Crop Insurance Models and Relief measures in India …...Project Report Crop Insurance Models and...

Crop Insurance Models and Relief Measures in India and Madhya Pradesh

Atal Bihari Vajpayee Institute of Good Governance & Policy Analysis

Project Report

Crop Insurance Models and Relief Measures in India and Madhya Pradesh

Centre for Governance


Project Team

Over all guidance:

Shri. Padamvir Singh, Director General, AIGGPA Shri. Akhilesh Argal, Diector, AIGGPA Shri. Mangesh Tyagi , Principal Advisor, Centre of Governance, AIGGPA.

Project Coordinator & Author:

Dr. Anitha Govindaraj, Deputy Advisor, Centre of Governance and AIGGPA.

Research Associate: Ms. Vinita Rai.

ii

Agriculture in India faces myriad of risks especially price and weather risks. Farmers face floods, drought, pests, disease, and a plethora of other natural disasters. Weather is their greatest adversary, something that can never be controlled by man and farmers continue to be at the mercy of the weather gods. Crop insurance is a tailored risk management tool. Farmers in India have been subjected to publicly administered insurance schemes since 1972. Every scheme has been flawed, however the Government of India is still attempting to improve upon the schemes to protect its farmers from weather risks. India's failure at providing a sustainable crop insurance program does not stand alone. In both the developing and developed world, governments' crop insurance schemes have run with huge losses while not delivering an effective product. The inadequacy of such schemes is a well-established fact. On the other hand, private insurance does exist in situations where it is feasible and where no subsidized insurance is offered. The government's current crop insurance scheme, the PMFBY has only been implemented since the Kharif season of 2016, which emphasizes the effective utilization of technologies to address the constraints of the previous schemes. This publication is based largely on the outcome of a study commissioned by AIGGPA to provide a comprehensive agriculture risk management strategy for India. Information presented in the publication is based on data collected from various primary and secondary sources and the information is presented in a comprehensive format that allows direct comparisons to be made between insurance schemes and relief measures. The document also provides valuable recommendations for the sustainable implementation of insurance programmes. I hope that this report will further contribute to the growing literature on agricultural risk management, highlighting the need to strengthen the policy and institutional frameworks to develop a comprehensive risk management strategy for India. On behalf of the project team, I acknowledge the cooperation of various stakeholders such as Department of agriculture, GoMP, Department of Horticulture, GoMP, AIC-Bhopal, MPCOST, Revenue Department of GoMP, other private insurance players and sample farmers.

(Padamvir Singh) Director General, AIGGPA.

Preface and Acknowledgements

iii

Table of Contents

List of Graphs and Tables ............................................................................................................................................ iv

Abbreviations ..................................................................................................................................................................... v

Executive Summary ........................................................................................................................................................ vi

1. Introduction .................................................................................................................................................................... 1 Objectives ..................................................................................................................................................................... 2 Methodology ............................................................................................................................................................... 2 Limitations of the study ......................................................................................................................................... 3

II. Details of the Major Insurance Schemes in India....................................................................................... 4 NAIS-National Agricultural Insurance Scheme (1999 onwards till date) ......................................... 4 Modified NAIS (From 2010-11) .......................................................................................................................... 4 WBCIS-Weather Based Crop Insurance Scheme (From 2007) .............................................................. 5 PMFBY-Pradhan Mantri Fasal Beema Yojana (From 2016) .................................................................... 5 Unified Package Insurance Scheme –UPIS (2016) ...................................................................................... 7 Model of Crop insurance in India: ...................................................................................................................... 8

III. Performance of Crop Insurance Schemes in India .................................................................................. 9 Performance of NAIS ............................................................................................................................................ 12 Performance of MNAIS in India ....................................................................................................................... 14 Performance of WBCIS in India ........................................................................................................................ 15 Comparative Economics of the Insurance schemes in India ................................................................ 16 Progress of PMFBY in India ............................................................................................................................... 17

IV. Situation Analysis of Crop Insurance Programs in Madhya Pradesh ......................................... 18 Performance of NAIS in MP ............................................................................................................................... 18 Performance of WBCIS in Madhya Pradesh ................................................................................................ 22 Performance of PMFBY in Madhya Pradesh ............................................................................................... 24

V. Perceptions of the Farmers Regarding Crop Insurance Programs in Madhya Pradesh.... 26 Awareness Level of Farmers on Crop Insurance Schemes ................................................................... 28

VI. Disaster Relief Measures Vs. Crop Insurance .......................................................................................... 31 Crop Insurance & Agriculture Relief .............................................................................................................. 31 Financial Outlays for Crop Insurance and Disaster Relief .................................................................... 32

VII. International Scenario on Crop Insurance Programs ....................................................................... 37 Public Funding in Crop Insurance ................................................................................................................... 37 Types of Insurance Products ............................................................................................................................. 38 A snap shot of Crop Insurance in different countries ............................................................................. 39

VIII. Latest Developments To Improve Crop Insurance In India ......................................................... 43 Use of technology in PMFBY .............................................................................................................................. 43 Research Initiatives using Satellite Technology ........................................................................................ 43

IX. Key Issues/Constraints Identified ................................................................................................................. 45

X. Conclusion and Recommendations ................................................................................................................. 46

Bibliography ..................................................................................................................................................................... 50

Annexures .......................................................................................................................................................................... 52

iv

List of Graphs and Tables

Graph 1. Number of farmers insured under different insurance schemes in India..................................... 10 Graph 2. Area insured under major insurance schemes in India ........................................................................ 10 Graph 3. Area insured under various crops in India ................................................................................................ 11 Graph 4. Insurance coverage of gross cropped area in India ............................................................................... 12 Graph 5. State-wise distribution of insurance penetration under NAIS .......................................................... 13 Graph 6. State-wise share of number of farmers insured under MNAIS ......................................................... 14 Graph 7. State-wise share of number of farmers covered under WBCIS ......................................................... 15 Graph 8. Trend in the penetration of NAIS in MP ...................................................................................................... 19 Graph 9. Performance of PMFBY in MP (Kharif 2016) ............................................................................................ 24 Graph 10. Status of penetration of crop insurance among the sample farmers ........................................... 27 Graph 11. Sources of information on crop insurance to farmers........................................................................ 28 Graph 12. Awareness of farmers regarding insurance schemes ......................................................................... 29 Graph 13. Funds allocated for crop insurance and drought relief by GOI ....................................................... 34

Table 1. Mandated number of Crop Cutting Experiments (CCEs) ......................................................................... 7 Table 2. Deadlines /Cut of dates under PBFBY ............................................................................................................. 7 Table 3. Comparative statistics of the major insurance schemes of India (cumulative since inception

of the schemes till Kharif, 2014-15) .............................................................................................................. 9 Table 4. State wise performance of NAIS (cumulative since 1999-2015) ....................................................... 14 Table 5. Claim premium ratio of the insurance schemes in India ....................................................................... 16 Table 6. Status of claim settlement under the insurance schemes ..................................................................... 16 Table 7. Details of NAIS in Madhya Pradesh ................................................................................................................ 18 Table 8. Details of WBCIS in MP ........................................................................................................................................ 22 Table 9. Cluster-wise performance of WBCIS in MP during 2016 ...................................................................... 23 Table 10. Penetration of PMFBY in MP .......................................................................................................................... 24 Table 11. Cluster-wise performance of PMFBY in MP (During Kharif, 2016) ............................................... 25 Table 12. Information on the sample farmers ............................................................................................................ 26 Table 13. Major causes for the crop losses ................................................................................................................... 26 Table 14. Reasons for not taking crop insurance and motivating factors for taking crop insurance .. 27 Table 15. Frequency of occurrence of calamities and status of relief payments .......................................... 30 Table 16. Issues of crop insurance as perceived by the farmers ......................................................................... 30 Table 17. Comparison of Crop Insurance and Relief payments ........................................................................... 32 Table 18. Financial assistance approved under NDRF ............................................................................................ 33 Table 19. Funds released by GOI for crop insurance schemes in India ............................................................ 34 Table 20. Relief distribution in MP .................................................................................................................................. 35 Table 21. Fund flows to relief payment and crop insurance in MP .................................................................... 35

Figure 2. District-wise share of area insured under NAIS in MP during 2015 ............................................... 21 Figure 3. District-wise share of farmers covered under NAIS in MP during 2015........................................ 21

v

Abbreviations

AIC - Agriculture Insurance Company Of India Limited APH - Actual Production History AR - Agriculture Relief ARH - Actual Revenue History ARPP - Area Revenue Protection Plan AWS - Automatic Weather Station AYPP - Area Yield Protection Plan CCEs - Crop Cutting Experiments CCIS - Comprehensive Crop Insurance Scheme CHAMAN -Coordinated Horticulture Assessment Using Management Using Geo Informatics CI - Crop Insurance CRC - Crop Revenue Coverage FASAL -Forecasting Agricultural Output Using Space, Agro-Metrology And Land Based

Observations GCA - Gross Cropped Area IP - Income Protection ISRO - Indian Space Research Organisation KISAN -C[K]rop Insurance Using Space Technology And Geo Informatics Leo - Low Earth Orbits MPCOST - Madhya Pradesh council of Science and Technology MPCI - Multi Peril Crop Insurance MNAIS - Modified National Agricultural Insurance Scheme MNCFC - Mahalanobis National Crop Forecast Centre MPesa - Mobile Banking System NADAMS - National Agricultural Drought Assessment And Monitoring System NAIS - National Agricultural Insurance Scheme NAP - Non-Insured Crop Disaster Assistance Program NDFA - National Drought And Financial Assistance NDRF - National Disaster Response Fund NPCI - Named Peril Crop Insurance PMFBY - Pradhan Mantri Fasal Beema Yojana RA - Revenue Assurance RI - Revenue Insurance RP - Revenue Protection RUA - Reference Unit Area RWS - Reference Weather Station SDRF - State Disaster Response Fund SI - Sum Insured UPIS - Unified Package Insurance Scheme WBCIS - Weather Based Crop Insurance Scheme WII - Weather Index Based Insurance YP - Yield Protection

vi

Executive Summary

India being one of the most disaster prone countries and agriculture being the source of

livelihood of the majority of its people, crop insurance occupies an important place. Hence, an attempt has been made to understand and assess various crop insurance schemes and risk management approaches in India, Madhya Pradesh and other countries and propose a suitable strategy for India. The specific objectives of the study are,

To do a situation analysis for understanding the challenges faced in implementing the recent crop insurance models such as MNAIS, WBCIS and PMFBY at the state and national level.

To study the economics of the latest crop insurance schemes vis-a-viz the disaster aids to farmers in MP.

To study the weather risk mitigating strategies for agriculture followed in other countries such as Brazil, USA, China, Mexico and Africa.

To suggest an appropriate agriculture weather risk management strategy that can be adopted in India.

The study is based on both primary and secondary data collected from various sources. Various stakeholders such as AIC, banks, private insurance agencies and Department of Agriculture were consulted to understand the issues in implementation of the crop insurance programs. To explore the perception of the farmers regarding crop insurance, 200 farmers from 4 districts in MP were interviewed.

The performance of the major crop insurance schemes, NAIS, MNAIS, WBCIS and PBFBY at the

national level and state level were studied. It was observed that penetration rate of all the schemes was low and for NAIS, the claim premium ratio was more than 300 percent costing the government heavily. The performance of MP in terms of the number of farmers insured and area brought under insurance cover was better under NAIS as compared to other states. WBCIS has performed well only in Rajasthan and Bihar. MNAIS has been implemented only by few states. PMFBY launched during Kharif, 2016 has covered 366.64 lakh farmers accounting to 26.5 % penetration in India and bringing 388 lakh hectares under insurance cover which is 15 percent more than the previous year. The sum insured under PBFBY has also increased by 104 percent. The coverage of non-loanee farmers has also increased by 6 times.

The performance of crop insurance in MP is better and is showing an increasing trend in

penetration rates. There is no correlation among the penetration rates and drought vulnerability in districts. Ujjain, Dewas, Sehore, Vidhisha, Rajgarh and Mandsour are districts, which occupy the major share of the insured area in the state while the penetration rates are extremely poor in the eastern and northern belt of MP. In MP, farmers are mostly affected by drought/flood during Kharif and hail stones /frost in Rabi season. Most of the surveyed farmers in MP were oblivious of the details of the crop insurance schemes. The awareness levels have improved for PBFBY. Majority of the farmers are not very much interested in crop insurance due to issues such as improper loss assessments, inadequate and delayed claim payments and poor response from the banks. Farmers are more aware about the relief payments and prefer relief to crop insurance.

The most common insurance product in the international market is the Multi Peril Crop

insurance (MPCI), which covers multiple risks and the largest insurance product in terms of the premium collected is MPCI in USA. Most of the countries subsidize the crop insurance program heavily and especially in USA, where it is claimed to be successful and covers around 80 percent of the cropped area, MPCI is subsidized to the extent of 70-80 percent by the government. In China also,

vii

crop insurance is becoming popular only after government has increased the public funding by 70 percent in 2007. Only in few countries like Germany, Australia and New Zealand, crop insurance products are a purely private business without any government interference. In Kenya, Kilimo Salamo – a mobile based insurance product is successfully providing coverage against losses and operates purely in the private sector.

In India, PMFBY, one of the popular flagship schemes was introduced in 2016 and claims that the

issues with previous schemes are addressed and it mandates effective use of technologies for yield and loss assessments. The effective implementation of PMFBY needs to address common complaints such as inadequate sum assured & claim payments, non-representative CCEs, error in yield & loss assessments, delayed payments etc. immediately. Government needs to concentrate more on regulatory roles and infrastructure development while, private insurance service providers should be encouraged in executing PMFBY and improving the insurance product. Weather Index based insurance needs to be promoted by improving the density of weather stations, as it is cost effective as compared to area based insurance products. Mobile based insurance product (Kilimo Salamo type) needs to be pilot tested in India as mobile phones have more penetration in rural aeas.

To protect farmers from losses due to weather risk, we need to built an appropriate

comprehensive risk mitigation strategy rather than just focusing on one strategy of crop insurance as silver a bullet to address the weather risk problem of farmers. Apart from crop insurance programs, government needs to focus on other strategies such as developing resistant varieties, encouraging farmers to cultivate risk resistant crops and varieties, through policy measures such as variable interest rates for crop loans, variable premium rates and favorable MSPs for risk resistant crops. Rather than just relying on the banks for selling insurance products, other outlets and micro insurance agents need to be developed in rural areas.

The disaster relief payments tend to have a negative impact on the penetration of the insurance

products as farmers prefer relief to insurance because, it is available free of cost. Once the crop insurance is standardized with the help of technology, government needs to replace relief payments with crop insurance using USA- NAP type model. Government needs to focus seriously on creation of awareness among farmers regarding the various aspects of crop insurance. Farmers are more prone to price risk apart from weather risk and hence in the long term we should move towards crop revenue insurance. Thus a more committed and comprehensive approach towards weather risk management is needed to protect farmers from huge losses in farming.

