INSURANCE PILOT IN VIETNAM
Vietnam is a large rice producer and exporter and agriculture contributed around 20% to the country’s GDP in 2011. After several initiatives driven by insurers, the government of Vietnam decided to implement a subsidised insurance pilot program for rice growers, livestock operators and shrimp farmers in 2011. While leading the agricultural underwriting team for Asia-Pacific at Swiss Re, we were asked by the Vietnam National Reinsurance Corporation (Vina Re) to provide technical assistance and international best practise. Initially, I frequently travelled from Zurich (Switzerland) to Hanoi (Vietnam) until it became easier after my relocation to Singapore in 2010. Meeting numerous government officials from the Ministry of Finance (MOF) and the Ministry of Agriculture and Rural Development (MARD), I was surprised to find out that several older government officials spoke perfect German as they studied in eastern Germany during the time of the German Democratic Republic (DDR) – in some cases I translated German into English for some of my colleagues.
Our focus was rice insurance and as indemnity-based insurance would be costly to implement for small rice producing farms with up to three rice seasons per year, it was decided to implement an Area Yield Index Product. The initial challenge was to obtain historical rice production data per season and district. It was only after a field visit that we understood that data are available per commune (sub-district) but needed to be first digitised, which was thankfully facilitated by the two insurers Bao Viet and Bao Minh. Most rice yield data showed increasing trends over time and considerable volatility due to natural disasters (mainly typhoons and droughts). The data series were long enough to comfortably price area-yield indices that were implemented in several provinces and communes with the Bureau of Statistics providing actual yields at the end of each season. The government provided premium subsidies according to household income ranging from 100% for poor households to 20% for certain agribusinesses.
During the technical support, we arranged a visit of a delegation of Vietnamese insurers and government officials to Anhui province (China) to learn from government-owned agricultural insurer Goyuan about the Chinese rice and livestock insurance products. I got a bit nervous when I was tasked collecting the train tickets for the Vietnamese delegation at Shanghai train station and accompany the delegation by train to Hefei, Anhui province, where my Chinese speaking colleagues waited for us.
The government pilot program in Vietnam was shortly implemented after our initiative to develop an Area-Yield Index Insurance Product for the Agribank Insurance Joint Stock Company (ABIC), the insurance arm of Agribank, to cover loans to rice farmers in up to 10 provinces in Vietnam.