General Insurance Corporation of India (GIC Re)

Your Partner in Risk

Mumbai 04/11/2015

Conference on

AGRICORP 2015 “Risk Mitigation in Agriculture”

November 3rd & 4th, 2015, Mumbai, India

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Agriculture Insurance & Policy Intervention for Risk Mitigation

Current Agriculture Insurance System-challenges, innovation and way forward(MNAIS, WBCIS, FARM INCOME INSURANCE SCHEME , capacity Building)

Chandan Verma, Deputy Manager, GIC Re

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An Overview

• Crop insurance in India – Various Schemes

• Issues for success

• Issues and challenges

• Capacity Building

• Way forward

Crop insurance in India – Various Schemes

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• First ever scheme on ‘Individual’ approach basis(1972-78)

• Pilot Crop Insurance Scheme –PCIS (1979-1984)

• Comprehensive Crop Insurance Scheme–CCIS(1985-1999)

• Experimental Crop Insurance Scheme –ECIS (1997-98)

• National Agriculture Insurance Scheme – NAIS (1999……)

• Farm Income Insurance Scheme – FIIS (2003-04)

• Weather Based Crop Insurance Scheme - WBCIS (Kharif

2007….)

• Modified NAIS – MNAIS (Rabi 2010……)

• National Crop Insurance Program - NCIP (Rabi 2013……)

Evolution of Crop Insurance in India

National Agriculture Insurance Scheme (NAIS) Broad features

• Introduced in 1999 and presently in operation countrywide • ‘Homogenous Area’ and Yield Guarantee based insurance • Available to all States / Union Territories • Covers all Farmers - Borrowing on compulsory & Non-

borrowing on voluntary basis • Covers Food Crops & Oilseeds (FCO) & Annual Commercial /

Horticultural Crops (ACH) • Sum Insured - Loan amount ; maximum 150% of yield value • Premium - 2.5% to 3.5% during Kharif & 1.5 to 2% during

Rabi for FCO; Actuarial for ACH • Premium subsidy - 10% to Small / Marginal farmers • Claims in excess of 100% for FCO and 150% for ACH - equally

shared by Central Government & States • Covers more than 35 different crops each during Kharif and

Rabi

NAIS Benefits Limitations

Low Start-up cost Subsidized Premium Rate

Coverage No Pre-Sowing & Post Harvesting

Cover No crop cutting experiments for

Horticulture and Vegetables crops Insurance Principles

Adverse Selection Tampered yield Data

Indemnity Delayed Claims Larger Insurance Unit Size

Administrative High Loss Assessment Cost Unplanned claims subsidy

WEATHER BASED

• Government providing support since 2007 • Indemnifies farmers against deemed crop losses due to adverse

weather incidence • Risk based Premium rates with upfront premium subsidy from

government • Pay-outs based on pre-defined triggers on specified weather

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

WBCIS Benefits Limitations

Faster Claim Settlement Higher No. of Benefitted

Farmers Control on Adverse

Selection Good Risk Classification Low Loss Assessment Cost Better Seasonal Discipline

Complexly designed products by some of the States

High Start-up Cost due to installations of weather stations at closer radius

Basis risk - Geographical Product designing

mNAIS • Subsidy in premium & Insurer is responsible for the claim liabilities • 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 partial 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

• Actuarial regime. The mNAIS scheme operates on actuarially sound premium rates

• Up-front premium subsidies. AICI receives premiums (farmer collections + premium subsidies from the government) and is responsible for managing the liability of the mNAIS.

Key risks in the food value chain

Input suppliers (seeds,

fertilisers)

Agricultural production

(farmer)

Inland and international trading and

logistics

Food processing companies

Retailers

Production risk* ✓ ✓✓✓ ✓ ✓ ✓

Operational risk ✓✓ ✓✓✓ ✓✓ ✓✓✓ ✓✓

Market/ price risk ✓✓ ✓✓✓ ✓ ✓✓✓ ✓✓

Financial risk ✓ ✓✓✓ ✓ ✓ ✓

Technology risk ✓✓ ✓✓✓ ✓ ✓✓ ✓

Regulatory risk ✓ ✓✓ ✓ ✓✓ ✓

Infrastructure risk ✓ ✓ ✓ ✓ ✓✓

* Consists of weather risk that affects farmers and natural catastrophe risks that affect the region/country

Consumer

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Issues for success

• Availability of historical yield

• Development of suitable/sustainable product

• Insurance for at least 400 acres/ village

• Support of Central & State Government

• Local support from Farmer Associations etc

• Interface with Remote Sensing Center / Agricultural

Universities /Colleges

• Awareness on Criticality & Importance of Initiative

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Issues and Challenges !

