Crop Insurance in India

Presented by Gourav Kumar Vani

What is Insurance ?

According to Word Web Dictionary “Promise of reimbursement in the case of loss; paid to people or companies so concerned about hazards that they have made prepayments to an insurance company”.

A more technical definition can be “Insurance is a financial arrangement whereby losses suffered by a few are met from the funds accumulated through small contributions made by many whom are exposed to similar risks”.

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Crop insurance is an insurance arrangement aiming at mitigating the financial losses suffered by the farmers due to damage and destruction of their crops as a result of various production risks.

What is Crop Insurance ?

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Why we need Crop Insurance ?

For Farmer

Can avoid the loose incurred due to vagaries of weather

Pest and Diseases

Fire

Market Prices

Other unpreventable losses.For Banks

Increasing the repayment capacity of debtor.

Avoiding the risk of non payment in events of crop damage or failure.

For Govt.

Reducing the payment of relief package.

A Prosperous, stable and happy nation.

For consumers and traders, a more stable market.

Crop Insurance brings stability in area under cultivation.

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For Farmer, it brings stability in income.

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Concepts need to be understood in Insurance

Indemnity: legal compensation given to claimant by insurance company.

•Indemnity Level:

•Area Approach: While in Life or Health Insurance company deals at individual level to process the insurance claims but in Agriculture it is difficult in India owing to presence of large no. of marginal and small land holdings and hence insurance company deals with a group of farmers at District/Hobli/Taluka level.

Crop Cutting Experiment: In order to obtain fair, precise and accurate estimate of yield of principal crops. These experiments are conducted through stratified random sampling technique taking block as a primary unit of planning.

Claim ratio:Ratio of a insurance firm’s claims total paid added to the loss adjustments against the premiums earned. Known also as loss ratio.

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Mechanism of Crop Insurance in India1. Union Government announces the scheme for Crop Insurance.2. State Government notifies it for its respective states to participate in the

scheme.3. State Government designates nodal authority in the state to look after the

implementation of scheme in addition to one Central Authority at National Level.

4. State nodal authority provides the administrative set up to facilitate implementation.

5. Farmers approach nearest office responsible for implementation.6. For loanee farmers it is compulsory and bank sanctions additional amount

for insurance.7. Upon damage based on area approach insurance company will give

indemnity amount.

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•1970- Expert committee on Crop insurance appointed by GOI headed by Dharamnarain ruled out possibility of crop insurance.

•1973- GIC (General Insurance Company) set up by GOI to do all types of insurance business throughout nation with four Subsidiaries.

1973- Insurance on Pilot basis for H-4 cotton introduced by GIC.

1985-Comprehensive Crop insurance Scheme (CCIS) by GIC started.

•1999-22nd–June- NAIS launched by GOI, implemented from Rabi 1999-2000 by GIC.

•1999-2000 Rabi- Seed Crop Insurance introduced for 11 crops in 10 states.

•2002-20th –Dec- Responsibly of NAIS transferred from GIC to AIC.

2004 Jan- FIIs (Farm Income Insurance scheme) inaugurated by MOA and AIC jointly.

2007-Kharif – WBCIS (Weather Based Crop Insurance Scheme) on Pilot basis implemented in KARby AIC covering 8 rain fed districts.

2007-08 Rabi- WBCIS implemented on larger Scale.

2010-11 Rabi -MNAIS was launched. It is modified version of NAIS. It was initially launched in 50 districts of India.

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National Agricultural Insurance Scheme (NAIS)

Background•In vogue since Rabi 1999-00•Greater coverage of farmers, crops & risks•Rationalized premia structure•Optional to States/ UTs•Compulsory for loanee farmers

Risk CoveredNon- preventable risksSum insured- upto value of TYInsurance beyond TY upto 150%

of AY at actuarial rate

PremiumFOOD CROPS AND OILSEEDS•Bajra & Oilseeds: 3.5% of Sum Insured(SI) or Actuarial rate, whichever is less•Other Kharif crops: 2.5% of SI or Actuarial rate, whichever is less•Wheat: 1.5% of SIor Actuarial rate, whichever is less•Other Rabi Crops: 2.0% of SIor Actuarial rate, whichever is lessANNUAL COMM./HORT. CROPS: Actuarial ratesPREMIUM SUBSIDY•50% subsidy for SF/MF - to be phased out in 5 years on sun set basis. At present 10% subsidy is available to be shared on 50 : 50 basis by Central & State govt.

