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Transcript of Crop Insurance
Presented by:Karan Sahu
Insurance is a federal subject in India. It is a subject matter of solicitation. The legislations that deal with insurance business in India are Insurance Act, 1938 and Insurance Regulatory & Development Authority Act (IRDA), 1999.
Insurance is defined as is a form of risk management primarily used to hedge against unforeseen risks of contingent losses.Another definition for Insurance is the equitable transfer of the risks from the possibility of occurrence of losses, from one entity to another (or host of others), by the method of diversification in exchange for a premium.As a result the ramifications of a large and devastating loss can be minimized to a great extent.An Insurer is a company designing, promoting and selling the insurance products and services amongst the public.An insured or policyholder is the person or entity purchasing the insurance products and services.Risk management, the practice of appraising and controlling everpervading risks, has evolved as a discrete field of study and practice. The study of Insurance incorporates the discipline of Risk Management which acts as a driving force.
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 insurancecompany.
What is Crop Insurance ?
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.
Why crop insurance in necessary ?Fluctuation of weatherRainfallTemperatureHumidityWindCycloneHailstormPest & diseasesFireQuality of inputsSoilMarket prices
Objectives of Crop InsuranceTo provide insurance coverage and financial support to the farmers in the event of prevented sowing & failure of any of the notified crop as a result of natural calamities, pests & diseases
To encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in Agriculture
To help stabilize farm incomes, particularly in disaster years
Advantages of crop insurance
Concepts used in crop insurance
Actuarial: Essentially this is a branch of statistics, dealing with the probabilities of an event occurring.
Catastrophe: A severe, sudden and unexpected disaster which results in heavy losses.
Claim: The application for indemnity (payment) after an insured event has occurred.
Gross Premium/ Premium rate: The premium paid by the insured, which is aggregate of components including risk premium plus operating expenses, commissions, reserves and other expenses paid by the insured.
Indemnity: It is the compensation payable to the insured farmers for a crop loss resulted by the insured causes. It is determined by the quantity by which the yield falls short of the coverage
Guaranteed Yield: The expected physical yield of a crop stated in the insurance policy, against which actual yields will be compared when adjusting any losses
Loss Cost: Claims expressed as a percentage of the total sum insured or total liability
Premium: This is the fixed amount that an insured or farmer pays to the insurance agency this is also called as average annual loss cost. The premium rate is fixed or determined based on the variations in yield during past years.
Pure premium rate: It is the definite amount payable to the insurer by the insured for the insurance protection offered to him.
Insured: Insured is the party (farmer) who as to be indemnified by the insurance agency by the insurer when is incurred due to insured causes.
Different schemes of crop insurance1970- Expert committee on Crop insurance appointed by GOI
1973- GIC (General Insurance Company) set up by GOI to do all types of insurance business throughout nation with four Subsidiaries
1985-Comprehensive Crop insurance Scheme (CCIS) by GIC started
1999-- NAIS (National Agricultural Insurance Scheme) launched by GOI
1999-2000- Seed Crop Insurance introduced for 11 crops in 10 states.2007 WBCIS (Weather Based Crop Insurance Scheme)
2010-MNAIS was launched. It is modified version of NAIS. It was initially launched in 50 districts of India
2004 - FIIs (Farm Income Insurance scheme) inaugurated by MOA and AIC jointly
WBCIS- While due to adverse weather conditions, crop may not suffer the loose of yield but there can be lose in the quality of produce.
Benefits from Schemes
The Leading Technology for Modeling Crop Yields
AIR Worldwide scientists addressed these complexities when they developed the AIR Multi-peril Crop Loss Model
The AIR Multi-peril CropInsurance Model meets the demand for a more scientific approach to analyzing crop insurance and reinsurance programs. Today, all leading crop reinsurers are using the model for assessing the potential gains and losses to their portfolio and for pricing. Crop insurers are using the model for improved fund allocation and risk management.
The model employs crop yield-weather relationships at county resolution and fits robust distributions that take into account the impact of weather variability on crop production.Critical to the robustness of the model is the detrending methodology developed at AIR, which effectively isolates the weather impact from changes in technology on crop yields. That methodology relies on AIRs Agricultural Weather Index, or AWI, a county- and crop-specific weather index that leverages vast amounts of high resolution weather data that AIR ingests daily to support its catastrophe models.
How good is the AWI? So good that AIRs agriculture risk modeling team has finished first in the FACT Sim Futures and Options Trading Competition in four of the last five years.11