu u will not form too much pressures to government' subsidies and fanners'capacity to pay. Meanwhile, the gradual change of government and insurance companies' risk-sharing ratio, decreasing the risk's ratio afforded by government can improve the extent of the government to cope with catastrophic risk and the efficiency of the use of funds. Meanwhile, the method of taking different sharing ratio towards regions of different production risk not only helps catastrophic risk diversification in whole province, but also reflects the fairness among different regions.