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LIMITATIONS OF NAIS•Larger unit area results in unrealistic assessment of crop loss and payment of compensation.•Low indemnity level and unfavorable threshold yield.•Limited Coverage - Perennial crops; pre-sowing and post-harvest losses are not covered •Compulsory coverage of loanee farmers.•Phasing out of premia subsidy on sunset basis is resisted/ objected to by some States.•Delay in payment of claims on account of late submission of yield data, share of funds by Centre/State and discrepancies/disputes in the claims•Inadequate infra-structure in the field.•Little interest is shown by Banks in the implementation of the scheme•Low awareness of the scheme at the ground level.

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Constitution of Joint Group•To study the improvements required in the existing schemes a Joint Group was constituted in the Ministry of Agriculture.

•The Joint Group made in-depth study of each and every issue.

•The Group submitted its report on 20.12.2004 and made number of recommendations.

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Main recommendations of the Group are:- Reduction in the unit area of insurance to the level of village

panchayat for major crops.

Threshold/guaranteed yield is proposed to be based on best 5 years out of preceding 7 years yield data.

Indemnity levels will be 90% for low risk areas/crops and 80% for other areas/crops.

It is proposed to cover pre-sowing/planning risks (i.e. prevented sowing on account of adverse seasonal conditions). The indemnity payable may range between 20% - 25% of sum insured.

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Post-harvest losses on account of cyclone are to be covered in coastal areas.

Uniform seasonality discipline for loanee and non-loanee farmers is to be followed in consultation with the States/UTs.

On account payment of claims is to be made during the season on the basis of weather data or satellite imagery so as to make timely payment of claims.

An individual assessment of claims will be carried out in case of specified localized calamities viz. hailstorm, landslide and damage due to wild animals.

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Insurance cover to perennial horticultural crops and vegetables is to be provided.

The NAIS is proposed to be placed on actuarial regime. But the premium actually paid by the farmers are to be suitably subsidized.

A composite Package insurance covering all assets of the farmers besides crops should be included so as to provide comprehensive insurance coverage.

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PERFORMANCE OF NAIS FROM RABI 1999-2000 TO KHARIF 2011-12.

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RANK

NO. OF FARMERS

COVERED

SUM INSURED

GROSS PREMIUM

PREMIUM SUBSIDY CLAIMS

NO. OF FARMERS

BENEFITTED

AREA INSURED

1 M.H. 16 A.P. 19 A.P. 19 W.B. 19 A.P. 18 M.H. 18 M.P. 21

2 A.P. 14 M.P. 14 GUJ 16 T.N. 17 GUJ 17 A.P. 13 A.P. 14

3 M.P. 13 GUJ 12 M.P. 14 A.P. 16 RAJ 10 RAJ 10 RAJ 10

4 U.P. 11 U.P. 10 M.H. 9 M.H. 14 BIH 9 KAR 10 GUJ 10

5 RAJ 7 M.H. 7 U.P. 7 GUJ 9 M.H. 8 M.P. 9 U.P. 9

Share of top 5 states 61 62 65 75 62 60 64

Source: Agriculture Insurance Company of India Limited.

M.P. : MADHYA PRADESH , A.P.: ANDHRA PRADESH , T.N.: TAMIL NADU, BIH: BIHAR, M.H.: MAHARASHTRA, RAJ: RAJASTHAN, GUJ: GUJARAT, KAR: KARNATAKA, U.P.: UTTAR PRADESH, W.B.: WEST BENGAL.

Table No. 1: Share (%) Of Top Five States In NAIS by Different Parameters

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Rank State

1 A.P.

2 M.H.

3 M.P.

4 U.P.

5 KAR

6 Odisha

7 RAJ

7 Tamil Nadu

9 Gujarat

10 W.B.

Table No.2: Overall Performance of Different States

Source: Agriculture Insurance Company of India Limited.

