Baac weather index insurance.ppt(special)

18 November 201018 November 2010

Agricultural Weather Index Agricultural Weather Index Insurance in ThailandInsurance in Thailand

Mr. Kamolpant AsavesMr. Kamolpant AsavesExecutive Vice President of BAACExecutive Vice President of BAAC

Bank for Agriculture and Agricultural Cooperatives (BAAC)Bank for Agriculture and Agricultural Cooperatives (BAAC)

V. Next StepV. Next Step

IV. Weather Index InsuranceIV. Weather Index Insurance

III. How to Manage Risk?III. How to Manage Risk?

II. Why Risk Management?II. Why Risk Management?

I. About BAACI. About BAAC

Agricultural Weather Index Insurance in Thailand

I. About BAACI. About BAAC


BAAC Vision 2010BAAC Vision 2010

““To be secured rural development bank To be secured rural development bank with modern managerial technology with modern managerial technology focusing on the uplift of small scale focusing on the uplift of small scale

farmers’ quality of life”farmers’ quality of life”

SustainSustain ModernModern

Better LivingBetter Living

About BAAC

Rural DevelopmentRural Development

BAAC Delivery Structure

HEAD OFFICE

DEPARTMENTS/DIVISIONS

PROVINCIAL OFFICES (75)

DISTRICT BRANCHES (977)

FIELD OFFICES (957)

CLIENTS (6,101,206)

Bank Management and Policy

Branch Administration and Support

Supervision of Activities

Credit Delivery to Clients

Individual Clients (Joint Liability Groups)

Agricultural Cooperatives

Farmers’ Associations

BUSINESS DEVELOPMENT OFFICERS contact with clients

About BAAC

Credit ServicesCredit Services(as of the end of March 2010)(as of the end of March 2010)

Total 15,776 millionTotal 15,776 million(Unit: USD)

About BAAC

Operating FundOperating Fund(as of the end of March 2010)(as of the end of March 2010)

Total 23,905 million (Unit: USD)

About BAAC

II. Why Risk Management?


Importance of Agriculture

Vulnerability to Hydro-meteorological

Risks

Burden on Public Resources

Growing Insurance Sector

Good Weather Data Infrastructure

Strong Interest from Stakeholders

Why Risk Management for Agricultural Sector?Why Risk Management for Agricultural Sector?

11 22

6633

Why Risk Management?

Strong Agricultural Bank

77

55 44

III. How to Manage Risk?


Crop Crop InsuranceInsurance

WeatherWeather Index Index

InsuranceInsurance

Production Production RiskRisk

How to Manage Risk?

How to Manage Risk?

Parametric InsuranceParametric Insurance- Weather-based- Weather-based

- Area-yield- Area-yield

- Satellite imagery - Satellite imagery (NDVI)(NDVI)

- Other indices- Other indices

ToolsTools

Traditional Agricultural Reinsurance- Named perils- Multi-Peril Crop Insurance (MPCI)

How to Manage Risk?

Traditional Crop Insurance Traditional Crop Insurance

Moral hazard, adverse selection, Moral hazard, adverse selection, high monitoring and administrative costhigh monitoring and administrative cost

How to Manage Risk?

Design an alternative, efficient and Design an alternative, efficient and cost-effective crop failure insurance programcost-effective crop failure insurance program

ChallengeChallenge

that can be easily reinsured and distributed to that can be easily reinsured and distributed to individual farmers: small, medium and largeindividual farmers: small, medium and large

Weather-basedWeather-based

How to Manage Risk?

IV. Weather Index InsuranceIV. Weather Index Insurance


ProjectProject

Crop Insurance: Cotton (1977)

Weather Index Insurance(2006-2010)

Weather Index Insurance in Thailand

Project Model of Weather Index Project Model of Weather Index InsuranceInsurance

Bank-intermediated weather insurance contracts to farmers

Insurance Company/ Syndicate

Global Reinsurance Companies

Reinsurance Treaty

ThailandThailand

InternationalInternational

FarmersFarmers

Weather Insurance Policy

BAAC

Contractual RelationshipContractual Relationship (risk transfer, services, (risk transfer, services,

operations etc.)operations etc.)