1

1. Introduction

India is one of the most disaster prone countries in the world owing to its physiological and climatic conditions. Since the last decade, India has suffered crop losses almost every year either due to flood or drought or frost/extreme temperatures. Agriculture is the mainstay of the rural economy in India and is largely carried out by small and marginal farmers who have poor access to credit, high dependence on rainfall and majority of whom practice subsistence farming. Increasing incidence of farmers’ suicides due to successive crop failures because of weather fluctuations have alerted the policy makers to take crop insurance seriously in India.

Various strategies are adopted to provide relief to the affected farmers such as Crop

Insurance Schemes, Calamity relief funds (National Disaster Response Fund and National drought and financial assistance), Input subsidies, MNREGS, diesel subsides, cancellation of agricultural loans etc. Crop insurance in India has been in existence since 1979 with the implementation pilot insurance scheme in some states and then, Comprehensive Crop Insurance Scheme (CCIS), which was implemented at a national level in 1985. The National Agricultural Insurance Scheme (NAIS) replaced it in 1999. The Agriculture Insurance Company of India Limited (AIC) was given the responsibility of implementing NAIS. Based on the national and international experience, lot of research has taken place across the world in developing sustainable insurance products. Over a period, many modifications were tried and a weather index based insurance scheme WBCIS was introduced in 2007, especially for the horticultural crops. In 2010-11, a modified NAIS was implemented with an aim to replace NAIS. The latest version of the crop insurance scheme, the ‘Pradhan Mantri Fasal Beema Yojana’ (PMFBY) was launched in April 2016 replacing the NAIS and MNAIS. It claims to address various shortcomings of the earlier versions of crop insurance schemes and efforts are made to implement it successfully and bring 50 percent of the farmers under insurance cover.

Apart from the major insurance schemes, number of crop specific and location

specific insurance products are available to farmers. They are need based insurance products, designed as per demand by the local farmers such as Potato Insurance, Poppy Insurance, Varsha Bima for seasonal and annual crop insurance for plantation crops in specific geographical areas such as the Uttarakhand Seb Bima Yojana (Apple Insurance), Grapes Insurance, Rainfall Insurance for coffee growers (Coffee Insurance) Bio Fuel Tree/Plant Insurance, Pulpwood Tree Insurance, Coconut Insurance, Rubber Insurance, Sukha Surakhsa Kavach (Drought Insurance) in Rajasthan, Mango Insurance, etc.

There are various models of agricultural insurance such as area based crop yield

insurance, rainfall insurance, farmers income insurance, weather based insurance which are tried across various countries. Some of the insurance products are successful such as Kilimo Salama, weather index based crop insurance in Kenya, while some programs fail. The main reason for the failure of the most of insurance products is that they are unable to reach the sustainable scale due to lack of trust towards agricultural insurance by the farmers. The challenge involves developing a sustainable and economically feasible agriculture insurance model catering to the specific needs of the different segments of farmers and also meeting the interests of all the stakeholders such as producers, government, lending institutions and the insurance industry.

2

Many studies have been done on the performance of the crop insurance schemes in

India. However, a state specific study for MP has not been done recently. Hence, an attempt is made to understand and assess various crop insurance schemes and risk management approaches in India and other countries and propose a suitable agricultural weather risk management strategy.

Objectives

To do a situation analysis for understanding the challenges faced in implementing the recent crop insurance models such as MNAIS, WBCIS and PMFBY at the state and national level.

To study the economics of latest crop insurance schemes vis-a-viz the disaster aids to farmers in MP.

To study the weather risk mitigating strategies for agriculture followed in other countries such as Brazil, USA, China, Mexico and Africa.

To suggest an appropriate agriculture weather risk management strategy that can be adopted in India.

Methodology

Both qualitative and quantitative techniques were used. The study is based on both primary and secondary data. The secondary data needed for the study has been collected from various sources such as Farmers Welfare and Agriculture Development Department, GoMP., Agricultural Insurance Corporation (AIC), Bhopal and private players such as ICICI Lombard, HDFC Ergo. Various experts/stakeholders from public and private sectors associated with the implementation of crop insurance schemes in MP were interviewed to understand the issues in implementation.

To study the perception of the farmers about the crop insurance schemes, primary

data was collected from 200 farmers across 4 sample districts. A stratified purposive random sampling technique was used to select the sample farmers. Sample districts were selected using the purposive sampling technique where in criteria used for selection was area under major crops of the state such as Paddy, Soybean, Gram, Arhar and Wheat.

The major crops of Madhya Pradesh are Paddy and Soybean in Kharif and Wheat and

Gram in Rabi. In the state, Balaghat, Seoni, Mandla, Satna and Rewa districts are the major producers of paddy. Among these districts, Mandla was selected, as paddy is the rainfed crop in the district while in Balaghat and Seoni, it is under irrigated area. As far as soybean is considered, Ujjain, Dhar, Sehore, Rajgarh and Sagar districts are the major producers. Ujjain district was selected as it tops the table for area under both Soybean and Gram. For the wheat crop, Vidhisha has the largest area under wheat and hence was selected as a sample district. Narsinghpur was selected as it has larger area under Arhar (Red gram) and Arhar is one of the important crops, which face huge losses due to extreme temperature and hailstones, a common threat in MP. Therefore, Mandla, Vidhisha, Ujjain and Narsinghpur were four sample districts in MP chosen for the study.

3

Limitations of the study

Latest scheme of crop insurance PBFBY could not be studied completely and

compared with the performance of the earlier schemes, as the claim payment data for Kharif 2016 is not yet available from any source.

Detailed Information on relief payments at the country level and MP was not available in any of data bases or from the revenue department and hence economics of relief payments and crop insurance schemes could not be compared.

4

II. Details of the Major Insurance Schemes in India

NAIS, MNAIS, WBCIS were the major insurance schemes implemented in India and due to the various issues of implementation, NAIS and MNAIS have been merged under the single scheme PMFBY and WBCIS also brought under PBFMY as restructured WBCIS in 2016.

NAIS-National Agricultural Insurance Scheme (1999 onwards till date)

The insurance was available for loanee, non-loanee farmers, sharecroppers and

tenant farmers. All the food grains, oilseeds, annual horticultural/commercial crops were

covered under the scheme. The premium rates were 3.5% per cent (of sum insured) for Bajra and Oilseeds,

2.5% for other Kharif crops; 1.5% for wheat and 2% for other Rabi crops. In the case of commercial/horticultural crops, actuarial rates were charged.

Small and marginal farmers were entitled to the subsidy of 10% of the premium charged from them, which was shared, equally by Centre and State Governments.

The basic insurance unit was the Block/Tehsil/Mandal. Issues

It often happened that crop in a particular area of a block gets damaged (& not the entire block) and a situation may occur that the farmer has lost everything, the notified area still has a yield above the threshold level and thus the farmer becomes ineligible for claims.

Claim settlement process was tedious and lengthy, based on a time consuming 'crop cutting experiment'.

NAIS is often criticized as ‘bank loan insurance' rather than 'crop insurance' as the participation of non-loanee farmers was abysmally low. (Raju and Chand, 2009)

Modified NAIS (From 2010-11)

The NAIS was modified and introduced on a pilot basis in 2010-11 in 50 districts across 12 states including some qualitative changes such as :-

Reduction of insurance unit size to Village Panchayat. Losses due to prevented / failed sowing and post harvest losses were covered ‘On-account’ payment of claims introduced. Individual farm assessment for the hailstorm & landslide losses. Indemnity levels were fixed at 70 and 80 percent, which was 60, 70 and 80

percent under NAIS. MNAIS was based on actual premium rates, which were capped at 11 % for

Kharif crops, 9% for Rabi crops (food and oilseeds) and 13 % for commercial and horticultural crops.

5

Issues The MNAIS was widely criticized due to higher rate of premium as compared to

NAIS, capping on the amount of the insurance cover and coverage for post harvest losses was restricted to coastal regions.

The reduction of insurance unit to Village Panchayat level had exponentially increased the workload required for crop cutting experiments (CCEs) making the scheme costlier and time consuming.

WBCIS-Weather Based Crop Insurance Scheme (From 2007)

Weather based crop insurance scheme was introduced during 2007 on a pilot basis

by the AIC in Karnataka. In 2011-12, it was implemented on a large scale in about 19 states and food crops, oilseeds, annual commercial and horticultural crops were covered under the scheme. Initially actuarial premium rates were charged and recently in 2016, the WBCIS has been revised with fixed premium rates at par with PMFBY (2.5 % for Kharif food crops, 1.5% for Rabi food crops and 5 % for horticultural/commercial crops).

WBCIS is based on the concept of area approach, i.e. for the purpose of compensations, the reference unit area was deemed to be a homogenous unit of insurance, which was linked to the reference weather station.

Regardless of the yield losses, changes in some of the weather parameters having potential impact on yield, were used for compensating the crop losses.

There has been a spectacular increase in coverage under WBCIS and greater awareness and acceptance for the scheme among the farmers due to automated claim settlement process.

Insurance payment was assured in 45 days. Objectivity and transparency was high as compared to other schemes.

Issues The scheme demands 25-year rainfall and weather data to create a baseline. Another grey area is the likely difference in rainfall and weather experience

between the weather station location and the farmer’s field. For success of the scheme, every village should have a weather station to

reasonably minimize the discrepancies, which would require almost 50-fold increase in the existing weather station network in the country.

PMFBY-Pradhan Mantri Fasal Beema Yojana (From 2016)

With back-to-back droughts, and increased frequency of unseasonal rains and hail in the country, it became clear that the risks in farming sectors are on the rise, and the existing systems of crop insurance could not provide adequate cover to the farmers. The latest insurance scheme PMFBY promises to address the shortcomings of the earlier schemes.

Salient features of the new scheme are:

The scheme is based on ‘Area approach basis’ and the unit area of insurance is the village /village panchayat. For widespread calamities, Unit area approach

6

will be followed while, assessment on post harvest losses and losses due to localized calamities will be based on individual farm basis.

Very low premium rates (2.5 % for Kharif food crops, 1.5% for Rabi food crops

and 5 % for horticultural/commercial crops.) While, actuarially based premiums generally hover around 10-12 per cent for most Kharif crops, the share of farmers has been capped at 2 per cent in the new scheme. For Rabi crops, the farmer’s share has been fixed at 1.5 per cent — against actuarial premiums of 8-10 per cent. For yearlong cash crops and horticulture crops, this has been capped at 5 per cent. What this means is that farmers will get almost 80 per cent subsidy in insurance premiums, which will be borne by the government

It is available for all types of farmers but not mandatory for anyone. It is optional for both loanee as well as non-loanee farmers.

Non-preventable risks such as flood, inundation, landslide, natural fire, lightning, storm, hailstorm, cyclone, typhoon, tempest, hurricane and tornado and yield losses due to drought, dry spells, pests/ diseases and delayed/failed sowing will be covered.

Provides coverage for post-harvest losses. Coverage will be available up to a maximum period of 14 days from harvesting for those crops, which are kept in “cut & spread” condition to dry in the field.

Indemnity levels are fixed at 70, 80 and 90 percent and the threshold yield will be the bench mark yield level for which the insurance protection shall be provided and is calculated as follows.

Threshold Yield = Average Yield of last 7 years X Indemnity level

Average yield is calculated using the yield data of last 7 years, deducting the yields of 2 notified calamity years if any.

There is no capping on Sum Insured (SI), which was the major reason for the

lower claims paid to farmers. The SI will be calculated by multiplying the MSP of a crop with the average seven-year ‘threshold’ yield (excluding calamity years) for the particular village panchayat area where it is grown. The premiums would be determined by the SI, but farmers will just have to pay an uniform premium of 2 per cent for all kharif crops, 1.5 per cent for rabi and 5 per cent for commercial/horticulture crops. The gap between the actuarial premiums and the rates payable by farmers would be fully met by the state and the central government. There is no upward limit on government subsidy.

Claim pay-outs will be based on the average yield estimated through CCEs and is

calculated as follows :-

Shortfall in Yield Claims Payout = X Sum Insured

Threshold Yield

Shortfall in yield is the difference between Threshold Yield and the Average Yield.

7

Online payment of compensation and mobile cash payments to be used for early settlement of claims.

25 per cent of the claim will be given immediately in case of crop damage while the rest will be settled at the earliest.

Table 1. Mandated number of Crop Cutting Experiments (CCEs)

Source: PMFBY guidelines

Table 2. Deadlines /Cut of dates under PBFBY

Source: AIC, Bhopal.

Use of technology has been emphasized under this scheme. It is advised that the use of available technologies such as remote sensing, satellite/aerial images are to be used in acreage/yield estimation and crop health/loss assessment need to be explored. GRPS enabled smart phones, GIS, drones and other modern technologies are to be used for a quick estimation of crop damage. The state governments are directed to increase the frequency of automated weather stations to record the weather fluctuations accurately.

Unified Package Insurance Scheme –UPIS (2016)

It is a comprehensive insurance scheme, which is going to be tried on a pilot basis in

45 districts. UPIS has seven insurance components which are Fasal Bima Yojana, Fire Insurance, Personal Accident Coverage of Rs 2 lakh under the Pradhan Mantri Suraksha

WBCIS PMFBY

Unit Area Minimum number of

C.C.E.s

Unit Area Minimum number of

C.C.E.s

Taluka / Tehsil / Block 16 District 24

Mandal / Phirka / any other smaller unit

10 Tehsil 16

Gram Panchayat comprising 4-5 villages

8 Village/Gram Panchayat/Patwari Mandal, Halka

4 for major crops, 8 for other crops

S. No. Activity Kharif Rabi

1 Loaning Period (Loanee) 1st May to 16th August 15th Sept. to 15th Jan.

2 Cut-off date of Deceleration 30th September 28th February

3 For Receipt of proposal 31st July 31st Dec.

4 Receipt of Yield Data Within a month from final harvest

Within a month from final harvest

5 Payment of Compensation Within 3 weeks after harvesting of crop

8

Bima Yojana, Agriculture Pump-set Insurance, Agriculture Tractor Insurance provided by a third party, Life Insurance through the Pradhan Mantri Jeevan Jyoti Bima Yojana and Student Safety Insurance. The cover will be for one full year except for Crop Insurance (which will be bi-annual separately for Kharif and Rabi seasons) renewable from year to year.

Model of Crop insurance in India:

Various countries have adopted different models of implementation of crop insurance with varying level of control and contribution from the public sector/government. For example in countries like USA, Canada, Brazil, Mexico and China, the agriculture insurance sector operates in a PPP mode which is controlled/funded largely by the government while in Australia, its implemented purely by private insurance companies with zero contribution/interference from the government. In India, various schemes such as CCIS, NAIS and MNAIS were implemented by the government funded GIC and AIC, While private participation has been encouraged for implementing MNAIS and WBCIS in 2011-12.

