Report of the Joint Group
Contents
Description
S. No
:
Page No.
I - VI
1- 4
Crop Insurance Programmes in India – A Review
1.1. Evolution
1.2. National Agricultural Insurance Scheme (NAIS)
i)
Salient features
ii)
Coverage statistics
iii) Experience Analysis
iv) Main issues and perceptions of interest groups
1.3. Farm Income Insurance Scheme (FIIS)
i)
Basic objectives
ii) Experience of FIIS
iii) Concerns & Constraints
1.4. Weather Insurance
i)
Concept
ii) Advantages over traditional crop insurance
iii) Summary of products introduced upto Kharif 2004
:
:
:
5-22
5-6
6-15
:
16-19
:
19-22
2.
Remote Sensing Technology
2.1. Background
2.2. Remote Sensing Applications in Agriculture in India
2.3. Remote Sensing Applications in Crop Insurance in India
:
23-30
3.
Crop Insurance – A Way Forward
3.1. National Agricultural Insurance Scheme (NAIS)
i)
Fundamental Issues
ii) Suggested Improvements
iii) Actuarial regime
3.2. Farm Income Insurance Scheme (FIIS)
i)
Key Issues
ii) Recommendations
3.3. Weather Insurance
i)
Future directions
ii) Agri-Met & blended Products
:
:
31-66
31-47
:
48-49
:
50-66
Modified National Agricultural Insurance Scheme
Scope for Package Insurance Policy
Private Sector Participation in Crop Insurance
Financing Crop Insurance
7.1. Crop insurance penetration targets
7.2. Financing mechanism
i)
Subsidy levels in other countries
ii) Farmers’ Capacity to pay Premium
iii) Government’s support
7.3. Financial outlay of the Government (existing & future)
Recommendations’ Summary
References
Appendices
:
:
:
:
:
:
67-77
78-83
84-90
91-104
Executive Summary
Prologue
1.
4.
5.
6.
7.
8.
9.
10.
:
:
:
:
105-109
110
i - xlvi
Joint Group Report
PROLOGUE
Background:
National Agricultural Insurance Scheme (NAIS) was introduced w.e.f. Rabi 199900 substituting the Comprehensive Crop Insurance Scheme (CCIS), which was
in operation between 1985 and 1999. Despite addressing the shortcomings
noticed during implementation of CCIS and launching of improved version of crop
insurance in the form of NAIS, the scheme failed to appeal to the farming
community. Consequently, only about 10 percent of the farmers could be
covered under the scheme. This is despite nearly 75 percent subsidy in the
scheme, which came in the form of subsidy in premium and deficit financing of
claims.
Though the scheme provided for annual review, no review worth
mentioning has been carried out since inception. The government therefore is
keen to address some of the constraints/ bottlenecks to make the scheme more
attractive to the farmers.
The National Agricultural Policy (NAP) 2000 in Para titled Risk Management
reads:
“Despite technological and economic advancements, the condition of farmers
continues to be unstable due to natural calamities and price fluctuations. National
Agriculture Insurance Scheme covering all farmers and all crops throughout the
country with built in provisions for insulating farmers from financial distress
caused by natural disasters and making agriculture financially viable will be made
more farmer specific and effective. Endeavour will be made to provide a package
insurance policy for the farmers, right from sowing of the crops to post-harvest
operations, including market fluctuations in the prices of agricultural produce”.
Union Budget 2004-05: Crop Insurance
The text of Honorable Union Finance Minister’s 2004-05 budget speech
concerning Risk Mitigation on agriculture is produced below:
______________________________________________________________________________________
1
Joint Group Report
“The Agriculture Insurance Company (AIC) was incorporated in December 2002.
The National Agricultural Insurance Scheme (NAIS), which insures the yield or
crop, is in operation since Rabi 1999-2000. AIC is redesigning the scheme. We
shall continue with the scheme and make another evaluation. Meanwhile, a pilot
scheme insuring farm income (as opposed to crop) has been launched in 19
districts across 12 States during Rabi 2003-04. The government has decided to
extend the scheme to Kharif 2004 in order to assess its feasibility. I wish to add
that a weather insurance scheme appears to be more promising, at least in the
design. AIC is introducing the scheme on a trial basis in 20 rain gauge stations in
the current crop season. It is difficult to tell at this stage which of the three
schemes will be successful. Agriculture insurance as well as livestock insurance
are complex products and have to be designed with care. I wish to re-affirm
government’s commitment to provide insurance cover to farming and livestock.”
Bearing in mind the shortcomings of existing crop insurance programme, and the
commitment of the Government to the farming community, review of the existing
crop insurance scheme was felt imperative.
Constitution of Joint Group:
The Hon’ble Prime Minister while reviewing the status of National Common
Minimum Programme (NCMP) directed the Ministry of Agriculture to constitute a
Joint Group to expeditiously study the improvements required in the existing crop
insurance schemes. Ministry of Agriculture vide letter no. 16012/05/2004-Credit
II dated 31st August 2004 constituted a Joint Group under the chairmanship of
Shri A K. Singh, Additional Secretary (Ministry of Agriculture). The other
members of the Group are Shri Satish Chander, Joint Secretary (Ministry of
Agriculture), Shri. G. C. Chaturvedi, Joint Secretary (Ministry of Finance) and
Shri.
Suparas
Bhandari,
Chairman-Cum-Managing
Director
(Agriculture
Insurance Company of India Limited).
______________________________________________________________________________________
2
Joint Group Report
Terms of the Reference
The Terms of the Reference of the Group were as under:
i)
To review the status position of existing Crop Insurance Schemes i.e.
National Agricultural Insurance Scheme (NAIS), Pilot Project on Farm
Income Insurance Scheme (FIIS), Varsha Bima Yojna and other
agriculture related schemes floated by Private General Insurance
Companies.
ii)
Improvements required in National Agricultural Insurance Scheme.
iii)
To develop broad parameters/ concept paper of an appropriate and
farmers friendly crop insurance scheme after taking into account the
professional inputs obtained from experts and private sector general
insurance companies.
iv)
To make assessment of up front subsidy, if any, to be paid by the
government.
The communication for constituting Joint Group is appended as Annexure-1.
Meetings and Interactions
The Joint Group held 15 meetings on 10th, 21st & 29th September; 20th & 27th
October and 3rd, 6th, 9th, 10th, 15th, 18th, 19th, 25th November, 10th & 15th
December, 2004.
The Joint Group in the course of discussions, consulted experts in different fields.
These included- Dr. J.S. Parihar, Group Head (ARG), ISRO (Ahmedabad), Dr. S
K. Goel, Commissioner for Agriculture (Maharashtra), Dr. R. K. Parchure,
Professor at National Insurance Academy (Pune), Dr Gurbachan Singh, ADG
(Agro), ICAR (Delhi), Dr J.P. Mishra, ADG (PP&IPR), ICAR (Delhi), and Shri
Rajiv Mehta, Member Secretary, CACP (Delhi).
The Group made extensive use of statistical data available with implementing
agency of NAIS in analyzing the present situation. The Group also made
conscious effort to examine views and suggestions received from various interest
groups – Farmers, States, Members of the Parliament, Banks etc.
______________________________________________________________________________________
3
Joint Group Report
The Group also interacted with many private sector insurers, took presentations
on private sector perspective of crop insurance, and explored possibilities of
package policy and weather insurance.
Members of the Joint Group also visited Space Applications Centre (SAC) within
Indian Space Research Organization (ISRO), Ahmedabad to understand the
applications of remote sensing technology in agriculture, particularly in the field of
crop insurance. Shri G.C. Chaturvedi and Shri Suparas Bhandari of the Group
also interacted with ‘National Commission on Farmers’ to understand their
perceptive of risk mitigation and role of crop insurance.
This Report is the result of collective efforts of many people. The Joint Group
gratefully acknowledges inputs and guidance received from all concerned and
wishes to thank all those, too numerous to be mentioned by name, who
contributed to various aspects of preparing this report.
The report is being submitted by the Joint Group with the hope that its
recommendations and the initiatives based on these recommendations will find
acceptability by all the stakeholders who look forward to having a better crop risk
protection system, committed to the cause of minimizing the impact of crop failure
on the income cycle of farmers.
(A. K. Singh)
Additional Secretary
Ministry of Agriculture
Government of India
(Chairman)
(Suparas Bhandari)
CMD,
Agriculture Insurance
Company of India Ltd.
(Member)
(Satish Chander)
Joint Secretary
Ministry of Agriculture
Government of India
(Member)
(G. C. Chaturvedi)
Joint Secretary
Ministry of Finance
Government of India
(Member)
______________________________________________________________________________________
4
Joint Group Report
1. CROP INSURANCE PROGRAMMES IN INDIA – A REVIEW
1.1. Evolution:
Agriculture continues to be the mainstay of Indian economy. It contributes 22
percent of GDP, provides 58 percent of employment, sustains 69 percent of
population, produces all the food & nutritional requirements of the nation,
important raw materials for some major industries, and accounts for about 14
percent of exports. Heavy dependence on weather conditions and its long
production cycle makes agriculture a risky economic activity.
Crop insurance is a mechanism to protect the farmers against uncertainties of
crop production due to natural factors, beyond the control of farmers. It is also a
financial mechanism, which minimizes the uncertainty of loss in crop production
by factoring in large number of uncertainties having impact on crop yields,
thereby distributing the burden of loss. In a country like India, where crop
production is subjected to vagaries of weather and large-scale damages due to
attack of pests and diseases, crop insurance assumes a very vital role.
An all-risk Comprehensive Crop Insurance Scheme (CCIS) for major crops was
introduced in 1985, coinciding with the introduction of the VII-Five-year plan and
subsequently National Agricultural Insurance Scheme (NAIS) w.e.f. Rabi 199900. These Schemes have been preceded by years of preparation, studies,
planning, experiments and trials on a pilot basis. A brief chronology preceding
the present NAIS would be a fruitful introspective exercise:
1. Scheme based on ‘individual’ approach (1972-1978): The first ever
scheme started on H-4 cotton in Gujarat, extending later to a few other crops
& states. The scheme covered 3110 farmers for a premium of Rs. 4.54 lakhs
and paid claims of Rs. 37.88 lakhs.
2. Pilot Crop Insurance Scheme – PCIS (1979-1984): PCIS was introduced
on the basis of report of late Prof. V.M.Dandekar and was based on
‘Homogeneous Area’ approach. The scheme covered food crops, oilseeds,
______________________________________________________________________________________
5
Joint Group Report
cotton, & potato; and confined to loanee farmers on voluntary basis. The
scheme was implemented in 13 states and covered 6.27 lakh farmers for a
premium of Rs. 196.95 lakhs and paid claims of Rs. 157.05 lakhs.
3. Comprehensive Crop Insurance Scheme – CCIS (1985-1999): The
scheme was expansion of PCIS, and was compulsory for loanee farmers.
Premium rates were 2 percent of sum insured for cereals & millets and 1
percent for pulses & oilseeds, with premium and claims shared between
Centre & States in 2:1 ratio. The scheme was implemented in 16 States & 2
UTs and covered 7.63 crore farmers for a premium of Rs. 403.56 crores and
paid claims of Rs. 2319 crores. The State of Gujarat received 47 percent of
total claims, followed by AP (21 percent), Maharashtra (9 percent) and Orissa
(8 percent). Deficit rainfall accounted for 75 percent of claims, followed by
cyclones / floods (20 percent). The claim ratio (claims: premium) was 5.75
and loss cost (claims: sum insured) was 9.29 percent.
4. Experimental Crop Insurance Scheme – ECIS (Rabi 1997-98): ECIS was
introduced as an experiment to additionally cover non-loanee small /
marginal farmers in 14 districts of 5 States with 100% premium subsidy. It
covered 4.55 lakh farmers for a premium of Rs. 2.84 crores and paid claims
of Rs. 37.80 crores.
1.2
National Agriculture Insurance Scheme (NAIS):
NAIS was introduced during Rabi 1999-00 by improving the scope and content of
erstwhile CCIS.
1.2.1. Salient features of the Scheme:
(a) States and Areas covered: The Scheme is available to all States and
Union Territories on optional basis. A State opting for the Scheme will have
to continue for a minimum period of three years.
______________________________________________________________________________________
6
Joint Group Report
(b) Farmer covered: All farmers including sharecroppers and tenant farmers
growing the notified crops in the notified areas are eligible for coverage. The
scheme is compulsory for farmers availing loans and voluntary for others.
(c) Crops covered: The Scheme covers

Food crops (Cereals, Millets & Pulses)

