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)

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

Indian Agriculture 2

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

Agriculture Risks 4

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

Crop Insurance: History India Crop Insurance: History 6

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 2010-11 season Index Plus (Weather Index + Traditional) 7 7

Agriculture Insurance Company of India 8

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 2012- INR 15.75 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

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

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 2002-03): 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.

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

Modified NAIS: How it Works?

NAIS: How it Works?

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

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

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

Pilot WBCIS The proposed improvements are under active consideration of GoI

WBCIS Coverage

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

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

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

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

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

Crop Insurance: Distribution Channels

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)

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

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%)

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

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)

Micro Health Insurance

Population Demographics

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 (31.03.2011): 10482 Non-Life Micro Insurance Agents (31.03.2011): 9460

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

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

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

RSBY Display At Accredited Hospital

RSBY Signage At Accredited Hospital STATUS AS ON 31ST MARCH 2011 Total BPL families: 64.57 million BPL families covered under RSBY: 32.34 million Total Hospitals accredited: 12556 (8637 private and 3919 government)

Health Insurance Premium

नमस्कारम 40 40