In case of the latest insurance scheme PMFBY, PPP mode has been adopted with

government having major control over the design of the insurance product, amount of subsidy and the sum insured etc. The premium capping has been removed under PMFBY and Government subsidizes the premium amount to larger extend even if it amounts to 90 percent. Under NAIS & MNAIS, the government in the form of excess payouts and sharing the administrative and operational expenses has paid large chunk of funds. As per the latest PBFBY guidelines, government will play the role of the reinsurer for the implementing agencies for sharing the risk during calamities. The liability of the Insurance companies in case of catastrophic losses shall be upto 350% of total premium collected (farmer share plus Govt. subsidy) or 35% of total Sum Insured (SI), of all the Insurance Companies combined, whichever is higher. The losses at the National level in a crop season beyond this ceiling shall be met by equal contribution (i.e. on 50:50 basis) from the Central Government and the concerned State Governments.

The private insurance agents will be allotted a cluster based on the bidding process for 3 years. The insurance providers feel that three years is very short period to successfully implement and make the crop insurance product economically viable. Hence they prefer long-term contracts as compared to 3-year contract.

9

III. Performance of Crop Insurance Schemes in India

India is emerging as one of the largest crop insurance industries globally with

constant efforts from the government in offering an effective insurance cover to the farmers through improving and trying various crop insurance products since 1972. The three major insurance products available in India till 2016 were NAIS, MNAIS & WBCIS. In this section, the performance of these schemes is discussed.

Basic information regarding the performance of the major schemes is summarized in

the Table- 3. NAIS has covered around 22.9 crore farmers since its inception in 1999. The claim premium ratio is very high for NAIS indicating that the claims were 300 percent more than the premium collected. On an average, Rs. 5649 was paid to a beneficiary under NAIS from a lowest average premium of Rs. 462 /farmer. Only 3.4 crore farmers are covered under WBCIS and is not popular due to lack of adequate number of weather stations and long term yield data. MNAIS has been adopted only by a few states and has covered about 11.05 crore farmers in spite of the premium rates being higher as compared to NAIS.

Table 3. Comparative statistics of the major insurance schemes of India (cumulative

since inception of the schemes till Kharif, 2014-15)

Scheme Number of farmers covered (crores)

Area Insured (crore

hectares)

Over-all claim

Premium Ratio

Average premium

per farmer

Average Claim

amount / farmers

National Agricultural Insurance Scheme (NAIS) (From 1999)

22.90 33.97 3.06 Rs. 462 Rs. 5649

Weather-Based Crop Insurance Scheme (WBCIS) (From 2007)

3.4 4.6 0.69 Rs. 1743 Rs. 2146

Modified National Agricultural Insurance Scheme (MNAIS) (From 2010-11)

11.05 1.25 0.88 Rs. 2356 Rs. 7708

Source: State of Indian Agriculture, 2015-16. Ratios computed by Author. Graphs 1& 2 show the trends in number of farmers insured and the area insured

under various crop insurances in India. It is evident that as a whole, the number of farmers taking insurance is showing a steep decline after 2012-13. As of 2014-15, through all the schemes, 104 lakh farmers are covered as against the 1383.50-lakh operational holdings (Census, 2011). Hence, penetration accounts only to about 7.5 percent in India through all the crop insurance schemes. The coverage of farmers and area insured has shown a decreasing trend under all the three insurance schemes since 2012-13.

10

Graph 1. Number of farmers insured under different insurance schemes in India

Source: State of Indian Agriculture, 2015-2016. DAC, GOI.

Graph 2. Area insured under major insurance schemes in India

Source: Agriculture at a Glance, 2014-2015. Insurance penetration amongst India’s farming community is abysmal. Out of the

gross cropped area of 195.26 million hectares in the country, only 14.2 million hectares was covered under crop insurance in 2014.

The percent area insured under various crops is displayed in Graphs 3a, 3b & 3c.

There is not much variation over the time period for the area under food crops, while insurance coverage of area under vegetables and fruits has increased three times in 2014-15 as compared to previous years. On an average, 25 percent of the area under food grains and 40 percent of area under fruits and vegetables are insured in 2014-15.

11

Graph 3. Area insured under various crops in India

Source: Agriculture at a Glance, 2014-2015. In the case of commercial crops, area under oilseeds is insured up to 36 percent and

cotton up to 13 percent, while it is very low for Sugarcane, Jute and Mesta (Graph- 3C)

Source: Agriculture at a Glance, 2014-2015. The performance of insurance schemes in India varies widely across the states. The

coverage is very good in Rajasthan, Bihar and MP with about 45-50 percent gross cropped area insured under different schemes (Graph-4). Penetration of insurance schemes in terms of percentage of GCA insured is low in UP, West Bengal, Karnataka & Haryana. In few states such as MP, Odisha & Maharashtra, the coverage has increased in 2014-15, while in Gujarat, AP, and TN, the percent area insured has gone down as compared to 2012-13.

12

Graph 4. Insurance coverage of gross cropped area in India

Source: Agricultural Statistics at a Glance, 2015.

Performance of NAIS

The largest insurance scheme in India is NAIS which has covered about 24.02 crore farmers from 1999 till 2014-15 insured about 35.76 crore hectare area. However, it has shown a skewed performance across the states in terms of number of farmers covered and area insured. The majority of the farmers insured under NAIS belong to 3 states namely Maharashtra, Madhya Pradesh and Andhra Pradesh contributing to more than 35 percent of the total farmers covered in India. Uttar Pradesh, Odisha, Gujarat, Rajasthan, West Bengal and Karnataka contributes 5-10 percent each in the total number of farmers insured under NAIS in India, while the coverage is very low in all the other states. (Graph-5a & 5b)

As far as area insured is concerned, Madhya Pradesh occupies the major share

followed by Andhra Pradesh and Maharashtra. Uttar Pradesh, Odisha, Gujarat, Rajasthan, Karnataka and Chhattisgarh contribute to 6-8 percent share each in the total area insured under NAIS in India. The performance in terms of number of cases insured and area insured under NAIS is very insignificant in the states such as Bihar, Tamil Nadu, Jharkhand and others.

13

Graph 5. State-wise distribution of insurance penetration under NAIS

Source : India stat

Sustainability and profitabily of an insurance scheme can be assessed by its

claim/premium ratio. Higher the ratio, higher will be the losses incurred by the insurance agencies and the government. In table-5, claim /premium ratio is calculated based on the claims paid and premiums collected under NAIS since the inception of the scheme in 1999 till 2015. For India as a whole, the claim /premium ratio is 3.06, which shows that the amount of claims was three times higher than the premium amount collected. This indicates the loss in the operation of the scheme, even without including the administrative and operational expenses.

Claim/premium ratio is between 4 to 6 in the states of Rajasthan, Gujarat, Bihar,

Tamil Nadu and Jharkhand. The claim payment ratio under NAIS for the states of Madhya pradesh and Maharastra which have contributed to a major share of area insured is 2.5 and 2.9 respectively, indicating that the claims amounts were more than the premium collected by 2.5 and 2.9 times. The percentage of farmers who claimed as against the number of farmers covered was also high (34-39%) for Gujarat, Rajasthan, Bihar, Tamilnadu and Karnataka as against the country average of 25.6 percent.

The average amount of claim settled per farmer is very high (Rs.15,039) for Gujarat

as against the country average of Rs.5934. The avaerage amount of claim settled per farmer is on the higher side for Bihar and Tamil Nadu. In Madhya Pradesh, on an average Rs.6983 is paid to a farmer in the form of claims. The average area insured/farmers is above 2 ha in the states of MP, Gujarat and Rajasthan. Statewise analysis of the performance of the NAIS scheme indicates the skewed benefits attained by states such as Gujarat, Rajasthan, Tamil Nadu and Bihar while the performance in terms of number of farmers covered and area insured is better in Madhya Pradesh and Maharashtra.

14

Table 4. State wise performance of NAIS (cumulative since 1999-2015)

States/UTs % of farmers who Claimed

Average Amount of

Claim Settled/ farmer (Rs)

Average Area Insured /

farmer (in Ha)

Claim/ Premium

Ratio

All India 25.68 5934 1.45 3.06

Maharashtra 30.97 3163 0.79 2.90

MP 18.62 6983 2.37 2.50

Andhra Pradesh 22.62 7087 1.51 2.63

Uttar Pradesh 19.28 2588 1.33 1.71

Odisha 16.28 6477 0.97 2.33

Gujarat 36.10 15039 2.27 4.15

Rajasthan 34.54 5041 2.08 5.73

West Bengal 21.53 4505 0.50 1.62

Karnataka 37.27 3732 1.58 3.46

Chhattisgarh 14.60 2334 1.99 1.06

Bihar 35.35 9339 1.12 5.70

Tamil Nadu 38.65 10451 1.29 5.14

Jharkhand 31.81 2398 0.61 4.80

Haryana 20.36 3351 1.21 1.80

Source: Data- State of Indian Agriculture, 2014-15, Ratio’s-Author’s calculations

Performance of MNAIS in India

Due to huge losses incurred under NAIS, this scheme was strategically replaced with MNAIS. Since its inception in 2011-12, in 9 seasons till 2014-15, MNAIS has covered about 11.06 lakh farmers in 16 states.

Graph 6. State-wise share of number of farmers insured under MNAIS

Source : State of Indian Agriculture, 2014-15 and Author’s calculations

15

Only few states like Rajasthan, Uttar Pradesh, West Bengal, Andhra Pradesh, Bihar and Karnataka participated actively under this scheme with Rajasthan contributing 41 percent of the total number of farmers insured under the scheme. The claim premium ratio under this scheme is 1:0.88 making the scheme economically viable, but the number of farmers covered under the scheme is declining every year from 9.6 lakh farmers in 2012-13 to 3.7 lakh farmers in 2014-15. This scheme was widely criticized for the high actuarial premium rates and there existed confusion among the states whether to carry forward with NAIS or MNAIS. Hence in 2016, both these schemes were replaced with PMFBY.

Performance of WBCIS in India

Since the introduction as a pilot in Kharif 2007 till Rabi 2014-15, WBCIS has covered 3.45 crore farmers insuring 4.63 crore hectare area. Only few states participated actively with Rajasthan contributing a major share of 61 percent of the total number of farmers insured under WBCIS followed by Bihar with 20 percent share. (Graph-7).

Graph 7. State-wise share of number of farmers covered under WBCIS

Source data: State of Indian Agriculture, 2014-15 and Author’s calculations With increasing preference for weather based insurance products over other area

based products, AIC is partnering with GIPSA (General Insurance Public Sector Association of India) companies to sell Weather based crop insurance. A coinsurance arrangement has been made between AIC and the four GIPSA companies which covers only non-loanee farmers under WBCIS and MNAIS. GIPSA companies are also engaged in general insurance products like housing.

16

Comparative Economics of the Insurance schemes in India

The claim/premium ration indicates the profitability and economic viability of the

scheme. In Table -5, the claim premium ratios of the insurance schemes are tabulated for the time period of 4 years. It is obvious that claim premium ratio is very high for NAIS as compared to MNAIS and WBCIS. Claims are more by about 200- 300 percent more than the premium during the last three years under NAIS while the claims are lesser than the premium amount for MNAIS and WBCIS for almost all the years. It is to be noted that actuarial premium rates were charged under MNAIS and WBCIS.

Table 5. Claim premium ratio of the insurance schemes in India

S.No Year Claim/Premium Ratio

NAIS MNAIS WBCIS

1 2011-12 0.23 0.62 0.59

2 2012-13 3.54 0.90 0.70

3 2013-14 3.17 1.24 0.77

4 2014-15 2.09 0.76 0.01

Source: Authors calculations

The common complaint against the insurance schemes is the delay in claim settlement and in Table-6, the percentage of claims settled till 2015-16 has been displayed. As per the data, under NAIS, majority of the claims are settled till Kharif 2014 while the claims for Rabi-2014 are not yet settled. But under MNAIS and WBCIS, only 7 and 10 percent of the claims are not settled for Rabi 2014-15. It is an issue of concern that under WBCIS, 33 percent of the claims during Rabi 2012-13 are delayed. The information on reasons for the delay and whether the claims are genuine could not be ascertained.

Table 6. Status of claim settlement under the insurance schemes

S.No

Year/Season

% of Claims delayed/ not paid (as on Kharif, 2015)

NAIS MNAIS WBCIS

1 Kharif 2011 0.00 0.00 0.97

2 Rabi 2011-12 0.19 1.22 11.29

Total 2011-12 0.05 0.57 7.55 3 Kharif 2012 0.00 0.31 1.89

4 Rabi 2012-13 6.71 0.77 33.52

Total 2012-13 2.85 0.34 19.22

5 Kharif 2013 1.31 5.00 4.56

6 Rabi 2013-14 5.72 1.49 13.69 Total 2013-14 2.42 3.66 8.26

7 Kharif 2014 1.06 3.90 10.12

8 Rabi 2014-15 99.88 7.10 10.43

Total 2014-15 32.44 5.54 10.23

Source: Data -State of Indian Agriculture 2015-16. % Computed by Author.

17

Progress of PMFBY in India

With an ambitious target of covering around 50 percent of the cropped area, which

is approximately about 195 million hectares in five years, PMFBY has been introduced since Kharif 2016. It is estimated that this scheme would cost Government around Rs. 8000 – Rs. 9000 crore annually due to the provision of unlimited premium subsidy under this scheme. (The Economic Times, 7/12/16).

Source: The Economic Times, Dec 07, 2016.

Under this scheme, maximum efforts are made to make the process of crop loss

assessment transparent without delays through effective utilization/improvement of available technologies such as Automatic Weather Stations (AWS), Drones, Low earth orbits (LEOs) and satellite images.

The scheme can be assessed only after completion of 3-4 cropping seasons and it is

too early to discuss about the success of the scheme, which has just completed one cropping season. But an issue of concern is that one of the important mandates of claim settlement within a period of one month could not be accomplished for the first season of the PMFBY scheme as the claim settlement has not been done for the Kharif, 2016 crop till date (March, 2017). There is no much improvement in technology utilization for yield estimation and crop loss assessment and it may take few years to develop the necessary infrastructure and train the field staffs.

PMFBY progress in the first season

PMFBY launched in 2016 Kharif season has covered 366.64 lakh farmers accounting to 26.5 percent farmers with 15.7 percent increase over Kharif 2015.

Covered 388 lakh hectares with increase of 15 percent of the area insured in kharif 2015.

104 % increase in the sum insured as the scheme mandated that Sum Insured should be equal to the scale of finance to provide adequate risk coverage.

Huge jump of more than 6 time in coverage of non-loanee farmers from 14.88 lakh in 2015 to 102.6 lakh in kharif , 2016 showing that scheme has been well received among non-loanee segment.