Oilseeds

Annual Commercial / Horticultural crops of Sugarcane, Cotton,
Potato, Onion, Chilly, Turmeric, Ginger, Jute, tapioca, annual
Banana & annual Pineapple
(d) Sum insured: The minimum Sum Insured (SI) in case of loanee farmer is
the amount of loan availed, which can be further extended upto 150% of
average yield. For non-loanee farmer, it can be upto value of 150% of
average yield.
(e) Premium Rates: The premium rates are 3.5% for oilseeds & bajra and
2.5% for cereals, millets & pulses during Kharif; 1.5% for wheat & 2% for
other food crops and oilseeds during Rabi. The rates for annual commercial
/ horticultural crops are actuarial.
(f) Premium subsidy: Small / Marginal farmers are subsidized in premium to
the extent of 50 percent, to be shared equally between the Centre & States.
The premium subsidy is, however, to be phased out over five years period
on sunset basis. Accordingly the eligible subsidy during 2004-05 is 10
percent.
(g) Scheme approach: The scheme covers losses from sowing to
harvesting, and operates on ‘area approach’ for widespread calamities. For
this purpose a unit of insurance is defined which may be a Village
Panchayat, Mandal, Hobli, Circle, Phirka, Block, Taluka etc. to be decided
by the State govt. / UT. However, each participating State govt. / UT was
required to reach the level of Village Panchayat as the unit within a
maximum period of three years.
______________________________________________________________________________________
7
Joint Group Report
The Scheme is to operate on ‘individual’ basis for specified localized
calamities. However, individual assessment of losses is experimented only
in a few areas – one block / taluka in each state.
(h) Loss assessment, Levels of Indemnity & Threshold Yield: The Threshold
Yield (TY) or Guaranteed Yield for a crop in a Insurance Unit shall be the
moving average yield based on past three years in case of Rice & Wheat
and five years yield in case of Other crops, multiplied by the level of
indemnity. Three levels of Indemnity, viz., 90%, 80% & 60% corresponding
to Low Risk, Medium Risk & High Risk areas shall be available for all crops.
The insured farmers of unit area may also opt for higher level of indemnity
on payment of additional premium.
If the ‘Actual Yield’ (AY) per hectare of the insured crop for the defined area
falls short of the specified ‘Threshold Yield’ (TY), all the insured farmers
growing that crop in the defined area are deemed to have suffered shortfall
in their yield.
(i)
Sharing of Risk: Until transition is made to actuarial regime, Govt. of India
and States shall share claims beyond 100% of premium for food crops &
oilseeds on 50:50 basis. In case of annual commercial / horticultural crops,
claims beyond 150% of premium in the first 3 or 5 years and 200%
thereafter are borne by Centre and State on 50:50 basis
A copy of National Agricultural Insurance Scheme is appended as Annexure-2
1.2.2. COVERAGE UNDER NAIS:
Following 23 States & 2 UTs are presently implementing the scheme:
1. Andhra Pradesh, 2. Assam, 3. Bihar, 4. Chhattisgarh, 5. Goa, 6. Gujarat, 7.
Haryana, 8. Himachal Pradesh, 9. Jammu & Kashmir, 10. Jharkhand, 11.
Karnataka, 12. Kerala, 13. Madhya Pradesh, 14. Maharashtra, 15. Meghalaya,
16. Orissa, 17. Rajasthan, 18. Sikkim, 19. Tamilnadu, 20. Tripura, 21. Uttar
Pradesh, 22. Uttaranchal, 23. West Bengal, 24. A&N Islands, 25. Pondicherry.
______________________________________________________________________________________
8
Joint Group Report
Following 5 States & 5 UTs are not implementing the scheme:
1.Arunachal Pradesh, 2. Manipur, 3. Mizoram, 4. Nagalad, 5. Punjab, 6.
Chandigarh, 7. Dadra, Nagar & Haveli, 8. Daman & Diu, 9. Delhi, 10.
Lakshwadweep.
Till Rabi 2003-04, NAIS covered 461.99 lakh farmers for a premium of Rs.
1242.66 crores and finalized claims of Rs. 4751.78 crores. The season-wise
coverage since its inception is given in Table – 1 below:
Table- 1
Season
No. of
covered
Farmers
Area
covered covered
(lakhs ha.)
States/UTs (lakhs)
Kharif
2000
2001
2002
2003
TOTAL
Rabi
1999-00
2000-01
2001-02
2002-03
2003-04
TOTAL
Grand Total
Sum
Insured
Premium
Claims
(Rs. crores) (Rs. crores)
Farmers
Benefited
(Rs.crores)
17
20
21
23
84.09
86.96
97.69
79.70
348.44
132.20
128.88
155.33
123.30
539.93
6903.38
7502.46
9431.69
8114.06
31951.59
206.73
261.62
325.47
283.26
1077.08
1222.48
493.27
1821.85
634.17
4171.77
3635252
3145776
4337041
1617802
12735871
9
18
20
21
22
5.80
20.92
19.55
23.27
44.01
113.55
461.99
7.81
31.11
31.46
40.38
92.21
202.97
742.90
356.41
1602.69
1497.51
1837.53
3027.09
8321.23
40272.82
5.42
27.79
30.15
38.50
63.72
165.58
1242.66
7.69
59.49
64.66
188.34
259.83
580.01
4751.78
55288
526697
453325
926392
1070725
3032427
15768298
Note: Claims of Rabi 2003-04 are provisional, as a few States are yet to report
1.2.3. Experience Analysis:
Analysis of crop & crop-group wise, state wise and farmer category wise
performance of NAIS upto Rabi 2003-04 (since its inception) is presented in
Tables 2 - 4:
______________________________________________________________________________________
9
Joint Group Report
Table-2
National Agricultural Insurance Scheme: Crop-wise Premium (as % total), Claims (as % total),
Claims Ratio, and Loss Cost for Rabi 1999-00 to Rabi 2003-04 (All Seasons)
(Premium & Claims Rs. Crores)
Crop
Premium
(% of total
for all crops)
Claims
(% of total for all
crops)
Claim Ratio
(Claims/
Premium)
Loss Cost
(Claims as % of
Sum Insured)
Paddy (rice)
328.06
(26.40%)
34.09
(2.74%)
22.39
(1.807%)
16.62
(1.34%)
17.34
(1.40%)
418.50
(33.68%)
279.93
(22.47%)
90.15
(7.25%)
369.40
(29.73%)
45.13
(3.63%)
57.17
(4.60%)
287.91
(23.17%)
64.54
(5.19%)
1225.02
(25.81%)
116.23
(2.42%)
179.21
(3.78%)
61.21
(1.27%)
130.74
(2.70%)
1712.41
(35.98%)
1603.08
(33.78%)
301.37
(6.37%)
1904.45
(40.16%)
305.64
(6.46%)
120.18
(2.50%)
498.71
(10.50%)
210.38
(4.41%)
3.73
9.08
3.41
5.15
8.00
19.79
3.68
18.01
7.54
18.17
4.09
9.67
5.74
19.70
3.34
11.05
5.16
17.52
6.77
16.94
2.10
2.88
1.73
12.44
3.26
11.53
409.62
(32.96%)
829.27
(17.40%)
2.02
8.31
1242.65
4751.77
3.82
(100%)
(100%)
Source: Agricultural Insurance Company of India (AIC) Ltd.
11.78
Wheat
Jowar
Bajra
Other cereals
All cereals
Groundnut
Other oilseeds
All oilseeds
Pulses
Sugarcane
Cotton
Other
Commercial
Crops
All Commercial
crops
All crops
As can be seen from Table-2, the Loss Cost is 11.78 percent in case of NAIS as
compared to 9.29 for the Comprehensive Crop Insurance Scheme. However, the
claim ratio for the NAIS is lower i.e. 3.82 as compared to 5.75 for the CCIS, even
though the indemnity as a percentage of the sum ensured is higher. This is
because of higher premium rates under NAIS. The average premium in case of
the NAIS was 3.08 percent, compared to 1.62 percent under CCIS.
______________________________________________________________________________________
10
Joint Group Report
Groundnut crop accounts for a major part of the indemnity in the NAIS (Table-2).
It has the highest Loss cost of 19.70 per cent and accounts for 34 per cent of the
total indemnity though its share in the premium is only 22 per cent. Oilseeds and
Pulses have high loss cost at 17.52 percent and 16.94 percent, while annual
commercial crops and cereals have lower loss cost at 8.31 percent and 9.67
percent.
Six States, viz. Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Andhra
Pradesh, and Orissa account for major part of the indemnity. As can be seen in
Table- 3, these States account for 83 per cent of the sum insured, 88 per cent of
the premium and 91 per cent of the claims for the entire country. The States of
Gujarat and Karnataka posted the maximum loss cost with 21.57 percent and
18.78 percent, respectively. Andhra Pradesh posted least loss cost with 6.92
percent, while Maharashtra, Madhya Pradesh and Orissa had loss cost in
between, at 9.24 percent 10.04 percent and 11.90 percent, respectively. Deficit
rainfall accounted for 90 percent of claims.
Table -3
NAIS: Coverage & Financial aspects of Major States
for Rabi 1999-00 to Rabi 2003-04 (All Seasons)
States
Gujarat
Karnataka
Maharashtra
Andhra Pradesh
Madhya Pradesh
Orissa
Total of 6 States
% of All India
Others
Grand Total
Sum Insured
Premium
Claims
(Rs.crores)
(Rs.crores)
(Rs.crores)
324.16
112.52
231.96
230.59
117.94
78.50
1095.67
88.17%
146.98
1242.65
1652.68
711.77
607.45
599.84
373.66
373.76
4319.16
91.34%
432.62
4751.78
7663.57
3790.01
6571.50
8667.45
3718.87
3141.07
33552.47
83.31%
6720.34
40272.81
Claims Ratio
Loss Cost
(Claims /
(Claims as % of
Premium)
Sum Insured)
5.10
6.33
2.62
2.60
3.17
4.76
3.94
21.57
18.78
9.24
6.92
10.04
11.90
12.88
2.94
3.80
6.43
11.74
Source: Agricultural Insurance Company of India (AIC) Ltd
______________________________________________________________________________________
11
Joint Group Report
Non-Loanee Participation and Adverse Selection:
Non-loanee farmers’ participation in NAIS is mostly guided by the nature of the
season, meaning poor participation during normal seasons and high participation
during adverse seasons. Further, the non-loanee farmers’ participation had come
from those areas and crops, which most likely were to report high crop losses in
the states of Maharashtra, Karnataka and Orissa. Their participation was
predictably highest during adverse seasons from the above states. This kind of
selective participation is known as “adverse selection” in insurance parlance.
Based on coverage between 1999 and 2003-04, the loss cost for non-loanee
farmers was a staggering 29 percent, compared to 10 percent for loanee farmers
(Table-4). In other words, the claim experience of non-loanee farmers is nearly
three times higher compared to loanee farmers. Extension of cut-off dates for
participation of non-loanee farmers particularly during Kharif seasons has sent
the loss costs through the roof. The situation certainly merits corrective action in
terms of advancing cut-off dates for non-loanee participation. There is also a
strong case for not extending the cut-off dates after it has been fixed once at the
beginning of the season.
Table-4
NAIS - Loss Cost for Loanee & Non Loanee since RABI 1999-2000
(Rs. in crores)
S.NO. SEASON
1
2
3
4
5
6
7
8
9
Rabi 1999-00
Kharif 2000
Rabi 2000-01
Kharif 2001
Rabi 2001-02
Kharif 2002
Rabi 2002-03
Kharif 2003
Rabi 2003-04
TOTAL
LOANEE
NON LOANEE
Sum Insured Claims Loss Cost Sum Insured Claims
Loss Cost
348.21
7.10
2.04
8.20
0.59
7.18
6807.91 1185.91
17.42
95.47
36.57
38.30
1532.07
44.44
2.90
70.61
15.06
21.32
7182.26 406.99
5.67
320.20
86.25
26.94
1455.77
47.20
3.24
41.74
17.46
41.83
8247.67 1450.55
17.59
1184.03
369.35
31.19
1682.38 148.94
8.85
155.06
39.40
25.41
7439.94 386.28
5.19
652.45
247.89
37.99
2117.96
72.17
3.41
932.72
189.62
20.33
36814.16 3749.59
10.19
3460.48
1002.19
28.96
______________________________________________________________________________________
12
Joint Group Report
1.2.4. Main Issues and Perceptions:
Despite high claim ratio and low premium rates, farmers are not coming forward
to avail crop insurance in a big way. It is a pointer that the scheme is falling short
of expectations of farmers. NAIS was discussed at different levels both formally
and informally to understand the reasons for low acceptability. The suggestions
and views expressed for improving acceptability of NAIS are listed below:
Coverage related:

Package policy covering crop and other assets of the farmers to be made
available through single window

Inclusion of perennial horticulture crops

Inclusion of vegetable crops

Pre-sowing risks should be covered in instances where sowing is
prevented.

Post harvest losses should be covered

The Maximum coverage to be restricted to 100% of the threshold yield

Irrigated and unirrigated areas within a crop should be notified separately

The scheme should be restricted to Loanee farmers only

Specific measures such as improved marketing facilities for inclusion of
large number of non-loanee farmers under the scheme

The seasonality discipline should be uniform for both Loanee and Non
loanee farmers
Premium related:

Actuarial premium rates in case of Annual Commercial and Horticulture
crops be capped at 3 percent. Alternatively, the scheme be made
voluntary for these crops.

Restoring premium subsidy in case of Small and Marginal farmers

All small and marginal farmers in rainfed areas to be given 100 percent
subsidy in premium.
______________________________________________________________________________________
13
Joint Group Report

Regional premium rating to be adopted instead of uniform State Level
Rates.

Farming community feels that premium rates are already high, while
implementers / administrators feel it is low.
Indemnity related:

Claims to be paid immediately after loss

Ad-hoc/on account settlement of claims

Individual assessment of claims

Objective loss assessment procedures

Guaranteed yield to be based on 3-5 best years out of past 10 years

Indemnity limit should be at least 80%

No claim bonus to be allowed

Single series of Crop Cutting Experiments (CCEs) should not be insisted

Individual assessment in case of localized calamities should be
implemented in all areas

Areas where stipulated number of CCEs is not completed should be
considered for claims by using appropriate method such as clubbing with
neighboring areas etc.

Insurance Unit size should be small so that losses reflected are closer to
reality

Surplus premium over and above claims in normal/good years should be
carried forward

Risk sharing between Government of India and the State Govt. should be
4:1 or at least 2:1

State share of claims may be met out of Calamity Relief Fund of the
Government of India
Administration related:

Sample size of Crop Cutting Experiments should be reduced
______________________________________________________________________________________
14
Joint Group Report

Time schedule should be prescribed for various activities under the
scheme, particularly settlement of claims

Delay in receipt of yield data and / or funds from states leading to longer
settlement periods for claims should be avoided

Implementing agency should strengthen its infrastructure and manpower,
including network at district level to have a good reach to the farmers.

Central Govt. should take steps to create awareness and bear the
publicity expenditure.

The entire expenditure on additional CCEs required for lowering the
insurance unit to village panchayat should be borne by Government of
India

Banks should streamline their functioning and stop perceiving the
administration work involved as additional burden.

The Service charges payable to Banks under the scheme are not
commensurate with job involved, and needs to be enhanced

Lack of adequately trained staff with Banks to interact with the farmers
regarding the scheme provisions

Legal cases should not be filed against compulsory provisions of scheme
Insurance Principles related:

Adverse selection problems (choosing to participate in the scheme
selectively even after being certain of crop losses) particularly of nonloanee farmers

