Public / Private Partnering

Assumptions

• Crop Insurance is the preferred risk management tool provided for growers.
• High grower participation is desired.
• Protection is to be provided for as many growers and crops as practical.
• Growers should have the opportunity to choose from many different insurance products, policy forms options, and premium variations.
• A high degree of program integrity is important.

Benefits for Growers

• Improved risk management counseling.
• Additional risk management products/more protection choices.
• Better coordination with other farm coverage.
• Equip growers to make broader use of commodity markets to improve profitability.
• Localized service.
• Higher participation reduces premiums because of an improved spread of risk.
• Enhanced program image (choice and competition).
• Advocate (premium subsidies & program improvements).

Benefits for Government

• Performance based rather than long-term fixed expenses
• A portion of the risk is assumed by the company
• Financial incentive to reduce program abuse
• Higher grower participation
• Expertise in program design and administration
• Venture capital available to design, develop, and market products
• Expansion of crop programs

Benefits for Private Industry

• New markets
• Better coordination and integration with other insurance coverages
• Access to data
• Profit potential
• Improved spread of risk

Basic Features of an Agreement

The provincial Government enters into a legally binding contract with a number of independent insurance companies based upon each company meeting and agreeing to the partnership offer. The agreement will spell out the terms and conditions under which approved products will be provided. The following principles should guide development of the agreement:

• The parties must be interested in providing expansion for a variety of crop insurance coverages and services.
• Development of products must be a joint effort with clear definition of final rights and authority lines regarding program design, underwriting and claims.
• The terms of an agreement should be between three and five years to:
  • provide a stable program to farmers,
  • allow reasonable time to assess the effectiveness of the Partnership, and
  • allow time to recover start up costs.
• Any programs should be based on sound insurance principles. Premium rates must be sufficient to achieve targeted financial ratios between indemnities, premiums, and the building of reasonable reserves.
• The Companies must share in the underlying underwriting risk.
• Government would be expected to provide oversight based on general audit principles and solvency requirements consistent with general industry practice.
• The agreement must be a binding financial arrangement. Neither party should be able to take actions which cause the other party damage without adequate notification and compensation.
• Specific performance measurement criteria must be developed and incorporated including quality control and compliance standards.

Obstacles to Private Industry Involvement

1. Access to data
2. Program complexity
   Writing government sponsored crop insurance is often difficult for small and medium sized companies because:
   • Crop insurance is unique.
   • Negative perception in the market place can affect other lines of business.
   • Many rules and regulations require intense and ongoing training of agents.
   • Policies and forms are usually more complex than mainstream lines of insurance.
   • Premiums are usually not due until late in the season which delays cash flow.
   • Computer system requirements are complex and costly to design.
3. Public Policy Issues
   • Universality
   • Some companies do not want to work with the government.
   • Negative connotations, why get involved?
4. Access to the underlying program
   • Stand alone niche products too costly without.
   • Market too small
   • Program oversight issues.
5. Other
   Price is just one factor when determining the overall value of any insurance product to the producer. Commodity prices, policy provisions, and value added benefits contribute to the overall value and acceptance of any product.