18

IV. Situation Analysis of Crop Insurance Programs in Madhya Pradesh

Madhya Pradesh being one of the important farming states with three fourth of its

population dependent on rainfed agriculture as a major source of livelihood and being highly prone to climatic fluctuations such as drought, hail stones, extreme temperature and unseasonal rains, successful implementation of crop insurance scheme is very important for the state. MP has performed well in implementation of various insurance schemes contributing a major share in total number of farmers covered (16%) and total area insured (26%) in India which we have discussed in the chapter on Performance of Insurance Schemes in India. In MP, NAIS and WBCIS were the major schemes, till the new flagship scheme of PMFBY was implemented in 2016. MNAIS has not been implemented much in MP owing to its high premium rates.

In MP, following 4 private insurance companies are implementing agencies empanelled for the insurance schemes WBCIS and PMFBY:-

1. Agriculture Insurance Company of India Ltd 2. Cholamandalam MS General Insurance Co. Ltd. 3. HDFC ERGO General Insurance Co. Ltd. 4. ICICI Lombard General Insurance Co. Ltd

Performance of NAIS in MP

The basic statistics of the NAIS scheme in MP since 2011 till 2015 is summarized in the Table-7. Total number of farmers covered under NAIS has shown an increasing trend from 2011 (28 lakh farmers) to 2015 (54 lakh farmers). In these five years on an average, 29 percent insured farmers are benefitted. On an average, over a period of 5 years, claim premium ration of NAIS scheme in MP is 4.8 indicating that the claims paid are almost 5 times than that of the premium collected.

Table 7. Details of NAIS in Madhya Pradesh

Year No of farmers coverd (in Lakh)

Area insured (in Lakh

ha)

% of farmers benefitted

Average amount of

claim/ farmer (Rs)

Claim premium

ratio

2011 28.2 61.2 23.9 7717 3.0

2012 33.9 78.0 5.7 6867 0.5

2013 42.9 95.9 41.5 14064 6.7

2014 48.2 103.9 20.0 9062 2.0

2015 54.2 117.0 45.1 8.6

Total 207.4 456.1 29.2 13861 4.8


http://www.farmer.gov.in/insurance.html




19

In this decade, till Kharif, 2015, the scheme has been economically unviable. It is to be noted that the claims payments for Rabi, 2015 has not done till date even after 12 months. It was stated that claim payment for Rabi, 2015 is under process and the data is not yet finalized.

The number of farmers covered under NAIS since 2011 till 2015 is depicted in

graphs- 8a & 8b and penetration of the scheme among the farmers in MP is showing an increasing trend from 15.29 lakh farmers in Kharif, 2011 to 28.80 lakh farmers in Kharif, 2015 and from 12.92 lakhs in Rabi, 2011 to 25.36 lakh farmers in Rabi, 2015. The penetration rate is calculated by dividing the total number of farmers covered in a year by the total number of operational holdings in the state as per 2011 census. The penetration rate in terms of number of farmers has shown a significant increase over a period of 5 years from 17 percent in Kharif, 2011 to 32 percent Kharif, 2015 (Graph-8b).

Graph 8. Trend in the penetration of NAIS in MP

Source data: AIC, Bhopal & Computed by Author. As far as coverage of NAIS in terms of the area insured is concerned, it is also

showing an upward trend with 34.24 lakh ha insured in Kharif, 2011 to 64.62 lakh ha in Kharif, 2015 (graph-8c). During Rabi season also, the area insured has doubled in 2015 as compared to that in 2011. In Madhya Pradesh, it is very encouraging to observe that in Kharif, 2015, 41 percent of the total operational area under farming has been covered through NAIS (Graph-8d). Percentage operational area insured is calculated using the

20

operational area of MP as per 2011 census. Hence there may be slight variations in the percentage insured area over 5 years due to fluctuations in the operational area since 2011

In Madhya Pradesh, Satna, Mandla, Seoni, Rajgarh, Jabua, Dhar and Bharwani are the most drought prone districts and Neemuch, Ratlam, Chindwara, Dindori, Umaria, Katni Panna Sidhi, Damoh are also prone to drought. (Figure-1)

Figure 1 Drought prone districts in MP

Source: http:// mpsdma.nic.in

The district share of area insured under NAIS is highlighted using the map in Figure-2 & 3. The districts are classified under 3 categories based on the percentage share in the total number of farmers covered. The districts in the Malwa region, Dewas, Ujjain, Sehore, Rajgarh and Vidhisha are the best performing districts, which account for more than 5 percent share in the total area insured in the state. Raisen, Hoshangabad, Shajapur, Sagar and Mandsour also contribute to about 4-5 percent share individually in the total area insured in MP. Insurance coverage is very poor in the eastern and northern districts of MP, which are dominated by SC & ST farmers and are largely rainfed areas. In the tribal districts such as Burhanpur, Alirajpur and Jabhua, the insurance penetration is very low.

21

Figure 1 District-wise share of area insured under NAIS in MP during 2015

Source of Data: Dept. of Agriculture, GoMP.

Figure 2. District share of farmers covered under NAIS in MP during 2015

Source of Data: Dept. of Agriculture, GoMP.

22

There is poor correlation between the share of insurance penetration to the vulnerability to drought as other than Rajgarh, the drought prone districts such as Neemuch, Satna, Dhar and Seoni contribute to less than 5 percent share in area insured. As far as the district-wise share of number of farmers insured in the state are concerned (Fig-3), Mandsour, Ujjain, Dewas and Sehore individually contribute more than 5 percent share of farmers insured in MP. It is surprising to note that major agricultural districts Chindwara and Narsingpur contribute only 2.5 and 1.2 percent share in the total number of farmers insured in the state.

Performance of WBCIS in Madhya Pradesh

WBCIS operates on the concept of "Area Approach" as adopted under NAIS. Now it has been restructured with premium rates at par with PMFBY. For the purpose of compensation, a 'Reference Unit Area (RUA)', ie, the unit of Insurance, is notified before the commencement of the season by the state government. Each RUA is linked to a Reference Weather Station (RWS), which records the current weather data based on which claims are processed.

Table- 8. Details of WBCIS in MP

Year No of

Farmer Insured (Lakh)

Area Insured

(Lakh Ha.)

Total Claim

Amount (Cr.)

Amount of claim/

farmer (Rs)

Farmers Benefited

Claim/ Premium

%

2013-14 8.14 0.35 28.84 3557 81087 (10 %) 131%

2014-15 16.87 0.90 48.66 2940 165535 (9.8 %) 71%

2015-16 24.89 1.53 70.65 4894 144373 ( 5.8 %) 67%

2016-17 40.50 2.49 - - -

Source: Department of Horticulture. GoMP.

It is stated that in the state, WBCIS has been implemented since 2013-14, while it

was initiated as a pilot scheme in India during 2007. In MP, only horticultural crops are covered under WBCIS. Number of farmers covered under WBCIS is showing an increasing trend from 2013 (8.14 lakh farmers) to 2016-17(40 lakh farmers). Penetration of the scheme in terms of area insured has also increased many folds in last 3 years.

Since Kharif 2016, Implementing private insurance agencies were allotted clusters,

which were decided by the government based on the vulnerability profile of the districts. In MP, there are about five clusters of which 3 are allotted to HDFC ERGO while two clusters are allotted to CHOLA MANDAL & IFFCO TOKYO. The details of the clusters and the performance of the insurance providers in the year 2016 are summarized in Table-9. Cluster E has performed well in terms of penetration of the scheme as these districts contributed 56 percent share of total farmers covered and 62 percent share of total area insured in MP.

23

Interactions with various stakeholders revealed that lack of proper infrastructure such as poor density of Automated Weather Stations (AWS), availability of properly maintained /functional weather stations, and lack of historic weather data are the major factors impeding the successful implementation of the weather based crop insurance scheme. It was informed by the horticulture department that around 1290 Automatic Weather Stations have been recently (that is in March, 2017) established in MP.

Table 9. Cluster-wise performance of WBCIS in MP during 2016

Name of

the Cluster

List of Districts Insurance Service

Provider

Total number

of farmers insured

% Share in total farmers insured

Total area

Covered (in Ha)

% Share of total

area Covered

Cluster A Burhanpur, Shajapur, Mandsour, Jhabua, Betul, Neemuch, Harda, Hoshangabad, Vidisha, Shahdol, Umaria

HDFC ERGO

74029 31.24 34138.39 25.11

Cluster B Dewas, Agar-Malwa, Guna, Rajgarh, Seoni, Ashoknagar, Singrauli, Rewa, Satna, Sidhi

IFFCO TOKYO

3827 1.62 1532 1.13

Cluster C Ujjain, Barwani, Gwalior, Ratlam, Alirajpur, Bhind, Datia, Morena, Sheopur, Shivpuri

HDFC ERGO

24763 10.45 14500.18 10.67

Cluster D Indore, Sagar, Sehore, Annupur, Bhopal, Chhatarpur, Damoh, Panna, Raisen, Balaghat

CHOLA MANDAL

1446 0.61 724.13 0.53

Cluster E Khargone, Dhar, Jabalpur, Khandwa, Chhindwara, Katni, Mandla, Narsinghpur, Tikamgarh, Dindori

HDFC ERGO

132875 56.08 85061.97 62.57

Source: Department of Horticulture, GoMP.

24

Performance of PMFBY in Madhya Pradesh

PMFBY is one the flagship scheme of crop insurance implemented in Kharif, 2016 with an ambition of covering 50 percent of the farmers in India within 5 years. Details on the Coverage of farmers and the cropping area in MP are presented in Table-10. In the state, it is stated that around 34 lakhs of farmers are insured covering up to 73.5 lakh hectares under PMFBY. Among the implementing agencies, AIC cluster has covered major share of the farmers.

Table 10. Penetration of PMFBY in MP

Implementing Agency

Region Total Number of

Insured Farmers (Lakh)

Total Insured

Area (Lakh Ha)

Sum Insured (Crores)

Premium (crores)

% of Non-

loanee farmers covered

AIC Indore, Narmadapuram, Jabalpur, Rewa, Bhopal & Chambal

20.69 44.82 10816 231.35 13.36

HDFC ERGO Sagar, Gwalior 5.31 11.91 2998 59.99 17.50

ICICI LUMBARD

Ujjain, Shadol 8.26 16.76 5231 104.62 2.31

Total 34.26 73.49 19045 395.96 11.34

Source: Dept. of Agriculture, GoMP & AIC, Bhopal. (May vary, as the data was not finalized in Jan 2017).

Graph 9. Performance of PMFBY in MP (Kharif 2016)

Source: Computed by Author , Data source : Dept. of Agriculture, GoMP.

25

Table 11. Cluster-wise performance of PMFBY in MP (During Kharif, 2016)

Source: Dept. of Agriculture, GoMP.

There was a common complaint about the earlier schemes that they provide cover to crop loans rather than to crop losses, as the participation rate of non-loanee farmers was very low. Hence, more emphasis was given on the coverage of non-loanee farmers under PMFBY. In MP, among the total farmers covered during Kharif 2016, around 11 percent are non-loanee farmers. HDFC ERGO has fared well in covering non-loanee farmers followed by AIC. It is encouraging to observe that during the first season of PMFBY, 39 percent of the farmers in MP are insured covering about 46 percent of the operational area in MP.

The performance is better in the regions of Indore & Narmadapuram followed by

Ujjain & Shadol region contributing 32 % and 22 % share of the total farmers covered under PMFBY during Kharif 2016, while other clusters account for an average of 15 percent each. As the data on claim settlement is yet to be finalized, further assessment could not be done. There may be some variations in the PMFBY information in MP, as the data is not yet finalized due to delay in getting the information from a few districts.

Name of Cluster

Region List of District Insurance Service

Provider

% share in total

farmers insured in the State

Cluster A Ujjain, Shahdol

Ujjain, Ratlam, Mandsour, Neemuch, Shajapur, Dewas, Agar-Malwa, Shahdol, Anuppur, Umaria

ICICI LUMBARD

22.12

Cluster B Indore, Narmadapuram

Indore, Dhar, Jhabua, Alirajpur, Khandwa, Khargone, Barwani, Burhanpur, Harda, Hoshangabad, Betul

AIC INDIA 31.72

Cluster C Sagar, Gwalior

Sagar, Damoh, Chhatarpur, Tikamgarh, Panna, Gwalior, Shivpuri, Guna, Datia, Ashoknagar

HDFC ERGO 14.83

Cluster D Jabalpur, Rewa

Jabalpur, Katni, Mandla, Balaghat, Chhindwara, Narsinghpur, Dindori, Seoni, Rewa, Sidhi, Satna, Singrauli

AIC INDIA 15.18

Cluster E Bhopal, Chambal

Bhopal, Sehore, Raisen, Vidisha, Rajgarh, Morena, Sheopur, Bhind

AIC INDIA 16.14

26

V. Perceptions of the Farmers Regarding Crop Insurance Programs in Madhya Pradesh

To understand the issues regarding crop insurance among the farmers, views of 200 farmers distributed across 4 major agricultural districts were captured through pre-structured questionnaire. The inferences from the analysis of the farmers’ responses are discussed in this chapter. Among the sample farmers interviewed (Table -12), there were 16 percent marginal farmers, 34 percent small farmers and 51 percent medium/large farmers. In the total sample, 67 percent were loanee farmers and 33 percent non-loanee farmers.

Table 12. Information on the sample farmers

S.no Types of farmers Number of farmers

Loanee Non loanee

1 Marginal 31 (16) 8 (26) 23 (74) 2 Small 68 (34) 41 (60) 27 (40) 3 Medium and Large

farmers 101 (51) 85 (84) 16 (16)

4 Total 200 (100) 134 (67) 66 (33)

Note: Figures in parenthesis indicate percentage In MP, crop losses due to drought, hailstorm, unseasonal rainfall and extreme

temperature are reported frequently. According to the farmers, in 2013-14, Rabi crops (Wheat, Gram & Lentils) were affected due to frost and hailstone. In 2014-15 & 2015-16, farmers suffered losses in the Soybean crop during Kharif season due to heavy rainfall and drought while Rabi crops were also affected due to frost & hailstone.

Table 13. Major causes for the crop losses

Year Causes of Crop Loss Crop Effected

Kharif Rabi Kharif Rabi

2013-14 Nil Frost, Hailstone Nil Wheat, Gram, Lentil

2014-15 Heavy rainfall, Drought

Frost, Hailstone Soybean Gram, Pigeon Pea, Lentil

2015-16 Heavy Rainfall, Yellow Mosaic (Disease)

Drought, Heavy Rainfall

Soybean Wheat

Source: Primary data

The insurance penetration is quite good among the sample farmers, especially the small farmers (Graph-10). The penetration was low among marginal farmers in the sample till 2015-16, while it has increased during last year. On an average, the insurance penetration rate is about 47-55 percent in 2015-16, which has significantly increased to 83 percent during the last cropping season among the sample farmers.

