Sectoral sources say authorities have already initiated the process of drafting a strategy to put in place requisite legal and regulatory frameworks for smart agriculture insurance business.
The project was presented and discussed recently during the “Roundtable on the Development of Agriculture Insurance Methodology in Tanzania”, which brought together local and international insurance and reinsurance experts.
This paper is informed that Tanzania Insurance Regulatory Authority (TIRA) has started searching for technical assistance and financial support to help develop and implement the large scale agriculture insurance strategy.
“TIRA is requesting technical assistance and financial support for the development and implementation of Agriculture Insurance Strategy (AIS) in Tanzania,” reads a concept note of the project presented during the roundtable.
“This request builds on a report submitted in February 2011 by the agricultural insurance working group tasked by the Prime Minister’s Office to investigate introducing agriculture insurance in Tanzania,” it adds.
According to preliminary estimates presented at the roundtable, the provisional cost of the project is put at slightly over US$21 million, which is close to 46.42bn/- at the current market exchange rate.
Titled ‘Development and Implementation of Agriculture Insurance in Tanzania’, the three-phased project is expected to last for at least four years after taking off.
It would take longer depending on duration of each of the three phases especially the developed business plan, which could target specific crops, livestock, forestry, fisheries and hunting.
The first phase of the project is expected to take nine months and one of its goals will be to draft a detailed fiscal, market and impact assessment report with at least three options for large scale public private sector partnerships (PPPs) in agriculture insurance.
The second phase will take about three months and will come up with a draft implementation plan and agriculture insurance strategy. Depending on the business plan developed, the third phase of the project could last for over three years.
“Time to launch the first agriculture insurance pilot programme could be between 6 – 18 months. Total time for phase three could be three plus years,” reads part of the project description.
Being the national agency charged with the responsibility of coordinating policy and other matters relating to insurance development, TIRA requires the funding to be able to put in place a credible and comprehensive methodology that will assist the government to develop best agricultural insurance practices in the country.
TIRA’s core objectives include transforming the insurance industry into a sound and competitive agent for national savings mobilization and development investment channeling. It is also mandated to promote the insurance sector as an effective catalyst for enhanced economic growth.
According to concept note, the ultimate goal of the proposed project is to provide the insurance industry with a sound platform for building an effective and integrated framework for insuring agricultural risks in Tanzania, based on a PPP approach.
Apart from development and implementation of an agriculture insurance strategy in Tanzania, the other overall objective of the project is to implement capacity building activities within TIRA, the Ministry of Finance and agricultural sector lead ministries and other institutions involved in agricultural insurance, insurance market participants, distribution networks and other key stakeholders in both Tanzania Mainland and Tanzania Zanzibar.
Despite liberalization of the industry in 1996, which has led the national economy being served by 31 insurers, over 130 insurance brokers and more that 400 agents, insurance penetration in the country is still less than one per cent.
Factors behind the low penetration of insurance services include neglect of rural parts of the country by major sectoral players and under serving of farming activities by the indemnity providers.
After nationalisation of insurance in 1967 as part of the Arusha Declaration, a new era in the industry was ushered in mid last decade when Parliament passed the Insurance Act No. 18 of 1996. The Act, among other things, liberalised insurance business by permitting private firms participation in the sector.
In spite of the increase of insurers from two state owned monopolies to the current 31 insurance companies, experts say the sector’s contribution to national development remains minimal due to among other things lack of comprehensive protection packages for agriculture.
To the CEO of Bumaco Insurance Company, Ramadhan Mungi, the anomaly has much to do with the dominance of the business by foreign-owned companies, which currently number 27.
Those with a different outlook say it is the nature of the risks in agriculture insurance and the level of development of the industry, which are responsible for the status quo.
The TIRA agriculture insurance initiative is expected to create the requisite conditions for the unique risk management in the sector, which remains the backbone of the economy.
Last week, Kevin Amirehsani, a senior analyst at Global Risk Insights, told The Banker that it is lack of vital services such as insurance, which makes agriculture one of the top weaknesses of the national economy, aside from infrastructure.
When fully implemented, the TIRA initiative will lead to development of a modern agriculture insurance market in the country and address current shortcomings such as insurance and reinsurance companies’ readiness to offer agricultural insurance products.
It will also look at matters to do with investments required to support the business as well as capital and human resources issues.
“By developing an Agriculture Insurance strategy in Tanzania and building capacity for Government Agencies, the following benefits are expected to accrue: Broadening of the insurance industry’s performance in the building of the economy, particularly in the rural sector; improving Insurance industry’s public image and supporting the resilience of rural finance by protecting the balance sheet of rural banks,” TIRA notes in the concept note.
Others are “aligning insurance with other financial sector players in enabling the poor to access loans for agricultural activities and improving food security in Tanzania by supporting agricultural productivity”.
The regulator also says that agriculture insurance will “provide the government with more control over budget, reducing reliance on slow, unpredictable donor funding. And reduce the vulnerability of rural farmers, increasing their resilience to shock events”.
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