Challenges of crop insurance
When Individual Based Crops Are Insured
- No availability of past records of ownership, tenancy and yields
- Large number of small farm holding – hence making administrative costs very high.
- Inaccessibility of small firm holdings
- Large variety of crops
- Collection of small amounts of premium from large number of small scale farmers is a daunting cost.
- Simultaneous harvesting of crops all over the country makes it difficult for them to understand the role and concept of insurance
- Unsatisfactory land tenure systems.
Whether the Structure of Insurance Should Be Yield Based or Damage Based.
In yield based insurance, the grower is indemnified if the production falls below the equivalent of certain guaranteed yield per unit area of crop. This tend to be associated with the cover against all perils. This approach leaves too may rooms for moral hazard, the most important of which is the farmer may not work hard enough to ensure maximum harvest when short fall will be paid for by insurance.
The alternative is to cover actual damage caused by specific named peril. In cropping or climatic conditions where there is a complex interaction of controllable and uncontrollable risks, the named peril approach may lead to difficulties in proggrammes design as it may be difficult to isolate damage caused by the insured peril.
Nature of Crops and Perils Involved
As a rule , the more commercial the crop is, the more readily it fits into crop insurance programme. The greater the degree of commercialization the more ther in ascertaining actual volumes of crops produced., and the greater the [opportunities for establishing a strong data based on insured farmers.
Public or Private Sector
At present, there are few successful crop insurance programmes in the world which do not involve support of the government or, in developing countries donors. The government for(donors) has to step in especially when the programme is new and more so when it is intended to be a carrier of welfare and relief measure in the agricultural sector.