Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698058921352.pdf (Georgia)
REGULATORY IMPACT ASSESSMENT (RIA) ON THE CROP INSURANCE REFORM OF GEORGIA Final Presentation ISET POLICY INSTITUTE November 5, 2015 CONTENT • INTRODUCTION • RIA PROCEDURES • POLICY OPTIONS • MODEL • RESULTS • CONCLUSION 2 l l l m t h .

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w w w / / : p t t h : e g a m I INTRODUCTION Agricultural insurance in Georgia in 2004-2010 Loss Ratio in 2004-2010 Premium Income in 2004-2010 120% 100% 80% 60% 40% 20% 0% L E G d n a s u o h T 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 Source: Georgian Insurance Association (GIA)  Lack of farmers’ awareness and experience  Lack of technical capacity (data, loss adjustment, distribution channels)  Absence of agricultural insurance market 3 INTRODUCTION Pilot national agricultural insurance programs 2014 and 2015 General objectives of government intervention • Develop the agricultural insurance market in Georgia • Support agricultural production and increase competitiveness of farmers and agribusinesses • Support the income of people involved in agriculture and minimize their risks Source: GoG, 2014; GoG, 2015.
4 INTRODUCTION Pilot insurance programs 2014 and 2015 Policies sold Total premiums (in million GEL) Amount of subsidies (in million GEL) Average level of subsidies (%) 2014 20’952 12.5 11.7 94 2015 * 3’439 2.0 1.1 55 Insured area (in ha) 18’596 3’112 Share of the small and large farmers in 2014-2015 30% More than 5 ha 70% Less than 5 ha 5 Source: Agricultural Projects Management Agency (APMA) * July 2015 RIA PROCEDURES 6 RIA PROCEDURES Stakeholder consultations (June-August 2015) • Farmers and GFA • Insurance companies and GIA • APMA • Agricultural insurance expert  Interviews, focus groups, and a workshop 7 POLICY OPTIONS 8 POLICY OPTIONS  Option 1 (Baseline): Government does not introduce NARMA but continues with the current pilot.
 Option 2: Government adopts and develops NARMA model Note: no budget cap 9 POLICY OPTIONS OPTION 1 (Baseline) OPTION 2 (NARMA) Continuation of pilot program Creation of NARMA Managed by APMA PPP Av.

subsidy rate of 65% for small and large farms Av.
subsidy rate of 75% for small farms and 50% for large farms Subsidies fixed for 10 years Subsidies gradually decrease No restriction on land plot size No restriction on land plot size Less investments in service quality improvement & awareness campaigns More investments in service quality improvement & awareness campaigns 10 MODEL 11 MODEL Small farms <= 5 ha Large farms > 5 ha Maximum insurable land 544’000 ha 325’000 ha 219’000 ha Potential demand for insurance 80% of maximum insurable 63% of maximum insurable 10% will never insure 10% cannot afford Data: Agricultural Census 2004 More sensitive to quality and information  Focus group discussion  Pilot data 12 MODEL Penetration rate for 2016 (and afterwards): 1.
Responsiveness  small farms are twice as responsive to price change as large farms 2.
Insurance experience  Direct effect 1: Negative experience (APMA data on complaints)  Direct effect 2: The level of skepticism  Indirect effects: neighbors of insured farmers 13 MODEL Stakeholders Costs Benefits Farmers • Premiums paid • Indemnities received Insurance companies (IC) Indemnities paid • • A&O costs • Profit taxes • Payments to reinsurers • Premiums collected from farmers • Subsidies paid by the government • Reinsurance commissions Government • Premium subsidy paid • Project running costs • Profit taxes 14 MODEL Stakeholders Costs Benefits Farmers • Premiums paid • Indemnities received Insurance companies (IC) Government NARMA Indemnities paid • • A&O costs (-5%) • Profit taxes • Payments to reinsurers (-1%) • NARMA fee (12% of premiums) • Premium subsidy paid • Project running costs (0) • NARMA set up costs • A&O costs • Loss adjustment costs • Distribution of subsidies to partner ICs • Premiums collected from farmers • Subsidies paid by the government • Reinsurance commissions (0) • Profit taxes • Start-up funds/equity • Reinsurance commissions • NARMA fee (12% of premiums) • Premium subsidies 15 RESULTS 16 RESULTS Penetration rate in terms of land Penetration rate in terms of farmers Baseline NARMA Baseline NARMA 17 RESULTS Comparison of costs and benefits of policy options (NPV, GEL) 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000
 100,000,000 0 OPTION 1 OPTION 2 Benefits (NPV) Costs (NPV) 18 RESULTS NPV of net benefits for the stakeholders (million GEL) Stakeholders Small farmers Large farmers Insurance companies NARMA Government Option 1 Option 2 23.6 29.1 60.8 33.1 2.5 34.0 12.1 -202.8 -147.2 Overall net benefit -89.3 -65.5 19 RESULTS Some potential benefits not considered in quantitative part • Reduced farmers’ financial vulnerability • • Increased access to finance Increased investment in agricultural production Other criteria (in