27

Graph 10. Status of penetration of crop insurance among the sample farmers

Source: Primary Data

Table 14. Reasons for not taking crop insurance and motivating factors for taking crop insurance

S.No Motivating Factors for taking Crop Insurance

Frequency Percentage

1 Farmers interested in Crop Insurance 144 73 % Motivating factors

2 Campaigning from Department of Agriculture & Revenue Department

41 21 %

3 Information from Bank 94 47 %

4 TV- program DD Kisan through PM Speech 9 5 %

5 Not interested in crop insurance 56 27 % Reasons for not taking crop insurance

6 Compensation not received by many farmers during crop losses

68 34 %

7 Insurance Premium rates are high 18 9 % Total 200 100 %


The farmers were asked about the factors, which motivated them to take insurance,

and the reasons for not taking and is tabulated in Table-14. Nearly 73 percent of the farmers were interested in crop insurance and 47 percent farmers stated that banks motivated them to take crop insurance, while 21 percent farmers were influenced by the campaigning of the Agricultural and Revenue department. Around 27 percent of the farmers stated that they are not interested in crop insurance and nearly 34 percent of the sample farmers mentioned that many insured farmers did not receive claims during crop losses and 9 percent quoted high premium rates as a reason for not taking insurance.

28

Graph 11. Sources of information on crop insurance to farmers


Nearly 90 percent of the farmers stated that radio/television is the major source of information regarding crop insurance in villages (Graph- 11). Other important sources of information are the Agricultural Department, newspaper, PACs and banks.

Awareness Level of Farmers on Crop Insurance Schemes

To increase the penetration of crop insurance, awareness on crop insurance among

farmers is very important which was already realized under PMFBY and directions were given to agriculture departments in the district and implementing agencies to create awareness among the farmers on the importance of insuring their crops.

An effort was made to assess the awareness level of the farmers regarding the details

of the major crop insurance schemes (Graph-12). Nearly 70 percent of the farmers were oblivious of any of the scheme details of MNAIS & WBCIS while the awareness is better especially regarding the details such as crop covered and linkage with banks under PMFBY. Even under PMFBY, 50 % farmers were not aware about the types of risks covered which is an important aspect under the new scheme as losses due to failed/delayed sowing, post harvest losses etc are included now. Nearly 40-50 percent farmers had fair idea about all the aspects of the PMFBY scheme.

Farmers had a common complaint that during relief payments, if the land is under

the name of many people, then the payment cheques are made in names of all persons while, joint account for more than 3 people is not allowed in banks. Then it takes a long process/time from converting it through Tehsildhar and banks. Services of the banks in rural areas especially during calmities are dissatisfactory which may be due to inadequate number of staffs and fund limits to meet the spurt in demand during such situations. Even then, farmers prefer adhoc relief measures to crop insurance schemes.

29

Graph 12. Awareness of farmers regarding insurance schemes


Majority of the farmers were aware about the details of the relief payments made

while, they were oblivious about the amount of insurance claims deposited in their bank accounts. Very neglible amount of claim payments and the careless attitude of the banks in updating the farmers regarding the crop insurance payments in person or through entry in the bank pass books have contributed to the loss of trust in crop insurance schemes by the farmers.

Almost all the sample farmers stated that their Rabi crop in 2013-14 was affected

due to hailstorm and extreme low temperature out of whom, 60 percent farmers received relief while 40 percent did not receive any compensation in spite of the crop losses. In 2014-15, 45 percent farmers were affected in Kharif due to heavy rainfall and 54 percent were affected in Rabi due to hailstone and frost. Nearly 71 percent were dissatisfied with relief payment process as they were not compensated for the losses. Again in 2015-16, 73 percent farmers complained that they were not compensated even though they faced heavy losses due to heavy rainfall in the Kharif season.

30

Table 15. Frequency of occurrence of calamities and status of relief payments

Year Kharif Season Rabi Season Farmers affected

and received

relief (%)

Farmers Affected but not

Received Relief (%)

Type of Risk

No of farmers affected

(%)

Type of Risk

No of farmers affected

(%) 2013-14 Drought 0 Frost 32 60 40

Heavy Rainfall

0 Hailstone 68

2014-15 Drought 45 Frost 10 29 71 NA 0 Hailstone 44

2015-16 Heavy Rainfall

57 Heavy Rainfall

13 27 73

Yellow Mosaic

23 Less Rainfall

8


The major issues in crop insurance as perceived by majority of the farmers are

inadequate claim payments, errors in loss/yield assessment and delayed claim payment (Table-16). The banks were also not very responsive to the farmers. It was also surprising that some of the sample farmers interviewed have written to banks that they do not need insurance coverage while the banks have compelled them to take crop insurance to make their loans atleast partially secure.

Table 16. Issues of crop insurance as perceived by the farmers

S.No. Problems Percentage of farmers

1 Did not Get the claims /compensation in spite of crop losses

81

2 Delayed payment of the Claim amount 82 3 Survey not done properly 80 4 The loss estimation was not proper 91

5 Compensation amount was not enough to cover losses 92

6 Response of the Banks not proper 92

Source: Primary data The farmers were hopeful about the PMFBY scheme, thanks to the huge coverage

through media. It has caught the attention of the farmers as desired, but the real challenge is keep up those promises especially, processing of claims in one month time period. Atleast, for the first season of the scheme, they could not keep up the promise, as even after 4 months after harvesting of the crop, the claims settlement has not been processed. As mandated the technology usage for the yield/loss assessment was done only at few places in MP. Drones were used by ICICI Lombard and satellite images were used by HDFC ergo on a pilot basis to assess the yield losses in MP. There is a long way to go as far as PMFBY is concerned.

31

VI. Disaster Relief Measures Vs. Crop Insurance

Disaster relief payments and crop insurance programs are two major risk management strategies in various countries. In USA, adhoc diaster relief measures are gradually been replaced by crop insurance programs which are heavily subsidized by the government. In India, till date, both measures are undertaken simultaneously with huge funds spent during disasters in the form of compensation to the farmers. Adhoc relief payments is still important in India a most of the farmers are marginal/small farmers whose livelihood and food security is threatened by disasters and insurance penetration rate is very low. In the absense of these relief measures, the number of farmers suicides would have been multifold.

Diaster relief payment is one of the adhoc relief measures taken up by the government during widespread damage due to flood, drought, hailstone etc. Disaster relief is primarily the responsibility of state governments. But money for that relief comes from two sources, the National Disaster Relief Fund (NDRF) and the State Disaster Relief Fund (SDRF). The first of these is supported entirely by the Centre, while State Disaster Relief Fund, is made up of 75% contribution from the Centre and 25% from the state (special category states, such as those in the North East, get funds from the Centre in 90:10 ratio). The actual amount in the State Disaster Relief Fund varies from state to state. The Finance Commission, which is set up every five years, recommends the annual size of each state’s fund. It also advises the mechanisms by which the Centre would assist states in funding expenses on relief.

The loss assessment procedures and reference units for assessments vary across the states. In many states, method of eye estimation by the local patwari and other officials is followed for crop damage assessment. In Uttar Pradesh, the patwari assess the losses in a nyaya panchayat (comprising of six to seven panchayats) based on “eye estimation”, or by casting a glance at the fields. The patwari submits a report on the estimated losses to the tehsildar based on the girdawri, the land records of cultivated crops, and the field reports are then aggregated at the district and then state level. After the state’s revenue department submits a report to the Union ministry of Agriculture, the Ministry sends a team to verify the claim. Then the ministry approves a grant to the state from the National Disaster Relief Fund with the approval of a high-level committee of ofiicals from the Finance Ministry, and the National Disaster Management Authority under the Home Ministry. Finally, relief is disbursed to farmers in the form of cheques, with the amount based on the calculation of the percentage of crop damaged.

Crop Insurance & Agriculture Relief

The discussion on whether to opt for crop insurance scheme or agriculture relief payments to compensate farmers during disaster considering the economics of both the farmers risk mitigation strategies goes on. In Table -17, various aspects of both the risk mitigation strategies are compared.

32

Table 17. Comparison of Crop Insurance and Relief payments

S.No. Crop Insurance Disaster Relief 1 Financial instrument with or without

social dimension with the aim of providing compensation for the losses

Mostly with social welfare dimension by the government to provide immediate relief during crop losses

2. Three models – (a). Purely government (b). Private insurers (c). PPP model

Handled by the government mostly by the Revenue Departments.

3 Based on the scientific principles of insurance

Based on the Social welfare definition and has a larger political dimension

4 Payments are made based on the indemnity principle

Payment are based on the availabilty of funds with the state (SDRF) and central government (NDRF)

5 Farmers contribute a share through premium and remaining mostly subsidized by the government

Farmers do not pay any fee in India

6 Farmers taking the insurance have the legal right to claim compensation

Farmers do not have any right to demand compensation

7 Loss assessment is through area approach Loss assessment through Individual field approach

8 Loss assessment done by the revenue department staff – Patwari and the crop cutting experiments are also done under the supervision of a Patwari and a technical person.

Loss assessment is made on the basis of Patwari’s visual observations

9 Till now, the insurance schemes were mostly linked to the loanee farmers.

Not linked to the loan account of the farmers

10 Generally, payments are made after 6-8 months till now, as many agencies are involved in claim processing such as, insurance agencies, government (State & Centre), banks and Revenue department.

Farmers receive payments within a month or two and it needs coordination between government and district revenue department

11 Awareness and acceptance is low among the farmers

Farmers are aware about the relief payments

Source: Author

Financial Outlays for Crop Insurance and Disaster Relief

For the country as a whole, Rs 33,580.9 crore has been allocated for the National Disaster Relief Fund by the 13th Finance Commission (2010-2015). Under 14th Finance Commission, the amount has been doubled to about Rs 61,219 crore. Thus government is shelling out around Rs 6000- Rs 7000 crore annually (average for the last five years from 2010-15) in the form of relief.

33

Table 18. Financial assistance approved under NDRF

S. No. Name of State Calamity Assistance approved by GOI (Rs. in crores)

During - 2013-2014

1 Bihar Drought 931.87

2 Karnataka Drought 226.57

3 Andhra Pradesh Drought 254.54

Total 1412.98

During - 2014-2015

1 Haryana Drought 168.87


3 Uttar Pradesh Drought 777.34

4 Maharashtra Drought 1962.99


Total 3347.56

During - 2015-2016


Drough -Rabi 723.23

2 Chhattisgarh Drought 1276.25

3 Madhya Pradesh Drought 2032.68

4 Maharashtra

Drought -Kharif 3049.36

Drought-K (Supplementary) 589.47

Drought-Rabi 679.54

5 Odisha Drought 815

6 Telangana Drought 791.21

7 Uttar Pradesh Drought 1304.52

Drought-Rabi 622.76


9 Jharkhand Drought 336.94

10 Rajasthan Drought 1193.41

11 Uttarakhand Drought-Rabi NA

Total 15388.34

Source : Indiastat

There is a common complaint that assistance provided through NDRF is not enough and there exists a partiality in fund allocation to states with the central government having the discretion to allocate funds among the states. This leads to states competing each other for a larger allocation. In Table -18, funds approved for different states under NDRF is displayed. Only during drought excluding other calamities, around 1412, 3347 and 15388 crores of funds were distributed from NDRF in the years 2013-14, 2014-15 & 2015-16 respectively as against 2551, 2598 & 2980 crores of funding for crop insurance by GOI.

34

Graph 13. Funds allocated for crop insurance and drought relief by GOI

Source: India stat

Government of India has spent around Rs. 33,580 crores during the period of 5 years from 2010 to 2015 in the form of relief and Rs.9679 crores for crop insurance for a period of 4 years from 2012 to 2015-16. Since insurance penetration is very low, the fund allocation for relief payments constitutes the major share of government funding to risk management in agriculture.

Table 19. Funds released by GOI for crop insurance schemes in India

(1997-2002 to 2015-2016-upto 31.03.2016) (Rs. in Crore)

Plans/Years

NAIS (Since)

WBCIS (Since)

MNAIS (Since)

CPIS (Since)

Total Rabi

(1999-2000) Kharif (2007)

Rabi (2010-2011)

(2009-2010)

IXth Plan (1997-2002)

811.49 - - - 811.49

Xth Plan (2002-2007)

2626.84 - - - 2626.84

Xth Plan (2007-2012)

5851.88 1370.37 87.15 1.95 7311.35

12th Plan (2012-2017)

- - - - -

2012-2013 700.00 655.00 194.18 0.50 1549.68

2013-2014 1600.00 700.00 251.02 0.50 2551.52

2014-2015 1543.56 470.00 584.79 Nil 2598.35

2015-2016* 1935.71 630.79 413.88 - 2980.39

Total 15069.48 3826.16 1531.02 2.95 20429.62

Source: Indiastat

35

In Madhya Pradesh, the amount of relief disbursed annually from 2010-11 to 2015-16 by the Revenue Department is tabulated in Table-20. In MP, crop losses due to hailstone and flood/heavy rainfall have occurred every year in this decade. Last year (2015-16), there was a severe drought in the state and also crop losses occurred due to Insect attack, hailstones and floods/heavy rainfall.

Table 20. Relief distribution in MP

Rs. In Lakhs

Budget Title 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Total

Drought 0 97 4 0.00 0.00 347568 347668

Flood/ Heavy Rainfall 1017 2079 5167 66023 6901 5653 86840

Insect Attack 0 0 0.00 0.00 0.00 43622 43622

Hailstone 1025 1112 26507 41468 196158 39444 305714

Frost 0 3705 5342 1985 161 51 11245

Total 2042 6993 37020 109476 203221 436338 795090

Source: Revenue Dept. GoMP.

Table 21. Fund flows to relief payment and crop insurance in MP

Year Relief (In Lakh Rs)

Actual expenditure for Crop Insurance in Budget

(In Lakh Rs) 2011-12 6, 992 Nil 2012-13 37,020 198 2013-14 1,09,476 10,000 2014-15 2,03,221 45,345 2015-16 4,36,338 2,87,948 (RE) Total for 5 years 7,95,090 3,43,491 (4 years) Average (Annual) 1,59,018 85,872 Source: Revenue Dept., GoMP & compiled by author. In MP, the Patwari assesses the crop damage usually on the basis of visual

observations and reports it to his higher authorities. As per Public Services Guarantee Act; the relief money needs to be disbursed to the affected farmers within 30 days of the crop damage. Automation of the damage assessment by the Patwari is currently under process through which instead of pooling the data physically, the data would be fed directly through the tablets, which in turn would be pooled at the state level. This would make the process quicker and fasten the relief distribution process (Revenue Dept. GoMP).

