Regulatory Impact Assessment (RIA) on the crop insurance reform of Georgia
Monday, 30 November, 2015

The Government of Georgia (GoG) intends to create a national agricultural insurance program to achieve the following objectives: (i) developing the agricultural insurance market in Georgia; (ii) supporting agricultural production and increasing the competitiveness of farmers; and (iii) supporting the income of people involved in agricultural activities and minimizing their risks. Two pilot projects were implemented in 2014 and 2015, which on average subsidized 94% and 55% of insurance premiums, respectively. Along with these pilot projects, the government has initiated the development of a sustainable long-term crop insurance policy and regulatory framework. In the near future, it is expected that the government will decide on a model that will be used to manage the agricultural insurance process in Georgia.

A number of actors will be affected by this policy intervention. These include farmers, insurance companies, the Georgian Insurance Association (GIA), and the Agricultural Projects Management Agency (APMA) of the Ministry of Agriculture (MoA). For our study, we consulted each of these stakeholders by conducting interviews, focus groups, and workshops.

The consultations started on 24 June and ended on 13 August 2015. The consultations confirmed that the Georgian agricultural insurance market is facing substantial organizational, technical, and economic constraints. A regulatory framework for the market has not yet been developed and the technical capacity for administering agricultural insurance (e.g., loss adjustments and distribution of policies) is underdeveloped in the country. The availability of farm and weather data is extremely limited in Georgia, constraining the development of insurance products. In addition, Georgian farmers lack awareness of and experience with agricultural insurance, making them reluctant to insure their production. All these constraints lead to very low levels of interest among insurance companies to invest in this sector. In addition, certain climatic events, such as droughts or floods, are associated with systemic risks that can generate large losses for insurance companies, which further lowers their interest in entering such markets. Therefore, in the absence of any intervention, insurance markets will operate at a less than socially optimal level of risk transfer.