 addition to NPV):  Effectiveness (in achieving Government's goals)  Feasibility/Easy to comply  Minimization of risks associated with the reform  Maximizations of collateral benefits associated with the reform 20 RESULTS EVALUATION CRITERIA OPTION 1 (PILOT with Fixed Subsidy Level) OPTION 2 (NARMA with Decreasing Subsidy Level) Benefits-costs (NPV in million GEL) -89.0 Effectiveness 1 Effectiveness 2 Effectiveness 3 Feasibility / Ease to comply Minimization of risks associated with the reform Maximizations of collateral benefits associated with the reform SUMMARY + + + + + + + + + + + + + -65.5 + + + + + + + + + + + + + + + + + /+ + + 21 RESULTS EVALUATION CRITERIA OPTION 1 (PILOT with Fixed Subsidy Level) OPTION 2 (NARMA with Decreasing Subsidy Level) OPTION 1* (PILOT with Decreasing Subsidy Level) OPTION 2* (NARMA with Fixed Subsidy Level) Benefits-costs (NPV in million GEL) -89.0 -65.5 -67.2 Effectiveness 1 Effectiveness 2 Effectiveness 3 Feasibility / Ease to comply Minimization of risks associated with the reform Maximizations of collateral benefits associated with the reform SUMMARY + + + + + + + + + + + + + + + + + + + + + + + + + + + + + + /+ + + + + + + + + + + + + + + + -71.9 + + + + + + + + + + + + + + + + + /+ + + 22 CONCLUSION 23 CONCLUSION  Penetration rate by 2025: 13.9% (Pilot) and 14.3% (NARMA)  NARMA with fixed subsidy: 18.5%  Budget cap of 10 million GEL is not recommended o Small farmers better off with NARMA o Insurance companies better
 off with Pilot o Government better off with NARMA 24 CONCLUSION Crucial in achieving the long term government goals:  Improvement in service quality  Increase in the public confidence in agricultural insurance  Providing a stable framework of public support reducing uncertainty for the agents  Systemic approach  Long-term government commitment  Stable subsidy scheme 25 Thank you!
Presentation was prepared by: ISET Policy Institute, Agricultural Policy Research Center (APRC) http://www.iset-pi.ge/ p.mamardashvili@iset.ge 26 ANNEX 27 RESULTS Predicted demand for agricultural insurance 80,000 60,000 40,000 20,000 0 Amount of land insured (Option 1) Amount of land insured (Option 2) 80,000 60,000 40,000 20,000 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Amount of land insured by large farmers Amount of land insured by small farmers Amount of land insured by large farmers (ha) Amount of land insured by small farmers (ha) 28 RESULTS (Option 1) Year # of small farmers insured # of large farmers insured Amount of land insured by small farmers (ha) Amount of land insured by large farmers (ha) Penetration rate in terms of land Penetration rate in terms of farmers 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 31’501 34’067 36’869 39’936 43’298 46’990 51’056 55’544 60’511 66’027 804 887 1’004 1’122 1’253 1’400 1’567 1’756 1’974 2’213 15’080 16’308 17’649 19’117 20’726 22’494 24’440 26’589 28’967 31’607 16’031 17’686 20’027 22’372 24’989 27’928 31’248 35’027 39’366 44’149 5.7% 6.3% 6.9% 7.6% 8.4% 9.3% 10.2% 11.3% 12.6% 13.9% 4.5% 4.8% 5.2% 5.7% 6.1% 6.7% 7.3% 7.9% 8.6% 9.4% 29 RESULTS (Option 2) # of small farmers insured # of large farmers insured Amount of land insured by small farmers (ha) Amount of land insured by large farmers (ha) Penetration rate in terms of land Penetration rate in terms of farmers 2016 2017 2018 2019 2020 2021
 2022 2023 2024 2025 44’102 47’864 52’713 48’890 50’665 55’552 64’231 75’094 88’820 106’389 703 771 772 636 658 723 838 978 1’150 1’355 21’111 22’912 25’234 23’404 24’253 26’593 30’747 35’948 42’518 50’928 14’027 15’378 15’402 12’681 13’122 14’413 16’712 19’508 22’939 27’018 6.5% 7.0% 7.5% 6.6% 6.9% 7.5% 8.7% 10.2% 12.0% 14.3% 6.2% 6.7% 7.4% 6.8% 7.1% 7.8% 9.0% 10.5% 12.4% 14.9% 30 RESULTS INDICATORS Benefits – costs (NPV) (in million GEL) NPV of net benefits for the small farmers (in million GEL) NPV of net
 benefits for the large farmers (in million GEL) NPV of the insurance companies (in million GEL) NPV of the Government (in million GEL) NPV of NARMA (in million GEL) Penetration rate in terms of land OPTION 1 (PILOT with Fixed Subsidy Level) -89.3 23.6 29.1 60.8 OPTION 2 (NARMA with Decreasing Subsidy Level) -65.5 OPTION 1* (PILOT with Decreasing Subsidy Level) -67.2 OPTION 2* (NARMA with Fixed Subsidy Level) -71.9 33.1 2.5 34.0 19.6 20.2 46.2 39.0 5.0 37.6 -202.8 -147.2 -153.2 -167.4 - 12.1 - 13.9 13.9% 14.3 % 8.9% 18.5% 31