Inflated claims resulting from false coverage or tampered yield data or
both

Lack of spread in risk due to non-participation of important states
The important issues and possible solutions are discussed in Chapter-3.
______________________________________________________________________________________
15
Joint Group Report
1. 3. FARM INCOME INSURANCE SCHEME (FIIS)
1.3.1. Basic Objectives:
NAIS protects the farmers only against the yield fluctuations. The price
fluctuations are outside the purview of this scheme. Farmers’ income is a
function of yield and market prices.
Therefore, despite normal production,
farmers often fail to maintain their income level due to fluctuations in market
prices. To take care of variability in both the yield and market price, the
government introduced a pilot project, viz. Farm Income Insurance Scheme
(FIIS) during Rabi 2003-04 season.
The objective of the scheme was not only to protect the income of the farmer, but
also to reduce the government expenditure on procurement at Minimum Support
Price (MSP). The other main objectives were to encourage crop diversification
and also to give fillip to private trade, etc.
The following are the salient features of the farm income insurance scheme:
i.
The crops covered are rice and wheat.
ii.
The scheme is based on the ‘homogeneous area’ approach and notified
area can be an administrative unit such as a gram panchayat, mandal,
revenue circle, block, taluka or district.
iii.
The scheme is compulsory for loanee farmers and voluntary for nonloanee farmers.
iv.
The premium rates are actuarial, determined for each State at the district
level.
v.
The Government of India subsidizes the gross premium payable by the
insured farmers. The subsidy will be 75 per cent of the premium for
small/marginal farmers and 50 per cent for other farmers.
vi.
Two levels of indemnity, i.e. 90 per cent for low-risk areas and 80 per cent
for high-risk areas.
______________________________________________________________________________________
16
Joint Group Report
vii.
If the actual income (current yield X current market price) is lower than
guaranteed income (average yield of 7 years X level of indemnity [80% or
90%] X MSP), the insured farmer receives the compensation.
viii.
The government procurement at MSP is suspended in the pilot districts for
covered crops.
ix.
NAIS is suspended for the selected districts/crops where the pilot FIIS is
implemented.
1.3.2. Experience of FIIS:
The scheme was implemented during Rabi 2003-04 season in 15 districts of 8
States for wheat and 3 districts of 3 States for rice on pilot basis. The coverage
details during Rabi 2003-04 are presented in Table-5.
Table-5
Sr.
No.
State
District
WHEAT
Bihar
1
Chhattisgarh
2
Buxar
Durg
Rajnandangaon
Gujarat
3
Banaskantha
Jharkhand
4
Hazaribagh
Sahebganj
Madhya
5
Pradesh Hoshangabad
Tikkamgarh
Raisen
Maharashtra
6
Parbhani
Uttar
7 Pradesh
Mirzapur
Mathura
Etawah
Kannauj
Uttranchal
8
Dehradun
Farmers Acreage
(ha.)
Total
Total
187
2541
1389
484
778
376
21139
33068
17243
981
12144
53544
15856
16649
1829
200
3745
1638
611
529
300
30699
23422
36758
462
14754
46823
12429
16291
854
Sum
Insured
Total
Rs. Lakhs
Premium Claims
Total
Total
24.28
173.70
82.52
72.63
49.01
26.83
3731.69
2396.35
3333.94
33.56
1539.05
7738.89
1812.38
2657.61
71.89
1.77
15.02
12.95
2.25
3.90
1.82
322.79
80.28
155.65
2.92
69.49
448.58
99.41
176.46
5.75
0.13
50.12
15.37
0.00
2.21
8.28
0.00
0.00
0.00
1.25
3.96
22.88
12.88
19.11
0.41
Total
178208
189515 23744.33
1399.04
136.60
Kamrup
Mysore
Madurai
Total
Grand Total
1740
59
199
1998
180206
1257
110.52
41
8.93
214
50.79
1512
170.24
191027 23914.57
3.92
0.79
2.49
7.20
1406.24
7.05
0.00
0.00
7.05
143.65
RICE
Assam
9
Karnataka
10
Tamilnadu
11
______________________________________________________________________________________
17
Joint Group Report
Initially it was planned that procurement operations at MSP would be suspended
in the pilot districts. However, due to pressure from states and farmers, the
procurement operations were restored at harvesting time.
Kharif 2004 season:
The Scheme has been repeated in 19 Districts of four States for Rice crop during
Kharif 2004 season. The provisional coverage details is given in Table-6 below:
Table-6
S. No.
State
District
Farmers
Total
Acreage
(ha.)
Total
Sum Insured
(Rs. Lakhs)
Total
Premium
(Rs. Lakhs)
Total
RICE
Gujarat
1
Ahmedaqbad
Baroda
Bulsar
Panchmahals
Surat
Jharkhand
2
Gumala
Hazaribagh
Ranchi
E. Singhbhum
W.Singhbhum
Maharashtra
3
Bhandara
Chandrapur
Gadchiroli
Raigarh
Thane
West
4 Bengal Birbhum
Jalpaiguri
Murshidabad
North 24-Prgs
Total
2037
536
1216
12829
28
12951
25959
12902
8240
10050
22176
22783
8682
1708
16559
27595
1908
12076
16134
216369
6595
788
1215
13561
21
9388
18532
9668
5712
7668
28867
30447
12693
667
13770
10957
945
4626
9865
185985
507.08
44.90
136.88
535.74
2.27
613.38
1422.02
821.71
416.93
460.75
2329.19
2387.67
894.27
102.11
1834.55
1931.95
89.83
684.87
1233.85
16449.95
117.74
8.94
2.12
173.58
0.11
22.70
61.86
33.28
23.97
37.32
175.85
274.58
87.65
2.81
133.92
44.43
2.64
44.85
27.73
1276.08
Note: Claims position would be known by February’ 05
1.3.3. FIIS - Key Issues and Constraints:
As it was initially intended to implement FIIS in 100 districts during Kharif 2004, a
general review of FIIS was done in the beginning of Kharif 2004 season. It was
noticed that many states including Haryana and Punjab had not agreed to
implement the scheme. The single most important reason given for non______________________________________________________________________________________
18
Joint Group Report
acceptance was suspension of MSP based procurement in areas where the
scheme is implemented. Other important issues noticed in the review were:

Majority States were not keen to implement the scheme on the ground
that it would not be beneficial to the farmers, as yield and price have
offsetting behavior.

The premium rates were substantially high despite the premium subsidy
given by the government. States demanded that the premium payable by
farmer should be restricted to NAIS level.

States also desired that coverage of the scheme should be enlarged to
cover risky crops like soybean, groundnut, red gram and commercial
crops like cotton, etc.

Some of the States were of the view that the Guaranteed Income is not
attractive since the market prices of the superior varieties grown never go
below MSP of Fair Average Quality (FAQ). Since Price and Yield are
negatively correlated, the probability of claim arises only when Price and
Yield both go below the guaranteed level, which may be a rarity.