In Table-21, the amount of funds spent on relief payments to farmers and crop

insurance schemes is summarized to give a comparative picture. On an average, in MP during last 5 years, Rs. 1,59,018 lakhs has been paid in the form of relief while, Rs.85,872 lakhs has been spent on crop insurance schemes.

36

There is no clear-cut data available regarding the administrative expenses for both risk management strategies. As far as loss assessment for relief payments are concerned, individual farm assessment is done while for insurance, area approach is followed. Hence we can guess that crop insurance can be a cost effective measure and it is stated by the stakeholders that on an average, operational expenses amount to 15-20 percent of the premium collected.

It is too early to compare the economics of the two measures, while the new crop

insurance scheme PMFBY has made many improvements to the earlier schemes, it may cost government more to the tune of approx. Rs. 28,000 crores (Planning commission). Channelizing at least a part of agricultural relief funds through crop insurance to increase penetration and to finance additional expenditure on the proposed improvements needs to be done.

37

VII. International Scenario on Crop Insurance Programs

With an estimated global insurance premium of USD 31 billion in 2014 and annual

growth rates of 20 percent, agicultural insurance has grown four fold since 2005. The main growth has come from North America with the introduction of revenue based crop insurance and from emerging markets such as China, India and Brazil. The US and Canada together share the bulk of the global crop insurance premium at more than 60%. Europe and Asia each shares almost 17% of the total premium. Australia and New Zealand, Latin American countries and the African Nations together share approximately 1%, 2% and 1% of the global premiums respectively (Figure - 3).

The most popular form of insurance product world-wide is Multi Peril Crop Insurance (MPCI) which is indemnity-based and is available in 53 percent of countries followed by Named Peril Crop Insurance (NPCI) in 41 percent of countries. MPCI, which is underwritten mainly in USA and Canada accounts for 74 percent of the total agricultural insurance premiums, collected worldwide. NPCI has maximum presence in European countries and accounts for 16 percent of the global agricultural premium.

Public Funding in Crop Insurance

The crop insurance programs are heavily subsidized globally especially in the high-income countries like USA & Canada where crop insurance is claimed to be successful. The rationale for the public sector support cited are :-

o under developed agriculture insurance markets with limited private

participation o reluctance of commercial insurers due to high start up costs and huge losses

during occurence of systemic risk such as drought, flood etc

Figure 3 Share of Global Agriculture Insurance premium

38

o high administrtive/operational costs o low penetration o unaffordabilty by the small and marginal farmers o poor awareness among the farming communities

Of the 65 countries surveyed by the World Bank in 2008, 63 percent used premium

subsidies while 16 percent countries provided administration cost subsidies. Government support to total agriculture insurance premium in different regions is as follows: -

o USA and Canada—73 % o Asia—50 % o Europe—37 % o Latin American countries ( Mexico, Brazil) —36 % o Africa—3 %. o Australia & New Zealand—0 %

Types of Insurance Products

There are many insurance products operate at the international market. Following are the different kinds of crop insurance that exists in various countries:-

A. Indemnity based crop Insurance: Insurance payouts are based on the actual loss at the insured unit level.

o Named Peril /Single-risk insurance: It covers against one peril or risk. Payments are made based on the percentage of damage. e.g. Hail insurance in Canada & USA.

o Multi Peril/Combined insurance: it covers combination of several risks. Payouts are made based on the yield loss assessment. E.g. MPCI in USA and it is available in many countries.

B. Index based crop Insurance: Insurance payouts are based on index measurement.

o Area- yield Index based Insurance: Based on the area yield assessment. It is available in USA, India and Brazil

o Crop Weather Index Insurance: Based on the variations in the Weather Index . This product is available in India, Mexico, Canada, Malawi & USA.

o NDVI Insurance: (Normalized Deviation Vegetation Index) : Based on the variations in the vegetation and is available in Mexico, Spain and Canada.

o Kilimo Salama : Latest mobile based Weather-Index insurance product introduced in Kenya. It is linked with the input dealers and insurance is purchased along with the purchase of farm inputs by paying a premium amount. The claim payments are processed within 4 days of reporting about the crop damage.

C. Revenue Insurance: Payouts based on yield estimation and product prices. o Crop revenue Insurance: Available in USA o Income insurance: It covers income, yield and price risks, including the costs of

production. Usually, this type of insurance is not product-specific, but based on whole-farm income.

o Whole-farm insurance: This type consists on a combination of guarantees for the different agricultural productions in a farm. Depending on the coverage of the guarantees, it can be whole-farm yield insurance, or whole-farm revenue

39

insurance or whole farm income insurance.

A snap shot of Crop Insurance in different countries

Country Crop Insurance Aspects

USA

USA has by far one of the most structured crop insurance setup with institutions offering both revenue and income insurance. It has developed products like Crop Revenue Coverage (CRC), Revenue Assurance (RA) and Income Protection (IP) with CRC being the most popular one. More than 70% of the premiums collected in USA for crop insurance comes from revenue insurance

Only country currently where revenue and income insurance exists for agriculture operations for over 100 crops.

Crop insurance is heavily subsidized on an average 70-80% by the federal government. Insurance policies are sold and completely serviced through 18 approved private insurance companies and with high level of control by the federal government.

In 2015, 85 % of cultivable area is insured as against 33 % in 1997.

Re insurance is well developed and there are many commercial players in the Re-insurance market

Adhoc relief payments are replaced by crop insurance programs and the relief payments are only available for the crops which are not covered under any insurance program

Though crop insurance is not compulsory, it is made compulsory to avail various types of other subsidies

Reasons for success are rule of law and ability to enforce contracts.

China

China has become the 2nd largest agricultural insurance market in the world covering about 43 percent of the total cropped area

Penetration has increased manifold after the governemnet increased subsidies since 2007 by 200 percent.

Operates in PPP mode wherein premium rates are decided by the private insurance companies in discussion with local governemnt and farmers representatives

In general, organizations in China are promoting the weather index based insurance (WII) and most of the agricultural insurance products are traditional products (MPCI).

Reinsurance is available through ChinaRe and most of the reinsurance

40

treaties in the agricultural market are stop loss (SL) treaties

Sum Insured is based on materialized costs of production, excluding labour costs

Mexico & Brazil

Multi Peril Crop Insurance performed very poorly till 1990 due to high operating costs, low penetration rates, very high loss ratio and poor management.

Operates in PPP mode where commercial competition is encouraged with lowest level of control by the government. Private companies are free to select the crops, regions, and peril and premium rates. Main role of the government is to subsidize the premiums.

Disaster relief measures are continued along with the crop insurance programs

Subsidized by around 50 percent. The penetration rate is increasing due to financial support from the federal government. In 2009, 10 percent of the cultivated area was insured in Brazil and 36.5 % in Mexico

Africa

Very little penetration MPCI & Weather index crop insurance have been tried on pilot basis

Lack of data on crop yield, weather measuring infrastructure

Low skilled HR and lack of awareness

Kilimo –Salama and many weather index based products are being tried in different parts of Africa with the funding from the World Bank

Bulgaria Highest level of market penetration of crop insurance

Denmark

85 % of the total cultivable land is insured

Crop insurance is not compulsory, but one of the conditions to avail agricultural subsidies from the state.

EU Crops are mostly insured only against hail

Australia, UK,

Switzerland, Germany

Crop insurance is voluntary for German farmers. No federal subsidies and crop insurance operates on pure market basis. Hail insurance products of numerous companies are the most preferred.

41

Agriculture Risk Management Strategies in USA

Federal crop insurance: It is the world’s largest crop insurance program,

which was instituted in 1930 and has been subjected to major reforms till date. The insurance is available for most of the major crop and against all risks. It is Multi Peril Crop Insurance scheme and it is a well-evolved product giving options to the farmers to choose between various plans of crop insurance products such as:-

Individual plans o Actual Production History (APH): It covers against loss of

production due to all calamities o Actual Revenue History (ARH): It is based on the farmer’s revenue

history for the crop insured o Yield Protection (YP): Similar to APH, provides protection against

loss of production. o Revenue Protection (RP): Covers loss of revenue due to price

fluctuations. Area plans

o Area Yield Protection plan (AYP) o Area Revenue Protection plan (ARP)

Named Peril Insurance: It is not a part of the federal insurance program and is a private insurance scheme. e.g. Hail Insurance.

Noninsured Crop Disaster Assistance Program (NAP)

Farmers who grow a crop that is not covered under any insurance program

may apply for NAP where in the producers need to pay NAP service fee. In case a

farmer needs additional coverage, he may have to pay additional fee.

Emergency Disaster loans

When a county is declared as a disaster area, then a producer belonging to

that county may become eligible for the low interest emergency disaster loans.

Emergency Agricultural Land Assistance Programs

USDA offers financial and technical assistance to producers to repair, restore

and mitigate damage by a natural disaster on private land.

42

The crop insurance programs are constantly evolving and none of the programs can be graded as the best insurance program. The success of any program depends on various attributes such as risk characteristics of the region, extent of public funding, awareness on insurance and affordability of the farmers. In USA, the government heavily subsidizes crop insurance. Hence it is very successful and there also exists a strong commercial reinsurers market to back up private insurers. In emerging markets such as China, Brazil and Mexico, the penetration rate is increasing only because of the drastic increase in public subsidies to crop insurance. Like USA, can the developing countries afford such huge subsidies from their budget for crop insurance is a big challenge. If the government withdraws funding, there is always a scare that the penetration rate may go down drastically which in turn will discourage the private players.

Nowhere, Multi Peril Crop Insurance scheme has been successful without huge funding from the governement. In EU, Australia, New Zealand etc. where there is no intervention from government, only location specific named perils are covered while losses due to systemic risks such as droughts and floods are not covered.

Kilimo- Salama in Kenya

It is the first micro insurance product implemented using a mobile phone network in Kenya, Rwanda and Tanzania. It is very successful and is replicated in other parts of Africa. It is an Index based weather insurance product channelized through agro, input dealers who sell the insurance product along with farm inputs making the access to insurance very easy, reducing the operating and marketing cost and there is increased awareness regarding insurance among the farmers. Compensation is paid within 4 days of the claim.

How does it work? The insurance product sold by the input shops provides a product code, which

is sealed inside the seed packets. Farmers on opening the seed packet before sowing need to message the code from his registered mobile number to insurance provider and that date is recorded as the date of sowing and the area is decided based on the seed rate. Location is tracked through the mobile tower. Automatic weather stations record the rainfall and temperature. Based on the variations in the AWS data and if a life saving irrigation is missed for a particular crop, then once the farmers claims, the payments are processed.

How are the payments made? Mobile banking system (M-PESA) is used for transfer of premium and payouts

as it has a good penetration rate in Kenya. Internet based banking transactions are not developed. Shops/small outlets are made payment agents/encashment centres for the farmers who can provide liquid money using an OTP in the farmers mobile to transfer the money to the outlets bank account.

43

VIII. Latest Developments To Improve Crop Insurance In India

Use of technology in PMFBY

The latest crop insurance scheme PBFBY is designed very carefully to address these issues.

As mandated under this new scheme, if technology is roped in effectively then major issues would be addressed. Technology can be used to rationalize CCEs, direct yield estimation, to remove area discrepancy in coverage, to improve yield data quality, for timely loss assessments and payments. Four types of technologies that are promoted under PMFBY are remote sensing, GIS, smart phones and UAVs/Drones.

GOI has created an agricultural insurance portal (www.agri.insurance.gov.in) and a mobile

app (CCE Agri.apk). The portal serves as a single platform linking all the stakeholders i.e. government, insurance agencies, banks and farmers. It provides information to farmers on insurance products, premium rates, cut-off dates, company contracts for their crops etc. Farmers can apply through this portal from the kiosks and integrate with banks. The portal helps in maintaining a national level database accessible by all the stakeholders improving transparency in crop insurance.

The mobile app can be downloaded from the portal by the field level functionaries and can

be used while conducting Crop Cutting Experiments (CCEs) which can work both in online and off line mode. The CCE data can be uploaded immediately for validation significantly improving the data speed enabling quicker processing of claims. Data quality is improved due to geo tagging which will ensure field visits and photos that mitigate risk of crop manipulation.

Research Initiatives using Satellite Technology

Currently, ISRO and Mahalanobis National Crop Forecast Centre (MNCFC) are carrying out a

lot of research using satellite technology.

FASAL: (Forecasting Agricultural output using Space, Agro-metrology and Land based

observations) Using remote sensing data, MNCFC regularly generates national/state/district level

production data for major crops based on the NDVI assessment using high-resolution data. It generates remote sensing based CCE plan for conducting CCEs to validate the GIS data making the CCEs more representative.

KISAN : (C[K}rop Insurance using Space technology And geoiNformatics) This project is taken up by MAP COST in collabration with MNCFC, ISRO,

Meteorological Department, State Remote Sensing Centers, State Agriculture Departments, Climate Change Agriculture and Food Security(CCAFS). The objectives are to use high resolution remote sensing for crop cutting experiment planning, to develop better models for crop yield assessment, to provide yield estimates at block level, to develop an index for index-based insurance.

http://www.agri.insurance.gov.in/

44

CHAMAN : (Coordinated Horticulture Assessment using Management And geoiNformatics)

The project is being implemented by Mahalanobis National Crop Forecast Centre (MNCFC) in collaboration with ISRO Centres (SAC & NRSC) and 12 state horticulture departments, NHRDF, IMD, ICAR Centre and State Remote Sensing Centres. This programme envisages use of satellite remote sensing data for area and production estimation of 7 horticultural crops (Potato, Onion, Tomato, Chili, Mango, Banana and Citrus).The programme also uses GIS tools along with remote sensing data for generating action plans for horticultural development (site suitability, infrastructure development, crop intensification, orchard rejuvenation, aqua-horticulture, etc.).

NADAMS: (National Agricultural Drought Assessment and Monitoring System)

NADAMS project, developed by the National Remote Sensing Centre, provides near real-time information on prevalence, severity level and persistence of agricultural drought at state/ district/sub-district level.

Hence, many pilot projects are being undertaken by GOI using satellite technology to

improve /support crop insurance in India. If we can design methods for capturing the yield /loss assessments more accurately and implement them successfully , then it will be a great breakthrough to address the problems of the farmers.

45

IX. Key Issues/Constraints Identified

The performance of the major agricultural schemes NAIS, MNAIS and WBCIS has not shown an encouraging trend since the inception of the schemes. The issues identified through the study are as follows.

1. Low penetration rates. 2. Lack of interest and trust in crop insurance 3. Lack of awareness regarding the details of the crop insurance schemes. There is

no clarity among various stakeholders regarding who is responsible for creating awareness among the farmers as all the three stake holders AIC, banks and the Agriculture Department has been assigned the task of promotion of crop insurance.

4. The absence of rural agents/adequate field staff to distribute agricultural insurance has been a major hindrance to penetration of crop insurance in India.

5. Many farmers have taken insurance as it was compulsary for loanee farmers and it was commonly felt that the prime motive of insurance was to cover the crop loans and not farmers.

