CROP INSURANCE PROGRAMME OF GOI

Perspective ofMNAIS

- RAJENDRA KUMAR TIWARI

Joint Secretary, Department of Agri. & Coop.

Ministry of Agriculture, GOI

Risks affecting Agriculture production– A Major Challenge

Vagaries of weather- rainfall- temperature- humidity- wind - cyclone

- hailstorm Pest & diseases Fire Quality of inputs Soil Market prices

Objectives of Crop Insurance

• To provide insurance coverage and financial support to the farmers in the event of prevented sowing & failure of any of the notified crop as a result of natural calamities, pests & diseases.

• To encourage the farmers to adopt progressive farming practices, high value in-puts and higher technology in Agriculture.

• To help stabilize farm incomes, particularly in disaster years.

HISTORICAL BACKGROUND OF CROP INSURANCE IN INDIA

• LIC introduced first scheme based on individual approach in 1972 for cotton in Gujarat, Continued up to 1978-79 and covered 3110 farmers premium of Rs. 4.54 lakhs and paid claims of Rs. 37.88 lakhs.

• In 1979 Pilot Crop Insurance Scheme (PCIS) was introduced. homogenous area approach limited to loanee farmers. 13 States implemented till 1984-85,covering 6.27 lakh farmers Premium of Rs. 196.95 lakhs and claims of Rs. 157.05 lakhs.

• From Kharif 1985, Comprehensive Crop Insurance Scheme (CCIS) was introduced which continued till Kharif 1999. The claims ratio was 1 : 5.72. CCIS was criticized for limited coverage of farmers, crops and

risks.• For covering farmer’s, yield and price, Farm Income

Insurance Scheme (FIIS) was also Piloted during Rabi 2003-04 and Kharif 2004 seasons in selected districts

Existing Crop Insurance Schemes

I. NAIS: yield based; non-actuarial premium except horticultural crops / annual commercial crops; underwriting of losses by Central & State Govt. on 50:50 ratio

II. WBCIS: weather based ; actuarial premium with premium subsidy shared equally by Central & State Govt.

III. CPIS: plant based; actuarial premium

IV. MNAIS: yield based; actuarial premium with premium subsidy shared equally by Central & State Govt.

NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS)

• For improving the scope and content of CCIS a broad based NAIS was introduced from Rabi 1999-2000.

• NAIS provides for greater coverage of farmers, crops and risk commitment.

• Premia-structure has been rationalized and the scheme is required to operate at smaller unit area of insurance.

• Subsidy to Small and Marginal farmers.• It is presently being implemented by 25 States & 2 Union

Territories• In last 22 Crop Season:

Farmers Covered : 17.01 crore ( Av. not more than 15% farmers) Premium Collected: Rs. 6213.41 crore Claims Paid : Rs. 20437.21 crore Claim ratio : 3.29 Loss cost : 9.86%

State-wise farmers benefited under NAIS(in lakhs)

0102030405060708090

Performance of NAIS during XIth Plan

Particulars 2007-08 2008-09 2009-10 2010-11

(Kharif only)

Claims

(Rs.in crore)

1724 3880 4936 Under process

Farmers Covered

(in Lakh

184 192 239 114

Farmers Benefited

(in Lakh)

32 62 88 Under process

Limitations of NAIS

• Large insurance unit area• Delay in payment of claims due to late submission of

yield data & availability of Govt. funds• Pre-sowing/ planting Risk is not covered• Unattractive basis of calculation of threshold yield, • Low indemnity level,• Localised calamities are not covered• Post Harvest Losses are not covered• Different seasonality discipline for loanee & non-

loanee farmers• Lack of competition

Main Recommendations of JG Report• Actuarial premium regime with suitable subsidy• Reduction in insurance unit area to Gram Panchayat• Basis of calculation of threshold yield –best 5 of 7

years’ yield• Higher indemnity levels of 80% & 90%• Coverage of:

Pre-sowing & post-harvest lossesPerennial cropsPersonal accidentPackage insurance policies covering other assets of

farmers, including Animal Husbandry • Private insurers to be encouraged, • Exemption from Income Tax & Service Tax so that an

adequate Catastrophic Reserve Fund can be built

Recommendations of other Committees

• National Mission on Sustainable Agriculture (NMSA) recommended for the following in respect to crop insurance program: Improvements in the existing NAIS w.r.t. calculation of threshold

yield, reduction of insurance unit, on account payment of claims, etc.

Promotion of blended/mixed insurance scheme. Comprehensive insurance products to address all the needs of

different farming systems. Design of Insurance products using weather index. Weather Insurance products based on climate change.

• Prime Minister’s Council on Trade & Industry- Sub-Committee on enhancing Agri Production & food Security has recommended to Link Agriculture credit with crop insurance to manage default risks

Major Modifications in NAIS

Sl. Sl. No.No.