Improper functioning of Marketing Departments, availability of past as also
current data at implementation level was another reason quoted as
hindrance for smooth implementation of the Scheme
1.4. Weather insurance
1.4.1. Concept:
Many agrarian economies owe their strength to favourable weather parameters,
such as rainfall, temperature, sunshine etc. However, these economies are ill
equipped to deal with adverse incidences of weather.
Therefore, reducing
vulnerability to weather in developing countries may very well be the most critical
challenge facing development in the new millennium.
Sixty five percent of Indian agriculture is heavily dependent on rainfall, and,
therefore, is extremely weather sensitive. Several studies including those by the
______________________________________________________________________________________
19
Joint Group Report
National Commission on Water have established that rainfall variations account
for more than 50 percent of variability in crop yields. Many agricultural inputs
such as soil, seeds, fertilizer, management practices etc. contribute to
productivity. However, weather, particularly rainfall has overriding importance
over all other inputs. The reason is simple - without proper rainfall, the
contributory value of all the other inputs diminishes substantially. An analysis of
Indian Crop Insurance Program between 1985 and 2003 reveals that rainfall
accounted for nearly 95 percent claims – 85 percent because of deficit rainfall
and 10 percent because of excess rainfall.
The basic idea of weather insurance is to estimate the percentage deviation in
crop output due to adverse deviations in weather conditions. There are statistical
techniques to workout the relationships between crop output and weather
parameters. Techniques like multivariate regression could explain the impact of
weather deviations / variations on productivity. This gives the linkage between
the financial losses suffered by farmers due to weather variations and also
estimates the indemnities that will be payable to them. The analysis could also
include contingencies associated with the timing and the distribution of weather
parameters, particularly rainfall over the season. The two together form the basis
for designing rainfall (weather) insurance contracts.
1.4.2. Advantages over traditional crop insurance:
There are many shortcomings in the traditional crop insurance. The important
ones are: (a) moral hazard (b) adverse selection (c) multiple agencies and their
huge administrative cost which are hidden in the government budgets (d) lack of
reliable methodology for estimating and reporting crop yields (e) delays in
settlement of claims (f) program limited to growers (farmers). Majority of these
shortcomings are overcome in the weather insurance, which are discussed here
below:
a. Trigger events (like adverse rainfall) can be independently verified &
measured. India has an independent rainfall reporting system through
India Meteorological Department. If the unbiased data can be procured,
the moral hazard can be minimized to a large extent.
______________________________________________________________________________________
20
Joint Group Report
b. Weather insurance does not encourage potential negligence on the part of
insured, and the cultivator’s urge for a good harvest remains unaffected.
c. Compared to yield based insurance, weather insurance is inexpensive to
operate. Since very few agencies would be involved in implementation,
the aggregate administrative cost would be far lower.
d. Weather insurance allows for speedy settlement of indemnities, as claims
can be settled even within a fortnight of the expiry of indemnity period.
1.4.3. Summary of products introduced upto Kharif 2004:
Till date three companies have introduced pilot projects on rainfall insurance. the
details are as follows:
ICICI-Lombard General Insurance Company:
ICICI-Lombard was the first general insurance company in India to introduce
rainfall insurance based on a ‘composite rainfall index’ in 2003. It implemented a
pilot project in Mahabubnagar district of Andhra Pradesh for groundnut and
castor. Though participation was limited, it held out valuable lessons for future
programs. The rainfall index insurance has been further extended to other areas
during Kharif 2004 season. ICICI-Lombard has also designed rainfall insurance
cover for Oranges in Jhalawar district of Rajasthan during 2004.
Agriculture Insurance Company of India Ltd. (AIC)
Agricultural Insurance Company of India (AIC) introduced rainfall insurance
known as ‘Varsha Bima’ during the 2004 South-West Monsoon period. Varsha
Bima provided for five different options suiting varied requirements of farming
community. These are – (i) seasonal rainfall insurance based on aggregate
rainfall from June to September, (ii) sowing failure insurance based on rainfall
between 15th June and 15th August, (iii) rainfall distribution insurance with
weights assigned to different weeks between June and September, (iv)
agronomic index constructed on the basis of water requirement of crops at
different pheno-phases and (v) catastrophe option, covering extremely adverse
deviations of 50 percent & above in rainfall during the season. The Varsha Bima
______________________________________________________________________________________
21
Joint Group Report
has been piloted in 20 rain gauge areas spread over Andhra Pradesh,
Karnataka, Rajasthan and Uttar Pradesh. AIC is also working on index based
rainfall insurance for all major crops in Western Rajasthan for future seasons.
IFFCO – Tokio General Insurance Company:
IFFCO-Tokio General Insurance Company (ITGI) piloted rainfall insurance by the
name – ‘Baarish Bima’ during 2004 in nine districts of Andhra Pradesh,
Karnataka, Gujarat & Maharashtra. The product is based on rainfall index
compensating farmers for deficit rainfall. The policy pays for deviations in actual
rainfall exceeding 30 percent. The claims are paid on graded scale, with 100
percent claims payable when adverse deviation in rainfall reaches 90 percent.
The premium rates vary from 4 - 5 percent and farmers are covered on group
basis.
The experience of rainfall insurance in the country is presented below in Table-7
Table-7
S.No Company
1
2
3
Years
States
implemented
ICICI-Lombard 2003 & A.P.;M.P.;U.P.;
2004 Rajasthan,
Tamilnadu
IFFCO-Tokio 2004
A.P.; Gujarat;
Karnataka
AIC
2004
A.P.; U.P.
Farmers Sum insured Premium Claims (Rs.)
covered (Rs.)
(Rs.)
2922
3,49,01,400 36,34,325 24,10,770
3209
1050
10,02,68,000 46,38,941 Awaiting
IMD data
2,18,82,754 6,11,806 5,56,698
Note: Insurance works on the principle of spread of risk over time and space. Therefore,
result of one season is no indicator for judging the insurance scheme
The Joint Group intended to compare benefits of rainfall insurance with National
Agricultural Insurance Scheme (NAIS) since its inception in 1999. It required ‘as
if’ analysis of rainfall insurance product for past four Kharif seasons for major
states and a comparison with benefits of NAIS to test the efficacy of rainfall
insurance product. Accordingly, IMD was requested to furnish rainfall data for the
years 2002 & 2003. The data, however, has not been received from IMD till date.
In the absence of rainfall data, the Group could not undertake the above study.
______________________________________________________________________________________
22
Joint Group Report
2. Remote Sensing Technology in Crop Insurance
2.1. Background:
Remote sensing is the science of acquiring information about the Earth's surface
without actually being in contact with it. This is done by sensing and recording
reflected or emitted energy and processing, analyzing, and applying that
information. Remote sensing deals with the detection and measurement of
phenomena with devices sensitive to electromagnetic energy such as - Light
(cameras and scanners); Heat (thermal scanners) and Radio Waves (radar).
Remote Sensing Technology (RST) is the emerging technology with potential to
offer plenty of supplementary, complimentary and value added functions for crop
insurance. The present technology not only provides the insurers with tools like
hazard mapping, crop health reports, acreage-sown confirmation, yield modeling
etc. which are not only important for verifying claims, but also strengthen the
position of insurers vis-à-vis re-insurance market.
The technology is already being tried out in agriculture insurance in countries like
United States of America (USA), Canada, Australia, etc. The major products in
which this technology is being used in these countries are Hail Insurance and
Multi-Peril Crop Insurance. These products are based on specified perils, and
hence claims become payable only if the losses are on account of these
specified perils. In other words, loss assessment in individual approach is very
complex and requires great deal of precision. Yet, insurance companies are able
to take help of remote sensing technology to – identify insured field, calculate
planted acreage, identifying boundaries of the field and finally assessing the loss.
USA with more than 25 satellites makes it possible for insurers, and at
competitive price.
Despite availability and competitive prices, insurance companies in these
countries are yet to adopt the technology in a significant way. The insurance
companies are still cautious in their approach. While majority of companies are
______________________________________________________________________________________
23
Joint Group Report
still experimenting with this technology, a few companies like IGF Insurance and
Fireman’s Fund in USA have realized the potential of technology and adopted it
on a large scale with respect to identification of insured fields, crops, assessment
of damage due to hail, floods and a few diseases. Details of some of the
companies, which have used remote sensing applications, are given below:
Iowa Grain & Feed (IGF) Insurance Company:
IGF is a crop insurer in the US, with over $250 million business by way of
premium. Headquartered in Des Moines, Iowa, IGF specializes in writing
innovative crop insurance plans including Crop-Hail, the federal Multiple Peril
Crop Insurance, and other crop-related insurance plan named Perils. The
company has effectively demonstrated that commercially available imagery could
be used to detect and locate the relative level of hail damage in cropped areas.
Fireman’s Fund Insurance Company:
Fireman's Fund AgriBusiness, which several years ago adapted satellite
technology into an all-terrain vehicle (ATV) mobile mapping system uses the
geographic systems to mine data and show relationships, opportunities,
challenges and problems. The company is growing beyond what growth has
been in the crop insurance industry because it’s able to bring value addition to
the insurance company and the insured using remote sensing technology. The
agents are also equipped with remote sensing based capabilities.
Federal Crop Insurance Corporation:
In June 2001, an U.S. District judge in Arkansas ruled against several farmers
who were accused of filing false crop insurance claims totaling approximately
$244,000. Key evidence in the lawsuit—filed on behalf of the U.S. Department of
Agriculture and the agency that audits the federal crop insurance program—
came in the form of infrared satellite images demonstrating that crops alleged to
be destroyed by bad weather had in fact never existed.
The details of some case studies are appended as Annexures - 3(a) to 3(g).
______________________________________________________________________________________
24
Joint Group Report
2.2. Remote Sensing Applications in Agriculture in India:
The Government of India in the early 1990s had started a number of projects for
use of remote sensing technology in Agriculture. These projects are coordinated
by Ministry of Agriculture and implemented by National Remote Sensing Agency
(NRSA) and Space Applications Centre (SAC) within Indian Space Research
Organization (ISRO). Some of these important projects are as follows:
(i) Crop Acreage and Production Estimation (CAPE) Project
Satellite-based remote sensing, because of synoptic view, repetitive coverage
and multi-spectral capabilities offers to provide timely and reliable crop
estimates and to monitor its condition regularly on near real time basis.
Studies on use of space borne Remote Sensing (RS) digital data for crop
acreage estimation were taken up at the SAC with various collaborating
agencies. CAPE project sponsored by the Ministry of Agriculture, covered
wheat, rice, groundnut, mustard, Rabi sorghum and cotton in selected
predominant crop growing districts of the country. The procedure developed
under CAPE used single-date high resolution RS data coinciding with
maximum vegetative growth stage of a crop, maximum likelihood (MXL)
supervised classification and stratified random sampling or district boundary
mask approach and provided estimates at district-level.
(ii) National Wheat Production Forecasting
The procedures developed under CAPE were extended to national-level
wheat production forecasting using multi-date WiFS data (coarse resolution
and high repetivity) since 1995-96.
The procedure uses a national-level
sampling frame and sample segment grids of 15 X 15 km and multiple
forecasts.
______________________________________________________________________________________
25
Joint Group Report
(iii) National Rice Production Forecasting
During Kharif season, the optical sensor in the presence of cloud cannot see
the land cover under it. Microwave sensors can see through the clouds. ERS
and RADARSAT satellites have provided useful data to assess the crops
during the cloud covered periods.
Besides providing rice production
forecasts, it attempts to map the areas undergoing major increase/decrease in
rice due to natural hazards.
(iv) Yield Modeling Approaches
Crop yield is an important and dynamic component of crop production
forecasting which is affected by several factors such as genetic potential of
crop cultivator, soil, weather, cultivation practices (date of sowing, amount of
irrigation and fertilizer) and biotic stresses. Vegetation Indices (VIs) derived
from RS data acquired at maximum vegetative growth stage are indicative of
crop growth, vigour and potential grain yield.
There are several approaches for yield modeling using space-borne RS data
either independently or in combination with meteorological data. These are:
(a) Direct VI – Yield Empirical Models
The approach of relating Normalized Difference Vegetation Index (NDVI) and
average district yield is being adopted for developing district-level yield
forecast models based on multi-year average NDVI near peak vegetative
stage. This approach is adopted for regular in-season forecasting for study
districts under the CAPE Project.
(b) Combined Agromet-Spectral Yield Models
It was observed in one of the studies that wheat NDVI, after inter-sensor
normalization, path radiance correction and acquisition date normalization
could explain about 50 per cent of the yield variations. However, when the
______________________________________________________________________________________
26
Joint Group Report
mean night temperature during first fortnight of March was used as an
additional predictor, 81 per cent of yield deviations from trend could be
explained.
This indicates that spectral indices alone cannot explain the
maximum variability in the yield. It has been observed that indices derived
from temperature data bear good correlation with wheat yields.
(c) Multi-Date RS data based models
The spectral growth profile approach provides complete information on the
canopy development.
This approach makes it conceptually sounder than
those involving single-date spectral indices. Time sequence of a typical
spectral index (NIR/Red, NDVI, greenness) for the entire growth cycle of a
crop suggests a continuous curve showing distinct rise and fall, much like a
bell-shaped curve. Multi-date acquisitions of WiFS data have been used for
wheat discrimination using a hierarchical decision rule based procedure and
for developing spectral crop growth profiles under the National wheat
production-forecasting project.
(d) Crop Growth Simulation Models
Crop growth simulation model is a useful tool, which mimic the response of
crop to its surrounding atmosphere and inputs.
Crop simulation model
calculates dry matter production and its partitioning on daily basis. CERESWheat model, which is a part of DSSAT – 3.5 simulation model, has been run
in an attempt to capture the variability in wheat yield under the National Wheat
Production Forecasting Project. The weather variables that have been taken
into account are maximum and minimum temperatures.
2.3. Remote Sensing Applications in Crop Insurance in India:
The Joint Group discussed applications of remote sensing technology in crop
insurance with SAC, ISRO. The discussions revealed certain constraints in
successfully using RST in some areas of crop insurance. These are:
______________________________________________________________________________________
27
Joint Group Report
i) Persistent cloud cover during Kharif makes it difficult to get proper satellite
images. Microwave Remote Sensing, which can pierce clouds, is available
only through a Canadian satellite – RADARSAT. However, the resolution
available is very coarse and consequently is not very accurate. Moreover
this technology is useful for crops grown with standing water, such as rice.
ii) The finer resolution satellite data is expensive.
iii) A lot of crops with less biomass are difficult to figure out through satellite
imagery.
