Mutual Insurance: Solving the Problem of Agricultural Insurance

As the CIRC opened the floodgates for the examination and approval of mutual insurance licenses at the beginning of this year, the word "mutual insurance" is hot in the insurance industry and investment field. At a time when many people do not understand the concept of "mutual insurance", more than 20 organizations have seized the opportunity and formally submitted applications to the CIRC and queued up to apply for mutual insurance licenses. On the stage of China's insurance market, a play with mutual insurance as the protagonist has been staged quietly.

What is mutual insurance?

Mutual insurance means that a unit or individual with the need for homogeneous risk protection becomes a member by concluding a contract and pays a premium to form a mutual fund, when the accident agreed in the contract occurs and suffers losses, the insurance activity in which the fund bears the liability for insurance.

In fact, mutual insurance is one of the most important forms in the world insurance market, which exists in parallel with social insurance and commercial insurance. In China, because the commercial insurance is introduced first, the concept of mutual insurance is promoted relatively late, and the proportion of mutual insurance in insurance business is far lower than the international level.

According to the statistics of the Federation of International Mutual Insurance organizations, in 2013, the global mutual insurance premium income reached 1.23 trillion US dollars, accounting for 26.7% of the global insurance market, covering 825 million people, and the total assets of mutual insurance organizations exceeded 7.8 trillion US dollars. The price of mutual insurance in the US market has reached 36%, Japan's market share of mutual insurance is more than 40%, and the market share of French mutual insurance is as high as 46%, while the market share of China's mutual insurance is only 0.3%.

If we make a comparison between mutual insurance companies and joint-stock insurance companies, we can see the obvious difference between them: customers of joint-stock insurance companies do not participate in corporate governance, and operating profits are distributed to shareholders; while mutual insurance companies do not have shareholders, members are customers, one person, one vote jointly participate in corporate governance, and all the earnings of the company's operation are returned to the members.

It is precisely because of the important differences between mutual insurance companies and joint-stock insurance companies, it also highlights the unique advantages of mutual insurance: the interests of the policy-holder and the insurer are highly consistent; the exhibition cost is lower, which can effectively reduce the operating cost; because there is no profit pressure, it is helpful to develop insurance types that are beneficial to the long-term interests of the insured.

The exploration of the forerunner

In our country, the main battlefield of the insurance industry is basically in the city. But this does not mean that agriculture and farmers do not need insurance. On the contrary, it is precisely the industries and groups that need insurance more, and agricultural insurance can be said to be an effective means to resist disasters.

For a long time, because of the problems in the agricultural field, such as "high cost, high risk, high loss, difficult to develop business, difficult to determine loss, difficult to settle claims" and so on, commercial insurance is often difficult to operate, and the premium is too high for farmers to bear. Insurance premiums are low and the dilemma of uncost-effective insurance companies is always difficult to solve.

With the development of the world economy, mutual insurance grows rapidly because it adapts to specific risk areas (such as agriculture, fishery) and low-and middle-income people, which provides a new opportunity to effectively solve the dilemma of agricultural insurance.

In 2005, as a pilot project of mutual insurance company, China established a mutual insurance company-Sunshine Agricultural Mutual Insurance Company, and began to explore the mode of mutual system and membership system. Over the past 10 years since its establishment, Sunshine Agricultural Insurance has provided more than 130 billion yuan in risk protection for Heilongjiang Province and participated in more than 8.2 million households; underwritten a total area of 530 million mu of grain crops for farmers in Heilongjiang and Guangdong Province; and paid agricultural insurance reparations totaling more than 8 billion yuan. so that more than 3 million affected farmers can be paid in a timely manner.

From the perspective of premium income, at the beginning of its establishment in 2005, the premium income of Sunshine Agricultural Insurance was 228 million yuan. According to the latest annual report data in 2014, the premium income has reached more than 2.7 billion yuan. From the perspective of business insurance, Sunshine Agricultural Insurance mainly involves planting insurance, aquaculture insurance, property loss insurance, liability insurance, legal liability insurance, reinsurance and so on. At present, 213 unique insurance products have been developed and more than 1 million members have been developed.

On the stage of mutual insurance, although there is only one sunshine agricultural insurance formally approved by the CIRC, some local rural mutual insurance organizations have made very useful attempts. For example, the China Fisheries Mutual Insurance Association, which was established in 1994, the Fulong Rural Insurance Mutual Union in Longshan Town, Cixi City, and the Longshan Rural Mutual Insurance Association in Cixi City, established in 2011, their practices and experience provide a vivid example for the CIRC to formulate the trial measures for the Supervision of Mutual Insurance organizations.