Agricultural Insurance Products in Nepal: Practice and Prospects

The objective of the paper is to review the existing microinsurance regulatory framework and practices in Nepal and suggest appropriate delivery model of agriculture insurance in the context of Nepal on the basis of existing resources and structure. Furthermore, it discuss on potential agriculture products and opportunities and challenges to implement the agriculture insurance in Nepal. This paper, further gives snapshot of agriculture economy of Nepal and risk associated in agriculture sector. Agriculture is backbone of Nepalese economy. The sector provides employment to almost two third population. Agriculture is becoming subsistence rather than commercial since two third portion of total household have less than 1 hector area of land. The share of agriculture in GDP is almost one third. Most of the farmers are poor and the intensity and severity of poverty is much higher in rural area. The history of Nepalese insurance industry is almost seven decade long but agricultural insurance still has not introduced in massive scale with systematic and organized way. Government agency in cooperation with international donor agency, NGOs, cooperatives and financial institutions have been practicing health, crops, livestock and credit linked life insurance in limited area as a pilot project. These schemes are either mutual or voluntary in nature and they are not regulated by regulatory body. The objective of such insurance is to support the poor and vulnerable community but there is lack of reinsurance back up and these schemes do not follow insurance principles. Agricultural insurance is a complex line of business that requires highly technical expertise from beginning to end of insurance cycle. There are two basic approach of agriculture insurance: activity based approach and institution approach. Activity base approach allows to all commercial and non commercial insurers to sell the agriculture insurance products along with other products. But, separate institution to be established only to sell agricultural insurance products is called institution base approach. In Nepalese context, institutional base approach would be better in different grounds. First, Nepalese commercial insurers have not financial and technical capabilities to cover the large agriculture sector. They have focused their institutional network in cities and semi urban area. Lack of reinsurance support discourages them to enter the agriculture insurance. A separate entity need to establish to provide agricultural insurance nationwide. The entity can establish as joint venture of government and private sector which can be said "Public Private Partnership Model". The new mechanism delivers the insurance services in cooperation with government line agencies and institutional agents. Subsidy is essential to marginalized and poor farmers. On behalf of government, Ministry of Agriculture and Cooperative provides technical expertise, subsidy fund and guidance. Cooperation from international organizations related to microinsurance also essential in establishment phase. The amount of subsidies may be varied farmers to farmers based on their level of income and risk associated with insured property.There is immense market possibility of crop insurance in Nepal since more than 3.7 million of household are engaged in any sorts of farming and almost all households have any sorts of livestock. Farmers are eagerly waiting insurance service since long period. Financial inclusion is gradually increasing through the massive activities of Microfinance institutions, cooperatives and multiple of NGOs. Experience of neighboring countries can be replicated in local context.Obviously, challenges are ahead but these can be minimized through strong regulatory framework, clear vision and policies, government commitment and strong motivation of insurer. Basically challenges can be pointed out as institutional challenge, technical challenge, operational challenge, geo-climatic challenge, diversity in risk exposure, lack of trustworthiness, high operating cost are some challenges may face by the all stakeholders of the agriculture insurance industry.