Model ofModel of the World Bankthe World Bank

Model ofModel of the Japan Bank the Japan Bank for International Cooperation for International Cooperation (JBIC)(JBIC)

Project ModelProject Model


Model of the World Bank

Manual Rain Gauge

Automatic Rain Gauge

India Rain India Rain Measurement ToolMeasurement Tool


Market-based Risk Market-based Risk Transfer ProductsTransfer Products

Weather index-based Weather index-based insuranceinsurance

Price risk management Price risk management contractscontracts

Knowledge Transfer Knowledge Transfer and Educationand Education

Technical assistance Technical assistance Publications and Publications and

training workshopstraining workshops

New ApplicationsNew Applications Disaster risk financingDisaster risk financing Extension to new Extension to new

hazardshazards

Existing TransactionExisting Transaction India, Ethiopia, India, Ethiopia, Malawi, Ukraine, Malawi, Ukraine, MongoliaMongolia……

Access to risk capital

Access to global reinsurance markets


Commodity Risk Management of the World BankCommodity Risk Management of the World Bank

Maize Rainfall IndexMaize Rainfall IndexMaize Rainfall IndexMaize Rainfall Index

*Maize yields are particularly sensitive to rainfall during the tasseling stage and the yield

formation stage – rainfall during the latter phase determines the size of the maize grain

Weights and diagram taken from the FAO’s maize water requirement report*

x Cumulative Rainfall in each decade = Maize Rainfall Index


July 2006 July 2006

Maize Maize ProductionProduction

110 Farmers 110 Farmers 1,970 Acres of 1,970 Acres of maize enrolled maize enrolled

The Radius of 25 km. The Radius of 25 km. Measured from theMeasured from the

Suwan Maize Research Center StationSuwan Maize Research Center Station

Weather Index

Insurance

Nakorn Ratchasima Nakorn Ratchasima Province,Province, Pak Chong DistrictPak Chong District

GIA

TMDDOI

RID

Department of Insurance (DOI) Department of Insurance (DOI) General Insurance Association (GIA)General Insurance Association (GIA)

Thai Meteorological Department (TMD) Thai Meteorological Department (TMD) Royal Irrigation Department (RID) Royal Irrigation Department (RID)


Testing Project in 2006 Testing Project in 2006

Period 3

Period 2

Period 1

Premium ratesPremium ratesSeedling Emergence to Knee HighSeedling Emergence to Knee High

(Days 30)(Days 30)

Knee HeightKnee Height(Days 21)(Days 21)

Physiological MaturityPhysiological Maturity(Days 30)(Days 30)

USD 96/Acre

USD 127/Acre

USD 134/Acre

BAAC’s Pakchong Branch Station

Suwan Maize Research Suwan Maize Research Center StationCenter Station

35 Farmers35 Farmers

380 Acres380 Acres

• Premium: USD 2,590

• Sum insured: USD 41,620

July 2007

Risk cover : Drought

Insured Crop: MaizeRain station

Rain station

Nakhon Ratchasima Province

Pilot Project in 2007

USD 9/Acre

USD 9/Acre


2,860 Acres

388Farmers

Period 3

Period 2

Period 1

Sowing (30 Days) Sowing (30 Days)

Growth (20 Days) Growth (20 Days)

Flowering and Grain Filling Flowering and Grain Filling (30 Days). (30 Days).

USD 28/Acre

USD 104/Acre

NakhonRatchasima

LopburiSaraburi NakhonSawan

Phetchabun

5 Provinces (8 Districts)

Premium: Premium: USD 23,300Indemnity: USD 3,520Indemnity: USD 3,520 (15% of Premium) (15% of Premium)

Pilot Project in 2008Pilot Project in 2008


USD 10/Acre

USD 6/Acre

Premium rates

5,320 Acres

817Farmers

Period 3

Period 2

Period 1

Sowing (30 Days) Sowing (30 Days)



Premium rates

USD 28/Acre

USD 104/Acre

Nakhon Ratchasima LopburiSaraburi Nakhon

SawanPhetchabun

5 Provinces (15 Districts)

Premium: USD 42,040Indemnity: USD 11,160 (27% of Premium)



