Transcript Agriculture Insurance in India

Agriculture Insurance in India
Crop Insurance market in India
• 25 million out of 120 million farmers (20%) are insured under crop
insurance schemes
• 90% are loanee farmers. 10% penetration among non-loanee
farmers
• 2011-12 Weather Index Insurance – Perhaps the World’s largest
weather-based crop insurance programme. 12 million farmers
covered - Implemented in 16 states.
• Area Yield Index Insurance - World’s largest Crop insurance
programme, 18-20 million farmers covered Implemented in 25 states.
•
Government of India targets doubling the farmers’ coverage during
12th plan from 25 million to 50 million.
Background
• Area Yield Approach suggested back in 50’s
– Provinces mooted a proposal requesting GoI for financial assistance in
the early 1960s.
• Ministry of Food & Agriculture - examined the feasibility of
crop insurance – Circulated a draft scheme to all the States –
Not favored by states due to paucity of fund
• Elaborate administrative machinery not available & paucity of
resources – Each insured area to be divided into blocks with
one Crop Insurance Inspector and 10 crop insurance sub
inspectors.
• Geographically homogeneous regions – Difficulty in
delineating - absence of data on area-wise farming practices.
Background
• GoI introduced a Crop Insurance Bill & a Model Scheme of
Crop Insurance – referred to Dharam Narain Committee –
stalled the progress.
• Grounds – More emphasis on elements on “individual
approach”
• Breakdown of insurance principle – “ The number of claimants
turns out to be nearly as large as that of the premium paying
farmers”
Background
• Admittedly, we came to consider it as second
best as we found a crop insurance based on
‘individual approach totally impractical. Now,
instead of making it impractical by importing
into it elements of individual approach, we
should accept it as the second best and agree
to give it a fair trial”- Dandekar
Background
• Mid 1980s onwards - Studies reflecting the dismal
performance of all risk crop insurance programmes worldwide- Rainfall insurance suggested as a response to the
unsatisfactory performance of crop insurance in the past
decades.
• CCIS in early Eighties
• Modified into NAIS late nineties
– A separate company constituted to implement the
scheme
• Further modified in 2010 as MNAIS
– MNAIS is an Insurance Product and not a scheme
Background
• World Bank (1992) – Drought insurance scheme for all rural
households – All insured to pay the same premium and
receive the same indemnity per unit of sum insured.
• Pioneering work by J.S. Chakravarti (1920).
• No insurance authority could ever maintain a supervising
agency which would be able to watch and enforce that every
insured field receives the required amount of care and
attention at the hands of its cultivator. Unless some method
can be devised by which this great difficulty is eliminated , a
system of crop insurance would indeed be impossible”.
Background
• “ A famine in India does not mean grain famine but money
famine due to enforced unemployment of agriculturist owing
to unfavorable seasonal conditions. An effective system of
agricultural insurance by insuring the peasantry against
serious pecuniary loss in respect of agricultural operations
will render the country less liable to the ravages of famine.
In this sense and to this extent agricultural insurance will
also be famine insurance”
• First Weather Insurance product launched by private sector
as an Insurance product
• Govt. allocated subsidy to weather insurance
Present State : Area Yield Index
Insurance
• Area yield based approach.
• Covers –Crops subject to availability of past yield data (10
years).
• Mandatory for borrowing farmers/voluntary for others.
• Capped premiums for FCOS (1.5-3.5 % of SI) and Actuarial
rates for ACH crops.
• Yields measured through Stipulated Minimum Crop Cutting
Experiments (CCEs).
• Ex-post financing for claims processing. (Not applicable in the
modified version)
• Guaranteed yield – 60%/80%/90% of past 3/5 yrs avg.
• Sum Insured - amount of bank finance / value of guaranteed
yield/ 150% of the value of Average Yield.
Area Yield Index Insurance
• Guaranteed Yield
TY = 3 year/5 year moving average yield X IL.
• Linear trend resulting in low coverage and high premium rates.
• Unusually good or bad years have high impact
• Unrealistic uniform ILs/premium rates across the state.
