Influencing Factors and Improvement Strategies of Agricultural Insurance Protection Level
wang ke , ^(1){ }^{1} he xiaowei , ^(2){ }^{2} xiao yugu , ^(3){ }^{3} zhang qiao ^(1){ }^{1}
Abstract
Abstract:The insufficient level of protection has always been the shortcoming of China's agricultural insurance. With the deepening of the reform of China's agricultural product price formation mechanism and the storage system, the expectations of all walks of life for the role of agricultural insurance continue to increase. Starting from the concept of agricultural insurance protection level, this paper analyzes and demonstrates how to improve the protection level of agricultural insurance in China from both theoretical and empirical aspects by using contract design theory and Monte Carlo simulation technology. The results show that improving the level of agricultural insurance protection should not only focus on increasing the amount of agricultural insurance or expanding the insurance liability, but should be considered from the perspective of agricultural insurance contract design. The amount insured is not the only factor affecting the level of agricultural insurance protection, under China's existing agricultural insurance contracts, the increase of the amount of insurance does not necessarily lead to the improvement of the level of agricultural insurance protection, and the relative free odds and phased loss coefficient are important factors affecting the level of agricultural insurance protection in China, and they have a more significant impact than the amount insured; Abolishing or adjusting the phased compensation regulations is an effective way to improve the level of agricultural insurance protection at this stage. The conclusions of this paper are of guiding significance for improving the level of agricultural insurance protection in China and improving the design of agricultural insurance contracts in the future.
Since 2007, when the central government provided premium subsidies, China Agricultural Insurance has gone through more than 10 years. During this period, China's agricultural insurance has developed rapidly and achieved remarkable results. In 2015, the amount of risk protection provided by China's agricultural insurance was the total agricultural output value of that year 18.6%18.6 \% , and the insured area of planting insurance accounted for the total sown area of crops in the country 56.4%56.4 \% , which was in the middle and upper class in the world, far exceeding that of other developing countries (China Agricultural Insurance Protection Level Research Group, 2017). However, in stark contrast to this achievement, the level of agricultural insurance protection in China has been low, and the amount of agricultural insurance insurance is only 22%22 \% equivalent to about the output value per mu of agriculture (Zhou et al., 2012). According to the provisions of the "Measures for the Administration of the Pilot Program of Agricultural Insurance Premium Subsidy of the Central Government" issued by the Ministry of Finance in 2007,
In principle, the insured amount of agricultural insurance should cover the physical and chemical costs of agricultural production inputs. However, with the rise in the cost of agricultural production, in recent years, the amount of agricultural insurance has actually been lower than the physical cost of agricultural production inputs, and the national average is 35%35 \% about low (Zhao Changbao and Li Weiyi, 2014). Because of this, some scholars believe that the real demand for agricultural insurance by farmers is not high (Ye Minghua et al., 2014), and agricultural insurance "does not quench thirst and does not use it" (Huang Yanxin and Li Weiyi, 2013). At present, China is in a critical period of improving agricultural support and protection policies, deepening the price formation mechanism of agricultural products and the reform of the procurement and storage system, and the CPC Central Committee and the State Council have increased expectations for the role of agricultural insurance as a market-oriented risk management tool. In 2015, the "No. 1 Document" of the central government clearly proposed that agricultural insurance should be regarded as an important means to support agricultural development in the new era. Subsequently, a number of policy documents have proposed to continuously improve the risk protection level of agricultural insurance. In this context, it is obviously of great theoretical and practical significance to study how to improve the level of agricultural insurance protection in China.
