Agricultural insurance has been a stable growth sector within the property insurance industry, consistently achieving profitability and high premium growth rates, averaging around 20% year-on-year for over a decade[para. 1]. However, in the first half of 2024, the growth rate of agricultural insurance premiums plummeted to single digits, increasing by only 6% year-over-year[para. 2]. In some provinces, such as Xinjiang, Guangdong, Jilin, and Yunnan, the signed premium scale decreased by approximately 20% to 30% year-over-year[para. 2].
The slowdown is attributed to several factors, particularly the financial pressure faced by local governments[para. 3]. Zhang Qiao from the Chinese Academy of Agricultural Sciences notes that multiple factors are influencing this, including the delayed implementation of new policies regarding comprehensive cost and planting income for major grain crops, which shifted insurance premium growth to the latter half of the year, and disruptions caused by triennial insurance institution selection and bidding processes in several provinces[para. 4].
The reliance on fiscal support is a distinguishing feature of agricultural insurance[para. 5]. As local government finances tighten, agricultural insurance is expected to transition from its previous high-growth phase into a “new normal,” characterized by slower growth rates and changes in business structure[para. 6]. Despite fiscal constraints, the national budget for agricultural subsidies continues to grow significantly, reflecting strong support, and the range of crops covered by agricultural insurance in China is steadily expanding[para. 7].
Central government subsidies for agricultural insurance premiums have played a significant role since their introduction in 2007, leading to rapid development in the sector with growth rates exceeding 20% on average from 2007 to 2023[para. 5]. However, although central government subsidies increased by over 17% in the first half of 2024, premium income growth fell to single digits, showcasing significant regional variations[para. 8]. For instance, Xinjiang saw a notable decline due to reduced market values for dairy cows and shifts in crop cultivation areas driven by food security policies[para. 8][para. 10].
Local government fiscal issues, particularly at the county level, have led to delayed insurance operations and decreased subsidies, impacting premiums significantly[para. 14]. Since 2007, sustained government support has been crucial for the development of agricultural insurance, highlighting the effective demand from the government rather than from farmers, with fiscal budgets largely determining the growth rate of premiums[para. 16].
China’s agricultural insurance subsidies are funded at four levels: central, provincial, municipal, and county, with differing ratios of contribution[para. 18]. However, constraints in county-level finances have led to “quota allocation” scenarios, limiting full coverage and potentially leaving farmers unable to purchase insurance due to lack of subsidies[para. 22]. Additionally, structural issues like delayed and misappropriated premium subsidies have caused notable arrears, affecting the operational dynamics of the sector[para. 25].
While the sector has faced accounting issues and varying perceptions of insurance payout effectiveness, overall trends indicate that agricultural insurance remains a profitable business for insurance companies despite fiscal and operational challenges[para. 28]. Future development is expected to focus on stabilizing volume and improving quality through precise underwriting and claims processes, with recommendations including reduction or exemption of county-level financial subsidies, prioritizing key areas, and adjusting subsidy ratios appropriately[para. 31][para. 33].
Institutional reorganization is suggested to enhance efficiency and effectiveness, potentially drawing inspiration from models used in the United States, aiming for more precise insurance coverage and streamlined operational processes, driven by policy innovations and support[para. 35].
AI generated, for reference only
