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Low Insurance Coverage: 9.5% of Pakistan’s 8.2M Farmers Insured – SECP

“Discover the challenges in the agricultural insurance sector as only 9.5% of 8.2 million farmers are insured against disasters. Explore the key findings from the SECP report, uncovering government-run schemes, pricing complexities, and the impact of undercutting practices on insurance companies. Stay informed on the evolving landscape of agricultural insurance in Pakistan.”

Low Insurance Coverage: 9.5% of Pakistan's 8.2M Farmers Insured - SECP

Only 9.5 percent of the 8.2 million farmers in the country have insurance against disasters. This information comes from a report by the SECP about the insurance sector.

The report shows that the government has schemes to help farmers get insurance. These include the Crop Loan Insurance Scheme and Lives Stock Borrowers Schemes by the State Bank of Pakistan, and the Punjab Fasal Bema Scheme by the Government of Punjab.

According to the report, insurance companies in Pakistan that offer agricultural insurance can’t charge more than 2 percent as a premium. The report also says that the price is not decided based on market conditions. Setting the right price for agricultural insurance is important to make it attractive and affordable for farmers, financially viable, and sustainable for insurance companies. To do this, historical agricultural and weather data are needed.

In competitive markets, the demand for and supply of insurance affects the price. However, the price is mainly determined by factors like catastrophic load, expense load, and annual expected losses, which depend on the frequency and severity of losses.

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To be part of the banks’ panel, insurance companies are pushed to lower the premium even more. Currently, the premium rate is less than 1.5 percent. Smaller insurance companies offer even lower premiums to compete, but this also means they have lower exposure limits and less sum insured.

This undercutting practice is causing problems. Insurance companies are leaving the scheme because they can’t make enough profit.

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