In a bid to revitalize insurance coverage for China's massive farming population, the nation Monday was one step closer to its first specialized agricultural insurance company.

The Shanghai Anxin Agricultural Insurance Co Ltd won approval from the China Insurance Regulatory Commission (CIRC) to start preparations to set up the firm, which is also the nation's first new insurance firm in seven years.

This is the latest major government measure to establish a state-supported specialized agricultural insurance system.

Insurance industry expert Wang Xujin was quick to welcome the decision.

"Agricultural insurance is not just about agriculture, because the stability of agriculture is of critical importance to social stability," Wang, director of the insurance department of the Beijing Technology and Business University, stressed.

Chinese farmers and the nation's agriculture sector are both inadequately protected by insurance. A major reason for this is that the two insurers with agricultural operations bailed out of the risky business due to a lack of government support.

Agricultural insurance premiums totaled a meagre 460 million yuan (US$55 million) last year, a pitiful 0.5 percent of all property insurance premiums.

The state-owned People's Insurance Company of China (PICC), the predecessor of PICC Holding and a long-standing and significant provider of agricultural insurance in China, has never reaped a net profit from agricultural insurance since it relaunched the business in 1982 as part of the country's market reforms.

This failure to make money has led to the virtual end of all of the firm's agricultural insurance business, even in profitable operations such as Shanghai and the Xinjiang Uygur Autonomous Region.

To help keep insurers profitable, the CIRC has approved the joint-stock Shanghai Anxin, with registered capital of 200 million yuan (US$24 million), to conduct both government-supported and commercial insurance operations.

Premiums from its "policy-oriented" operations, which provide coverage for both planting and breeding, are required to be no less than 60 percent of total premiums.

Farmers will receive government subsidies for their purchase of such policies.

The commercial part of its operations includes agriculture-related property as well as liability insurance and casualty and health insurance for rural residents.

"That's a good way (of doing agricultural insurance)," said Wang. "But it's not easy to offer agricultural insurance with joint-stock mechanisms."

Future profitability of its commercial operations is the key to the firm's future success, but it also needs to address the difficulties that had dogged the PICC, Wang said.

"There are moral hazards, the marketing costs are high, and it's difficult to build a qualified sales force," he said. "How the business is done is very different from that in the cities."

In the early years, when insurers offered farmers coverage on pigs, some farmers in remote areas with poor transportation conditions fraudulently obtained insurance payouts by simply cutting the tails off live pigs, to claim that they were dead.

Wang also cautioned that the lure of higher government handouts could see the possibility of the new company transferring its profits from its policy-oriented operations to its commercial business.

But, according to the CIRC, the outlook is getting better for the agricultural insurance, with the farming industry's further development and farmers' rising incomes both stimulating demand for agricultural insurance, combined with farmers' increased awareness of the importance of insurance.

The commission pledged to encourage insurance companies develop new products for farmers and offer favorable policies to foreign insurers with a strong focus on agricultural insurance, while granting new licenses.

It is also considering building a reinsurance system to support agricultural insurance.

(China Daily March 2, 2004)