The Group is of the view that despite these constraints, there are some useful
applications of remote sensing technology in crop insurance. These include
successful models for acreage and yields estimation for majority of Rabi crops,
and important Kharif crops, such as Rice, Cotton, Soybean, etc. Yield estimation
using meteorological data through regression models further improves accuracy.
The remote sensing technology applications could be of use in finalizing ‘onaccount’ settlement of crop insurance claims within the season.
The Joint Group considering ‘area approach’ nature of crop insurance and
availability of remote sensing capabilities in the country has come to conclusion
that use of remote sensing technology in crop health monitoring, crop acreage
and yield estimation could give the insurer a tool to simplify claim procedures and
claim monitoring. The benefits to the insurer on account of use of advanced
technologies explained above would be –
a) Greater credibility to insurer’s efforts towards securing re-insurance since
these technologies are being used in developed countries.
b) Unbiased, objective and independent data to crosscheck and supplement
other field information inputs. The independent information source will
help check inflated claims. Periodic independent ground investigations
based on satellite and Geographic Information System (GIS) derived
anomalous areas will further limit such claims.
c) The remote sensing data on crop area and relative productivity levels will
be available well before the cut-off date for receipt of crop yield data
provided by the Department of Economics and Statistics (DES), facilitating
______________________________________________________________________________________
28
Joint Group Report
adequate ground validation. In-season monitoring will assist monitoring of
crop progress and provide advance warning of expected claims after the
season.
d) The geo-referenced GIS database provides the basis for reliable analysis
and risk mapping zones.
e) The use of advanced technologies will facilitate progress towards
individual based assessment and towards commercial premiums in future.
The benefits to the insured include accurate and unbiased yield and loss
estimation, early settlement of claims, use of remote sensing inputs as trigger for
deciding quantum of claim amount, etc.
The Joint Group, on the basis of various inputs examined, lists the following
application areas of remote sensing in crop insurance programme for future:
i.
Estimating actual acreage-sown at insurance unit level to check the
discrepancy of ‘over-insurance’ (acreage insured higher than acreage
sown).
ii.
Investigating anomalies / discrepancies in acreage-sown through ground
surveys using Global Positioning Systems (GPS).
iii.
Monitoring crop health through the crop season, and investigation on
ground for advance intimation of yield losses.
iv.
Investigating satellite derived poor crop areas and those from crop cutting
experiment, to check adequacy and reliability of data.
v.
Developing satellite based crop productivity models for cereal and other
crops.
vi.
Rapid and detailed damage assessment after disaster such as floods,
cyclone, drought and others.
vii.
Developing Geographic Information System (GIS) of defined area of
insurance unit for user-friendly viewing, querying and analysis on
agricultural situation.
viii.
Use RST applications as one of the triggers to facilitate early settlement of
claims.
______________________________________________________________________________________
29
Joint Group Report
ix.
Use RST applications (crop health) for designing ‘blended insurance
products’, such as agri-met & spectral based insurance product, etc.
x.
GIS for office operations of crop insurance.
Considering the experience of other countries in using remote sensing
applications in crop insurance, and the fairly developed technology available in
the country, the Joint Group recommends that a pilot project on using remote
sensing technology in crop insurance should be taken up by AIC from Kharif
2005 season onwards. The areas for pilot project may include:
I. Acreage estimation
II. Crop health reports
III. Yield modeling
IV. Reduction of sample size of CCEs
V. Yield models based on combination of agri-meteorological data & spectral
data
VI. RS data as proxy indicators for finalizing quantum of ‘on-account’
indemnity and
VII. Deciding eligibility of claims for prevented sowing together with weather
data.
______________________________________________________________________________________
30
Joint Group Report
3. CROP INSURANCE – A WAY FORWARD
3.1. National Agricultural Insurance Scheme (NAIS)
3.1.1. Fundamental Issues:
As pointed out in the earlier chapter, limited expansion in the scope and content
of crop insurance scheme in the form of NAIS did not measure upto the
expectations of the farming community. The key impending issues have been
identified and are listed below:
i.
The insurance unit presently is large and not reflecting yield experience of
individual farmers.
ii.
Guaranteed Yields are not reflecting reasonable aspirations of farmers
iii.
The present indemnity levels are inadequate
iv.
Inordinate delay in settlement of claims
v.
Inadequate risk / loss coverage
vi.
Individual assessment of losses in case of localized calamities
vii.
The scheme be made voluntary for all farmers.
viii.
Poor infrastructure facilities for coverage of non-loanee farmers
ix.
Insurance coverage is not available for Fruits and Vegetables
x.
Bodily injury of farmers in the course of agricultural activities not covered
in the scheme
3.1.2. Suggested Improvements:
(1) Reduction of insurance unit to the village panchayat level for major
crops:
National Agricultural Insurance Scheme is implemented on the basis of
“homogeneous area” approach, and the area (insurance unit) at present is
Taluka / Block or equivalent unit in most instances. The approach would give
desired results provided the yield variability within the area (insurance unit) is the
______________________________________________________________________________________
31
Joint Group Report
least. However considering that the present units are largely administrative, the
yields are hardly uniform within the unit. As a result the yield experience of
individual farmer is significantly different from that of the insurance unit. The
result of significant yield variability within the unit has serious implications in
claims – farmers with low yields have distinct advantage, as the area average is
higher than their own, while farmers with high yields for exactly opposite reason
are at a disadvantage. In insurance parlance this problem is referred to as ‘basis
risk’. It is, therefore, felt that the insurance unit should be as small as possible.
Obviously, “Individual approach” would reflect crop losses on a realistic basis and
would be, most desirable, but, in Indian conditions, implementing a crop
insurance scheme at “individual farm unit level” is beset with problems, such as:
a) Non availability of past record of land surveys, ownership, tenancy and
yields at individual farm level
b) Large number of farm holdings (nearly 11.6 Crores) with small farm
holding size
c) Remoteness of villages and inaccessibility of farm-holdings
d) Large variety of crops, varied agro-climatic conditions and package of
practices
e) Simultaneous harvesting of crops all over the country
f) Effort required in collection of small amount of premium from large number
of farmers
g) Prohibitive cost of manpower and infrastructure
Practical approach, therefore, will be to have smaller insurance units such as
village panchayat, as it can reduce basis risk largely. The NAIS in existing form
also does provide for smaller insurance unit viz. village panchayat. However, the
states could not lower the insurance unit to the desired level because of huge
increase in number of CCEs and consequent manpower requirement and costs.
The Joint Group studied the manpower and cost implications and makes the
following recommendations:
______________________________________________________________________________________
32
Joint Group Report
(i) Manpower:
States should make use of existing manpower of concerned departments to the
extent possible. However, where existing manpower is inadequate, staff
identified by the state government as surplus may be trained and re-deployed.
Additional manpower can also be out-sourced in consultation with implementing
agency from agri-clinics, agri-prenuers, agricultural universities, KVKs, retired
department officials, unemployed agricultural graduates, etc.
(ii) Costs:
Assuming that three major crops would be notified at village panchayat level (on
an average two during Kharif & one during Rabi), the number of CCEs required
for village panchayat is 24 based on sample size of 8 CCEs per unit per crop.
With nearly 2.2 lakh village panchayats likely to be notified for the major crops,
50 lakh additional CCEs would be required to lower the insurance unit to village
panchayat. The cost of conducting each CCE is estimated at Rs. 300, the details
of which are as follows:
(i) Remuneration of primary worker per CCE: Rs. 200
(visit to farmer, farm, travel, salary, etc.)
(ii) Cost of labour for performing CCE: Rs. 50
(iii) Cost of various forms & documentation and equipment: Rs. 50
At an estimated cost of Rs. 300 per CCE, the cost of total 55 lakh CCEs (existing
5 lakhs + additional 50 lakhs) could be of the order of Rs. 165 crores, of which
approx. 90% of the expenditure is recurring. The Joint Group, after considering
the importance of reduction of insurance unit and the costs involved in
conducting additional CCEs, recommends that the costs for CCEs may be
shared between the Government of India and States on 50:50 basis.
However, smaller unit and larger number of CCEs from insurance angle may
create more scope for possible interference and manipulation. To counter such
malpractices, appropriate checks and balances have to be put in place in
generating sound and accurate yield data. Some of these checks could be as
follows:
______________________________________________________________________________________
33
Joint Group Report
(i) Single series of yield data to be maintained for the Government of India
production estimates and crop insurance. All the CCEs, which are part of
crop insurance will also form part of the government estimates. Planning
and supervision for all CCEs will be of the same order as that of General
Crop Estimation Surveys (GCES)
(ii) The sample size of CCEs, which is presently eight (8) at village
panchayat level, will be reviewed in consultation with technical agencies
such as Indian Agricultural Statistical Research Institute (IASRI) and
National Sample Survey Organisation (NSSO). Inputs from remote
sensing technology will also be considered in arriving at the sample size.
(iii) As a long-term measure to enhance quality of yield assessment, Remote
Sensing Technology (RST) would be tried out for yield modeling on pilot
basis. The results of RST based yield estimates would be initially utilized
for smoothing CCEs based yield estimates generated at village
panchayat level.
(2) Threshold Yield (Guaranteed Yield):
Presently Guaranteed Yield, based on which the indemnities are calculated is
moving average yield of preceding three years for rice and wheat and five years
for other crops, multiplied by the Level of Indemnity. The concept does not
provide for adequate protection to farmers, especially in States / Areas where
there have been consecutive adverse seasonal conditions, pulling down the
average yield.
The Joint Group discussed various alternatives in providing reasonable
guarantee of average yield. These are:
i.
One worst & one best year to be excluded from preceding seven years.
This is a balanced approach of smoothing the past yield and hence will be
______________________________________________________________________________________
34
Joint Group Report
acceptable to reinsurer. But, in areas, which have experienced series of
consecutive bad years, it may actually reduce the guaranteed yield and,
therefore, may not be acceptable.
ii.
Take long-term average of 10 / 15 / 20 years. It is as good as a normal
yield. However, it suffers from time-trend in yield wherever there is an
upward trend in the yield.
iii.
Take the best three out of the preceding seven years. It will be attractive
to the farmers, but would significantly increase cost of indemnities. Further
it will not go well with reinsurers, and will substantially increase
reinsurance cost.
iv.
Take the best three out of the preceding five years. It is an improvement
over the existing method, but the actual period for reckoning of
guaranteed yield is too short (3 years), and hence may not be stable.
v.
Take the best five out of the preceding seven years. It has the advantage
of moderation over other methods considered and will be reasonably
attractive to the farmers since sufficiently long period (5 years) is
reckoned.
Bearing in mind the pros and cons of various alternatives discussed above, the
Joint Group recommends for Guaranteed Yield (Threshold Yield) based on
average of best five out of preceding seven years, as it is more appropriate and
balanced.
(3) Levels of Indemnity:
At present the levels of indemnity are 60%, 80% or 90% corresponding to high,
medium & low risk areas. The 60% indemnity level can not adequately cover the
risk, especially in case of small / medium intensity adversities, as the losses will
get covered only if and when the loss exceeds 40%. During Kharif 2004, 58
percent of all areas / crops were in 60% indemnity zone, 32 percent in 80% zone
and 10 percent in 90% zone.
The Joint Group considered if the indemnity level can be kept uniformly at 90%
for all crops and areas. However, considering that there are huge year-to-year
variations across states (especially, Gujarat, Karnataka, Orissa, etc), the Joint
______________________________________________________________________________________
35
Joint Group Report
Group recommends two indemnity levels viz. 90% for low risk (stable) crops and
80% for other crops.
(4) Extending risk coverage to prevented sowing / planting due to adverse
seasonal conditions
Existing scheme covers risk only from sowing to harvesting. Many a time sowing
/ planting is prevented due to adverse seasonal conditions and farmer not only
loses his initial investment, but also loses the opportunity value of the crop. The
Joint Group feels that a situation where the farmer is prevented from even
sowing the field is a case of extreme hardship and this risk must be covered. It
was also felt by the Group that though the idea is laudable, but is administratively
very cumbersome in a scheme based on ‘Area approach’. There is an element of
moral hazard as well. However, to redress the extreme hardship to which the
farmer is subjected to in a situation of prevented sowing, the Joint Group
examined the following two possible modalities in covering pre-sowing / planting
risk:
(A) Based on Individual farmer: It is based on adverse deviation in rainfall
during June & July, affecting sowing operations. Once the deviation reaches
a point determined on scientific lines, all insured farmers who could not sow
the crop will forward applications for indemnity through concerned credit
agency. The credit agency shall pool in all such applications and
communicate to the implementing agency with details of original coverage.
The farmers who receive pre-sowing indemnity are not eligible for yield-based
indemnity.
pros & cons: It is more equitable and realistic. But, is cumbersome for all
involved, viz. farmers, credit agency and the implementing agency.
Considering the number of transactions (receiving applications, pooling in,
referencing to original coverage etc.) credit agencies may not be willing to
carry the workload.
______________________________________________________________________________________
36
Joint Group Report
(B) Based on Area equity: It is a two-step procedure involving rainfall and
sowing details. An area will be eligible for pre-sowing indemnity only if rainfall
& sowing details meet the criteria set for the purpose. Firstly, the deviation in
rainfall during June & July should be so much that it would adversely affect
sowing operations. The parameters can be set using scientific data, including
remote sensing technology. Secondly, the area qualifies for the benefit, only if
the sowing is below 50 percent of normal area. Once the two-step
mechanism is qualified, all insured farmers in the area will automatically
receive indemnity.
Having received indemnity based on pre-sowing, the
insured farmers in the area will not be eligible for yield-based indemnity.
pros & cons: it is easy and convenient to implementing agency and credit
agencies.
However, the ‘sowing prevented’ farmers would be eligible for
indemnity only if the area sowing is below 50 percent of normal. Further,
once the area based on sowing qualifies for pre-sowing indemnity, even
those farmers who could sow the crop will also receive the benefit. However,
these farmers will not be eligible for indemnity based on yield data.
The Joint Group after going through both the alternatives recommends the
alternative of Area based equity, for its simplicity, with the following guidelines in
extending pre-sowing / planting risk coverage:
i.
The cut off dates for both loanee & non-loanee farmers should be the
same. The cut-off dates could be between 15th June – 15th July for Kharif
crops in different states; 31st December for Rabi and 31st January for
Summer crops. In case of Kharif crops, the cut-off dates are to be fixed in