USD 8/Acre

24,275 Acres

3,194Farmers

7 Provinces

(as of the end of September 2010)

Premium: USD 202,290

Indemnity: USD 143,300 (70% of Premium)

Nakhon Nakhon RatchasimaRatchasima LopburiLopburiSaraburiSaraburi

NakhonNakhonSawanSawan PhetchabunPhetchabun PitsanulokPitsanulok NanNan


USD 8/Acre

Premium rates

Period 3

Period 2

Period 1Sowing (30 Days) Sowing (30 Days)



USD 28/Acre

USD 104/Acre


Model of the Japan Bank for International Cooperation (JBIC)


Overview ProjectOverview ProjectThailandThailand

National Institute for

Agro-Environmental Sciences(NIAES)BAAC

JapanJapan

Sompo Japan

Sompo Japan Risk Management

JBICJBIC

Thailand

Sompo Japan Thailand

Sompo Japan Group

Insurance Contracts

Thai Meteorological Department (TMD)

CoordinationMOU

Technical Advice

Technical Advice

(Insurer)

(Policy Holder)(Insured)


Upper Threshold

Lower Threshold

Premium rate: 4.64%Premium rate: 4.64% of principleof principlePremium rate: 4.64%Premium rate: 4.64% of principleof principle

Drought: Indemnity 15% of the insured loan principal

Severe Drought:

Indemnity 40% of the insured loan principal

Non-Drought (No Indemnity)

Model of JBICModel of JBIC


Cumulative Rainfall (mm.) in July – September (3 months)Cumulative Rainfall (mm.) in July – September (3 months)Cumulative Rainfall (mm.) in July – September (3 months)Cumulative Rainfall (mm.) in July – September (3 months)

July-September 2009 Rice

Production

276 Farmers,

5 Districts,

2,270 Acres

Weather Station at District

Weather Index

Insurance

Khon KaenProvince

SJIT

TMDJBIC

OIC

Japan Bank for International Cooperation (JBIC)

Sompo Japan Insurance (Thailand) Co., Ltd. (SJIT)


Office of Insurance Committee (OIC)

Cumulative Rainfall (mm.)Cumulative Rainfall (mm.)

Premium: USD 14,360

Testing Project in 2009Testing Project in 2009 Weather Index Insurance in Thailand

July-September 2010 Rice

Production

1,158 Farmers,

26 Districts,

3,180 Acres

Weather Station at District

Weather Index

Insurance

Khon KaenProvince

SJIT

TMDJBIC

OIC

Japan Bank for International Cooperation (JBIC)

Sompo Japan Insurance (Thailand) Co., Ltd. (SJIT)


Office of Insurance Committee (OIC)

Cumulative Rainfall (mm.)Cumulative Rainfall (mm.)

(as of the end of September 2010)

Testing Project in 2010Testing Project in 2010 Weather Index Insurance in Thailand

Premium: USD 24,700Indemnity: USD 3,950 (16% of Premium)

Good Result Return: USD 7,620 (31% of Premium)

Project SummaryProject Summary MaizeMaize (from 5 to 7 Provinces)

Rice Rice (1 Province: from 5 to 26 Districts)

2007 2008 2009 2010 (August) Year

Farmers

Acre

Premium (USD)Trend

35

2,590

380

42,04023,300

388

2,860

817

5,320

Farmers: 276 -----> 1,158

Premium (USD): 14,360 -----> 24,700


3,194

24,275

202,290

Non-complicated ModelNon-complicated Model

Important LessonsImportant Lessons

Collaboration of Relevant PartiesCollaboration of Relevant Parties

Perception and Understanding of FarmersPerception and Understanding of Farmers

Direct Benefit to FarmersDirect Benefit to Farmers

Confidence of MeasurementConfidence of Measurement


V. Next Step


Extend to Other CropsExtend to Other Crops

Important LessonsImportant Lessons

Study the Flood ModelStudy the Flood Model

Model for Other CountriesModel for Other Countries

Next Step

THANK YOUTHANK YOU

Bank for Agriculture and Agricultural Cooperatives (BAAC)Bank for Agriculture and Agricultural Cooperatives (BAAC)

Baac weather index insurance.ppt(special)

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