SUSTAINABLE
AGRICULTURE THROUGH
AGRICULTURE INSURANCE
SUGGESTIONS FOR
DEVELOPING AGRICULTURE
INSURANCE MARKETS –A
FOCUS ON INDEX
INSURANCE
Shadreck Mapfumo
Senior Financial Sector Specialist
T: +27(0)11 731 3223
M: +27(0)83 781 0843
E: [email protected]
RISK MODELING FOR STRATEGIC DECISION MAKING
PROGRAM OUTLINE
1.
Critical definitions in appraising named peril index insurance
2.
Current challenges to Index Insurance Market Development
3.
Presenting a solution framework
•
Bridging the technical gap
•
Developing new market development approaches
•
Implementing the PSAT strategy
5. Overview of the PSAT approach
6. PSAT for Base Index Product Evaluation
7. PSAT for Product pricing
8. For more details
TOPIC 1 : The Critical Definitions In Appraising Named
Peril Index Insurance
The Base Index
• An index structure that is designed to exhibit the highest correlation between payouts and
inventory losses caused by the insured peril and hence provide the highest level of coverage
possible against damage to the insured inventory.
• As soon as the proxy’s behavior starts deviating from its normal level (as defined by subject
specialists), the Base Index triggers a payment.
• The Base Index is designed to transfer as close to all of the risk from the named peril as
possible from the policyholder to the insurance company
• This is the equivalence of comprehensive motor insurance coverage or comprehensive health
coverage .
TOPIC 1 : The Critical Definitions In Appraising Named
Peril Index Insurance
Product design basis risk
• Basis risk resulting from the failure of the chosen proxies to capture inventory damage caused
by the named peril.
• Basis risk is about product quality and client value .
TOPIC 1 : The Critical Definitions In Appraising Named
Peril Index Insurance
Comparison between Insured party and Insurer Basis Risk
TOPIC 1 : The Critical Definitions In Appraising Named
Peril Index Insurance
Illustration 2 : Comparison of Risk Transfer Levels Under Base and Redesigned Index Structures
TOPIC 1 : The Critical Definitions In Appraising Named
Peril Index Insurance
Identifying Product Design Basis Risk versus the Implied Deductible
TOPIC 2 : Current Challenges to Index Insurance Market Development
TOPIC 3 : Solution 1 – Bridging The Technical Gap In The Industry
A: Level 1 Technical Training : This is the training being offered next week
B: Level 2 Technical Training
a. Risk modelling training – learning how to generate risk metrics used in
implementing a PSAT strategy .
C: Level 3 Technical Training : -Using free software packages such as R to develop and implement
own internal models.
TOPIC 4 : Solution 2 –Unlocking New Market Opportunities
Level 1 Analysis: Identifying optimal crop type for a given geographical area
STEP 3: Indicate generally accepted premium rate and commercial premium rates for each of the crop
types.
TOPIC 4 : Solution 2 –Unlocking New Market Opportunities
Level 2 Analysis: Identifying optimal crop varieties for a given area
STEP 3: Indicate generally accepted premium level and determine commercial premium rates for each
of the crop types.
TOPIC 4 : Solution 2 –Unlocking New Market Opportunities
: Identifying optimal sowing window for crop variety in a given area
STEP 3: Indicate generally accepted premium level and determine commercial premium rates for each
of the crop types.
TOPIC 4 : Solution 2 –Unlocking New Market Opportunities
2D: Identifying optimal sowing window for crop variety in a given area
STEP 4: Indicate which crops policyholders will accept on the basis of their ranking and premium
affordability.
TOPIC 5: Solution 3 - Implementing the PSAT Strategy
TOPIC 7 : Example 1 – PSAT For Base Index Product Evaluation
STEP 2 : Define or Update Risk Management Committee Guidelines - At least once a year
TOPIC 7 : Example 1– PSAT For Base Index Product Evaluation
STEP 3 : Define or Update Risk Management Committee Guidelines - At least once a year
TOPIC 7 : Example 1– PSAT For Base Index Product Evaluation
STEP 4 : Evaluate Risk Modeling Results Against Risk Management Committee Guidelines and Document
Managerial Decision
TOPIC 8 : Example 2– PSAT For Product Pricing
STEP 2 : Define or Update Risk Management Committee Guidelines - At least once a year
TOPIC 8 : Example 2 – PSAT For Product Pricing
STEP 3 : Summarize Risk Modeling Results
TOPIC 8 : Example 2 – PSAT For Product Pricing
STEP 4 : Evaluate Risk Modeling Results Against Risk Management Committee Guidelines and Document
Managerial Decisions
FOR MORE DETAILS ON PSAT ELEMENTS
http://documents.worldbank.org/curated/en/391871491551425586/Risk-modeling-for-appraisingnamed-peril-index-insurance-products-a-guide-for-practitioners.
THANK YOU