• Variability in weather and soil conditions

• Yield variability & uncertainty of crop yields

• Seed sown but not germinated

• Post harvest losses

• Poor quality of monitoring during crop growing season

• Maintenance of weather station

• Non availability of reliable long period data on crop yield

& losses at farm level

• Farmers awareness and capacity building

• Inter-Agency Coordination

• Local officials do not maintain Govt. records about crops

in the field of farmer.

Capacity Building

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Improving efficiency of Agricultural insurance markets: What potential roles for governments?

Market/regulatory failures Potential public role

Informational asymmetries Enhancing data & information systems

Post-disaster assistance programs

Discipline in post-disaster assistance

Systemic risk Public private catastrophic risk sharing

Limited access to global reinsurance

Public private catastrophic risk sharing

Undeveloped risk market infrastructure

Research & development (products) Enhancing data & information systems

Low awareness Education and capacity building

Regulatory impediments Enabling legal & regulatory framework

Affordability Public premium subsidies

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Types of government support to agricultural insurance: selected countries

Source: The World Bank Government premium subsidies are very popular in 63% of all surveyed countries, but are available in only 40% of low income countries

Country Forms of Government Financial Support

Year of Inception

Agriculture Insurance POOL

(coinsurers)

Public sector MPCI

insurer

Premium Subsidies

Subsidies on Administrative costs

of crop insurance

Financial Support to R & D and Training

Public Sector Crop Reinsurance

USA 1930’s No No Yes Yes Yes Yes

Canada 1970’s No Yes Yes Yes Yes Yes

Spain 1980 Yes No Yes No No Yes

Portugal 1979 No No Yes No No Yes

Italy 1970’s No No Yes No No No

France 2005 No No Yes No No No

Turkey 2005 Yes No Yes No No No

India 1985 No Yes Yes Yes No Yes

Philippines 1980 No Yes Yes Yes No No

S. Korea 2001 Yes No Yes Yes No Yes

China 1950’s Yes No Yes Yes No Yes

Brazil 1950’s No Yes Yes Yes No Yes

Mexico 1990 No No Yes No Yes Yes

Chile 2000 No No Yes No Yes No

Colombia 2000 No No Yes No No No

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Insurance Capacity

Capacity

Capacity Reinsurance

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Reinsurance

Device for imitating and spreading risk

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Agriculture Reinsurance

• Access to additional risk capital & capacity

• Helps to reduce volatility in results

• Without reinsurance, insurers may not be able to meet the demand for agriculture insurance

• Ensure Diversity of portfolio, geo-spread,

• Transfer of Catastrophic risks internationally

• Adequacy of Retro protection

• Earn optimally on Investments to ensure the asset –liability perfect match

• Role for Governments as Reinsurers of last resort and by way of premium and claim subsidies to make agriculture insurance viable

GIC Re’s Role in Agriculture Insurance/Reinsurance

• GIC Re was the Implementing Agency for various Government-sponsored crop insurance schemes in India from 1972 to 2004

• GIC Re is founder-promoter of the Agriculture Insurance Company of India (AICIL) with majority equity of 35%

• GIC Re has a specialist team for Agriculture Reinsurance • Started underwriting Agriculture Reinsurance from 2004. • GIC Re’s Agri Reinsurance premium grew from INR10 million in

2005 to INR 640 crores in 2014-15 • GIC Re receives 5% obligatory cessions from Indian insurers as per

regulatory norms including Agri insurance • GIC Re provides reinsurance to private insurers in India, apart from

AICIL, for their weather index based crop insurance products and insurance of commercial crops.

• GIC Re also accepts foreign inward & domestic Agriculture business.

Way forward

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The way forward…

• Address the two core risks • the weather based perils (droughts, floods, unseasonal rains, hails, etc)

• market based price risk.

• State support is a must. Subsidy could go up to an estimated 75% of total

premium amount.

• Extensive use of technology to Scale up and speedy delivery of insurance.

• More automatic weather stations to be installed

• Emphasis on physical infrastructure for assessing crop damages.

• Use of handheld devices to verify coordinates

• Use of drones and satellite imagery for damage assessment

• Digitisation of land records

• Using bank accounts infrastructure for direct benefit transfers.

• Innovations like use of prepaid cards, especially for non loanees farmers

• More accountable public & private sector participation could also be encouraged.

• Awareness among farming community

• Agriculture reinsurance pool may be formed for innovation, technical support &

as capacity provider

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Innovation &

Product design

Public Support

High Value Service

Insurance Penetration Use of

Technology

Way Forward: to improve margins and increase stability

Transparency &

alignment of interest

Improve margins

Increase Stability

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The way forward to a new crop

insurance ….....

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THANK YOU