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It takes into account weather parameters like rainfall, temperature, frost, humidity etc.

WEATHER BASED CROP INSURANCE SCHEME (WBCIS)

It is not Yield guarantee insurance.

While due to adverse weather conditions, crop may not suffer the loose of yield but there can be lose in the quality of produce.

Based on concept of Area Approachi.e., for the purposes of compensation, a ‘Reference Unit Area (RUA)’ shall be deemed to be a homogeneous unit of Insurance. This RUA shall be notified before the commencement of the season by the State Government and all the insured cultivators of a particular insured crop in that Area will be deemed to be on par in the assessment of claims. Each RUA is linked to a Reference Weather Station (RWS), on the basis of which current weather data and the claims would be processed.

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Amount of insurance protection (sum insured) is broadly the cost of inputs expected to be incurred by the insured in raising the crop. Sum insured is pre-declared per unit area (Hectare) by AIC at the beginning of every crop season, in consultation with experts in State Government; and it may be different for different crops in different RUAs.

Sum Insured = cost of inputs per unit area * acreage under the crop declared by the farmer.

Premium rates depend on the ‘expected loss’, which in turn depends on the patterns of weather parameters of historical period of about 25 to 100 years in the context of ideal weather requirements of a crop. In other words, the premium rate could vary with each RUA and with each Crop.

Premium rates are capped for the cultivator; and the premium (rates) beyond the cap are shared by the Central and concerned State

government on 50:50 basis.

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CROPS PREMIUM PAYABLE BY THE INSURED CULTIVATORFOOD CROPS & OIL SEEDS1 Wheat: 1.5% or Actuarial Rate, whichever is less2 Other Crops (other cereals, Millets, Pulses, Oilseeds): 2.0% or Actuarial Rate, whichever is less

ANNUAL COMMERCIAL / HORTICULTURE CROPS (subsidy and premium slabs)1 Upto 2%: No Subsidy2 >2 - 5%: 25%subsidy, subject to minimum net Premium of 2% payable by farmer3 >5 - 8%: 40%, subject to minimum net Premium of 3.75% payable by farmer4 >8%: 50% subsidy, subject to minimum net Premium of 4.8% & Max 6% payable by farmer The ‘net premium payable in case of the insured loanee cultivator is financed the Lending Bank.

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WHAT ARE CRITICAL DIFFERENCES BETWEEN NAIS AND WBCIS ?

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CHARACTERISTC NAIS WBCIS

RISK COVERED Practically all risks covered (drought, excess rainfall, flood, hail, pest infestation,etc.)

Parametric weather related risks are covered.

DATA REQUIREMENTS AND EASE OF DESIGNING

Easy-to-design if historical yield data up to 10 years’ is available.

Technical challenges in designing weather indices and also correlating weather indices with yield losses. Needs up to 25 years’ historical weather data.

BASIS RISK High basis risk high for rainfall and moderate for others like frost, heat, humidity etc.

OBJECTIVITY AND TRANSPARENCY

Relatively less. Relatively high

QUANTITY LOSSES Beyond consideration. To some extent gets reflected through weather index.

COST OF CCEs High No cost

CLAIM SETTLEMENT Delayed Faster

GOVT.’S FINANCIAL LIABILITIES

open ended, as it supports the claims subsidy

close ended, as it supports the premium subsidy

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PERFORMANCE OF WBCIS FROM KHARIF 2007 TO RABI2011-12.

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Rank No. Of

farmers covered

Area covered

Sum insured

Gross premium

Premium subsidy Claims

No. Of farmers

benefited

1 RAJ 61 RAJ 66 RAJ 43 RAJ 43 RAJ 43 RAJ 46 RAJ 46

2 BIH 20 BIH 16 BIH 28 BIH 25 BIH 27 BIH 22 BIH 29

3 A.P. 6 A.P. 6 A.P. 12 A.P. 13 A.P. 11 A.P. 13 A.P. 8

4 GUJ 3 M.P. 3 M.P. 5 M.H. 5 M.H. 6 M.P. 5 M.H. 4

5 M.H. 3 M.H. 2 M.H. 4 M.P. 5 M.P. 5 M.H. 4 M.P. 4

SHARE OF

TOP 593 93 91 91 92 90 91

Table No. 3:Share (%) Of Top Five States In WBCIS by Different Parameters

M.P. : MADHYA PRADESH, A.P.: ANDHRA PRADESH, BIH: BIHAR, GUJ: GUJARAT, M.H.: MAHARASHTRA, RAJ: RAJASTHAN.