such a way that these dates correspond to historical onset / covering by
SW Monsoon. An indicative seasonality for Kharif season is provided in
Table-8.
______________________________________________________________________________________
37
Joint Group Report
Table –8: Historical onset and coverage by South West (SW) Monsoon
and proposed cut-off dates for Kharif
S.No States
SW Monsoon Proposed
coverage by
1
Kerala & Tamilnadu
1st week of
cut-off dates
15th June
June
Andhra Pradesh, Karnataka,
2
Orissa, West Bengal, North-
15th June
30th June
Eastern States
3
Maharashtra, Chhattisgarh,
Jharkhand, Bihar
4
June
30th June
4th week of
30th June
Gujarat, Madhya Pradesh,
Uttar Pradesh, Uttaranchal
Himachal Pradesh
5
3rd week of
June
Rajasthan, Punjab,
Haryana, J&K
1st week of
15th July
July
ii.
The indemnity payable for prevented sowing will be between 20 percent 25 percent of original sum insured depending on cost of pre-sowing /
planting expenses likely to be incurred. The proportionate premium
component paid by farmer for balance period of risk not run can be added
(ranging from 1% - 5%) to the indemnity and paid, instead of premium
refund.
iii. The existing rain gauge stations of IMD and States need to be
strengthened and the network extended so that accurate rainfall data is
available at least at block level.
(5) Coverage of post harvest losses:
In some states crops like Rice are left in the field for drying after harvest. Quite
often, especially in the coastal areas, ‘cut & spread’ crop is damaged by
______________________________________________________________________________________
38
Joint Group Report
cyclones, floods, etc. Since the existing scheme covers risk only upto harvesting,
these post-harvest risks are outside the purview of insurance.
The Joint Group after examining the genuineness of the cover and the difficulties
in assessing such losses at individual level, recommends that the insurance
cover may be made available to such post harvest losses also, but it should be
restricted only for those crops in coastal areas, which are allowed to dry in the
field after harvesting and should be against cyclonic rains only.
Further the
coverage should be available only upto a maximum period of two weeks from
harvesting. The Group also recommends that in such cases the assessment of
damage would be on individual basis.
(6) Compulsory nature of Scheme:
The existing scheme is compulsory for farmers who avail loans for raising
insurable / notified crops in states where the scheme is implemented. On account
of premium rates, which are high for certain annual commercial / horticultural
crops, and certain areas and crops for which no claims have been received
largely due to good crop, there has been a suggestion to make the scheme
voluntary. The idea was to leave the decision of participation to farmers.
The Joint Group considered the above suggestions, and keeping in mind a
number of reasons, such as the low awareness levels and public interest
involved of large number of farmers; administered premium rates; premium being
financed by credit agency; requirement of collateral security for credit agency of
its loan portfolio etc., recommends that the scheme should continue to be
compulsory for loanee farmers.
(7) Uniform seasonality discipline for participation in the scheme:
The Joint Group took note of the experience of the last four years of NAIS, which
had seen extension of cut off date for participation of non-loanee farmers in many
states, and consequent adverse selection problems leading to high indemnities.
In order to control adverse selection problems, and to provide convenience to
______________________________________________________________________________________
39
Joint Group Report
farmers in availing insurance facility, the Joint Group makes following
recommendations:
(i) The seasonality discipline (cut off dates) should be uniform for both
loanee and non-loanee farmers. It would range from 15th June – 15th
July for Kharif crops for different states and 31st December for Rabi
crops. For the states with Summer crops, it would be 31st January.
(ii) Non-loanee farmers can avail insurance before sowing on the basis of
crop, which he intends to sow. In case of change in the crop or other
exigencies, the farmer should communicate to the Bank / institution
where the proposal was submitted originally accompanied by a
certificate of sowing of the alternate crop from village administration.
(iii) In case of loanee farmers the coverage is effected on the basis of the
loan amount sanctioned by the credit agency. The basis of sanction of
the loan is the total landholding, the nature of crops grown and the
scale of finance.
The Joint Group also recommends that the banks display the list of all insured
farmers at the village panchayat office. Further, the banks will also display the
list of benefited farmers together with claim amount soon after the claims are
received from implementing agency. In addition to ensuring transparency, the
proposed measure will help contain legal litigation to a large extent. This will also
empower village panchayat and will induce them to own up the responsibility of
proper implementation of the scheme.
(8) On-account settlement of claims:
The claims processing in NAIS begins only after the harvest of the crop. Further
claim payments have to wait for results of CCEs and also for the release of
requisite funds from Centre and States. Consequently there is a time gap of 8-10
months between occurrence of loss and claim payment. Farmers have been
demanding for quick settlement of claims soon after occurrence of losses so that
the agriculture operations could go unhindered.
______________________________________________________________________________________
40
Joint Group Report
To expedite settlement of claims in case of adverse seasonal conditions and to
ensure that at least part of the likely claims receivable are paid to the farmer
before the end of the season, the Joint Group recommends that ‘on-account’
settlement of claims be done without waiting for receipt of yield data. The Group
recommends that an amount upto 50 percent of likely claims should be released
in advance subject to adjustment against the claims assessed on yield basis.
The Joint Group further recommends that such an ‘on account’ payment will be
made only if the expected yield during the season is less than 50 percent of
normal yield. The criteria for deciding ‘on-account’ payment of claims shall be
based on agro-meteorological data / satellite imagery or such other indicators to
be decided by implementing agency, and will be implemented in those states and
crops for which such proxy indicators can be established. To Illustrate, if the
guaranteed yield in a particular case, is say 20 Qtls / ha. and the actual expected
yield during the season is 5 Qtls / ha. The likely claims are 75 percent of sum
insured. Based on this information, claims upto 37.5 percent (50 percent of likely
claims) of sum insured can be released as ‘on-account’ payment.
(9) Individual assessment of losses in case of localized risks
NAIS presently provides for individual assessment of losses in case of localized
risks, viz. hailstorm, landslide & flooding only in one taluka of a state. Farmers
feel the experiment is not adequate, and it should be implemented on full scale,
covering all areas. Further, they also feel the losses on account of wild animals
should be covered in the scheme and the losses be assessed on individual
basis.
It is a fact that crop depredation by wild herbivores is an important man-animal
conflict in the fringes of ‘Protected Areas and Wildlife Habitats’. This is a
recurring calamity, which cannot be resolved by a single time payment of
compensation to the affected party, who are usually depending on a single rainfed crop in a year. While some proactive measures like fencing, trenching and
the like are adopted, more often than not, these are not very effective.
Therefore, insurance coverage for crop damage caused by wild herbivores needs
to be considered in the interest of eliciting public support for wildlife conservation.
______________________________________________________________________________________
41
Joint Group Report
Ministry of Environment & Forests has also recently requested Ministry of
Agriculture to extend insurance to crop damage caused by wild animals. The
justification is that there is no periodicity in most of such gregarious depredations
and, the element of uncertainty always exists due to which such damages are
non preventable in nature. More often than not, proactive measures like fencing
or trenching are not effective since the boundaries of Protected Areas are large
making the proposition impractical.
The Joint Group, therefore, feels that crop damage caused by wild animals is a
non-preventable risk, and hence should be considered for inclusion in crop
insurance scheme. Accordingly, it recommends that crop damage caused by
specified wild animals, viz. neelgai, spotted dear and elephant shall be covered
under crop insurance scheme.
As regards the larger issue of individual assessment of localized calamities, the
Joint Group feels that the demand is genuine and, therefore, recommends that
the losses arising out of crop damage caused by hailstorm and landslide should
be assessed on individual basis in all the insured areas. Further, the damage by
specified wild animals (neelgai, spotted dear and elephant) would also be added
to the list of localized risks and the losses be assessed on individual basis.
The insured farmers who suffer crop damage due to localized risks will be
required to submit claim intimation through credit agency within specified time.
(10) Service to Non-Loanee farmers
The NAIS being multi-agency approach, implementing agency presently has no
presence except in state capitals. The scheme is marketed to non-loanee
farmers through rural credit agencies. These farmers are not familiar and
comfortable going to credit agencies located at a distance. Dedicated rural
agents who could provide service at doorstep of farmer would be a preferred
option for these farmers.
The Joint Group, therefore, recommends that implementing agency should have
______________________________________________________________________________________
42
Joint Group Report
presence at least at the taluka level, and if possible at the village level. Services
of rural agents, micro insurance agents could be utilised to facilitate insurance
marketing at village level. The Joint Group is also of the view that, a facilitating
agency could be instituted by implementing agency at District level to support
marketing facilities.
(11) Coverage of Perennial Horticultural / Fruit crops and Vegetables
Improving production and productivity of fruits & vegetables is a priority area and
the cultivated area under these crops is steadily increasing. These perennial
horticultural crops are presently not covered by NAIS and there is a demand for
inclusion of these crops under the scheme.
Perennial horticultural / fruit crops have two economic components viz. the tree
and the yield. Farmer needs insurance against loss of both the components and
hence yield based NAIS cannot provide required protection. For many of these
crops, past yield data is not available for fixing premium rates and threshold
yields. There are also problems like typical non-bearing period in the first three or
four years, cyclical nature of production and different age groups of orchards
within a unit with varied productivity level etc. In view of these peculiarities and
complexities involved in designing insurance scheme for perennial horticultural
crops and vegetables, the Joint Group recommends that a separate scheme for
providing insurance cover to perennial horticultural crops and vegetables should
be designed and implemented on a pilot basis during Kharif 2005 season.
A Road Map conceived by the Joint Group for launching of separate insurance
scheme for fruits and vegetables w.e.f. Kharif 2005 season is given below:
i)
The major fruit crops which can be covered are Mango, Grape,
Orange, Cashew nut, Pomegranate, Apple, Pineapple & Banana; the
major plantation crops would be Coffee, Tea, Rubber, Pepper;
coconut and the major vegetable crops can be Tomato, Brinjal,
Bhindi, Cauliflower, Cabbage, etc.
ii)
More fruit crops and vegetables can be considered if adequate
cropped area is available.
______________________________________________________________________________________
43
Joint Group Report
iii)
A consultancy study may be given to an expert to suggest the nature
of scheme, the nature of data required, scheme design etc.
Agriculture Insurance Company of India Ltd. (AIC) will prepare terms
of reference for the study and will appoint the consultant. The
tentative schedule is as follows:
a) Release of advertisement – 20th December 2004
b) Last date for receipt of applications – 31st December 2004
c) Finalizing TORs & short-listing applicants – 10th January 2005
d) Inviting technical & financial bids – 20th January 2005
e) Appointment of consultants – 1st February 2005
f) Submission of Report by consultants – 15th March, 2005
g) AIC to submit draft scheme to the government – 31st March 2005
iv) Weather based insurance products should also be explored as part
of the study. ICICI-Lombard is presently working on apple, orange,
coffee, etc.
v) The nature of subsidy and support of the government will be finalised
on the basis of scheme design and crops expected to be covered.
(12) Personal Accident Insurance of Insured Farmer
Farmer is faced with continuous bodily peril while performing agricultural
operations; hence, there is a case to provide him with personal accident cover
along with crop insurance. The insurance cover can be provided as part of
package policy on compulsory / voluntary basis, along with crop insurance. All
insured farmers will be entitled for Personal Accident (PA) insurance cover of Rs.
50,000. It will be in addition to personal accident insurance cover available under
Kissan Credit Card (KCC). The cover, similar to other covers provided under
Package policy, will be on annual basis, commencing from the date the crop
insurance premium is debited.
(13) Actuarial Regime:
The scheme is presently working on administered rate regime with the
government financing both premia subsidy and claims, leading to lack of financial
______________________________________________________________________________________
44
Joint Group Report
discipline and accountability in administering the scheme. It is, therefore,
suggested to place the scheme on actuarial regime in which insurance company
receives premium based on commercial rates and is responsible for all claims. It
has advantage for all concerned – the government would be able to budget its
expenditure accurately and at the beginning of the year, as it relates to only
premium subsidy; implementing agency has incentive to be accountable and
professional in administering the scheme; and farmers would be able to receive
claims early as these would be settled by implementing agency without having to
wait for receipt of funds from the government.
Under the proposed arrangement the government will decide the premium
payable by the farmer, and the difference between the actuarial rates and the
rates payable by the farmer will be borne by the government. The Joint Group
recommends that the premium subsidy may range from 40% to 75% for small /
marginal farmers (subject to a maximum net premium of 8%) and 25% to 60% for
other farmers (subject to a maximum net premium of 12%) at different slabs of
actuarial premium (refer chapter-7). Keeping in mind the collateral security
provided by insurance, the Joint Group also recommends that 1.00 percentage
point of premium be borne by the Banks in respect of loanee farmers. Further,
the Group recommends that the actuarial premium rates be applied at State
level. The table of risk premium rates worked out for existing scheme (NAIS) for
2004-05 is appended as Annexure-4 for reference.
For switching over to actuarial regime the insurance company would need on one
hand the support of appropriate reinsurance mechanism and on the other
required solvency margin as per regulations of IRDA. The availability and cost of
reinsurance could be an important consideration. The solvency margin
requirements worked out on the basis of expected sum insured of Rs. 14,000
crores for 2004-05 is presented in Table–9. As per the estimates, AIC would
require (assuming that worst-case loss cost will repeat during the year) an
amount of Rs. 1134 crores without reinsurance protection, and Rs. 756 crores
with reinsurance protection. Considering that AIC has only Rs. 200 crores of
paid-up capital, it would require additional Rs. 556 crores with reinsurance, and
Rs. 934 crores without it to meet the solvency requirements. The Joint Group,
______________________________________________________________________________________
45
Joint Group Report
therefore, recommends for providing required solvency margin to Agriculture
Insurance Company of India Ltd. (AIC) through the budget allocation (non-plan).
Table-9
Agriculture Insurance Company of India Ltd
Solvency Requirements under Actuarial Regime with and without
Reinsurance
Basic Information on a Sum Insured of Rs. 14,000 crores (2004-05)
Sum Insured Rs. 14000 crores
Premium Rate 12%
Gross Premium Rs. 1680 crores
Claims in worst case scenario Rs. 2520 crores (18% loss cost)
Reinsurance related information
Premium ceded Rs. 300 crores
Net Premium Rs. 1380 crores
Claims Recovery from reinsurance between Rs, 1680 – Rs 2520 crores
Net claims liability of AIC Rs. 1680 crores
