0. Crop Insurance As Risk Mitigation Tool in Agriculture
Association of Insurers and Reinsurers of Developing Countries
7th September 2012, Manila
Kolli N Rao
Agriculture Insurance Company of India (AIC)

1. OVERVIEW Indian Agriculture Agriculture Risks
Crop Insurance: Evolution
Crop Insurance: Types of Products & Perils Insured
Crop Insurance: Government Support
Crop Insurance: Major Players
Crop Insurance: Risk Transfer Mechanism
Crop Insurance: Distribution Channels
Crop Insurance: New Initiatives 1 1

2. Indian Agriculture 2

3. Indian Agriculture: Salient Features
1.2 billion population
120 million farm holdings
80% farmers own less than two hectares
61% of rural households are farming households
145 million hectares of cultivated land
190 million hectares of gross cropped area
1.2 Hectare Average Farm-holding size
50% of area under cereals and millets
52% of the employment provided
69% of population is sustained
Subsistence agriculture dominates
Agrl. GDP estimated at US $ 285 billions (FAO, 2010) 3

4. Agriculture Risks 4

5. Rainfall Variability
Rainfall variability is dominant due to the presence of the Monsoon (seasonal winds blowing from the Indian Ocean and Arabian Sea in the southwest bringing heavy rainfall)
Monsoons contribute 78% India’s annual rainfall - undergoes wide inter annual variations
Large variations in rainfall distribution (<10cm in western desert to >1000cm in northeast)
Disparity in the rainfall distribution is so great – droughts and floods occur at different parts of the country at the same period and in the same place at different periods
One - third of the country is mostly under threat of drought
One - sixth of the country prone to floods

6. Crop Insurance: History
India
Crop Insurance: History 6

7. Evolution of Crop Insurance
J S Chakravarthi proposed ‘Drought Insurance’ based on rainfall index in 1920
First ever crop insurance started in 1972 for H-4 cotton based on ‘individual farm’
In 1979 a pilot insurance was introduced based on ‘homogenous area’ based yield index (Pilot Crop Insurance Scheme – PCIS)
In 1985 the PCIS was converted into a country-wide ‘yield index’ based crop insurance covering cereals, millets, pulses and oilseeds (Comprehensive Crop Insurance Scheme – CCIS)
Scope of CCIS expanded in 1999 as National Agricultural Insurance Scheme – NAIS
Pilot Seed Crop Insurance Scheme
Pilot Farm Income Insurance Scheme(FIIS)
Weather Based Crop Insurance Scheme – WBCIS was introduced from 2007
Modified NAIS as pilot in 50 Districts from Rabi season
Index Plus (Weather Index + Traditional) 7 7

8. Agriculture Insurance Company of India8

9. Agriculture Insurance Company of India
Created at the behest of the Government and took over crop insurance operation w.e.f. 1st April 2003
Stakeholders: GIC (35%), NABARD (30%) and NIA, NIC, OIC & UIIC (8.75% each)
Authorized Share Capital – INR 15 billion
Paid-up Share Capital – INR 2 billion
Net-worth as on 31st Mar INR billion
2-Tier structure of Corporate Office and Regional Offices
17 Regional Offices as Underwriting Centres
240 dedicated technically qualified manpower
3rd tier at District level: one-man office (own) / franchise model (out-sourced)
AICNET (ANNAPOORNA) for seamless IT integration 9 9

10. Types of Products & Perils Insured
India
Crop Insurance:
Types of Products & Perils Insured 10

11. Crop Insurance Systems
1. Traditional: (i) Named Peril, (ii) Multi-Peril: Mainly for high value crops
2. Index: (i) Yield Index (ii) Weather Index (iii) Crop Health Index
(iv) Multiple Trigger : Almost All Crops
3. Hybrid (Index Plus): Weather + Named peril: pilot on Grapes & Apples
4. Income: Revenue Based (piloted in ): stopped after 2003 due to conflict with existing government price stabilization mechanism
Like other General Insurance Crop Insurance also started with individual insurance, but could not sustain on commercial terms due to low spread. With CCIS, the advent of Area Approach is observed, and is still continuing for major programmes.

