| China has been trying to explore and establish the governmental agricultural insurance since 2003.Great achievements have been made during these years.The market scale of agricultural insurance business in China has grown rapidly globally,which is only second to the United States.However,during the development of the traditional agricultural insurance,many drawbacks begin to appear such as high transaction costs,moral hazard,adverse selection,and low level of protection.Comparing to traditional insurance,price index insurance has many advances.For example,it weakened the information asymmetry of both sides of agricultural insurance;it also reduces the adverse selection of agricultural insurance and moral hazard,promoting engagement of agricultural insurance.Because of transparency of price index insurance,there is possibility of circulation in the secondary market,which provides a possible way to spread the catastrophe risk.While we notice that price index insurance provides protection for the price risk of agricultural products after analyzing the current status of price index insurance in China,we also found out it has its own disadvantages.The promotion of price index insurance relies heavily on central government financial subsidies.Once the central government subsidies are absent,it brings in a financial burden to local government.Due to lack of scientific guidance on setting the target price,the price index insurance loses its ability to accurately judge the future price,resulting in a large basis risk.Current insurance products and insurance scale are too small to effectively disperse the risk.Moreover,when some disaster happen,for example,there are some cities suffering from catastrophe,the relatively high loss ratio causes great pressure on the operation of insurance companies.After analyzing the implementation effect of Scallion Price Index Insurance in Zhangqiu,Jinan,we found out that the insurance stabilizes the price fluctuation of green onions and protects the income of farmers;it greatly enhances the enthusiasm of farmers to plant Zhangqiu green onion and promotes the scale of intensive development on onion industry.Moreover,the expense ratio 1s also significantly reduced,which reduces the operating burden of insurance companies.However,there are some problems.Due to lack of governmental financial subsidies,the scale of the onion price index insurance is small,the underwriting area is insufficient and the propaganda 1s not enough,which causes the farmers have insufficient understanding of the price index.Moreover,because of the big difference between the target price and the actual transaction price,the Zhangqiu onion price index insurance has extremely high payout rate in the past four years,leading to a high risk to insurance companies.In order to improve the price index insurance of Zhangqiu Scallion,this paper analyzed the price fluctuation of green onion in Jinan,and further pointed out the price fluctuation characteristics of green onion.Based on these analysis and findings,we designed a new insurance product,described as following.The insurance period is set up to four-year,which can completely cover the cycle of price fluctuations of green onions and reduce the risk of adverse selection and ethical issues.At the same time,in order to accomplish timely payment to effectively avoid price risk,the price observation period is set to be the annual listing period of the onion,and claims are payout annually.Both the target price and actuarial price should be set up according to the wholesale price,which served as a standard.The target price also can be set by referring to the results of short-term price forecasting by mathematical models such as the ARIMA model.According to the ARIMA model(2.0.0)modified by us,we predicted that the averaged green onion price in November is 3.02 RMB per kilogram;and in December it is 2.98 RMB per kilogram.In terms of the actual price calculation,the influence of different monitoring points,which have different trading points on the market price,should be taken into account,and the transaction amount should be weighted when calculating the average price.The insurance amount should cover the labor cost and provide a higher level of protection.When 80%guarantee level is selected,the insurance amount per are is calculated to be 6,300 RMB,the actual insurance premium rate is 7.25%,and the premium per 667 m2 is 456.75 RMB.Different levels of protection could be set in order to meet the needs of the onion farmers.Financial subsidies should strive for central governmental support,and a stable agricultural insurance coordination management organization should be established.This new insurance product has many advantages,but it also has its own drawbacks.For example,the catastrophe risk is not scattered;the new insurance product requires insurance companies to follow up the development and to update their original system,which puts higher demands on agricultural insurance practitioners.Lastly,we suggest that it is essential to establish an agricultural insurance catastrophe risk dispersion mechanism and vigorously develop the futures market.Moreover,the local government needs to increase its support,and improve the technical level and product design. |