Actuarial regime without
Reinsurance
Rs. 336 Crores
Actuarial regime with
Reinsurance
Rs. 276 Crores
[ 20% of GP * 0.5 = Rs. 168
crores
20% of NP = Rs. 336 crores ]
[ 20% of GP * 0.5 = Rs.
168 crores
20% of NP = Rs. 276
crores]
30% of the amount which is
higher of Gross Incurred
Claims (GIC) multiplied by
0.5 or Net Incurred Claims
(NIC) (RSM-2)
Rs. 756 Crores
Rs. 504 Crores
[ 30% of GIC * 0.5 = Rs. 378
crores
30% of NIC = Rs. 756 crores ]
[ 30% of GIC * 0.5 = Rs.
378 crores
30% of NIC = Rs. 504
crores ]
Higher of the Above
(RSM)
Rs. 756 Crores
Rs. 504 Crores
RSM for AIC being
150% of Solvency
Ratio
Rs. 1134 Crores
Rs. 756 Crores
ASM (paid up capital)
Additional capital required
towards solvency
Available Solvency Ratio
Rs. 200 Crores
Rs. 934 Crores
Rs. 200 Crores
Rs. 556 Crores
20% of the amount which
is higher of Gross
Premium multiplied by 0.5
or Net Premium
(RSM-1)
0.18
0.26
______________________________________________________________________________________
46
Joint Group Report
As stated before, reinsurance protection is essential when the scheme is placed
on actuarial regime. However, some of the improvements suggested in NAIS,
particularly taking the yield of best five years out of preceding seven years in
calculating guaranteed yield, indemnity for prevented sowing etc. are subjective
and may increase the indemnity to such an extent, that the insurer may not have
full control over situation. To this extent, reinsurer may shy away from the
scheme. The reinsurer who is still willing to support the program may charge
higher premium. Considering these imponderables, the Joint Group feels that in
a situation if international reinsurance is not available at competitive prices, the
government may have to step-in to provide necessary support to AIC.
Tax Issues:
Income tax: AIC as insurance company has to pay income tax on surpluses as
applicable for corporates. Crop risks being systemic in nature, the frequency and
quantum of claims under crop insurance are highly volatile. The normal technical
reserves of the insurance company may not be able to cover such high
fluctuations. The income tax exemption, therefore, would help AIC to build up
adequate ‘catastrophic fund’ to be able to finance claims during adverse years.
The Joint Group, therefore, recommends that crop insurance operations be
exempted from income tax provisions. Similarly, other insurance companies may
also be exempted from income tax provisions for their crop insurance portfolio.
Service tax: Insured paying insurance premium, as per the service tax norms
will have to pay service tax @ 10.2% on the premium. Appreciating the largely
social welfare nature of crop insurance, National Agricultural Insurance Scheme
is already exempted from service tax. The Joint Group recommends that the new
scheme with proposed modifications including weather insurance be exempted
from service tax.
A draft of modified NAIS after incorporating improvements discussed in this
chapter is given as Chapter – 5.
______________________________________________________________________________________
47
Joint Group Report
3.2. Farm Income Insurance Scheme (FIIS)
3.2.1. Key Issues:
The salient features and status of Farm Income Insurance Scheme (FIIS) has
already been discussed in section 3 of chapter 2.
laudable objectives.
FIIS was introduced with
This is an instrument supposed to achieve multiple
objectives – comprehensive income risk protection to farmer; dispensing with
MSP regime and thus save thousands of crores of rupees for the government.
The other objectives sought to be achieved are to encourage crop diversification
and give fillip to private trade, etc. It is also supposed to have addressed price
stability problems in states where procurement operations are not effective. It is
also envisaged that FIIS would provide income risk protection to the entire
produce as against marketable surplus under MSP regime.
Though conceptually FIIS is a good scheme, it suffers from several inherent
contradictions. First, it would be most unconceivable to substitute deep-rooted
MSP regime with income insurance, as MSP is available to all farmers while
income insurance is available to only the insured farmers. Secondly, MSP is
available to farmers at no additional cost while income insurance is available only
at a premium. Thirdly, income insurance linked to MSP is not an insurance
instrument as MSP is a theoretical price as against functional market price.
Although suspension of MSP operations was stipulated in areas for crops where
FIIS is available, due to pressure from states, MSP operations had to be
recommenced. The National Common Minimum Program (NCMP) of the
government also states that the MSP benefits will be extended to nook and
corner of the country. It appears, therefore, a futile and luxurious wastage of
government money if FIIS is to continue along with MSP. It is in this context, that
FIIS is perceived as neither practical nor viable.
______________________________________________________________________________________
48
Joint Group Report
Agriculture Finance Corporation (AFC), which conducted concurrent evaluation
of the project during Kharif 2004 season, also stated that the scheme in the
present form is neither viable nor attractive.
3.2.2. Joint Group’s Recommendations:
Insurance of price risk pegged at MSP may not be sustainable as MSP is a
theoretical price fixed by Commission for Agricultural Costs & Prices (CACP)
based on production cost, while market price is determined by market forces
based on supply & demand function. Pitching a market price against a theoretical
MSP is simply not insurance. At the same time, as long as MSP regime
continues, FIIS (with or without MSP based guaranteed income) would only be a
parallel effort with additional expenditure. As far as risk protection for a farmer is
concerned, there exists NAIS against yield risk and MSP against price risk. The
Joint Group, therefore, finds no relevance for FIIS in the present form and
circumstances, and recommends that the pilot project on FIIS be wound up w.e.f.
Rabi 2004-05 season.
______________________________________________________________________________________
49
Joint Group Report
3.3. Weather Insurance
3.3.1. Future of weather insurance:
Agriculture in India is often characterized as ‘a gamble with the monsoon’. 2/3 rd
of our agricultural land largely depends on the rains. Important crops like cereals,
millets, oilseeds in Karnataka, Andhra Pradesh, Maharashtra, Rajasthan,
Gujarat, Orissa, Madhya Pradesh, Uttar Pradesh, etc have crucial productivity –
rainfall relationship, in which rain failure means crop failure. This leaves the
majority of population engaged in agricultural operations in a miserable condition.
Weather insurance in the face of the aforesaid vagaries of nature may provide
financial security to the farming community. Rainfall insurance is viable, besides
being in the best interest of farmers, the credit agencies too which extend loans
to them, as also for the economic stability of the agricultural enterprise.
For Rabi season, we need to look at weather insurance, which in addition to
rainfall, include other parameters like soil moisture, sunlight, temperature,
humidity etc. For example, the impact of temperature was widely felt on wheat
yield during 2003-04 (Box-1).
Box-1
Wednesday, September 8, 2004 (New Delhi)-PTI
India lost a mammoth 4 million tons of wheat output due to high temperature during a
critical cultivation phase earlier this year, a comprehensive study by a premier farm
research arm of the government has revealed.
“Having scrutinized the various reasons which can be assigned to such decline in
production, the main and single factor which can be indicated more precisely is high
temperature during the critical grain filling phase of wheat”, Project Director, Directorate
of Wheat Research (DWR), Jag Shoran told reporters.
He said the study by Karnal based DWR took into account the temperatures in the best
crop season of 1999-00 when the country produced a record 76.37 million tons against an
estimated 72 million tons this year. The study reveals, on an average the maximum
temperatures were higher by 3-6 degrees Celsius during March at various places in
comparison to 1999-00, he said. Similarly, the minimum temperatures also recorded an
average increase of 3-4 degrees Celsius in different wheat growing regions, he added.
The maximum and minimum temperatures within 25-30 and 10-15 degrees Celsius range
are usually considered favorable for grain growth. Prevalence of 3-6 degree higher
temperature this season coinciding with grain growth phase was not favorable for
realizing higher yield.
______________________________________________________________________________________
50
Joint Group Report
Weather insurance apparently has a bright future. The concept of weather
insurance and the progress made so far has already been discussed in section 4
of chapter 1. The pilot projects undertaken by AIC and other private insurers, viz.
ICICI-Lombard General Insurance Co. and IFFCO-Tokio General Insurance Co.
are a step in the right direction in fine-tuning and expanding weather insurance.
The market would witness in near future, more insurance companies and more
sophisticated products covering larger number of crops.
Joint Group’s Review
The Group examined and explored weather / rainfall insurance with a view to
identify the strengths and the weaknesses of the programme and the institutions
like India Meteorological Department (IMD) & Indian Space Research
Organization (ISRO), which generate the data. There is no doubt that weather /
rainfall insurance is a promising field. But its implementation is subjected to
many constraints and also calls for resolution of certain significant issues, some
of which are discussed below:
(i)
Reliable & verifiable data and tamper-proof weather stations.
Designing a weather or rainfall insurance contract would require reliable and
accurate rainfall data on a daily basis and equally reliable yield data for at
least 20 to 30 years. Yield data is available for most of the crops for over 20
years, generated as part of crop insurance programme.
Regarding the status of rainfall data, the Group made a request to IMD to
provide the details of its network and availability of rainfall data. IMD has
provided a list of 6256 rain gauge stations across the country.
Barring
about 500 stations, the others are maintained and reported by different
departments of states. Except those rain gauge stations, which are directly
maintained by IMD (about 500), the rest have data only for a few years.
Further, majority of stations have huge gaps in the rainfall data recorded.
For example, the Group studied the situation in the state of Andhra Pradesh
______________________________________________________________________________________
51
Joint Group Report
as provided by IMD. Though the state has 1379 rain gauge stations, the
IMD maintains only 45.
Except a handful (other than IMD maintained
stations), no station has data after 1994.
The existing network of IMD weather stations appears to be inadequate to
report rainfall data. Further the data recorded is also not reported on time in
many instances. It has also been noticed that there are huge gaps in
reporting daily rainfall data even for major stations located at District
Headquarters. This is borne out by the experience of implementation of the
pilot rainfall insurance schemes during Kharif 2004 season.
AIC has implemented Varsha Bima in 20 IMD rain gauge station areas
during Kharif 2004.
As per the arrangement, IMD was to furnish daily
rainfall data for all the 20 stations. Accordingly, IMD was to furnish 2440
data points (20 stations * 122 days from 1st June – 30th September).
However, for as many as 533 data points, IMD failed to furnish the data on
time. Subsequently, it took more than a month for AIC to get the data for
these data points. If district locations face this sort of problems, one can
only imagine the problems expected with stations at sub-district level.
Similarly IFFCO-Tokio implemented ‘Barish Bima’ with indemnity period
June to September / October. As per the information gathered till date, the
complete rainfall data has not been received from IMD. Had the data been
given on time, these claims could have been processed and settled within
November.
From the above, it is very clear that the IMD is simply not geared to provide
accurate and timely rainfall data for large number of locations as required
under rainfall insurance. The Joint Group, therefore, feels that the present
network of weather stations should be expanded, strengthened and
automated to meet the requirements of not only weather insurance but also
to provide real time weather data to the government and agriculture
departments and the farming community. Since the weather data decides
the quantum of claim, if any, payable under weather insurance, the
______________________________________________________________________________________
52
Joint Group Report
accuracy of the data and secured environment under which the data is
reported is very critical for its success.
In this connection, the Joint Group also examined the possibility of adopting
automated devices for recording, and the third party for reporting the data.
It was noted that devices for secure and accurate measurement of weather
parameters such as Optical Precipitation Sensors (OPS), Real-time
telemetric gauges, etc. are being used in countries where weather
insurance is successfully implemented.
The equipment is mounted /
installed on electric / telephone poles to secure the data. Various types of
automated weather stations are also being used for research studies within
India. IIT, Kanpur has designed a mobile information centre mounted on a
rickshaw, which is being used to provide weather bulletins in a few areas.
There are instruments available from other countries, which are of palm size
and can be mounted on an electric or telephone pole (Boxes 2 and 3).
These will be particularly useful for experimental projects on weather
insurance, as it would involve shifting of experimental areas from year to
year.
With large-scale adoption of such instruments, the prices, which are now
somewhat high would become affordable. The Joint Group is also of the
view that with proper controls and regulations, the recording and reporting of
weather data could be entrusted to third party administrators or alternatively
could be out-sourced.
______________________________________________________________________________________
53
Joint Group Report
Box-2: Transportable Automated Meteorological Station
The Automated Meteorological Station (TAMS) from AWI is a compact, rugged, selfcontained meteorological station designed for rapid setup and operation in the field.
Composed of a portable Transmitter/Sensor unit and a hand-held Control Display, the
entire system fits into a 18" x 14" x 7" (457mm x 356mm x 178mm) light-weight
carrying case. The case and system components are built to withstand rough handling and
severe weather conditions. TAMS is uniquely suited to ground and military operations
support, civil emergency response, weather disaster damage control and use in remote
areas, such as isolated airstrips lacking access to weather stations.
Using optional adapters, the TAMS Transmitters/Sensor unit mounts to a standard tripod
or to any 1" diameter pipe. The built-in sensors collect weather data for a wide array of
parameters, and transmit the collected data to the handheld Control Display. The Control
Display is equipped with an RS-232 serial port for connection to a computer or printer.
With appropriate communications software installed on the computer, data can be stored
as it is received from the TAMS.
The TAMS system has enough on-board memory to store up to 1,000 records of data,
each containing all measured and calculated parameters. These records are available for
downloading at a future time. That is, the TAMS can be set up in the field and retrieved
at a later date along with the stored data. Downloading of the data is achieved by using a
computer that runs available software.
Telemetry Options: The TAMS has two signal outputs, an RS-232 connection for short
distances (up to 30 meters), and an RS-485 output for longer runs (up to 1200 meters).
The TAMS also has an optional UHF radio telemetry system which can transmit data
over distances of up to 5-7 miles (line of sight). The radio transmitter is housed with a
long life rechargeable battery in the transmitter carrying case. At the receiver end there
are two options - a handheld display with an integral radio receiver, or a receiver housed
in a small weatherproof carrying case. Both options have an RS-232 serial output that can
be connected directly to a computer running the MetView or other software packages.
Applications: General Meteorology, Fire Management, Aviation, Military etc.
Specifications:
Weight - 2 lbs ; Size – 8.5 X 6.75 X 2 inches
______________________________________________________________________________________
54
Joint Group Report
Box-3: Wireless Rain Gauge
WS7038UF Wireless Rain Gauge from LaCrosse Technology
WS7038UF Wireless Rain Gauge
Model Number: WS7038UF: Dimensions: 3.5" x 0.75" x 4.25"
Unit Weight: 1.75 lbs. : Price: $69.95
This Wireless Rain Gauge stores the history of rainfall so one knows exactly how
much rain fell and when. It allows us to view accumulation for the past hour, last rain
period, or until you press the reset button. It also graphs the last seven days, weeks, or
months in an easy to read format. Rainfall transmitter self-empties via tipping bucket.
Benefits:















