02d07025-02d05012_it-625 - Agricultural Insurance In India

Agricultural Insurance for Rural India

Digvijay (02d05012) Neelesh(02d07025)

Overview  Agriculture in India  Need of Insurance  Risks in Agriculture and management practices  What is crop insurance and issues related to it  Various crop insurance schemes in India  Strategies for success of Insurance in future  References

Agriculture in India  India sustains 16% of the world’s population on 2.4% of land resource  Agriculture contributes 24% of the Indian GDP - Livelihood support to two-thirds of the population - Employment to 57% of work force - Single largest private sector occupation - Raw material source to large number of industries like (textiles, silk, sugar, rice, flour mills, milk products)

 Any change in this sector has a multiplier effect on the economy

Need of Insurance High dependence on weather  40% of net sown area irrigated, 60% dependent on rains  Most irrigation from non-perennial sources  Affects adoption of improved crop production techniques because of high risks and low margins

Dwindling ground water resources Farmer at the mercy of rains

Risks in Agriculture Production Risks

Out put Risks

Weather Risks

Price Risk Pest and Diseases Improper Cultivation Practices

Policy Risk

Risk management Techniques

Govt. Support Extension Subsidies MSP

Self Insurance Shift to Non-Remunerative crops Reduced tech. use Distress sale Change of vocation

Calamity Relief Fund Investment in Bore wells Crop Insurance

Dig into savings

Issues with Crop Insurance  Highly subsidized : premiums and claims  Administrative Cost  Asymmetry of Information  Claims assessment not transparent  Lengthy claims settlement cycle - Low acceptance amongst farmers; Less than 10% of the farmers avail of crop insurance

 Distorted Incentives  Adverse Selection  Moral Hazard

Evolution of Crop insurance in India

Pilot crop Pilot crop insurance insurance scheme scheme

Experimental Experimental individual individual scheme scheme 1972 1972 Green Green Revolution Revolution

1978 1979 1978 1979

1984 1984

National agriculture National agriculture insurance scheme insurance scheme

Comprehensive crop Comprehensive crop insurance scheme insurance scheme Insurance linked to Insurance short-termlinked credit to short-term credit 2% premium, subsidy 2% premium, subsidy for small farmers for small farmers Basic rainfed Basic rainfed foodgrains covered foodgrains covered Very poor coverage Very poor coverage of farmers of farmers Very low premium to Very low premium to claims ratio claims ratio 1985 1985

Experimental Experimental crop crop insurance insurance scheme scheme

1991 1991 Economic Economic reforms reforms

Higher premiums Higher premiums (subsidy for small (subsidy for farmers to besmall phased farmers to be phased out) out) Option of higher risk Option of higher risk for higher premium for higher premium Extended to nonExtended to nonloanee farmers loanee farmers Commercial crops Commercial crops included included Coverage and Coverage and financial viability still financial an issue viability still an issue

1997/8 1999 1997/8 1999 IRDA Act IRDA Act Entry of Entry privateofand private foreign and foreign players players

2001 2001 High High level level task task force force

Farm Farm income income insurance insurance scheme scheme For wheat For and wheat paddy and paddy To replace To replace NAIS NAIS

Weather Weather indexed indexed insurance insurance

MFIs, SHGs, MFIs, villageSHGs, village internet internet kiosks kiosks 2003 2003

2004 2004

AIC takes AIC overtakes from over GIC from GIC

Working group Working group for Xth Plan for Xth Plan

Comprehensive Crop Insurance Scheme (CCIS)  Was in effect during Kharif’85–Kharif’99  Implemented in 15 States and 2 Union Territories  Insurance linked to short-term credit  2% premium, subsidy for small farmers  Basic rainfed food grains covered  Very poor coverage of farmers  Very low premium to claims ratio  Claims ratio : 1 : 5.71

National Agricultural Insurance Scheme (NAIS)  In operation since Rabi 1999-2000  At present implemented in 23 States and 2 Union Territorie  Low Claims Ratio : 1 : 2.9  Higher premiums  Option of higher risk for higher premium  Extended to non-loanee farmers  Commercial crops included  Coverage and financial viability still an issue  Assessment of yield to be protected is unrealistic and is on lower side.

Weather Insurance Schemes  Insurance for losses due to vagaries of weather - excess of rainfall, shortfall in rainfall, lack of sunshine, etc.  Weather insurance schemes launched: - Varsha Bima – 2005  Insurance against the adverse incidence of rainfall.

- Sookha Suraksha Kavach (SSK)  Insured against the likelihood of diminished agricultural output/yield resulting from shortfall in the actual normal rainfall index within a specific geographical location and specified time period

Other Insurance Schemes  Coffee Insurance  Coconut Insurance  Rubber Insurance  Tea Plantation Insurance  Poppy Insurance  Basmati Rice Insurance  Aromatic & Medicinal plants Insurance  Contract Farming Insurance  Apple Insurance (Input) Policy

Institutions Involved in Insurance  Agriculture Insurance Company of India Ltd. (AICI) -promoted by - General Insurance Company (GIC) - National Bank for Agriculture and Rural Development (NABARD)

 Four other Insurance Subsidiaries are: -

National Insurance Company Ltd. New India Assurance Company Ltd. Oriental Insurance Company Ltd United India Insurance Company Ltd.

 ICICI Lombard - provides first-ever Weather Insurance

Barriers for Insurance  Poor comprehension of insurance in terms of the key benefit and the process – what / why / how it works  An unnecessary expense ---- No long term benefit perceived as no money back scheme in case of no claim  Lack of sufficient push and effort from the channel due to ---- lack of attractive commission for agents  Sheer lack of promotion, education and information  Weak distribution channel ......inaccessibility of the agent  Processes cumbersome  Stoic belief in fate coupled with apathetic attitude Therefore tendency to not purchase / renew

Strategies for success  Heighten need for insurance - Education on benefits of general insurance …... though not a saving but a risk cover in case of adversities

 Ease of process - Subscription - Renewal - Claim settlement

 Product : - Need to promote agriculture pump set and cattle insurance among owners - Also need to promote health and personal accident policies, low awareness but high concerns - Existing owners and lapsers of General Insurance would be an easier target

Strategies … Continued  Price : - Lower premiums would be preferable, even by the richer states like Punjab

 Place : - Preferred channels are Banks, Co-operatives & Sarpanch

 Promotion : - Participative information dissemination ……..“through small cohesive groups at farmer meets, melas, co-operative society meets….”

Role of ICT  Information regarding new insurance policies through - Kiosk Centres - Community Portals - Forums

 Providing information regarding weather predictions through GIS/GPS  Spreading awareness about other Risk Management techniques

References  http://aicofindia.nic.in/index1.html  http://www.basixindia.com/WeatherInsurancenew frontier in India.ppt  http://www.ficciagroindia.com/fundingschemes/bank/nabard.htm  http://www.agriculture-industry-india.com/agroprogramme-schemes/credit3.html

Thank you