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OVERVIEWOVERVIEW

• Indian Agriculture

• Agriculture Risks

• Crop Insurance: Evolution

• Crop Insurance: Why Index insurance?

• Crop Insurance: Key Products

• Crop Insurance: How Products work?

• Crop Insurance: Key Characteristics

• Crop Insurance: Key Challenges

• Crop Insurance: New Initiatives

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Indian AgricultureIndian Agriculture

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• 1.2 billion population• 120 million farm holdings• 80% farmers own less than two hectares• 61% of rural households are farming households• 145 million hectares of cultivated land• 190 million hectares of gross cropped area• 1.2 Hectare Average Farm-holding size • 50% of area under cereals and millets• 52% of the employment provided • 69% of population is sustained• Subsistence agriculture dominates• Agrl. GDP estimated at US $ 285 billions (FAO,

2010)

Indian Agriculture: Salient Features

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Agriculture RisksAgriculture Risks

Rainfall variability is dominant due to the presence of the Monsoon (seasonal winds blowing from the Indian Ocean and Arabian Sea in the southwest bringing heavy rainfall)

Monsoons contribute 78% India’s annual rainfall - undergoes wide inter annual variations

Large variations in rainfall distribution (<10cm in western desert to >1000cm in northeast)

Disparity in the rainfall distribution is so great – droughts and floods occur at different parts of the country at the same period and in the same place at different periods

One - third of the country is mostly under threat of drought

One - sixth of the country prone to floods

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Crop Insurance: HistoryCrop Insurance: History

IndiaIndia

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• J S Chakravarthi proposed ‘Drought Insurance’ based on rainfall index in 1920

• First ever crop insurance started in 1972 for H-4 cotton based on ‘individual farm’

• In 1979 a pilot insurance was introduced based on ‘homogenous area’ based yield index (Pilot Crop Insurance Scheme – PCIS)

• In 1985 the PCIS was converted into a country-wide ‘yield index’ based crop insurance covering cereals, millets, pulses and oilseeds (Comprehensive Crop Insurance Scheme – CCIS)

• Scope of CCIS expanded in 1999 as National Agricultural Insurance Scheme – NAIS

• Pilot Farm Income Insurance Scheme(FIIS)• Weather Based Crop Insurance Scheme – WBCIS was introduced

from 2007• Modified NAIS as pilot in 50 Districts from Rabi 2010-11 season

Evolution of Crop InsuranceEvolution of Crop Insurance

Non availability of past record of Yields, Land surveys, Ownership and Tenancy

Large number of Farm-holdings (nearly 120 million) Small size of farm-holdings (Average size of 1.2

hectare) Remoteness & inaccessibility of Farm-holdings Low value per unit Large variety of crops, varied agro-climatic conditions

and package of practices Difficulty in collection of small amount of premium

from large number of farmers Simultaneous harvesting of crops all over the country Prohibitive cost of Manpower and Infrastructure

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National Agricultural Insurance Scheme [NAIS]

(Government’s flagship Yield index Crop Insurance Program)

• Introduced in 1999 and presently in operation countrywide

• Homogenous Area approach and Area-Yield Guarantee

• Available to all Farmers - compulsory for borrowing & optional for non-

borrowing

• Covers Food crops, Oilseeds & Annual Commercial / Horticultural Crops

• Indemnity levels vary from 60% to 90% of past average yield

• Sum Insured - Loan amount to 150% of value of Yield

• Premium rates

Food crops & Oilseeds – ranges from 1.5% to 3.5%

Annual Commercial / Horticultural Crops – Actuarial

• Indemnities exceeding Premium for food crops & oilseeds are borne by the

Government

• Being Implemented in 25 States & 2 Union Territories

• Covers more than 35 different crops each during Kharif and Rabi

NAIS: How it Works?

Crop: SorghumSum Insured

(INR): 10000Year Yield (Kg/Ha.)2004 3502005 9502006 12002007 8752008 2502009 9502010 1200

Current Yield - 2011 (Kg/Ha.): 650

Average Yield of latest 5 years: (Kg/Ha.): 895.00

Risk categoryIndemnity

level TY (Kg/Ha.)Shortfall (Kg/Ha.) shortfall %

claim (INR)

high risk 60% 537 0 0.00% 0.00medium risk 80% 716 66 10.15% 1015.38low risk 90% 805.5 155.5 23.92% 2392.31

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Weather Index Crop InsuranceWeather Index Crop Insurance