6. Participation rate of non-loanee farmers was absymally low. 7. Farmers prefer relief payments to crop insurance as it is received at zero cost

and they are more aware about the amount of payments made. 8. Sum insured was very low and and hence claim amount was not adequate

enough to cover the losses. 9. CCE yield/loss assessments were not representative and involves error due to un

scientific visual evaluations by field level revenue staff. 10. Delayed payment of claims was the common complaint of the farmers. 11. AIC states that the delay in government funding and CCEs data lead to delay at

various stages. The banks also do not pay the premium on time to AIC. 12. WBCIS, though found to be ideal for systemic risks such as flood, drought across

countries is struggling to take off in India due poor density of AWS and other infrastructure.

13. Skewed coverage between the states and within the states. 14. Both relief payments and crop insurance subsidies are a huge drain on the

government exchequer. 15. Under PMFBY, status of technology usage is only upto 5 percent in India and

processsing of claim payments, Kharif, 2016 is underway after 5 months as against the promised timeline of one month.

46

X. Conclusion and Recommendations

The penetration of crop insurance is still very poor in India despite the huge

premium subsidies from the farmers. The major reason is the lack of awareness and lack of trust in the insurance system among the farmers due to faulty design of the insurance products and its implementation challenges. PMFBY has been designed taking note of the various constraints of earlier schemes and the empahsis is being given on use of technology such as remote sensing, Satellite images, mobiles, drones etc at various stages. Effective use of technology can be a game changer for crop insurance in India.

Recommendations : To protect farmers against various kinds of climatic risks, a comprehensive risk

mitigation strategy needs to be planned rather than just focusing on crop insurance as a silver bullet.

The different strategies of agriculture risk mitigation need to be:-

1. Awareness on risk , risk mitigation strategies and crop insurance. 2. Formulation and implementation of risk reduction strategies. 3. Developing suitable crop insurance product and effective implementation

strategies & Infrastructure. 4. Investing in R&D on insurance product design in colloboration with private

insurance service providers. 5. Substituting relief payments with crop insurance system. These strategies are elaborated below:-

1. Awareness on risk and risk mitigation strategies and crop insurance a. To improve awareness levels, government needs to intervene and invest in

farmer sensitization strategies to improve awareness on risk aversion strategies, crop insurance, financial and digital literacy among farmers.

b. Fix accountability of the various stakeholders like role of Agriculture Department, insurance providers, banks and PACs in creating awareness among the farmers.

2. Formulation and implementation of risk reduction strategies.

a. Establishment of a comprehensive metrological information collection and dissemination system.

b. R&D on more accurate weather forecasting and its impact on crop production and damage.

c. Increasing investments in irrigation infrastructure for assured irrigation and other risk mitigation practices.

d. R&D on risk resistant crops, varieties and early/late varieties suitable to various risk prone areas, standardising crop production methods etc.

e. Influence crop choice by the farmer based on the risk perception for crops for a given season.

i. Variable interest rates for crop loan-i.e. crop loans for less risky crops will be cheaper as compared to high-risk crops.

47

ii. Variable premiums based for insurance- i.e. high premium for high-risk crops.

iii. Modulate minimum support price (MSP) for crops based on its risk perception.

f. Banks needs to provide: i. more credit for micro irrigation infrastructure such as drip irrigation,

sprinklers etc. ii. Variable levels/limits for loans based on risk perception. E.g. higher

loan limits for use of Bt Cotton, which is pest resistant. iii. Promote diversification of income sources for farmers by providing

credit for investment in allied agricultural activities.

3. Developing suitable crop insurance products and effective implementation strategies & Infrastructure.

A good crop insurance system should have following attributes a. Easy access to insurance products and hassle free registration

i. Right now, farmers can get access to crop insurance only from banks. The micro insurance providers such as retail outlets, input shops etc. can sell insurance products.

ii. For hassle free registration, it needs to be linked to their Aadhar number, bank account number etc. Kilimo Salama - Kenya type model can be tried.

iii. Simple and efficient procedures and process for insurance life cycle. b. Reasonable premiums with adequate financial coverage

i. Government needs to regulate the rationale and basis of determination of what constitutes economic damage and what is the adequate compensation for a given range of economic damage.

ii. In India, the premiums are already reasonable as government offers huge subsidy and the burden on premium subsidy to the government will lessen in due course of time with the increase in penetration.

c. Robust database of farmers, risks and crop details i. A strong database of the farmers needs to be created by linking details

of the land holdings, Khasra number, address, bank account number, Aadhar, PAN numbers etc.

ii. Database on vulnerability profile of the blocks, rainfall pattern, productivity of the crops upto the block level needs to be created.

iii. Cost of cultivation database needs to be created for all the reference areas.

iv. For creating such huge databases, GIS based technologies can be used.

d. Reliable, balanced, timely, accurate and rapid methodology for crop damage estimation

i. Different technologies need to be adopted for assessing crop damage caused by different types of calamities. For wide spread damage due to drought, excess rainfall and extreme temperature, assessment can be done based on weather Index through automatic weather stations.

ii. For location specific losses due to hailstorms, water logging, pest attack etc, individul field assessment using drones and mobile based /satellite based technologies can be done. Drones are cost effective for individual field assessment.

48

iii. By adopting different assessment strtegies, manpower crisis can be resolved and also technology based assessment will reduce the errors due to human assessment.

iv. Satellite images can be used to estimate the crop health status which in turn help in estimating the yield. More scientific ways of CCEs planning using remote sensing will make the yeild estimation representative.

v. The AWS infrastructure needs to be improved immediately by increasing the density of the weather stations, maintaining and updating the exisiting weather stations. Once the infrastructure on AWS is strenthened, weather Index based insurance products like Kilimo Salama can be promoted as it is found to be cost effective and time saving as compared to area approach based products.

Once the standardization of yield data is done, major concern of crop insurance such as non representative, inaccurate CCEs, inadequate claim payments etc. would be addressed and also the quick yield assessment will reduce the delay in processing of claims significantly.

- e. Timely claim settlement and payouts supplemented by a responsive

grievance redressal system i. Timelines and accountability needs to be fixed for different

stakeholders at various stages and penalities should be mandated for the delays.

ii. Strong ombudsman for grievance redressal. iii. Financial inclusion of farmers and linking it with the AADHAR

numbers. iv. Strengthening the banking infrastucture in rural areas to address the

delay from the bankers end. v. Promoting mobile banking ( Mobile e.wallet – eg. BHIM).

vi. Introduction of new distribution channels like post offices and micro insurance agencies can reduce the dependency on banks.

f. Effective implemenatation and infrastructure development i. Government needs to play the role of a regulator and needs to fix the

accountability of the stake holders. ii. Encouraging private participation will ease the implementation

challenges on a large scale and healthy competion among the private insurance agents will help in keeping the premium rates lower. Government can concentrate more on infrastructure development.

iii. Farmer producer organisations can be strengthened and collective crop insurance through FPOs can be promoted.

g. Covering the price risk along with weather risk i. Farmers are battered by both weather risk and price risk and hence, a

comprehensive revenue insurance product need to designed.

4. Investing in R&D on insurance product design in colloboration with private insurance service providers.

a. Dynamic research on improving and developing the crop insurance product is necessary.

b. IRDA needs to regulate and encourage private insurance agencies to spend on R&D to develop the improved insurance products.

49

5. Substituting relief payments with crop insurance system. Relief payments and crop insurance schemes cannot be undertaken

simultaneously as the former tends to have a negative impact over the latter. Relief payments are always preferred by farmers as it is available without paying any fee. Over a period of time, once the crop insurance systems are strengthened and standardised for Indian conditions bringing most of the crops under the ambit of insurance, government can follow the USA model of replacing adhoc relief payments with crop insurance and providing relief only for those crops for which insurance is not available. It will be beneficial in two ways ie. government can divert relief funds to crop insurance and infrastructure development and more farmers are likely to adopt crop insurance, increasing the coverage.

50

Bibliography

1. Agricultural Finance Corporation Ltd., “A Study On National Agricultural

Insurance Scheme (NAIS). 2. AIC, www.aicofindia.org, Agricultural Insurance Company of India Ltd, Bhopal,

2016. 3. Anne Weir, Senior Analyst Economics, Craig Cox, Senior Vice President for

Agriculture and Natural Resource “Crop Insurance: An Annual Disaster” EWG November 2015.

4. ANNUAL REPORT, “Insurance Regulatory And Development Authority Of India” 2014-15.

5. Brigitta Aryanti, “Designing Crop Insurance to Help Farmers Transfer Risk of Crop Loss in Rural Indonesia” Ministry of Agriculture, Republic of Indonesia.

6. Department of Agriculture & Cooperation, Ministry of Agriculture, Government of India, “Report of the Committee to Review the Implementation of Crop Insurance Schemes in India” , May 2014.

7. EconomicTimes -http://economictimes.indiatimes.com/news/economy/agriculture/3-26cr-farmers-enroll-for-crop-insurance-in-2016-kharif-season/articleshow/55689134.cms

8. Government of India, Agricultural Statistics at a Glance, New Delhi: Directorate of Economics and Statistics, Ministry of Agriculture 2015.

9. Government of India Ministry of Agriculture & Farmers Welfare Department of Agriculture, Cooperation & Farmers Welfare Directorate of Economics and Statistics New Delhi “State of Indian Agriculture” 2015-16.

10. Gurdev Singh, “Crop Insurance in India” Indian Institute of Management Vastrapur, Ahmedabad – 380 015.

11. International Finance Corporation, syngenta foundation for sustainable agriculture, “Kilimo Salama (Safe Farming) Weather Index Insurance in Kenya: Early Market Success.”

12. Jain, R.C.A, “Challenges in implementing Agriculture insurance and Reinsurance in Developing Countries”, the journal, January-June 2004.

13. KV Raju, Gopal Naik, R Ramseshan, Tushar Pandey, Partha Joshi, KH Anantha, AVR Kesava Rao, D Moses Shyam and D Kumara Charyul, “Transforming Weather Index-Based Crop Insurance in India: Protecting Small Farmers from Distress” ICRISAT Development Canter.

14. Madhya Pradesh AGRICULTURE ECONOMIC SURVEY, Department of Planning, Economics and Statistics, Government of Madhya Pradesh 2014.

15. Madhya Pradesh Budget Press Release 2015-16. Bhopal dated 25 February 2015 16. Mainstreaming Climate Change in Policy and Planning, “Climate Resilient

Development In Bundelkhand Region of Madhya Pradesh”, Development Alternatives, New Delhi.

17. Ms. Archana Singh, “Agriculture Insurance in India” Bimaquest-vol.16 2 July 2016.

18. Olivier Mahul and Charles J. Stutley., “Government Support to Agricultural Insurance Challenges And Options For Developing Countries” The World Bank, Washington DC.

51

19. Pavan Kumar Reddy Dhanireddy, “Disaster Assistance and Crop Insurance Participation in US” School of Economic Sciences Washington State University.

20. R C A Jain, M Parshad, “The Working Group On Risk Management In Agriculture” Eleventh Five Year Plan, 2007-2012

21. Raju, S.S and Chand.R(2009). “Agriculture Risk and Insurance in India-Problems and Prospects”, New Delhi, Academic Foundation.

22. RAP PUBLICATION 2011/12 “Agricultural insurance in Asia and the Pacific region” Food and Agriculture Organization of the United Nations Regional Office for Asia and the Pacific Bangkok, 2011.

23. S S Raju, Principal Scientist, “Risk and Agricultural Insurance in India — A Disaggregate Analysis” National Centre for Agricultural Economics and Policy Research, New Delhi-110 012.

24. Raju, S.S and Chand.R . “Agriculture Risk and Insurance in India – Problems and Prospects”, New Delhi, Academic Foundation. 2009.

25. S.S. Raju and Ramesh Chand, “A Study on the Performance of National Agricultural Insurance Scheme and Suggestions to Make it More Effective”, National Centre for Agricultural Economics and Policy Research (Indian Coucnil of Agricultural Research), New Delhi - 110 012.

26. The World Bank Group, Africa Region, Yes Africa Can “Success Stories from a Dynamic Continent”

27. Vladimir Čolović, Nataša Mrvić Petrović, “Crop Insurance – Risks and Models of Insurance” Economics of Agriculture, Belgrade 2014.

52

Annexures

Annex-1. Comparison among the major insurance schemes in India PARAMETER NAIS MNAIS WBCIS PMFBY Insurance Unit

Scheme provided for reduction of unit to Village Panchayat (VP)

Unit to be reduced Village / Village Panchayat (VP) or other equivalent unit for all crops. States who are not able to implement are allowed to notify higher unit area (upto 15 village/VP) for 3 years.

Depends on the availability of weather stations. Usually at tehsil / block level,

The unit of insurance is Village/Village Panchayat level for major crops and for other crops it may be a unit of size above the level of Village/Village Panchayat.

Data Requirement

Past yield data as well as actual yield data based on CCEs is required

Yield data as well as rainfall data required

Past 25 – 30yrs’ weather data required

The yield data of last 7 years deducting the yields of 2 notified calamity years if any.

Indemnity Level

(a) 60%, 70% & 80% based on Yield variability in the past 10 years measured in terms of Coefficient of Variation (CV) (b) Assigned at State level

(a) 80% & 90% Claim experience (as if) in the past 7 /10years measured in terms of ‘loss cost’ (b) Assigned at District level

(a) Weather triggers beyond which claims becomes payable are set on the basis of past weather data and the correlation of weather parameters with the yield. (b) Assigned at Reference Unit Area (RUA) level

Three levels of Indemnity, viz., 70%, 80% and 90% corresponding to crop Risk in the areas is available for all crops.

Premium

1.5 to 3.5% for food and oilseeds for normal coverage and actuarial premium for higher sum insured &/or indemnity level. Actuarial premium for annual commercial/ horticultural

Actuarial premium.

Actuarial premium.

Premium payable by the farmers will be 2% for all Kharif Food & Oilseeds crops, 1.5% for Rabi Food & Oilseeds crops and 5% for Annual Commercial/ Horticultural Crops.

53

crops. Government liabilities and sharing.

Premium subsidy of 10% for Small / Marginal farmers Claims beyond 100% of premium in case of normal coverage Food & Oil Seeds. In case of Annual Commercial/ Horticulture crops and higher coverage &/or indemnity level for Food & Oilseeds, actuarial premium rates are charged and claims are the Responsibility of insurance company where actual premium is charged. In addition, Govt. also provide publicity expenses (100%), Administrative & Operational Expenses, bank service charges

Actuarial premium rates. The premium subsidy by the government ranges from ‘ZERO’ to 75% depending on the premium slabs. Only upfront premium subsidy is provided and claims liability is on insurance companies. Premium subsidy is shared by Centre & State on 50:50 basis. The Government will act as ‘reinsurer of last resort for claims in excess of 500% claim ratio.

