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Farm Insurance Market Set to Collapse

The scrapping of government subsidies on agricultural insurance at the start of the year is likely to result in the market collapsing, while worsening the lot of Hungarian farmers, representatives of leading insurers said last week. The number of farm policies will fall significantly in 2004, predicted János Márki, who heads the agricultural insurance department at Argosz Insurance Rt and also leads the equivalent department of the Association of Hungarian Insurance Companies (Mabisz), a professional body. Márki added that the sharpest fall will be in livestock insurance, the fastest growing area in the last six years.

The generally held view is that the market will shrink to one-third of its original size, Mihály Patai, CEO of Allianz Hungária, stated at a recent press briefing. Patai added that in 2003 insurance companies received premiums of Ft 20 billion, but said this figure probably will be down to Ft 6 billion in 2004. In 2003, the state subsidy amounted to 30% of the premium. Mirroring the loss to the whole industry, Patai said Allianz’s premiums are likely to drop from Ft 9 billion to Ft 3 billion this year.

In an interview with the BBJ in February, András Bárczay, a board member at Hungary’s leading insurer, Allianz Hungária Rt, floated the idea that the end of the subsidy system would sound a death knell for the sector. Pinpointing it as the biggest challenge faced by Hungarian insurers in 2004, Bárczay estimated that perhaps two-thirds of the agricultural insurance market would disappear.

Márki at Argosz recalled that the system of agricultural subsidies was introduced in 1996 to cover crops, but was extended to livestock in 1998. In the year prior to the introduction of the subsidies, total premiums on the market were under Ft 1.5 billion, but this grew to Ft 20 billion by 2003, he said. The state introduced subsidies in 1996 that ranged from 10% to 60% of the insurance premium on certain crops. Márki said this type of subsidy was accepted in the European Union’s guiding principles and was applied in many EU countries.

The later introduction of livestock insurance bumped up premiums dramatically, he added, with just over three-quarters of the Ft 20 billion farm insurance market in 2003 devoted to livestock. In 2002, the same market was worth Ft 10 billion. Livestock insurance had previously been an insignificant sector of the market, he said. According to Márki, insurance companies that previously had agricultural insurance premium revenue amounting to billions of forints are now facing very serious problems. Unfavorable conditions in the sector will have a general impact on insurance companies, with risk sharing in the sector becoming more problematic, he said.

Some Argosz clients have already indicated they will not be renewing existing contracts because of the removal of subsidies, while others are expected to reduce the value of their insurance policies, Márki stated. He also said the situation for Hungarian farmers is worsening.

At the same time, he added that many farmers have very little in the way of financial resources, noting that agricultural producers will consider the removal of subsidies as an unaffordable rise in their production costs.

(BBJ 05.iv.04)

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