The Willingness of Insurance Companies in Bosnia and Herzegovina to Introduce Index-Based Insurance of Agricultural Production

Abstract

Agricultural production is the sector most affected by extreme weather conditions. Insurance, as the risk management tool, should provide an adequate response to the challenges that economies and households will increasingly face in the future. Given the importance of agricultural production for Bosnia and Herzegovina, a study was initiated to examine the interest of insurance companies to introduce index-based agricultural insurance products into their portfolios. Index-based (parametric) insurance is a model in which compensation payments are triggered by a reference index, in contrast to traditional insurance models that provide indemnification based on the actual loss incurred. The main objective of the research was to determine how insurance companies perceive the agricultural insurance segment, specifically to identify the key factors influencing their attitudes toward index-based agricultural insurance. Secondary data sources included official publications and reports from state insurance agency. Primary data were collected through a survey conducted among insurance companies in Bosnia and Herzegovina registered for non-life insurance. The degree of agreement with statements in the questionnaire was assessed using a five-point Likert scale. The collected data were analyzed using methods of descriptive and inferential statistics. The research revealed that insurance companies are indifferent on this matter. Their focus on the development of other insurance products and skepticism about the profitability of agricultural and index-based insurance products negatively affect their interest in introducing index-based agricultural insurance products. The companies agree that premium subsidies for agricultural insurance are essential, but they show a low level of initiative for negotiating with government authorities on this issue. The legal framework is an area that needs improvement in order to make significant progress in the wider application of insurance in agricultural production. Efforts should also be directed towards continuous education in the field of insurance and the development of new insurance products.