Legal And Economic Analysis Of Policy-based Agricultural Insurance System

There are two branches of agricultural insurance mechanism,one is commercial insurance,another is policy-oriented one.The former has been tried in China for about 23 years,with poor results.It seems the latter is more appropriate for China’s rural economics according to the legislative history of agricultural insurance,and should be the historical options.At first the mechanism was co-sponsored by the government and the state-owned company(PICC,The Peoples Insurance Company Group of China Limited),with adequate financial assistance and monopoly,PICC provided the unique agricultural insurance and took the main market share,which has played an unmeasurable role in the development of the social security mechanism in rural area at initial phases.While,during the development of insurance market in the past several years,many commercial insurance companies have started up and surged in the financial market,starting to engaged in the agricultural insurance business.The experiments of "policy" elements intervening in agricultural insurance over the past several years have accumulated so rich experience for the reform.The reform of agricultural insurance emphasized the role of the commercial insurance company and the insured’s freedom to choose,which showing the greatest respect for the autonomy.Besides,the reformed kind of pattern is named as the policy-oriented insurance,it encourages more commercial insurance companies take part in the agricultural insurance,and tries to reduce the financial burden on the government based on the principles of large numbers.It does not mean that the government would stay outside of the system,otherwise it would transfer the core work from pure financial support to the prudential supervision.At present,the Agricultural Insurance Regulation(2016)is the main legal basis for the application of policy-oriented agricultural insurance in China.Article 3 of the regulations stipulates that ’the state supports the development of various forms of agricultural insurance and improves the policy-oriented agricultural insurance system’.The systematic construction of policy-oriented agricultural insurance system is still an open proposition.In order to promote agricultural economics and insure the stability of rural area,agricultural insurance system has been introduced and gradually become an important part of the rural social security law system.The basic function of agricultural insurance is to spread the risk from the nature and the human society,making the most complete compensate for the damage occurred due to the natural and social disaster.It is brought into the category of independent system construction,and the purpose is to guide the normative and sustainable development of policy-oriented agricultural insurance through legislation,so as to fully realize its economic and social benefits.The conclusion of the research is based on the benefit of institutional supply,which accords with the methodology of Law and Economics,the basic foothold lies in the legal supply should meet the market demand.The representation of policy-oriented agricultural insurance is to implement the policy elements in agricultural insurance through different ways and means,to give the enthusiasm of commercial insurance institutions full play,and to reduce the financial pressure of the government in the management agricultural risk.This does not mean that the government is free from the reform,on the contrary,the government should focus on the prior guidance and ex post facto regulation.Inactive intervention of the government in the insurance contract relationship has become one of the key words of the reform,which is also in line with the objective system of modernization of national governance systems and governance capacities.Based on the theory and logical analysis of Law and Economics,this dissertation try to design the institutional system of policy-oriented agricultural insurance,which including the insurance subsidies,business expense subsidies and tax incentives,etc.All have been applied to the mechanism,which were manipulated by the government,to incentive and supervise the business organizations,and to meet the legislative needs of the society and the market,to conform to the development trend of agricultural modernization and risk management globalization.The construction costs of policy-oriented agricultural insurance system should adapt to the economic and social benefits of agricultural insurance system,which means that the agricultural insurance system cannot be studied in isolation.The policy-oriented agricultural insurance has the dual functions of dispersing risk and capital operation,and is closely related to rural finance and catastrophe protection mechanism.Based on rational choice theory,this dissertation emphasizes the role of institutional incentives,and suggests promote the organic relationship between agricultural insurance and rural finance,agricultural mutual aid and rural security mechanism,so as to strengthen the joint force of financial risk-control mechanism.This is the key to implement the scientific nature and maneuverability of the policy-oriented agricultural insurance system.The policy-oriented agricultural insurance system is composed of internal benefit balance rule and external function coordination rule,how to demonstrate it is the main content of the research.In the past ten years,the experiments of ’policy’intervention in agricultural insurance provide the main materials for the research,including the Agricultural Cooperation Organization,the mechanism of Agricultural Risk Protection.Based on these materials and the theory of Law and Economics,this dissertation trys to calculate cost and income,measuring fairness and efficiency,and sorting out the basic and related legal relationship between government,insurance institutions,agricultural producers and operators,agricultural insurance market,agricultural credit,agricultural risk guarantee fund and so on.In the field of rural finance system,Policy-Oriented Agricultural Insurance system besides with Rural Cooperative Finance,Catastrophe Securities form completely the whole structure of rural security mechanism in China.The latter two will influence the function of the Policy-Oriented Agricultural Insurance system inevitably,which means that the construction of the law system of Policy-Oriented Agricultural Insurance should balance the relationship among these three financial branches.This dissertation focuses on the legislative proposal of the Policy-Oriented Agricultural Insurance system,which is still deficient in the law system of China.Undoubtedly the relevant business practice,which also witnessed the legislative changes in the past ten years,is the essential experience and accumulation for the legal reform.There are several problems that should be discussed and solved in this topic.First of all.the relationship