Need for Agriculture Insurance Pool in Tanzania.

Agriculture is the risk activity. Consequences and impact of Tanzania famers production depend on their intensively dependent on weather, this result to the problem of yield variability. A wide range of risk management instruments are implemented without successful either privately, collectively or in any way supported by national agriculture policy.

The major issues that need to be addressed include but not limited to crop losses resulting from weather changes, financial risks, market risk resulting from wide input and output price volatility, and unexpected policy and regulatory changes that impact farmer decision

Although agriculture sector suffer from various risks which impact financial capacity of the farmers, risk mitigations are insufficient for most farmers in Tanzania, consequently Insurer consider agriculture as the high risk venture, this led to lack of insurance coverage especially to smallholder farmers.

Tanzania has far reached its critical stage in its searching for solution in managing and controlling risks in the agriculture sector. This fast growing uncertainties in Agriculture sector can only be successfully managed by means of insurance.

Agriculture insurance is the main and efficient tool for combating against the risk and uncertainties facing crop and livestock farmers in Tanzania. Various initiatives has been taken place to introduce agriculture insurance in Tanzania but status show that except for few pilot scheme agriculture insurance in Tanzania does not exist.

In the absence of agriculture insurance provision in Tanzania, most farmers are not aware of this class of insurance, this left farmer with only traditional means and strategies to mitigate various agriculture risks.

Agricultural insurance is important in providing protection against variety of risks that farmers face through claim payments in worst years and thus reduce impact that to farmers. Hence, in Tanzania agricultural insurance will act as foundation for improvement of productivity-boosting investments in agricultural production that will help a hundreds of millions of Tanzanian out of poverty.

It’s time for the key stakeholders to agree and put in place a strategic decision on coordinating approach to design and introduce agriculture insurance pool that will benefit and quench the thirsty of insurance coverage for country’s smallholder farmers.

For the purpose of transforming agriculture and penetration of agriculture insurance into competitive product there is potential of formulating a mutual association which is specifically dedicated to underwrite crop insurance portfolio under suitable way.?

The services of crop insurance can be easily improved by creation of the mutual crops insurance system in Tanzania which can be designed to encourage participation of the private commercial insurance companies with collaboration of farmer’s associations and to introduce a specialist agricultural insurance entity to act on the behalf of the collaboration and capable of developing and implementing new types of agriculture insurance.

The potential benefit of mutual crop insurance includes the ability to underwrite a much broader and larger book of business. And in country like Tanzania where crop insurance is still in infancy stage a mutual mechanism may be more attractive and cost effective proposition for commercial insurance companies than if they were to operate independently.

Also depends on the nature of our market few private companies will risk their capital to provide cover for crop insurance and for a single company to obtain reinsurance cover will be difficulty but through a crop insurance pool it will be easily to get reinsurance cover for catastrophic disaster.

Coinsurance pool arrangement has both advantages and disadvantages. One of the advantage, by operating as a single organization with shared administration and operating functions they achieve economies of scale. This leads to reduction of cost of underwriting and claims control, reduction in cost of staffing and other cost like product research and development costs is reduced.

Increase of power of bargaining in purchasing reinsurance compared to individual company purchasing their own individual reinsurance program, due to the fact that a coinsurance pool has greater and balanced portfolios, and better diversification of risk.

The potential disadvantage most of coinsurance pool operates as monopolies as a results there is no competition on pricing, the monopoly of the pool may lead to lack of market competition which results of small range of product varieties and poor services offered as results of lack price competition.