Source: Agriculture Insurance Company of India Limited.

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Advantages of WBCIS a) Trigger events like adverse weather (rainfall, temperature, relative humidity etc.) can be

independently verified & measured.

b) It allows for speedy settlement of claims, say within 45 days from the end of the insurance period.

c) All cultivators – irrespective of Loanee or Non-Loanee; Small / Marginal or Others; Owners or Tenants / Sharecroppers can buy Weather Based Crop Insurance Scheme (WBCIS).

d) The Government is providing Subsidy in Premium and hence, the premium payable by the cultivator is affordable.

e)It provides transparent, fully objective, efficient & direct payouts for adverse weather incidences and thus, an effective risk mitigation tool against weather risks.

f) The insured is not required to submit claim form or other documents as proof for his/ her loss. The claim payout is automatically calculated on the basis of weather data collected from the Reference Weather Station at the Tehsil / Block level.

g) Since the weather data decides the compensation, the insured retains the incentive for putting in extra effort for getting better yield of his / her crop.

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An illustration of Ganganagar Tehsil of Ganganagar District in Rajasthan for Wheat crop is given below:District: Ganganagar, Block: GanganagarCrop: Wheat ,Sowing: Standard Sowing PeriodSum Insured per Hectare: (Rs.) 22,500Sum Insured per Acre: (Rs.) 9,000Reference Weather Station: IMD/ Automatic Weather Stations (AWS) at Ganganagar.

COVER 1: Heat or Rise in Mean TemperatureCover Objective: To cover anticipated yield loss due to rise in atmospherictemperatureCover period: 1st January to 31st March

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Payout starts if the mean temperature for any fortnight rises above certain critical level over & above the trigger temperatures. , a rise in fortnightly mean temperature by 4 °C during 2nd fortnight of January would result in a payout of 3.99% of sum insured, i.e. Rs. 897.75 per hectare or Rs. 359.10 per acre. The payouts determined on the above basis, in each of the fortnights shall be added for all the fortnights from January to March to arrive at the final payout under this cover subjected to the terms and conditions specified in the policy.

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WHAT IS MNAIS ?TO MAKE THE NAIS MORE FARMER FRIENDLY , NAIS WAS MODIFIED AND RENAMED AS MNAIS W.E.F. RABI 2010-11.

(i)actuarial premiums will be paid for insuring crops and hence claims liability will be on insurer;

(ii) unit area of insurance for major crops is village/village Panchayat;

(iii) indemnity amount will become payable, for prevented sowing/planting risks and for post harvest losses, due to cyclones;

(iv) on account payment up to 25% of likely claim under MNAIS will be released as advance, for providing immediate relief to farmers;(ONLY IF ACTUAL YIELDS ARE LESS THAN 50% OF ASSURED YIELD).

(v) uniform seasonality norms will be applicable for both loanee and non-loanee farmers;

(vi) more proficient basis for calculation of threshold yield (average yield of last seven years excluding up to two years of declared natural calamity) will be applicable; and

(vii) minimum indemnity level in case of MNAIS of 70% will be, instead of 60% as in NAIS.

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•Loanee farmers will be insured under ‘compulsory category’ while non-loanee farmers will be insured under ‘voluntary category’.

•Private sector insurers with adequate infrastructure and experience will also be permitted to implement MNAIS. NAIS will be withdrawn for those area(s)/crop(s) of districts, in which MNAIS will be implemented.

Subsidy to Farmers1 Up to 2% Nil2 >2 - 5% 40% subject to minimum net premium of 2%3 >5 – 10% 50% subject to minimum net premium of 3%4 >10 –15% 60% subject to minimum net premium of 5%5 >15% 75% subject to minimum net premium of 6%.

