Without a net

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Seventy percent of the Vietnamese population relies on agriculture for their livelihoods. However, most farmers remain oblivious to safety mechanisms and insurers are still wary of entering this market.

"I've never heard of agricultural insurance," said Nguyen Thi Dao, a duck farmer from Hanoi's Thuong Tin District. "And, I don't want it. Profit is low, so I don't want to spend more."

Nguyen Van Duy, from Giao Thuy District, Nam Dinh Province, has lost tens of millions dong due to the flooding of his shrimp ponds caused by heavy storms. Despite his bad luck, the farmer is still not interested in insurance.

"I think it will be very difficult to get compensation from insurers due to complicated procedures," he said.

Agricultural insurers have made piddling profits in Vietnam. They took in VND1.7 billion (US$80,900) in 2009, and VND958 million ($45,619) in the first half of this year. In the same period, non-life insurers took in a total of VND13.6 trillion and VND8.2 trillion.

Ha Phuc Mich, vice chairman of the Vietnam Farmers' Union, said that many farmers don't want to buy insurance due to limited information and the tradition of leaving harvests to chance.

Instead of buying insurance to protect them against financial losses, they expect support from the state when natural disasters affect their production.

Mich claimed that farmers buy insurance only when they expect losses. Insurance is popular, he says, among farmers in the country's flood-prone areas. In addition, most farmers earn just enough to get by, so they cannot afford the insurance, he said.

Vietnamese farmers aren't the only ones shying away from signing contracts. Many firms are reluctant to establish insurance operations here due to the high risks.

Phung Dac Loc, general secretary of the Vietnam Association of Insurers, said agricultural insurance depends too much on natural conditions, while damage claims and operational costs are high.

Nguyen Van Minh, general director of the Agriculture Bank Insurance Company, said that, every year, Vietnam suffers losses equal to 1.5 percent of the gross domestic product (GDP) due to natural disasters and livestock illnesses.

"The biggest difficulty is conducting surveillance and return of losses which takes a lot of time and effort," Minh said. "Vietnam's agricultural sector is scattered into small-scale operations in myriad production households."

Insurance providers say it is impractical for insurance operators to contact every rural household with a few heads of cattle and a rice paddy. Moreover, they have found that Vietnamese farmers are unlikely to comply with the insurers' farming and veterinary regulations concerning cages, vaccinations and food.

Vietnam's leading insurer, Bao Viet, launched a rice insurance package in 1983 but the program closed in 1999 due to high compensation costs. In 2002, Groupama, leading French insurer, began offering farm insurance in Vietnam. The giant's operations quickly fizzled.

The Ministry of Finance has submitted a plan on agricultural insurance for government approval. Under the plan, the state will subsidize 80-90 percent of insurance fees for poor households, 60 percent for farmers, and 50 percent for agricultural firms and cooperatives.

However, it is difficult to imagine an international insurance firm accepting the conditions and fees put forward by the plan. Meanwhile, local insurers do not have the financial capacity to cover the flooding of a single district, according to the Vietnam Association of Insurers, let alone an entire province.

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