12. National Agricultural Insurance Scheme [NAIS] (Government’s flagship Yield index Crop Insurance Program)
Introduced in 1999 and presently in operation countrywide
Area-Yield Guarantee
Homogenous Area approach
Available to all Farmers - compulsory for borrowing & optional for non-borrowing
Covers Food crops, Oilseeds & Annual Commercial / Horticultural Crops
Indemnity levels vary from 60% to 90% of past average yield
Sum Insured - Loan amount to 150% of value of Yield
Premium rates
Food crops & Oilseeds – ranges from 1.5% to 3.5%
Annual Commercial / Horticultural Crops – Actuarial
Indemnities exceeding Premium for food crops & oilseeds; and 150% of Premium for annual commercial /hort. crops are borne by the Government 12 12

13. Modified NAIS: How it Works?

14. NAIS: How it Works?

15. NAIS - Coverage Highlights
Being Implemented in 25 States & 2 Union Territories
Covers more than 35 different crops each during Kharif and Rabi
About 75% of claims attributed to drought
The risk based premium equals approx. US $ 750 million 15 15

16. Weather Based Crop Insurance Scheme (WBCIS)
Government providing support since 2007
Indemnifies farmers against deemed crop losses due to adverse weather incidence
Crops covered include perennial & horticulture crops like mango, apple, cashew, grapes & orange
Sum Insured based on ‘cost of cultivation’
Risk based Premium rates
Upfront Premium Subsidy from Government
Payouts based on pre-defined triggers on specified weather parameters
AIC + 4 Private sector Insurers involved 16 16

17. Weather Index Parameters
Rainfall: Deficit rainfall, Excess rainfall, Consecutive Dry/ Wet Days , Number of rainy days
Temperature: Maximum Temperature (heat), Minimum Temperature (frost), Mean temperature, daily chilling units
Relative Humidity
Wind : Speed
Disease proxy: Combination of rainfall, temperature & humidity
The proposed improvements are under active consideration of GoI 17 17

18. Pilot WBCIS
The proposed improvements are under active consideration of GoI

19. WBCIS Coverage

20. Pilot on Modified NAIS
Premium rates actuarial, supported by up-front subsidy in premium & Insurer responsible for the claim liabilities
Insurance unit for major crops is village panchayat or any other equivalent unit
In case of prevented / failed sowing, claims upto 25% of the sum insured is payable, and insurance cover ceases thereafter
Post harvest losses caused by cyclonic rains are assessed at farm level for the crop harvested and left in ‘cut & spread’ condition
Individual farm level assessment of losses to be done in case of localized calamities, like hailstorm and landslide
On-account payment up to 25% of likely claim will be released as advance, for providing immediate relief to farmers in case of severe calamities
Threshold yield will be based on average yield of past seven years, excluding upto two years of declared natural calamities
Coverage levels are 70%, 80% & 90% corresponding to high risk, medium risk & low risk crops / areas
The proposed improvements are under active consideration of GoI

21. Pilot Modified NAIS
The proposed improvements are under active consideration of GoI

22. Other Products… (Contd…)
Biomass Index:
Piloted for crops like wheat and mustard
Needs to be stabilized
Traditional:
Named Peril for high value crops like fruits, plantation crops (mainly natural calamities , and specified pests & diseases)
Like other General Insurance Crop Insurance also started with individual insurance, but could not sustain on commercial terms due to low spread. With CCIS, the advent of Area Approach is observed, and is still continuing for major programmes. 22 22

23. Crop Insurance: Government Support
India
Crop Insurance: Government Support 23

24. Yield Index: Weather Index: Government Support
Crop Cutting Experiments are organized by Provincial governments
Claims subsidy (NAIS) and premium subsidy (MNAIS), equally shared by Federal & Provincial governments
Service Tax exemption
Provincial governments support insurance awareness programmes
Weather Index:
Public weather station network
Premium subsidy, equally shared by Federal & Provincial governments
Like other General Insurance Crop Insurance also started with individual insurance, but could not sustain on commercial terms due to low spread. With CCIS, the advent of Area Approach is observed, and is still continuing for major programmes. 24 24

