KfW allocates EUR 5.3mln for agricultural insurance in Armenia; EUR  500,000 to be directed to consultations

ArmInfo. On April 23, the Government of Armenia approved the signing of the second agreement on amendments to the financing agreement between the Republic of Armenia  and KfW in the amount of 5,339,139.38 euros for the , signed on December 18, 2017 and amended by the amendment agreement of February 6, 2018.

As stated in the explanatory note to the document, based on this agreement, the Pilot Program of State Support for the Introduction of the Insurance System in the Sector of Agriculture was approved and is being implemented by the Decree of the Government of the Republic of Armenia dated October 24, 2019.  Within the framework of the program, 50-60% of the insurance premium is subsidized. Subsidies for insurance premiums are provided by the financial resources provided  by KfW and the Government of the Republic of Armenia in a 50:50 ratio (pari passu).

Under the agreement, KfW has already transferred about 2.6 million euros to subsidize insurance premiums. In 2019, the program started in the fall with the insurance of two harvests. In 2023, more than a dozen agricultural crops were insured against spring frosts, drought, hail and fires. In 2023, insurance companies sold 10,192 insurance contracts for a total area of 11,662 hectares, the gross insurance premium amounted to about 1.8 billion drams.

However, certain problems arose during the implementation of the program, in particular, in 2024, due to the withdrawal of a  reinsurance company from the agricultural insurance market of  Armenia, insurance companies were unable to fully assume insurance risks, given the high unprofitability due to climate change. Considering the importance of the program implementation, the Cabinet of Ministers of the Republic of Armenia amended the program on April 12, 2024, to ensure the participation of insurance companies in the program in 2024. For the 2024 agricultural year, the government, in addition to subsidizing insurance premiums, partially shared the insurance risk of insurance companies by providing compensation if insurance payments exceed a certain threshold. The government also supported the operating and all other expenses of the National Agricultural Insurers Agency (AINA0. According to AINA, in 2024, the gross insurance premium for the agricultural year amounted to about 22 million drams.  The total area of insured territories was 247 hectares.

The program for the 2025 agricultural year has also been amended, and the subsidization of insurance premiums is carried out in full at the expense of the state, unless KFW submits a different decision (proposal) on financing.

Entrepreneurs engaged in agricultural activities will be provided  with a subsidy in the amount of up to 80% (inclusive) of the  insurance premium provided for in the insurance contract. In the 2025 agricultural year, the state will support not only the subsidization of insurance premiums of business entities, but also insurance companies, compensating them for the amount of insurance payments to business entities exceeding 200% of the total amount of insurance premiums collected by them. In 2025, apricots, grapes, peaches, plums, apples, cherries, watermelons, melons, potatoes and grain crops(wheat/barley/oats) are insured against the risks of hail and fires, spring frosts and drought. It is noted that in the process of development, regulation and optimization of the insurance system, special attention is paid to improving the loss assessment system, which, according to research by international experts, is the main problem of unprofitability.

Taking into account the above, the draft proposes to amend the  Agreement between RA and KFW in the amount of 5,339,139.38 euros, and from the amount of 4,824,139.38 euros of financial assistance allocated for financing the subsidization of insurance premiums specified in the agreement, 500,000 euros should be directed to  providing advisory and technical assistance to the insurance process. At the same time, the draft stipulates that in case of incomplete use of the amount of 500 thousand euros, the unspent amount can be directed to subsidize insurance premiums under a simplified procedure.