• Government providing support since 2007

• Indemnifies farmers against deemed crop losses due to adverse

weather incidence

• Crops covered include perennial & horticulture crops like mango,

apple, cashew, grapes & orange

• Risk based Premium rates with upfront premium subsidy from

government

• Payouts based on pre-defined triggers on specified weather

parameters

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

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Pilot WBCISPilot WBCIS

Crop: Groundnut Season: Kharif

PHASE-I PHASE - II PHASE – III

1 A. Rainfall Volume

PERIOD 21st June to

15th July 16th July to

15th Aug 16th Aug to

30th Sept TRIGGER I (<) 80 mm 160 mm 80 mm TRIGGER II (<) 40 mm 80 mm 40 mm EXIT 20 30 20 RATE I (Rs./ mm) 25 25 25 RATE II (Rs./ mm) 75 60 75 Max. Payout (Rs.) 2500 5000 2500

TOTAL PAYOUT (Rs.) 10000

1 B.

Rainfall Distribution

(Consecutive Dry Days)

PERIOD 1st July to 31st August TRIGGER DAYS (>=) 20 25 30

PAYOUT (Rs.) 1500 3000 5000

TOTAL PAYOUT (Rs.) 5000

Rainfall of less than 2.5 mm in a day shall not be considered as a rainy day; and multiple payouts considered

Max. Payout (Rs.) 15000

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Modified Yield Index InsuranceModified Yield Index Insurance

Modified NAIS: How it Works?

Crop: SorghumSum Insured

(INR): 10000Year Yield

2004 350 calamity year12005 9502006 12002007 8752008 250 calamity year22009 9502010 1200

Current Yield - 2011 (Kg/Ha.): 650

Average Yield of latest 7 years: (Kg/Ha.): 825.00

Average Yield of latest 7 years less 2 calamity

years (Kg/Ha.): 1035

Risk categoryIndemnity

level TY (Kg/Ha.)Shortfall (Kg/Ha.) shortfall %

claim (INR)

high risk 70% 724.5 74.5 11.46% 1146.15medium risk 80% 828 178 27.38% 2738.46low risk 90% 931.5 281.5 43.31% 4330.77

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Index Based Crop InsuranceProgress: 2011-12

ProgramFarmers

(Millions)Hectares (Millions)

Sum Insured (US $ Millions)

Premium (US $ Millions)

Program Nature

NAIS 16.731 22.947 7415.29 219.22 Adminstered

WBCIS 11.607 15.629 4179.99 370.28 Actuarial

MNAIS 1.084 1.182 730.56 66.67 Actuarial

TOTAL 29.422 39.758 12325.84 656.17

Source: Agriculture Insurance Company of India

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Crop Insurance: Key CharacteristicsCrop Insurance: Key Characteristics

IndiaIndia

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Key Features of Implementation Key Features of Implementation

• Credit linkage, and mandatory for borrowing farmers

• Risk covered is based n production cost (safety-net)

• Credit institutions also finance the premium (in addition to crop loan)

• Insurance acts as collateral, and lending agencies have the first lien

on claim

• Minimal distribution costs

• Claims process is automated

• Yield estimation is done by the provincial government agencies , and

based on ‘single series’

• Weather product uses crop modeling inputs

• Weather data comes from both public as well as private data

providers

• Extension activities and awareness programs are also organized by

the government

• Private insurance providers are allowed for actuarially priced

programs, and enjoy same level of support as AIC

• Government provides for about 2/3rd cot of the program

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Key Challenges Key Challenges

• Basis risk

• Issues of financial literacy

• Un-realistic expectation– high frequency payouts to sustain

interest

• Crop Insurance Vs Other Subsidy programs

• Technically Complex Products (weather index)

• Climate Change & Seasonal Forecasts

• Yield estimates prone to manipulation risk

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Some Solutions… Some Solutions…

• Yield audit system

• Weather data standardization and integration

• Technical Support Unit (TSU) & product bench-

marking

• Financial literacy and consumer education

• Micro-insurance agents

• On-line portal

• Information interface for stakeholders

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Crop Insurance: New InitiativesCrop Insurance: New Initiatives

IndiaIndia

Weather index:1. Index +

2. Double-Trigger product

3. Savings linked (Loyalty Discount) based product

4. TOPS based weather data generation

Yield index:1. GPS enabled cell phones to audit yield estimation

2. Satellite imagery based area estimation and crop health reporting

3. Remote Sensing based Information and Insurance for Crops in Emerging Economies (RIICE)

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नमस्का�रम