At present, it is generally believed that the level of agricultural insurance protection in China is low (Zhou et al., 2012, Zhao Changbao and Li Weiyi, 2014, Huang Yanxin and Li Weiyi, 2013), and that the level of agricultural insurance protection in China should be improved as soon as possible. Some scholars advocate improving the level of agricultural insurance protection by increasing the amount of insurance per unit area (Huang Yanxin & Li Weiyi, 2013, Wu Yan, 2015), while others suggest improving the level of agricultural insurance protection by expanding insurance liability and developing income insurance products (Wang Baoling et al., 2017, Long Wenjun et al., 2017). However, will increasing the amount of insurance necessarily improve the level of agricultural insurance protection? Does income insurance necessarily have a higher level of protection than cost insurance? Are there any other feasible ways to improve the level of agricultural insurance protection in China? The academic research on this issue is not deep enough, especially the lack of rigorous analysis and argumentation based on economic theory. In view of this, this paper intends to start from the concept of distinguishing the level of agricultural insurance protection, and use contract design theory and Monte Carlo simulation technology to analyze and demonstrate how to improve the level of agricultural insurance protection in China from both theoretical and empirical aspects.
2. Definition of the concept of agricultural insurance protection level
Although both the academic community and the industry believe that it is necessary to improve the level of agricultural insurance protection, there is still controversy about how to define and quantify the level of agricultural insurance protection, and there are also some conceptual confusions ^((1)){ }^{(1)} ) to define and discern the relationship. According to Goodwin and Mahul (2004), the level of protection of crop insurance is the sum insured, that is, the maximum insurance payout that the insured may receive. Some scholars have expanded this view to argue that the level of protection is actually the guaranteed yield level of multi-risk crop insurance (MPCI), ^((2)){ }^{(2)} which is mainly lambda\lambda determined by the proportion of protection chosen by farmers when participating in insurance (Yu Yang and Wang Erda, 2011, Yu Yang, 2013). The research group on the level of agricultural insurance protection in China (2017) believes that the level of agricultural insurance protection is multi-level, which is reflected in the degree of risk protection provided by agricultural insurance for the development of the country's (regional) agricultural industry at the macro level, and agricultural insurance can be used
The ratio of the total insured amount to the total agricultural output value; At the micro level, it can be divided into two aspects: the breadth of protection and the depth of protection, the former is reflected in the risk protection provided by agricultural insurance for how many crops or livestock products, which can be measured by the proportion of the area covered by agricultural insurance (or the number of insured heads) in the total sown area of crops (or the total number of livestock breeding heads), and the latter is reflected in the extent of risk protection provided by agricultural insurance in the unit of agricultural output value, which can be measured by the ratio of the unit insured amount of the insurance subject to the unit output value.
It can be seen that the above studies define the level of agricultural insurance protection as the ratio of the insured amount or the insured amount to the output value of the insurance subject. The advantage of this kind of concept definition is that it is convenient and intuitive, and has good reference significance and reference value. The disadvantage is that it places too much emphasis on the sum insured and ignores the impact of other insurance factors such as premiums, insurance liabilities and deductibles. For example, suppose there is insurance contract A and insurance contract B, both of which have the same sum insured (both 800 yuan/mu), but the relative deductible of contract A is , 10%10 \% and the relative deductible of contract B is 20%20 \% Obviously, Contract A provides greater risk protection to the Insured than Contract B. However, if measured only by the sum insured, the level of coverage for Contract A and Contract B is the same. It can be seen that the conceptual definition and measurement indicators of the level of agricultural insurance protection in the existing studies reflect the nominal level of agricultural insurance, rather than the actual level of protection obtained by the insured (usually farmers) from agricultural insurance. Due to the strong public policy attributes of agricultural insurance, the government and farmers are most concerned about the actual level of protection of agricultural insurance. Therefore, this paper argues that the level of agricultural insurance protection is not the degree of nominal risk protection that agricultural insurance can provide to farmers, but the actual degree of risk protection it provides to farmers. In view of the inter-annual fluctuations in the actual compensation or actual risk protection of agricultural insurance for farmers, which is not easy to measure directly, and the fact that most of the farmers are risk-averse will be ignored if it is simply averaged, this paper adopts the concept of welfare utility in welfare economics and uses the degree of change of welfare utility after farmers purchase insurance to measure the level of agricultural insurance protection ^((1)){ }^{(1)} .