• Low coverage levels in areas with continuous adverse seasons.
• Overstatement of yield in good years will increase premium rates
despite low payment of indemnity.
• Modifications
• Detrended yield data
• Moving Average Last 7 years yield data (excluding 2 calamity yrs).
MNAIS: Improvements over NAIS
Drawback in NAIS
Basis Risk – Geographic:
Block taken as insurance unit.
Basis Risk – Product Coverage
No preventive sowing or post-harvest cover
Basis Risk – Product Design
Minimum Indemnity Level of 60%. Threshold
yield of last 5 years to be taken into account. No
exclusion of calamity year.
Delay in settlement of Claims:
No on-account payment. Claim payment more
than 12 months from end of cover period.
Improvements in MNAIS
Reduction in insurance unit to GP/ village for major
crops. Assessment of claims based on individual basis
for localized calamities –hailstorm & landslide.
Coverage of prevented sowing (upto 25% (of sum
insured).
Coverage for and post harvest losses (available upto
14 days from harvest for crop lying in ‘cut & spread’
condition only).
More attractive guaranteed yields. Threshold yield
based on average yield of the preceding 7 years
excluding upto 2 calamity years
Minimum Indemnity Level (IL) raised to 70%.
On-account payment upto 25% advance of likely
claims as immediate relief (if the estimated crop
losses is more than 50% as compared to normal)
Payment of upfront premium subsidy by State and
Central Governments.
WBCIS – Business Spread
2
0.1 mio
mio
6-8 mio
150 mio
15-18 mio
90 mio
3-4 mio
4-5 mio
3-4 mio
High
0.2 mio
5-6 mio
70 mio
5-6
mio
Low
1-2
mio
In terms of
premium in $
mn
State Specific Peculiarities
State
Issues Regarding Products
Data Status
Rajasthan
High Frequency products. Termsheets are defined by the
government. Major risk is drought for Kharif program
and temperature for Rabi program.
Good quality historical data. Large
spread of settlement stations
Bihar
Aggressive strikes. Multiple iterations on the product.
Drought in Kharif and high temperature covers in Rabi
are aggressive. Poor quality of data hinders pricing.
Poor quality historical data. Large
spread of settlement stations.
Karnataka
10 yr BPR should be at least 60% Product contours are
not suggested by govt. Government also doesn’t define
sum insured breakup among perils.
Good quality historical data. Good
settlement station spread.
Tamilnadu
Criteria similar to that of Karnataka but with BPR of
around 5-6 years. Due to merging of two monsoons,
large variations in rainfall exist.
Good
quality
historical
Reasonable
Settlement
network.
Haryana
Govt suggests strike but allows insurance companies to
define notional as well as second strikes. High
temperature is major risk in Rabi.
Reasonable data but with significant
data gaps. Reasonable station network
Chattisgarh
Government provides the product details. Insurance
companies can choose to take it or leave it
Poor quality historical data. Inadequate
settlement station network
AP
Govt supports only PSU insurer. Business underwritten
only through AIC
Data Quality is good
Jharkhand
Historical data of poor quality. Govt gives leeway in
product design and pricing
Data quality is very poor with most
stations having large data gaps
data.
station
WBCIS – Market
• States on the border line substitute WBCIS with MNAIS or
NAIS
• WBCIS claim ratios remain too low and the payoffs do not
cover actual losses
• States decide to reduce its subsidy burden by opting for
MNAIS
$ 800 mn weather
insurance market
$ 360 mn - Current
weather
insurance
market
$ 200 mn weather
insurance market
• States on the borderline bring more districts under
WBCIS
• More states bring horticulture crops under WBCIS
• More competition pulls up the non loanee market
Rajasthan Termsheet
STATE- RAJASTHAN
DISTRICT
CROP -Bajra
DEFICIT RAINFALL
REFERENCE WEATHER STATION
AS PER NOTIFICATION
PHASE I
PERIOD
INDEX
STRIKE I(<)
STRIKE II(<)
RAINFALL VOLUME EXIT
RATE I (Rs./mm)
RATE II (Rs./mm)
MAXIMUM PAYOUT (Rs.)
