Changes undergoing the system.

The agricultural insurances at the moment are optional. Due to huge losses a year ago and this year, the Romanian Government ruled that, beginning with 2007, the house insurances would become mandatory. There is a likelihood, that in the future, the same decision could be taken in case of agricultural insurance (i.e. it will become mandatory).

The Romanian agricultural insurance system covers only 12% of the cultivated area. Among the causes which led to these situations are: land fragmentation, lack of financial resources, lack of information from insurance companies and lack of trust in the insurance companies.

A positive influence on the agricultural insurance market might be represented by the increase of the agricultural credits granted by banks to the agricultural producers. According to the legislation, the persons who want to get a credit for developing an agricultural activity have to insure its activity during the whole credit reimbursement period. Also, according to the renting law 16/1994 and the Government Ordinance no. 74/2003, regarding the completion of the renting law, the people who rent in land are obliged to insure their crops during the whole period of the renting contract.

The legislative framework of the insurance market is mainly aligned to the UE directives. Recently, the Insurance Supervisory Commission proposed a project regarding the modifications of the minimum limit of the social capital subscribed; thus, the social capital of the insurance companies must increase from 160 mld lei (4415742 euros) to 240 mld lei (6623613 euros) in June 2006.

Through the modifications brought to the law 32/2000, the insurers are allowed to carry out concomitantly both life and general insurances on condition they separate the management of both activities. The purpose is to protect the interest of holders of life insurance policies and non-life insurance policies, so that the possibility of using the profit of one activity to improve the profitability of the other is eliminated.

The Ministry of Agriculture paid indemnities of about 24 mil euros last year (2005) to the insured agricultural farmers. Due to the fact that, according to Law 381/2002, the Ministry has to pay indemnities to the farmers, in case of calamities, the Ministry of Agriculture tries to find solutions in order not to pay these indemnities alone any longer. Thus, the Ministry of Agriculture tries to find solutions and to modify the Law 381. The purpose is to decrease the level of the subsidies paid from the budget.

Officially, the law was issued and enforced in order to stimulate the farmers to insure their crops and animals. The insurance companies pay indemnities for general risks (storm, hail, early autumn frost, land or fall erosion), while the state pays indemnities in case of calamities (excessive droughts, floods or strong frost). The Ministry of Agriculture indemnifies the farmers who have lost their crops or livestock, but only those who signed an insurance policy with a company accredited by the Ministry of Agriculture, even though the respective policy does not cover the risk in case of calamities.

So far, the Ministry of Agriculture has elaborated two projects for the modifications of Law 381/2002, but both of them were rejected by the Ministry of Finance. “The creation was proposed of an extra-budgetary fund which was supposed to get funds from the state (public funds), insurance companies and farmers. The fund was supposed to be used for paying the indemnities in case of calamities. The Ministry of Finance rejected this option motivating that the International Monetary Fund does not allow the use of extra-budgetary funds for this kind of cases”.5

A second attempt to change the Law 381/2002 consisted in eliminating the condition of paying indemnities only in case of the standard risks which do not cover risks in case of calamities. The Ministry of Finance did not agree to this because the state budgetary effort would have been too high.

The modifications proposed divided the agricultural insurance market in two sides. While some of the insurers admit that the Ministry of Agriculture cannot be the only one bearing the costs, some others assert that a higher amount of indemnities paid by the insurance companies would lead them to bankruptcy. This is the reason why, in case the participation of the insurance companies would become mandatory, some of the insurance companies will give up offering agricultural insurances. It was argued that “the social capitals of all insurance companies accredited by the Ministry of Agriculture would not be enough to cover the indemnities paid by state in the years 2004 and 2005”. 6

The insuring brokers admit that, in case of calamities, besides the state, the insurance companies should participate in paying the indemnities in case of damage, as well. Thus, the system could be improved and the farmers would be stimulated to insure against risks. “The state intervention so far has left the farmers in a relaxing situation; the farmers know that in case of calamity, they will be compensated anyway. “The state must encourage the agricultural producers to insure, through the contribution to the premium, and not by paying all the losses” 7_{. Thus, in case of damages caused by catastrophic natural phenomena the} agricultural producers will be safely compensated for the loss.

Special Funds

The creation of a national Fund for paying indemnities to farmers in case of calamities is a solution agreed by some of the insurers. Among other solutions proposed are: granting the subsidies directly to the agricultural producers through the agricultural departments for rural development as well as the extension of granting subsidies for premiums for some other products such as (corn, vegetables, pork, and poultry).

Table 7. 6 Representative of Generali Asigurari

Table 8. 7 _{Representative of National Assemble of Intermediary, Consulting, and Insurance Companies from} Romania