25. Crop Insurance: Distribution Channels

26. Distribution Channels
Existing:
RFIs (nominal service charge)
Insurance Intermediaries & Micro insurance agents (commission / brokerage)
Livelihood / Community Organizations (No fees)
GIPSA network of insurance agents (commission)
Direct
Proposed:
Portal based on-line service
Common Service Centres (CSCs)
Banking Correspondents (BCs)

27. Crop Insurance: Risk Transfer
India
Crop Insurance: Risk Transfer 27

28. Risk Transfer 1. NAIS (Food crops & Oilseeds): Government
(Administered Premium: US $ 200 million) ~ Risk Prem. US $ 750 million`
2. Others:
NAIS (Commercial / Horticulture) (Premium: US $ 40 million)
WBCIS (Premium: US $ 375 million)
MNAIS (Premium: US $ 65 million)
Retention: 20% - 40% (AIC - 30%)
Domestic Reinsurance: 10% - 40% (AIC - 40%)
International Reinsurance: 30% - 70% (AIC – 30%)

29. Crop Insurance: New Initiatives
India
Crop Insurance: New Initiatives 29

30. New Initiatives WBCIS: MNAIS: Index + Double-Trigger product
Savings linked (Loyalty Discount) based product
TOPS based weather data generation
MNAIS:
GPS enabled cell phones to audit yield estimation
Satellite imagery based area estimation and crop health reporting
Remote Sensing based Information and Insurance for Crops in Emerging Economies (RIICE)

31. Micro Health Insurance

32. Population Demographics

33. MICRO INSURANCE (MI) REGULATIONS
Called: IRDA(MI) Regulations 2005
UNDER SEC 114 A OF INS ACT 1938, SEC 26 IRDA ACT 1999, issued on 10th November 2005
Purpose: special care/attention of the resource poor
Provide- small value pol + low price+ higher benefits+ simple contract+ maximum reach+ need of people
The product should have caption “MI” product
Product literature in ‘local’ / ‘vernacular’ language
Cross branding between Life and Non-life is allowed
Micro Insurance Agents can be from SHGs / NGOs / MFIs, to be appointed by insurers, with 25 hours training
Life Micro Insurance Agents ( ): 10482
Non-Life Micro Insurance Agents ( ): 9460

34. Health Insurance for the Poor
For people living below poverty line, an illness represents a permanent threat to their income earning capacity
Fall into debt trap
Ignore treatment due to lack of resources, fearing wage loss, force of selling assets
These tragic outcomes can be avoided through a health insurance which shares the risk of a major health shocks across many households by pooling them together
Hence Rashtriya Swasthya Bima Yojana –RSBY (National Health Insurance Scheme) came into picture

35. Rashtriya Swasthya Bima Yojana (RSBY)
Launched Ministry of Labour and Employment, Government of India for BPL families
The beneficiary is any Below Poverty Line (BPL) family, whose information is included in the district BPL list prepared by the State government
The eligible family needs to come to the enrollment station, and the identity of the household head needs to be confirmed by the authorized official
Beneficiaries need to pay Rs. 30 per family at the time of enrollment
RSBY provides cover for hospitalization expenses upto INR 30,000/- for a family of five on a floater basis
Transportation charges are also covered upto a maximum of INR 1,000/- with INR 100/- per visit
Federal government pays 75% of the total premium while State Government pays the remaining premium
States select insurance provider based on competitive bidding

36. Unique Features of RSBY
Empowering the beneficiary
Business Model for all Stakeholders
- Insurers
- Hospitals
- Intermediaries
- Government
Information Technology (IT) intensive
Safe and foolproof
Portability
Cashless and paperless transactions
Robust monitoring and evaluation

37. RSBY Display At Accredited Hospital

38. RSBY Signage At Accredited Hospital
STATUS AS ON 31ST MARCH 2011
Total BPL families: million
BPL families covered under RSBY: million
Total Hospitals accredited: (8637 private and 3919 government)

39. Health Insurance Premium

40. नमस्कारम 40 40