TOTAL PAYOUT (Rs.)
RAINFALL
DISTRIBUTION
(Single pay out)
PHASE II
01-July to 20 July
Dausa
UNIT:/ HEC.
PHASE III
21 JUL TO -20 AUG
21 AUG TO 30 SEPT.
Aggregate of rainfall over respective Phases
60
160
60
30
80
30
0
0
0
13.33
26.67
9.17
18.33
13.33
26.67
1200.00
4600.00
2200.00
1200.00
PERIOD
01 JUL TO 10 SEPT
INDEX
STRIKE (=>)
EXIT
PAYOUT PER DAY(Rs.)
TOTAL PAYOUT (Rs.)
Number of the days in a spell of Consecutive dry days.
20
72
INDEX
PERIOD
EXCESS RAINFALL STRIKE I(>)
(Singal Payout) STRIKE II(>)
EXIT
RATE I(Rs./mm)
RATE II(Rs./mm)
MAXIMUM PAYOUT (Rs.)
TOTAL PAYOUT (Rs.)
SUM INSURED (Rs.)
PREMIUM (Rs.)
PREMIUM %
38.46
2000
Maximum of 3 consecutive day's cumulative rainfall in respective
Phases
PHASE I
PHASE II
PHASE III
90
01-July to 20 July
21 JUL TO -20 AUG
21 AUG TO 30 SEPT.
115
80
245
257.5
240
400
400
400
2.58
5.16
5.15
10.29
2.50
5.00
1200.00
4600.00
2200.00
1200.00
6600.00
660
10%
Note: Payout of Deficit rainfall and Excess rainfall will be calculated on "either or basis" the cumulative payout of respective phases
All Tahsil
UP - Termsheet
CROP
PADDY
District
RISK COVERED - Deficit Rainfall
Index
Aggregate Rainfall of Respective Phases below Trigger Value
1-Jul-13 16-Jul-13
1-Aug-13 16-Aug-13
1-Sep-13
15-Jul-13 31-Jul-13 15-Aug-13 31-Aug-13
16-Sep-13
Trigger 1 (mm)
80
100
90
80
40
Trigger 2 (mm)
20
30
20
20
10
Exit (mm)
0
0
0
0
0
Payout Rate 1 Rs/mm
5.25
10.5
10.5
10.5
10.5
Payout Rate 2 Rs/mm
71.75
150.5
313.25
406.05
843.6
May Payout
1750
5250
7000
8751
8751
Total Max Payout
35002
Mathura
16-Sep-13
30-Sep-13
25
5
0
5.25
679
3500
RISK COVERED - Excess Rainfall(2 days consecutive rainfall of respective phase(Multiple pay out)
1-Jul-13 16-Jul-13
1-Aug-13 16-Aug-13
1-Sep-13 16-Sep-13
15-Jul-13 31-Jul-13 15-Aug-13 31-Aug-13
16-Sep-13 30-Sep-13
Trigger 1 (mm)
120
150
140
140
100
80
Trigger 2 (mm)
200
230
220
220
180
160
Exit (mm)
300
330
320
320
280
260
Payout Rate 1 Rs/mm
4
8
8
8
10
10
Payout Rate 2 Rs/mm
9.92
15.47
15.47
15.47
27
27
May Payout
1312
2187
2187
2187
3500
3500
Total Max Payout
17498
Total Sum Insured (Rs.)
Total Premium (Rs.)
Farmer's share (Rs.)
52500
5250
1312.5
1-Oct-13
15-Oct-13
50
130
230
6
21.45
2625
Bihar Termsheet
Claim Settlement Mechanism
• Over 2500 weather stations installed to settle
weather insurance claims
– Stations installed by approved third party
administrators
• AWS prototypes certified by the local Met department
• State/provincial govts decide the no. of stations to be
installed
• Insurance Companies pay the data fees
• Satlleite data being studied, fails to capture local variations
• Crop cutting experiments to be independently
audited by third party service providers
Thank you