ParametersParameters NAISNAIS Modified NAISModified NAIS

11 Insurance UnitInsurance Unit The defined area may The defined area may be a Gram Panchayat, be a Gram Panchayat, Mandal, Hobli, Circle, Mandal, Hobli, Circle, Phirka, Block, Taluka Phirka, Block, Taluka etc declared by GOS etc declared by GOS

Village Panchayat Village Panchayat for major cropsfor major crops

22 Threshold yield Threshold yield Moving average yield Moving average yield of preceding 3 years of preceding 3 years for Rice & wheat and 5 for Rice & wheat and 5 years for other cropsyears for other crops

Average yield of Average yield of last 7 yearslast 7 years excluding upto 2 excluding upto 2 years of declared years of declared natural calamitiesnatural calamities

33 Indemnity levels Indemnity levels 60%, 80% & 90% 60%, 80% & 90% 70, 80% and 90% 70, 80% and 90%

44 Pre- sowing/ Pre- sowing/ Planting RiskPlanting Risk

Presently not coveredPresently not covered Prevented/Failed Prevented/Failed Sowing Risk to be Sowing Risk to be covered upto 25% covered upto 25% of SIof SI

Major Modifications in NAIS …Cont.

Sl. Sl. No.No.

ParametersParameters NAISNAIS Modified NAISModified NAIS

55 Post Post Harvest Harvest LossesLosses

Presently not Presently not coveredcovered

Post harvest losses on Post harvest losses on account of cyclones in account of cyclones in coastal areas to be coastal areas to be coveredcovered

66 Early Early SettlementSettlement

The claims are The claims are settled based on settled based on the final yield the final yield estimates estimates submitted by GOSsubmitted by GOS

On account settlement of On account settlement of claims upto 25% of likely claims upto 25% of likely total claimstotal claims

77 Localized Localized calamitiescalamities

Presently not Presently not coveredcovered

Individual assessment of Individual assessment of claims in case of claims in case of hailstorm and landslide hailstorm and landslide

88 Seasonality Seasonality DisciplineDiscipline

Different for loanee Different for loanee and non-loanee and non-loanee farmersfarmers

Uniform seasonality Uniform seasonality discipline for loanee and discipline for loanee and non-loanee farmersnon-loanee farmers

99 ImplementinImplementing Agencyg Agency

AICAIC Private insurance Private insurance companies with adequate companies with adequate infrastructure and infrastructure and experience are also experience are also allowed alongwith AIC allowed alongwith AIC

Subsidy & Net Premium for Farmers under MNAIS

Sl.No

Actuarial Premium (% of SI)

Subsidy to Farmers (equally shared by Central and State Govt.)

Premium payable by farmers

1 Upto 2% NIL Upto 2%

2 >2-5% 40% subject to minimum net premium of 2% of SI

2-3%

3 >5-10% 50% subject to minimum net premium of 3% of SI

3-5%

4 >10-15% 60% subject to net premium of 5% of SI

5-6%

5 >15% 75% subject to minimum net premium of 6% of SI

=>6

MNAIS- Present Status

• Implemented in 34 districts covering 22 States during Rabi 2010-11 season

• The scheme would be on actuarial regime in which insurance company will receive premium on commercial basis and will be responsible for all claims

• GOI & State Govts. will provide premium subsidy upto a max. of 75% at different slabs of actuarial premium to make the scheme affordable for farmers

• The coverage in Pilot MNAIS is expected to 25% of total farmers of 50 districts.

Area Yield Index and Weather Index: Advantage and Challenges

Area Yield Index Weather Based Index

All peril covers (drought, excess rainfall, flood, pest & diseases)- resulted yield

Single or sometimes multiple perils cover- rainfall – (excess & deficit), temperature, relative humidity

Easy to design Technical challenges in index design (peril, crop, farming practices, agro-meteorological zone etc.)

Low start-up costs High start-up costs

High loss assessment costs (CCEs)

Lower loss assessment costs

Slow claims settlement Faster claims settlement

Major Challenges in implementation of MNAIS Assessment of crop yield at Gram Panchayat level –

Strengthening of Crop Cutting Experiments (CCEs) to increase their accuracy, reliability and timeliness;

Standardization of procedures and manuals (sample size, numbers, process etc.),

proper manpower allocation/outsourcing, capacity building/ training of field staffs,

supervision and monitoring of process, real time reporting of CCEs -through SMS, internet etc., computerization of yield data/reporting of CCEs result etc.

Alternative method for yield/loss assessment – Use of remote sensing technology Normalized Differential Vegetative Index MoU was signed between DST and AIC for launching a Pilot project

on Remote sensing technology in Bihar, Karnataka, Rajsthan & UP No progress could be achieved due to transfer of concerned experts

of DST

Methodology for yield assessment of multi-picking crops (horticultural & Commercial)

Major Challenges in implementation of MNAIS ...cont

Adequate Automatic Weather Stations (AWSs) – for on-account payment Existing -2000 AWSs (based on uniform distribution), Required- 8000 AWSs

• Fiscal Management- shifting of liability from financing post losses to pre-loses financing i.e. advance subsidy in premium

• Product Designing- risk classification (basis risk, Threshold Yield, Indemnity level), appropriate weighting/calculation of basis risk (risk rating), multi-optional products for the farmers based on their need/choice

(pre-sowing, planting, post-harvest losses)

• Benchmarking/registration before providing government support

• Rationalization & Standardization of premium rates

• Development of new products – for uncovered crops/areas

Major Challenges in implementation of MNAIS …cont

• Evaluation & Monitoring for proper implementation and further planning & Policy decision Grievance redressal mechanism

• Publicity & awareness,

• Coordination amongst all stakeholders

• Clerical mistake

THANKSTHANKS