Actuarial premium rates. The premium subsidy by the government ranges from ‘ZERO’ to 50% depending on the premium slabs. Only upfront premium subsidy is provided and claims liability is on insurance companies. Premium subsidy is shared by Centre & State on 50:50 basis.

The liability of the Insurance companies in case of catastrophic losses computed at the National level for an agricultural crop season, shall be upto 350% of total premium collected (farmer share plus Govt. subsidy) or 35% of total Sum Insured (SI), of all the Insurance Companies combined, whichever is higher. The losses at the National level in a crop season beyond this ceiling shall be met by equal contribution (i.e. on 50:50 basis) from the Central Government and the concerned State Governments.

Risks covered

Practically ‘all risk’ insurance

“All risk’ with added advantage of sowing failure cover.

Only parametric weather exigencies (like rainfall, temperature, humidity etc.) are covered.

It covered all risk i.e. Natural Fire and Lightning, Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc., Flood, Inundation and Landslide Drought, Dry spells Pests/ Disease

Localized calamities

Provides for ‘individual assessment’ of claims for localized calamities (hailstorm,

Individual farm assessment of claims in case of hailstorm and landslide for all areas / crops notified under

Add on cover for hailstorm and cloud burst on individual basis

Loss / damage resulting from occurrence of identified localized risks of hailstorm, landslide, and Inundation affecting

54

landslide, flooding) in one or two areas on experimental basis

the scheme.

isolated farms in the notified area The District Administration will assist IA in assessing the extent of loss.

In-season settlement of claims

States settles the claims based on the final yield estimates submitted. There is no provision to provide for in- season / on-account settlement of claims

On-account settlement of claims upto 25% of likely claims is paid during the crop season based on composite index (weather data / crop health report / satellite imagery etc.)

Payouts are made usually within 45 days from end of risk period, subject to receipt of weather data and premium subsidy

In case of adverse seasonal conditions during crop season viz. floods, prolonged dry spells, severe drought, unseasonal rains, Insurance Agency in consultation with concerned State Government/UT based on agro meteorological data/ satellite imagery or any other proxy indicator will decide about crops/ areas for which on account payment will be made, not exceeding 25% of likely claims.

Prevented / failed Sowing Risk

Presently not covered (covers risk only from sowing)

Prevented / Failed Sowing Risk to be covered with a benefit of upto 25% of sum Insured being paid as claim, and the insurance cover gets terminated.

Prevented sowing risk to a good extent is correlated with rainfall cover

Insured area is prevented from sowing/ planting due to deficit rainfall or adverse seasonal conditions. Upto a maximum of 25% of Sum Insured shall be worked out by IA based on a notified pay-out structure on the occurrence of pre-declared events such as month-wise deficit in aggregate rainfall during a specified period assessed through Reference Weather Stations tagged for the Notified / Group of Notified Area.

55

Post Harvest losses

Presently not covered (as yield are estimated at harvest time)

Coverage is available upto 2 weeks for harvested crop lying in the field in ‘cut & spread’ condition, against specified perils of cyclone in coastal areas.

Post harvest losses not covered

Coverage is available only up to a maximum period of two weeks from harvesting for those crops, which are allowed to dry in cut & spread condition in the field after harvesting against specific perils of cyclone & cyclonic rains and unseasonal rains.

Basis of Sum Insured

Loanee: Loan amount / value of TY / 150% value of AY Non-Loanee: value of TY / 150% value of AY

Loanee: Sanctioned Credit Limit / value of TY / 150% value of AY Non-Loanee: value of TY / 150% value of AY

Pre-defined sum insured based on cost of cultivation

Sum Insured per hectare for both loanee & non-loanee farmer will be same and equal to scale of finance decided by the District Level Technical Committee, and is pre-declared by SLCCCI and notified. Sum Insured for individual farmer is equal to the Sum Insured multiple by acreage of the notified crop. ‘Area under cultivation’ shall always be expressed in ‘hectare’. 2. Sum insured for irrigated & un-irrigated areas will be separate.

Availing insurance

Only through Banks (RFIs) (though option was given but a rarely any non-loanee came direct)

Loanee: Banks Non-Loanee: Banks / Channel partners / Insurance Intermediaries / Direct

Loanee: Banks Non-Loanee: Banks / Channel partners / Insurance Intermediaries / Direct

It is available for all types of farmers but not mandatory to anyone. It is optional for both loanee as well as non-loanee farmers.

56

Non-Loanee insurance vis-à-vis time of sowing the crop

Mostly after the crop is sown (within 30 days from sowing or cut-off date, whichever is earlier)

Can avail before sowing / planting (should there be a change of crop, same to be intimated within 30 days from cut- off date, along with sowing certificate; excess premium can be refunded)

Can avail before sowing / planting

Availing insurance shall fill up Proposal Form of Scheme and submit same to nearest bank branch or authorized channel partners or insurance intermediaries of insurance company.

Service Charge / Commission

2.5% of gross premium (i.e. flat rate premium) payable under the Scheme

Banks: 4% of gross premium payable under the Scheme Others: As decided by Insurer subject to IRDA capping

Banks: 4% of premium payable by farmers under the Scheme Others: As decided by Insurer subject to IRDA capping

Banks: 4% of premium payable by farmers under the Scheme Others: As decided by Insurer subject to IRDA capping

Source: Compiled by Author

57

Annex-2. Selected State-wise Number of Farmers Insured, Claims and Benefited (AIC Business) under Modified National Agriculture Insurance Scheme (MNAIS) in India (2014 and 2015)

States/UTs

Kharif 2014 Rabi 2014-15 Kharif 2015

No. of Farmers Insured

Claims (Rs. In Lakh)

No. of Farmers

Benefitted


Claims (Rs. In Lakh)

No. of Farmers

Benefitted


Andaman Nicobar and Islands

0 1.76 0 0 0.00 0 129

Andhra Pradesh 0 0.00 0 42748 0.00 0 232435

Assam 2895 2.81 57 23643 24.90 282 1628

Bihar 0 0.00 0 1579229 112882.7 838856 906517

Chhattisgarh 0 0.00 0 94188 110.86 5846 580454

Goa 0 0.00 0 0 0.00 0 0

Gujarat 658907 50248.23 191579 1948 74.91 578 502922

Haryana 0 0.00 0 0 0.00 0 0

Himachal Pradesh 16573 18.30 272 16182 27.32 130 8048

Jammu and Kashmir

0 0.00 0 0 0.00 0 0

Jharkhand 0 0.00 0 64644 166.88 5163 472679

Karnataka 0 0.00 0 0 0.00 0 783091

Kerala 0 0.00 0 0 0.00 0

Madhya Pradesh 2454304 54221.20 425136 2536588 15086.81 0 196064

Maharashtra 4479025 159564.6 3486655 1115600 21098.40 683696 721457

Manipur 3472 185.13 3472 0 0.00 0 4683

Meghalaya 1172 0.00 0 838 16.28 838 255

Mizoram 0 0.00 0 0 0.00 0

Odisha 1800908 25534.61 175680 117582 796.62 10575 181929

Pondicherry 273 0.00 72 1268 0.00 0 0

Rajasthan 0 0.00 0 0 0.00 0 0

Sikkim 0 0.00 0 19 0.00 0 11

Tamilnadu 0 0.00 0 543048 1044.17 8121 89635

Telangana 266043 2204.19 53591 0 0.00 0 305709

Tripura 0 0.00 0 324 0.00 0 482

Uttar Pradesh 0 0.00 0 0 0.00 0 0

Uttarakhand 0 0.00 0 0 0.00 0 0

West Bengal 0 0.00 0 751827 10833.11 162628 752653

India 9683572 291980.82 4336514 6889676 162162.44 1716713 15635764

Note: Claim for Season Rabi 2014-2015 yet to be reported from Pondicherry. Kharif 2015 Data is Provisional/Claim for Season Kharif 2015 Not Reported from All States. Source: India stat

58

Annex-3. Crop-wise Gross Area Sown and Insured under All Insurance Schemes in India (2012-2013 to 2014-2015)

Crops

2012-2013 2013-2014 2014-2015

Gross Area Sown

Area Insured

%age of Area

Insured

Gross Area

Sown*

Area Insured

%age of Area

Insured

Gross Area

Sown*

Area Insured

%age of Area

Insured

Paddy 427.57 105.04 24.57 427.57 93.93 21.97 427.57 100.47 23.50

Wheat 304.95 64.59 21.18 304.95 79.69 26.13 304.95 77.64 25.46

Coarse Grains 251.45 51.22 20.37 251.45 44.41 17.66 251.45 59.53 23.67

Sugarcane 54.43 3.18 5.85 54.43 3.05 5.60 54.43 1.45 2.67

Cotton 118.81 13.45 11.32 118.81 12.71 10.70 118.81 15.35 12.92

Jute andMesta 8.55 0.05 0.63 8.55 0.04 0.46 8.55 0.70 8.18

Oilseds 290.97 98.35 33.80 290.97 112.11 38.53 290.97 104.62 35.96

Pules 219.59 66.07 30.09 219.59 64.70 29.46 219.59 57.69 26.27

Vgetables 55.05 7.34 13.33 55.05 10.24 18.61 55.05 20.88 37.92

Fruits 37.66 5.60 14.88 37.66 1.25 3.31 37.66 15.09 40.08

Area under AllCrops

1943.99 444.03 22.84 1943.99 427.23 21.98 1943.99 437.56 22.51

Note: *: Using latest available data for Gross Cropped Area for 2012-13 Source: India Stat

59

Annex-4. National Agriculture Insurance Scheme M.P. Business Performance & Claim Disbursement of MP State

Season Year Farmers Covered

Area (hectare)

Sum-Insured (Rs. crore)

Premium (Rs. crore)

Claim (Rs. Lakh)

Farmers Compensate (No. in Lakh)

RABI 1999-00 1.87 4.44 5833.03 96.9 11.33 0.05

KHARIF 2000 13.42 30.87 58112.92 2064.25 16199.98 9.47

RABI 2000-01 3.82 10.24 17503.60 300.09 1577.12 1.76

KHARIF 2001 8.64 19.59 43271.91 1889.32 3325.2 2.59

RABI 2001-02 4.82 13.3 26743.70 456.22 1909.76 1.39

KHARIF 2002 11.97 28.02 81444.39 3249.65 18789.91 6.18

RABI 2002-03 5.82 15.84 41144.93 728.84 4625.74 2.82

KHARIF 2003 9.80 22.43 70793.91 2662.72 86.5 0.12

RABI 2003-04 5.43 14.14 45761.88 819.08 790.26 0.37

KHARIF 2004 14.61 33.87 132666.82 4859.42 5738.34 2.02

RABI 2004-05 6.72 17.49 67947.36 1179.58 231.06 0.57

KHARIF 2005 13.99 33.53 151298.18 5518.88 240.61 0.2

RABI 2005-06 7.77 27.56 97848.25 1669.17 1760.27 1.08

KHARIF 2006 12.77 30.02 158033.43 5824.49 3552.52 1.36

RABI 2006-07 5.82 15.42 75199.13 1269.55 2084.37 0.86

KHARIF 2007 13.91 35.92 207010.64 7372.41 8551.17 1.63

RABI 2007-08 8.24 21.22 134121.28 2269.36 25519.79 4.24

KHARIF 2008 10.65 25.37 172409.14 6265.03 1717.01 0.64

RABI 2008-09 7.81 18.34 128216.10 2163.24 6572.55 1.48

KHARIF 2009 15.42 36.78 301731.32 10471.7 4338.8 1.02

RABI 2009-10 10.15 22.69 179621.97 3022.08 3384.75 1.03

KHARIF 2010 15.49 35.04 330478.38 11374.45 5416.28 0.95

RABI 2010-11 12.93 28.25 255393.70 4617.39 27018.09 5.29

KHARIF 2011 15.29 34.24 378072.42 13038.77 25056.48 1.44

RABI 2011-12 13.62 29.41 303631.53 5208 5852.46 1.2

KHARIF 2012 20.33 47.07 597938.21 20779.3 7507.77 0.74

RABI 2012-13 19.86 43.05 571979.82 9694.61 31681.63 3.6

KHARIF 2013 23.37 52.86 797267.16 27775.22 218743.05 14.2

RABI 2013-14 23.62 49.34 748441.80 12100.63 43721.34 5.91

KHARIF 2014 24.54 54.72 919053.05 31902.44 54199.04 4.34

RABI 2014-15 25.37 52.41 882836.30 14093.28 15084.45 1.99

Grand otal 387.87 903.47 7981806.26 214736.07 545287.63 80.54


60

Annex-5. Insurance claim process under PMFBY. S. No Risk Risk Cover Stage of

Crop Loss estimate

process Approach Proceedings

1 Unsuccessful sowing or planting

Less rainfall or adverse weather condition

Missed sowing/ planting / germination risk

The main crops in the notified insurance coverage over 75% of unit / planting absence

Area Approach (on insurance notified unit level)

Notification should be issued by the district level Evaluation Committee

2 Mid Season Adversity

Flood, long dry season and harsh day spell

Standing crop/ 15 days prior to the cutting stage

Estimated yield less than 50% of threshold yield

Area Approach (on insurance notified unit level)

Time to time Information should be provided to the insurance company by district level Evaluation Committee for joint inspection of Risk Notification.

3 Local Disaster Hailstorm, landslide and flooding

Stand crop To information on the helpline number or email the insurance company by Farmers / District administration / Agriculture dept. / Revenue Dept. / financial branches Within 72 hours of Risk

Depending on the individual farm

Risk information shall be submitted jointly for individual farm inspections by agriculture department, insurance company and farmer within 12 days of risk

4 Post harvest losses

14 days after harvest which was intended for drying the crop loss due to cyclones or unseasonal rain

After crop harvest

To information on the helpline number or email the insurance company by Farmers / District administration / Agriculture dept. / Revenue Dept. / financial branches Within 72 hours of Risk

Depending on the individual farm

Risk information shall be submitted jointly for individual farm inspections by agriculture department, insurance company and farmer within 12 days of risk

Source: compiled by author.


(An Autonomous institute of Government of Madhya Pradesh) An ISO 9001: 2008 Organisation

Office: Sushasan Bhawan, Bhadbhada Square, T.T. Nagar, Bhopal (M.P) -462003 Tel: +91-755-2777316, 2777317, 2777308, 2770765,2770695,2770538,2770761,

Fax: +91-755-2777316 E-mail: [email protected], Website: www.aiggpa.mp.gov.in

Tel:=91-755-2777316,2777317,2777308,2770765,2770695,2770538,2770761

mailto:[email protected]

Crop Insurance Models and Relief measures in India …...Project Report Crop Insurance Models and...

Documents

Transcript of Crop Insurance Models and Relief measures in India …...Project Report Crop Insurance Models and...