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 Policy Risk

Improper Cultivation
Practices
 Risk management Techniques

Govt. Support Self Insurance

Extension
Shift to Non-Remunerative
crops
Subsidies
Reduced tech. use

MSP 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

Farm
Farm
income
National agriculture income
National agriculture insurance
insurance scheme insurance
insurance scheme scheme
Comprehensive crop Higher premiums scheme
Comprehensive crop For wheat
insurance scheme Higher
(subsidypremiums
for small For
and wheat
paddy
Pilot crop insurance scheme (subsidy for
Pilot crop farmers to besmall
phased and paddy
To replace
insurance Insurance linked to farmers
out) to be phased To replace
NAIS
insurance Insurance
short-termlinked
credit to out) NAIS
scheme short-term credit Option of higher risk
scheme 2% premium, subsidy Option of higher
for higher premiumrisk
2% premium,
for small subsidy
farmers for higher premium Weather
for small farmers Experimental Extended to non- Weather
Basic rainfed Experimental Extended to non- indexed
Basic rainfed crop loanee farmers indexed
foodgrains covered
crop loanee farmers insurance
Experimental foodgrains covered Commercial crops insurance
Experimental Very poor coverage insurance Commercial crops MFIs, SHGs,
individual insurance included MFIs,
Very poor coverage
of farmers scheme included villageSHGs,
individual of farmers scheme Coverage and village
scheme Very low premium to Coverage and
financial viability still internet
scheme Very low premium to financial internet
kiosks
claims ratio an issue viability still kiosks
claims ratio an issue

1972 1978 1979 1984 1985 1991 1997/8 1999 2001 2003 2004
1972 1978 1979 1984 1985 1991 1997/8 1999 2001 2003 2004
Green Economic IRDA Act High AIC takes
Green
Revolution Economic
reforms IRDA Act High
level AIC
overtakes
from
Revolution reforms Entry of level over
Entry task GIC from
privateofand task GIC
private force
foreign and force
foreign
players
players 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/WeatherInsurance-
new frontier in India.ppt

 http://www.ficciagroindia.com/funding-
schemes/bank/nabard.htm

 http://www.agriculture-industry-india.com/agro-
programme-schemes/credit3.html
Thank you