State supports agriculture insurance

TALLINN - After last year's poor harvest forced the government to pay 227 million kroons ($14.8 million) in compensation to 13,000 farmers, the Agriculture Ministry this year decided to focus on crop and livestock insurance instead.

The idea of offering insurance to farmers came from the ASA Kindlustus company in 1997.

"They started the research and worked out the system at the beginning of last year. At the end of last year the government started to think about it," said Olavi Petron, a specialist from the Agriculture Ministry.

"The aim of supporting insurance claims is to support insurance activities and to make farmers decrease their risks. This is much cheaper for the government," said Petron.

At present five insurance companies have applied for insurance support from the ministry: Balti Kindlustus, Eesti Kindlustus, Leks Kindlustus, Nordika Kindlustus and Salva Kindlustus.

The ministry should compensate a certain percentage of the size of insurance premiums to farmers. The maximum compensation can be 40 percent, and as of July 20, the ministry had paid out 388,226 kroons in insurance support.

The total value of premiums under the insurance agreements concluded by farmers who sought support from government was 970,566 kroons. Farmers placed 118 applications for support from a total of 130 policies, 15 of which were for crop insurance and 115 on livestock insurance.

According to Petron, the reason for the smaller number of crop insurance policies, and hence claims, may be due to their high cost as well as a legal requirement that only a corporate body can apply for crop failure support.

Petron said that the cost of the insurance may become cheaper one day if more people buy it.

He said that the new system of supporting insurance cannot be taken as supporting the insurance sector in general, because he believes that the insurance companies will have big losses from insuring farmers for the first five or six years.

Mihkel Uibopuu, insurance director at Eesti Kindlustus said that the profitability of their new product depends on the development of the agriculture sector, which he is not optimistic of in the near future.

Eesti Kindlustus is the biggest supplier of agricultural insurance in Estonia. Uibopuu said that agricultural insurance forms only 0.3 percent of the total insurance portfolio of the company.