Crop yield insurance – negotiating between government, farmers and insurance companies

Abstract

The purpose of this paper is to analyse the experience of crop yield insurance in Lithuanian agricultural sector against unfavourable climatic factors causing the losses of crop harvest and their impacts on the insurance premiums and the indemnity for damage. The huge problem of Lithuanian crop insurance system is the low rate of farmer’s participation and problems arising in defining insurance premiums. However, there are noticeable substantial climate changes during the last 20 years, and agricultural sector in future will be more affected by unfavourable climatic conditions and such natural disasters require the Government to provide assistance to farmers. The amount of insurance premiums for crop insurance are relatively high, because a single Insurance Company does not accumulated sufficient statistics, so farmers rarely use its services: now there are insured only 7% of insurable crop areas in Lithuania. Consequently, negotiating takes place between farmers, Insurance Company and Government concerning compensation for crop yield losses. The aim of paper is to analyze the advanced experience of other countries, to evaluate principles of crop insurance in order to give proposals for all negotiating parties. Methods of the investigation are comparative analysis of the problem, descriptive approach, synthesis, modeling. The results and conclusions of the paper suggest to modify the principles of crop insurance driving to „low-premium“, „wide coverage“ system, to increase the transparency of damage evaluation and payment of insurance claims and to be more focused on trends of climate change in future.