among the Policy-Oriented Agricultural Insurance,Rural Cooperative Finance and Catastrophe Securities is so complicated that in order to maximize the benefits of Policy-Oriented Agricultural Insurance law system,analyzing the economic benefits and make reasonable arrangements in the legislation is necessary.In addition,the internal legal relationship in the Policy-Oriented Agricultural Insurance law system,which includes the insurance company,the insured and the regulator,is the basic content of the discussion.Unlike the normal commercial insurance legal relationship between the insurance company and the insured,Policy-Oriented Agricultural Insurance reveals a triangle relationship,in which the role of the government besides the former two parts is special and important.The scale of supervision and financial support to the agricultural insurance will determine to some extent the function of the system.Last but not the least,the regional imbalance of agricultural economics reminds that the Policy-Oriented Agricultural Insurance law mechanism should consider the economic differences in different countryside,though the harmonization of legislation is a trend.The Full paper is divided into two parts,the introduction and the main body There are six chapters in the main body of this dissertation.Introduction:It will be focused on the research background,the research significance,the status and the basic ideas,the methods and the main content of the study in this part.Chapter 1:The Definition of Policy-Oriented Agricultural Insurance.The definition is based on the theory of Law and Economics,which will decide the main framework of the law system.Another gist of the definition is the difference between commercial insurance and policy-oriented one in agricultural insurance.The definition of the legal and economic concepts will lay the groundwork for the argumentation about subject,object and content of policy-oriented agricultural insurance,all these mature system of rules are the essential reference and foundation of Agricultural Insurance.Chapter 2:The Internal Multi-Legal Relationship in the Policy-Oriented Agricultural Insurance Law System.In this field,the insurance company and the insured as well as the government form a triangle legal relationship,including the insurance contractual relationship,the insurance regulatory relation and the risk management one.Each relation requires different rules to govern and coordinate the internal interests,which would be based on the economic theories like Game-theory,Benefit-maximization-theory,Equity-theory,etc.It should follow the principle of efficiency and fair balance in the legislation supply,emphasizing the function of the Transparency and Information Disclosure system,which will contribute to the individual and the collective utility maximization.Chapter 3:The Rational Choice of Policy-Oriented Agricultural Insurance Business Model.Legal market theory and the cost-benefit theory will be used in this chapter.When discussing and determining the agricultural insurance business model,the different essence of political,economic,social and cultural background should be covered.Based on the domestic and foreign policy agricultural insurance business model,policy-oriented agricultural insurance legislation would determine the basic principles and concrete system,such as the rule of the operators,the business terms,and the responsibility and supervision system.Both of the incentive mechanism and the management pattern of the legislation should be scientifically arranged,which is on the basis of current situation of the development of agricultural economy and agricultural insurance in our country.And the objective and fundamental purpose is to serve "the farmers,the agriculture and the rural areas".Chapter 4:The Analysis of Financial Incentive Mechanism of Policy-Oriented Insurance--Agricultural Insurance Subsidies based on the theory of Cost-benefit and Game theory.The "intervention" of agricultural insurance subsidies sets up a special bridge between the government and the insurance market,and make the public power and private rights interact.To reform the system of agricultural insurance subsidies is to achieve the goal of the social welfare maximization.There are several forms of agricultural insurance subsidies,such as the premium subsidies,the management fees subsidy,reinsurance and the tax incentives.All these forms of subsidies should be legislated to the whole agricultural insurance law system to maximize the effectiveness,as well as to punish the defraud,abuse of the subsidies.The illegal behaviors shall be investigated and born of legal responsibility.The varieties of subsidies,the insurance coverage and the ratio of subsidies should also be involved in the Legislation Supply.Chapter 5:The Research on Financial Incentive Factors of Policy-Oriented Agricultural Insurance.Unlike the internal system of subsidies,this part would be treated with the external relationship among the Policy-Oriented Agricultural Insurance,Rural Cooperative Finance and Catastrophe Securities,focusing on the analysis of positive and negative incentive elements of policy-oriented agricultural insurance system.Based on the theory of Rational Choice and Institutional Encouragement,none of the economic relationship is isolated,involving the Policy-Oriented Agricultural Insurance system,which will be influenced by the level of rural financial development and catastrophe risk securitization.Now Insurance-Credit pattern has been launched pilot projects in several developed rural area in China,and has achieved promising results.This pattern combines the benefits of the agricultural insurance,the cooperative rural credit,whose purpose is to improve the risk response capability of rural residents.Similarly,Catastrophe Securities is another kind of rural finance that would contribute to the development of agricultural insurance,by means of securities to disperse the natural or social catastrophe.After all,spreading risk and reducing losses would be the common goal of these two financial sectors.The Legislation Supply suggestion should enhance the availability of financial services,improve the infrastructure of rural agricultural support,to ensure agricultural economic steady development.Chapter 6:The Basic Framework suggestion for Rational Reconstruction of Policy-Oriented Agricultural Insurance System in China.According to the theory of supply and demand of the law,the low efficiency of the existing legislation applicable and the large regional differences would ask for the rational reconstruction on the standardization of the policy-oriented agricultural insurance law system.In the last part of the dissertation,the preliminary legislative idea would be put forward in the form of provisions,involving the legislative principles,elements of the legal relationship,the insurance contract,the insurance regulation,prudential supervision and the punishment rules.