In case of localized risks, viz. hailstorm and landslide, the claims will be assessed on individual basis. For other calamities the assessment will be on the basis of ‘area approach’.

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PERFORMANCE OF MNAIS FROM KHARIF 2007 TO RABI2011-12.

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Rank No. Of

farmers covered

Area covered

Sum insured

Gross premium

Premium subsidy Claims

No. Of farmers

benefited

1 W.B. 20 KAR 19 A.P. 21 W.B. 32 W.B. 38 W.B. 28 W.B. 22

2 U.P. 17 RAJ 16 W.B. 18 BIH 14 BIH 15 T.N. 22 KAR 18

3 RAJ 13 A.P. 14 U.P. 13 KAR 14 KAR 14 KAR 12 U.P. 14

4 KAR 12 U.P. 12 KAR 9 A.P. 11 A.P. 7 HAR 10 T.N. 9

5 A.P. 11 BIH 9 RAJ 9 RAJ 8 RAJ 7 RAJ 9 A.P. 8

SHARE OF

TOP 573 70 70 79 81 81 71

Table No. 4:Share (%) Of Top Five States In MNAIS by Different Parameters

Source: Agriculture Insurance Company of India Limited.

A.P.: ANDHRA PRADESH , T.N.: TAMIL NADU, BIH: BIHAR, RAJ: RAJASTHAN, KAR: KARNATAKA, U.P.: UTTAR PRADESH, W.B.: WEST BENGAL.

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THANK YOU FOR YOUR KIND ATTENTION

ANY QUESTION ?

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Apr 10, 202337

43457.17

19780.88

30504.84

20390.52

66060.76

27482.45

23496.16

31379.98

28800.84

PERFORMANCE OF NAIS FROM RABI 1999-2000 TO KHARIF 2012

SHARE OF STATES IN AREA COVERED ANDHRA PRADESH

CHHATTISGARH

GUJARAT

KARNATAKA

MADHYA PRADESH

MAHARASHTRA

ODISHA

RAJASTHAN

UTTAR PRADESH

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28360.77

13265.78

12788.11

26632.8131765.82

14355.64

15058.67

21531.59

10834.76

SHARE OF TOP 10 STATES IN NO. OF FARMERS COVERED UNDER NAIS

ANDHRA PRADESH

GUJARAT

KARNATAKA

MADHYA PRADESH

MAHARASHTRA

ODISHA

RAJASTHAN

UTTAR PRADESH

WEST BENGAL

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Dictionary: http://thelawdictionary.org/claim-ratio/#ixzz2ob5Nfn5h

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Group 1 Group 2

Class 1 82 95

Class 2 76 88

Class 3 84 90

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Chronology of Agricultural Insurance in India

•1970- Expert committee on Crop insurance appointed by GOI headed byDharamnarain ruled out possibility of crop insurance.

•1973- GIC (General Insurance Company) set up by GOI to do all types ofinsurance business throughout nation with four Subsidiaries.

•1973- Insurance on Pilot basis for H-4 cotton introduced by GIC.

•1985-Comprehensive Crop insurance Scheme (CCIS) by GIC started.

•1999-23rd –June- NAIS ( National Agricultural Insurance Scheme) launched by

Prime Minister and implemented from Rabi 1999-2000 by GIC.

•1999-2000 Rabi- Seed Crop Insurance introduced for 11 crops in 10 states.

•2002-20th –Dec- Responsibly of NAIS transferred from GIC to AIC (Agriculture

Insurance Company of India Ltd.).

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•2004 Jan- FIIs (Farm Income Insurance scheme) inaugurated by MOA and AIC jointly. This scheme provides broader risk insurance for

agricultural income due to adverse natural calamities and fluctuation in market prices of the agricultural crops. The farmers income would be protected by ensuring minimum guarantee income.

2007-Kharif – WBCIS (Weather Based Crop Insurance Scheme) on Pilot basis

implemented in Karnataka by AIC covering 8 rain fed districts.

2007-08 Rabi- WBCIS implemented on larger scale.

2010-11 Rabi -MNAIS was launched. It is modified version of NAIS. It was initially launched in 50 districts of India.