It should be pointed out that at this stage, China's mainstream agricultural insurance product is cost insurance, which has a low insurance amount and mainly underwrites production risks, and market risks are not within its scope of protection. However, with the deepening of the reform of the price formation mechanism of agricultural products, the market risks of corn, cotton and other agricultural products are increasing. In this case, many experts and scholars attribute the low level of protection of China's agricultural insurance to the low sum insured and relatively limited protection liability. In addition to calling for the improvement of agricultural insurance coverage, experts and scholars have also invested great enthusiasm in the innovation of agricultural insurance products ^((2)){ }^{(2)} , some scholars have called for the vigorous development of income insurance and making it the main product of China's agricultural insurance in the new era (Long Wenjun et al., 2017, Du Guozhu and Zhu Junsheng, 2016), and some scholars have called for improving the level of agricultural insurance protection through innovative agricultural insurance products (China Agricultural Insurance Protection Level Research Group, 2017, Wang Baoling et al., 2017). Income insurance does represent the development trend of agricultural insurance in the world, and in the long run, it should also become the mainstream insurance product of China's agricultural insurance. However, due to the current service capacity of insurance companies and the financial subsidy capacity of governments at all levels, China does not have the conditions to promote income insurance on a large scale across the country in the short term. In addition, there are some logical defects in the current academic circles and the industry in arguing that the level of agricultural insurance protection can be improved through income insurance innovation, and it is believed that the protection level of income insurance with "guaranteed income" must be higher than that of "insurance cost". The main reason for this logical flaw is the confusion of concepts. This paper argues that innovative agricultural insurance products may but not necessarily lead to the improvement of agricultural insurance protection level. Cost insurance, price insurance and income insurance cover the production risks, market risks and income risks faced by farmers in production and operation respectively, and the main difference between the three is the main difference
*This paper has been supported by the National Natural Science Foundation of China (NSFC) project "Research on the Incentive Effect of Agricultural Insurance Financial Subsidy Policy on Farmers' Insurance and the Optimal Subsidy Level: A Case Study of Planting Insurance" (Project No.: 71573041), the National Natural Science Foundation of China Project "Research on the Impact of Pig Price Insurance on Farmers' Breeding Behavior and Its Market Price Stability Function" (Project No.: 71603262), and the Basic Operating Expenses Project of the Agricultural Information Institute of the Chinese Academy of Agricultural Sciences (Project No.: JBYW-AII-2017-03) and China Scholarship Council. Thank you for your valuable comments from anonymous reviewers, and of course, you are responsible for the text. Corresponding author of this article: Zhang Qiao.
^((1)){ }^{(1)} Cost insurance is the main agricultural insurance product in China, and price insurance and income insurance are the two insurance products that have been discussed a lot in the academic circles. Cost insurance covers the risk that the actual output of agricultural products caused by meteorological disasters is lower than the guaranteed output, and determines the insured amount based on the physical and chemical costs of agricultural product production inputs; Price insurance covers the risk that the actual income of agricultural products is lower than the guaranteed income due to the decline in market prices; Income insurance covers the risk of a decrease in the production of agricultural products, or a decrease in market prices, or both, resulting in actual income from agricultural products falling below guaranteed income.
^((2)){ }^{(2)} In the U.S Ind=P xx Max(lambda hat(Y)-y,0)\operatorname{Ind}=P \times \operatorname{Max}(\lambda \hat{Y}-y, 0) ., MPCI insurance coverage per unit area is equal to ( hat(Y))(\hat{Y}) the unit price of the crop sold ( PP ), the percentage of coverage selected at the time of the farm's insurance application, (lambda)~(\lambda) ~ and the expected crop yield, the amount of potential insurance benefits. Since PP it is pre-determined and hat(Y)\hat{Y} is usually the average of the crop yield of the local or insured farm over the past 5 years, the level of agricultural insurance coverage depends entirely on the proportion of coverage selected by the farm at the time of insurance lambda\lambda .
^((1)){ }^{(1)} From this point of view, this paper argues that the actual protection level of agricultural insurance is the protection effect of agricultural insurance from the perspective of farmers, and the two are regarded as synonyms in this paper.
^((2)){ }^{(2)} Source: http://bxjg.circ.gov.cn/web/site0/tab5207/info4014358.htm. According to the China Insurance Regulatory Commission (CIRC) at the time, in 2015, more than 20 provinces in China had piloted agricultural price insurance or income insurance.