(ii)
Receives rain data from remote rain gauge
Includes TX5U remote rain gauge
Stores history of rainfall
Accumulated rainfall until manual reset
Rainfall for past 24 hours
Rainfall for past 1 hour
Rainfall for last rain period
Graph of historical rainfall
View last seven days, weeks, or months on graph
Scroll through period by period on graph
Rain alarm function (notifies of rain)
Rainfall transmitter self-empties via tipping
bucket
Measures 1/100th of an inch per tip
Wall Hanging or Free-standing (removable
stand)
Manual set time and date; 12 or 24 hour time
mode
Features:
 Rainfall measuring:
Tipping bucket,
0.0105”/tip
 Rainfall accuracy: +/0.02” (+/-3%)
 Rainfall range: 0.01 to
999.99” (total)
 Power requirements
(receiver): 2 “AAA”
Alkaline batteries
 Power requirements
(remote sensor): 2 “AA”
Alkaline batteries
 Transmission Frequency:
433.92 MHz
 Transmission Range: Up
to 80 feet open air
Weather Data Cleaning – Weather insurance products are based on
indices derived from daily data. The indices are sensitive to the quality of
weather data. The ‘raw’ historical weather data supplied by IMD often
contain missing and erroneous values. Along with this, there can be
______________________________________________________________________________________
55
Joint Group Report
discontinuities due to non-climatic factors such as relocation of station,
changes in surroundings, etc. The raw data, therefore, is required to be
‘cleaned’.
The cleaning process involves filling missing values and replacing
erroneous values. A series of quality control checks need to be performed
on the data to identify missing values and flag suspect values.
These
values are required to be replaced by spatial & temporal interpolation
techniques.
Multiple regression method can be applied for interpolating
missing values wherever more than one parameter like distance, location
and elevation determining the shape of the data is available.
The process
also involves adjustment for non-climatic trends. The discontinuity in data
will have to be computed from the station time series or from multiple station
data. The time series data is then to be adjusted by removing the shift
caused by the discontinuity.
(iii) Basis risk – On the basis of present network of IMD, rainfall insurance can
be implemented only on the basis of District level rainfall data. Since the
district is a very large geographical unit, and the rainfall being discontinuous
in nature, the areas away from the weather stations may face the problem of
basis risk because of spatial variations. Basis risk arises if the experience of
individual farmer is vastly different from the area average. Basis risk can be
minimized only if claim structures for rainfall insurance is worked out at
smaller units such as block/village panchayat etc. However, considering that
presently the core network is limited only to district centres, it would require
huge effort, time and investment to realistically prepare rainfall insurance
models.
(iv) Correct correlation – The success and efficiency of weather insurance
depends on establishing accurate correlation between productivity levels
and weather variations. However, there are a large no. of crops, such as
soybean, cotton, etc. where it is difficult to establish significant correlation.
Rainfall though has overriding importance over other agricultural inputs, yet
it is too complex to estimate the correlation arising out of interactive nature
of various agricultural inputs. During Rabi, weather insurance gets further
______________________________________________________________________________________
56
Joint Group Report
complicated because of the complexity of variables such as temperature,
relative humidity, chill factor, fog density etc. Establishing correct correlation
with fine-tuning the model to account for daily variations would require not
only sophisticated analytical techniques but also a good network of weather
stations to report weather data accurately on a regular basis. At present
weather data other than rainfall is reported by IMD only for selective major
stations. The Joint Group, therefore, feels that for the weather insurance to
really take off, it is essential that the network of weather stations is
strengthened and the quality of the data is substantially improved.
(v)
Premium Rates – It would be unrealistic to assume that the premium rates
under weather insurance will be lower than crop insurance. The insurance
contracts worked out by AIC, ICICI-Lombard & IFFCO-Tokio have shown
that the premium rates would be pretty high for a good payout.
The
premium rate was as high as 15 percent of sum insured for rainfall
insurance implemented by ICICI-Lombard for oranges in Rajasthan. The
premium rate proposed for winter precipitation of apple by ICICI-Lombard is
close to 40 percent of sum insured.
Though, the weather insurance
contracts can be worked out keeping premium rates low and affordable, the
payouts are most unlikely for contracts designed for low premium rates.
For example, AIC offered catastrophic options under Varsha Bima at a
premium as low as 2-3 percent. But despite adverse southwest monsoon
during 2004, none of the insured farmers under this option could get the
claim because of very high deductible, which was as much as 60 percent.
As a matter of fact AIC provided five different options to farmers (as outlined
in section 4 of chapter 1), and the premium was lowest for ‘catastrophe
option’. A comparative chart of premium for a sum insured for Rs. 15000 for
different options of rice in Warangal (AP) is given below for information:
S. No
1
2.
3.
4.
5.
Option
Sowing Failure
Rainfall Distribution Index
Seasonal Rainfall Insurance
Agronomic Optimum Rainfall
Catastrophe cover
Premium (Rs.)
913
3549
1950
1385
432
______________________________________________________________________________________
57
Joint Group Report
Out of the five options made available by AIC, the farmers opted for
‘catastrophe option’ because the premium was low and affordable. The
farmers could not appreciate that the claim under ‘catastrophe option’ will be
very rare. For options where payout is commensurate with losses, the Joint
Group strongly feels that reduction of premium rates is a must. For this to be
achieved, accurate rainfall and yield data is required for 20-30 years.
Otherwise, premium rates continue to be loaded for these data
inaccuracies.
Boxes-4 to 6 illustrates different models of payment of products
implemented by AIC, ICICI-Lombard & IFFCO-Tokio and highlights the
relationship between the premium and the claim payout.
From the details given in boxes, it could be seen that all the three insurance
companies, which introduced pilot projects on rainfall insurance, made sure
that, the claims if are paid only when the deviation in the rainfall is
substantial. In case of IFFCO-Tokio, the claim starts only when the
deficiency in the rainfall is 30 percent from the normal, which is almost a
semi-drought situation. In case of AIC the claim trigger starts at 20 percent
deficiency of rainfall. ICICI Lombard though kept the trigger at 5 percent
deficiency, but the initial payouts were meager so much so that the claims
are equal to the premium paid only at a level of 30 percent of rainfall
deficiency.
(vi) Insurable Interest - Insurance contracts usually require an ‘insurable
interest’ by the insured which may be viewed as incompatible with a
weather contract settled on the basis of third party data as opposed to
losses suffered by the insured. Since weather insurance is a derivative
contract, persons unconnected with agricultural activity may also buy
insurance unless appropriate checks & balances are put in place. In other
words, existence of insurable interest is essential to extend weather
insurance.
______________________________________________________________________________________
58
Joint Group Report
Given that Securities Exchange Board of India (SEBI) has also issued
guidelines for physical delivery of capital market derivatives, it would be
imperative for weather insurance to insist on insurable interest. In other
Maboobnagar weather insurance small farmer payout structure
words weather insurance should discourage participation of those people
who are not engaged in agricultural activity.
Box-4: ICICI-Lombard – Rainfall Index insurance
Mahbubnagar weather insurance - small farmer payout structure
700
16000
600
14000
Actual rainfall index (in mm)
10000
400
8000
300
payout (Rs)
rainfall index (mm)
12000
Payout
500
6000
200
4000
100
2000
-100%
-95%
-90%
-85%
-80%
-75%
-70%
-65%
-60%
-55%
-50%
-45%
-40%
-35%
-30%
-25%
0
-15%
0
rainfall deviation from mean
Explanation:
As per the above graphic, the insured farmer is likely to recover claims equivalent
to the amount of premium paid, if the deviation in rainfall is between 25 – 30
percent. The farmer would receive approximately 15 percent of the sum insured
if the deviation of rainfall were 50 percent and 25 percent if the deviation of
rainfall were 65 percent.
______________________________________________________________________________________
59
Joint Group Report
Box – 5: IFFCO – Tokio Rainfall Index Insurance model
Mahbubnagar / Andhra Pradesh
Weight
Normal Weighted
Rainfall Normal
(mm)
Rainfall (mm)
June
1.25
114.7
143.4
July
1.50
205.1
307.7
August
1.25
178.4
223.0
September
0.50
186.3
93.2
Total
569.8
767.2
Claim
%
Claim
Payout
Deficiency Payout
Table
(% of SI)
0%
0%
10%
0%
30%
10%
40%
13%
50%
18%
60%
25%
70%
40%
80%
70%
90%
100%
Month
Premium (%)
4.38
Bijapur / Karnataka
Weight
Normal Weighted
Rainfall Normal
Rainfall (mm)
June
1.00
91.3
91.3
July
1.75
84.3
147.5
August
1.00
82.7
82.7
September
0.50
165.5
82.8
Total
423.8
404.3
Claim
%
Claim
Payout Deficiency
Payout
Table
(% of SI)
0%
0%
10%
0%
30%
0%
40%
10%
50%
13%
60%
18%
70%
25%
80%
40%
90%
70%
100%
100%
Premium (%)
4.95
Month
Explanation:
As per the above structure for Mahbubnagar (Andhra Pradesh), the claim pay out
starts only when the adverse deviation in rainfall index touches 30 percent. At 30
percent deviation, the insured farmer would receive 10 percent of sum insured as
claim, and it is roughly equivalent to twice the amount of premium paid. The
farmer would receive 18 percent of the sum insured if the deviation of rainfall
index were 50 percent and 25 percent if the deviation of rainfall were 60 percent.
The farmer would receive 50 percent of sum insured only if the deviation in
rainfall index touches 80 percent.
______________________________________________________________________________________
60
Joint Group Report
Box-6: Agriculture Insurance Company of India Ltd. – Aggregate rainfall
model
Illustration of Varsha Bima – ‘Seasonal Rainfall’ Option for Lucknow (Paddy)
1.
2.
3.
4.
5.
7.
9.
Season span / Period of insurance
:1st June to 30th September 2004
Risk Acceptance Period :
Upto 30th June 2004
Reference IMD Rain-gauge Station :
Lucknow (UP)
Rain-gauge Station’s jurisdiction for Insurance: Badagaon and Babina Blocks
Normal Rainfall :
853 MM; 6. Crop :
Paddy
Maximum Pay-out :
Rs. 18,000/- 8. Premium (per hectare):
Rs. 1296/
Pay-out structure (Per hectare compensation structure at various levels of
deviations):
Rainfall Range
MM
Payment
Rs / MM
640-682
554-597
469-512
384-426
298-341
213-256
128-170
42-85
10.77
13.32
16.47
20.35
20.45
20.65
20.87
21.00
Rainfall Range
MM
597-640
512-554
426-469
341-384
256-298
170-213
85-128
0-42
Payment
Rs / MM
11.99
14.80
18.30
20.40
20.56
20.78
20.93
21.10
How to use the table:
Payout starts once the negative deviation in rainfall touches 20%. In case of Lucknow,
the strike point is 682 MM. If, say actual rainfall is 650 MM, the payout per hectare of
paddy is – ‘deviation in rainfall’ (as against normal), multiplied by ‘payment per MM
deviation’ at a given range. In this case, it is 203 MM X Rs. 10.77 = Rs. 2186. If the
actual rainfall is, say 426 MM (50% of normal), the payout is Rs. 8690. At 100%
deviation, the payout is full sum insured, i.e. Rs. 18000.
Explanation:
As per the above table for Lucknow (Uttar Pradesh), the claim pay out starts
once the adverse deviation in rainfall touches 20 percent. At this deviation, the
insured farmer would receive approx. 20 percent of sum insured as claim, and it
is roughly equivalent to 1½ times the amount of premium paid. The farmer would
receive 50 percent of the sum insured if the deviation of rainfall were 50 percent
and 65 percent if the deviation of rainfall is 70 percent.
______________________________________________________________________________________
61
Joint Group Report
(vii) Weather Insurance integration with other risk management tools –
Various studies have proved that no single strategy is effective in reducing
risk in the farm sector. Integration of various programmes, which can blend
and compliment, can do wonders in risk management. In case of weather
insurance, the Joint Group feels that it could play an effective role in areas
where farmers are already using water-harvesting techniques. The water
harvesting techniques including watershed development programmes
provide 1st layer of risk management, followed by financial arrangements
like savings programme and weather insurance. The Joint Group is,
therefore, of the view that the weather insurance be considered by the
government as part of integrated strategy along with such strategies as
water harvesting techniques, watershed development, resistant varieties of
crops, cloud seeding for rain enhancement, savings account, etc.
(viii) Insurance Regulations - Insurance regulations for establishing an
appropriate legal and regulatory framework for weather insurance, which is
presently absent, will have to be set up. The Insurance Regulatory &
Development Authority (IRDA) will have to put in place appropriate
regulatory mechanism for index based insurance contracts.
As discussed in the earlier paragraphs, there are a number of issues, which need
immediate attention before weather insurance is set for take off. The first and
foremost issue is real time, accurate and secure weather data at block level to
effectively operationalize weather insurance. It would require substantial
investment in up-gradation and expansion of weather stations.
Agriculture Ministry’s Initiative:
Agriculture Ministry (GoI) requested almost all the insurance companies including
those from private sector to submit proposals on rural insurance, particularly
agricultural insurance. Among these companies, ICICI-Lombard and IFFCO Tokio General Insurance (ITGI) have submitted proposals on rainfall / weather
______________________________________________________________________________________
62
Joint Group Report
insurance. These two companies have subsequently made presentations on their
initiatives and proposals for future. The Company wise details are as follows:
IFFCO-Tokio General Insurance:
The Company implemented “Barish Bima”, a rainfall index insurance product
covering major crops in nine districts of four states during Kharif 2004 season.
The policy pays for deviations in actual rainfall exceeding 30 percent. The claims
are paid on graded scale, with 100 percent claims payable when adverse
deviation in rainfall reaches 90 percent. The premium rates vary from 4 - 5
percent and farmers are covered on group basis. The Company has plans to
expand the product to more districts and states in future, particularly Kharif
seasons.
ICICI-Lombard:
The Company is currently working on weather risk insurance for Wheat (North
India), Apples (Himachal Pradesh), Grapes (Maharashtra), Coffee (Kerala),
Mustard (Rajasthan) etc. The Company is also working on farm credit and
weather based loan portfolio insurance for Banks, etc.
The company submitted specific proposals for implementing weather insurance
during Rabi 2004-05 season for Wheat in parts of Haryana and Punjab; Coffee in
Wynad district in Kerala; Coriander in Jhalawar, Boondi & Kota districts of
Rajasthan; Apple in Shimla district of Himachal Pradesh and Mustard in
Ganganagar & Hanumangarh districts of Rajasthan. The risks covered are high
temperature
for
wheat;
chilling
hours
requirement,
winter
precipitation
requirement, temperature fluctuations during flowering and deficit rainfall from
April to August for apple; frost injury due to sudden drop in temperature,
sustained low temperature and temperature induced early maturity for mustard;
frost injury due to drop in minimum temperature and loss of quality due to rainfall
for coriander; and blossom showers, backing showers and deficit rainfall cover
during berry swelling stage for coffee.
______________________________________________________________________________________
63
Joint Group Report
The Company has subsequently submitted financial proposals, and made
presentation on 6th November’ 04 before the Joint Group. As per proposals, the
premium rates are significantly high. Rates for apple ranges from 8 to 38 percent;
Mustard 12 percent; Coriander 14 percent and wheat in Haryana range from 2.3
percent to 11.3 percent for normal sowing; 4.3 to 14.8 percent for late sowing
and 7.7 to 15.5 percent for very late sowing. The comparative rates for wheat in
Punjab are lower for late and very late sowings and higher for normal sowing.
No rates have been given for coffee.
In view of the complexity of proposed weather parameters for coverage, and high
premium rates quoted, the Joint Group requested for assistance of experts from
ICAR. The experts felt that the concept is novel and interesting, but product
design particularly for wheat needs refinement to account for effect of the day-today variations in temperatures. Experts also felt that more time is required to
study
the
proposed
coverage
vis-à-vis
agronomic
and
meteorological
requirements of proposed crops. The Joint Group particularly felt that the
premium rates are very high, and asked ICICI-Lombard if it would be possible to
re-workout the structures based on weekly or daily temperature data. ICICILombard promised to submit the proposal shortly. In view of time constraint, the
Joint Group could not wait for the revised proposals.
Joint Group’s Recommendations:
The Joint Group considered rainfall and weather insurance proposals received
from ICICI Lombard, ITGI and AIC. ICICI Lombard is the only company to submit
its interest for implementing weather insurance products during the ensuing Rabi
2004-05 season. The Joint Group feels that the revised proposal for Weather
Insurance when submitted by ICICI-Lombard requires further evaluation.
However, considering limited time available, and that NAIS is already
implemented for some of these crops / areas during the season, the Group
recommends that any subsidy in premium could be considered only after the
company runs a pilot project, and submits a concrete proposal based on its
experience.
______________________________________________________________________________________
64
Joint Group Report
However, for Kharif season the Joint Group noted that the rainfall insurance
products submitted by AIC, ICICI-Lombard and ITGI have difference in product
design and indemnity formula. As an illustration, the one submitted by AIC is
more elaborate and has five different options meeting different requirement of
farmers. The product has been designed in such a way that the indemnities are
significantly better, and consequently the premium rates are slightly higher. The
ones submitted by ICICI Lombard and ITGI are based on rainfall index with low
indemnity and low premium rates. The Joint Group, in view of differences in
products, feels that it would not be possible to compare them and that the farmer
should be given only one product to avoid confusion and moral hazard. The Joint
Group, therefore, recommends that a consultant be hired to examine different
products and suggest a farmer friendly product, acceptable to the insurance
companies. The product can be fine-tuned by the Ministry of Agriculture and be
offered to insurance companies for quoting financial proposals. The scheme can
then be offered to the company quoting the most competitive rate, with provision
for premium subsidy and support as are being offered to AIC.
Weather Insurance is a promising field. However, the success and efficiency
depends upon quality of weather data, proper correlation studies and affordable
premium rates for farmers, among others. Rainfall during Kharif and other
weather parameters (temperature, humidity, light, dew, chill etc.) during Rabi are
the important meteorological parameters based on which insurance will be
designed. Considering the above, the Joint Group outlined an ‘Action Plan” for
implementation of weather insurance in the country, the details of which are
provided in Box-7.
______________________________________________________________________________________
65
Joint Group Report
Box - 7: Weather Insurance – Action Plan
a. Perennial horticultural crops (where area based yield insurance is unlikely to
work) will be the special focus for weather insurance. The Group recommends
for appointing consultants with following time schedule:
Release of advertisement – 20th December 2004
Last date for receipt of applications – 31st December 2004
Finalizing TORs & short-listing applicants – 10th January 2005
Inviting technical & financial bids – 20th January 2005
Appointment of consultants – 1st February 2005
(Consultants to be chosen for horticultural crops and setting common
parameters for designing weather insurance)
Since availability of the data (both yield and rainfall) is a constraint, in the first
phase, 50-100 districts and two or three important crops will be identified for
experimenting weather insurance.
Common design parameters will be circulated to all insurers for getting
financial quotes from prospective insurers. Crops and territories will be
assigned on the basis of premium rates, service criteria & network.
Private insurers will be extended support by the government at par with AIC.
A review will be made after completion of two years as to the efficiency of
weather insurance, particularly its supplementary and complimentary role visà-vis area based yield insurance.
The existing network of weather stations will need to be expanded,
strengthened and automated to provide real time and accurate weather data to
develop weather insurance. For this purpose the government and the insurers
will join hands. The possibilities for permitting third party weather data
providers will also be explored.
(i)
(ii)
(iii)
(iv)
(v)
b.
c.
d.
e.
f.
3.3.2. Agro - Meteorological & Blended products
The Joint Group learnt that considerable research is conducted in agrometeorological yield models at ISRO and other centres and it is possible to blend
these parameters with spectral (satellite imagery) models in designing accurate
yield models. The Joint Group, therefore, recommends that an experimental
project could be commissioned by AIC.
3.3.3. New Initiatives under Macro Management in Agriculture
The Joint Group recommends that the State Governments should be permitted to
take up small experimental and innovative crop insurance products including
weather insurance and insurance for horticulture and plantation crops in
collaboration with the AIC and other insurance companies as “new initiative”
under the scheme of Macro Management in Agriculture.
______________________________________________________________________________________
66
Joint Group Report
4. Modified National Agricultural Insurance Scheme
(The improvements suggested in NAIS in the earlier chapter are incorporated
in the modified scheme presented below)
OBJECTIVES:
The objectives of the Scheme are as under: i.
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.
ii.
To encourage the farmers to adopt progressive farming practices, high
value in-puts and higher technology in Agriculture.
iii.
To help stabilize farm incomes, particularly in disaster years.
SALIENT FEATURES OF THE SCHEME:
1. Agriculture Insurance Company of India Ltd. (AIC), which is exclusively formed
for administering agriculture and allied insurance schemes, shall underwrite
the scheme for the time being.
2. CROPS COVERED:
i.
Food crops (Cereals, Millets & Pulses)
ii.
Oilseeds
iii.
Annual Commercial / Horticultural crops
The Crops are covered subject to availability of i) the past yield data based on
Crop Cutting Experiments (CCEs) for adequate number of years, and ii)
requisite number of CCEs is conducted for estimating the yield during the
proposed season.
Ten years historical data is adequate for setting premium rates, fixing
indemnity limit and threshold yield, etc. Wherever such historical yield data at
insurance unit is not available for some years, the data of nearest
______________________________________________________________________________________
67
Joint Group Report
neighbouring unit / weighted average of contiguous units / next higher unit can
be adopted, subject to appropriate loading in the premium rate, if necessary.
3. STATES AND AREAS TO BE COVERED:
The Scheme extends to all States and Union Territories (UTs). The States /
UTs opting for the Scheme, would be required to take up all the crops
identified for coverage in a given year. The States / UTs having opted for the
Scheme once, will have to continue for a minimum period of three years.
4. FARMERS TO BE COVERED:
All farmers including sharecroppers, tenant farmers growing the notified crops
in the notified areas are eligible for coverage.
The Scheme covers following groups of farmers:
a) On a compulsory basis :All farmers growing notified crops and availing
Seasonal Agricultural Operations (SAO) loans from Financial Institutions
i.e. Loanee Farmers.
b) On a voluntary basis: All other farmers growing notified crops (i.e., NonLoanee farmers) who opt for the Scheme. These farmers could be:
(i) Individual owner-cultivator farmers
(ii) Farmers enrolled under contract farming, directly or through
promoters / organisers
(iii) Groups of farmers / societies serviced by Fertiliser Companies,
Pesticide firms, Crop Growers associations, Self Help Groups
(SHGs), Non-Governmental Organisations (NGOs), and Others
(iv) Corporate farms
______________________________________________________________________________________
68
Joint Group Report
5. RISKS COVERED & EXCLUSIONS:
(A). STANDING CROP (Sowing to Harvesting): Comprehensive risk insurance is
provided to cover yield losses due to non-preventable risks, viz.:
(i) Natural Fire and Lightning
(ii) Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc.
(iii) Flood, Inundation and Landslide
(iv) Drought, Dry spells
(v) Pests/ Diseases etc.
(B) PREVENTED SOWING / PLANTING RISK: In case farmer of an area is
prevented from sowing / planting due to deficit rainfall or adverse seasonal
conditions, such insured farmer who failed to sow / plant (but otherwise has
every intention to sow / plant and incurred expenditure for the purpose), shall
be eligible for indemnity.
The indemnity payable would be a maximum of
25% of the sum-insured. The scale of payment for different crops will be
worked out by implementing agency in consultation with experts.
(C) POST HARVEST LOSSES: Coverage is available only for those crops, which
are allowed to dry in the field after harvesting against specified perils of
cyclone in coastal areas, resulting in damage to harvested crop. Further, the
coverage is available only upto a maximum period of two weeks from
harvesting. Assessment of damage will be on individual basis.
GENERAL EXCLUSIONS: Losses arising out of war & nuclear risks, malicious
damage and other preventable risks shall be excluded.
6. SUM INSURED / LIMIT OF COVERAGE:
In case of Loanee farmers the Sum Insured would be at least equal to the
amount of crop loan sanctioned / advanced, which may extend upto the value
of the threshold yield of the insured crop at the option of insured farmer.
Where value of threshold yield is lower than the loan amount per unit area, the
higher of the two is the Sum Insured. Multiplying the Notional Threshold Yield
______________________________________________________________________________________
69
Joint Group Report
(district/region/state level) with the Minimum Support Price (MSP) of the
current year arrives at the value of Threshold Yield. Wherever Current year’s
MSP is unavailable, MSP of previous year shall be adopted. The crops for
which, MSP is not declared, farm gate price established by the marketing
department / board shall be adopted.
Further, in case of Loanee farmers, the Insurance Charges payable by the
farmer shall be financed by loan disbursing office of the Bank, and will be
treated as additional component to the Scale of Finance for the purpose of
obtaining loan.
For non-loanee farmers, the sum-insured is upto the value of Threshold Yield
of the insured crop.
7. PREMIUM RATES & SUBSIDY:
Premium rates are to be worked out on actuarial basis.
However, the
premium paid by the farmer can be subsidized on the following lines:
S.
No
1
2
3
4
5
Premium
Subsidy to Small /
slab
Marginal farmers
Upto 2%
25%
>2 - 5%
40% subject to minimum net
premium of 1.5%
>5 – 10% 50% subject to minimum net
premium of 3%
>10 –15% 60% subject to minimum net
premium of 5%
>15%
75% subject to minimum net
premium
of
6%
and
maximum net premium of 8%
Subsidy to Other farmers
Nil
25% subject to minimum net
premium of 2%
40% subject to minimum net
premium of 4%
50% subject to minimum net
premium of 6%
60% subject to minimum net
premium
of
7.5%
and
maximum net premium of 12%
The definition of Small and Marginal farmer would be as follows:
Small Farmer: A farmer with a land holding of two hectares (5 acres) or less.
Marginal Farmer: A farmer with a land holding of one hectare or less (2.5
acres).
Financing Banks shall bear 25 percent of premium payable by loanee farmers
______________________________________________________________________________________
70
Joint Group Report
subject to a maximum of 1.00 percentage point of premium.
9. SHARING OF RISK:
All claims will be borne by the Agriculture Insurance Company of India Ltd.
10. SCHEME APPROACH AND UNIT OF INSURANCE:
(A) WIDESPREAD CALAMITIES:
The Scheme would operate on the basis of ‘Area Approach’ i.e., Defined
Areas for each notified crop for widespread calamities. The Defined Area (i.e.,
unit area of insurance) is Village Panchayat for major crops and for other crops
it may be a unit of size in between Village Panchayat to Taluka to be decided
by the State/UT Govt.
(B) LOCALIZED RISKS:
In case of localized risks, viz. hailstorm, landslide and specified wild animals
(neelgai, spotted dear and elephant), the claims will be assessed on individual
basis.
For other calamities the assessment will be on the basis of ‘area
approach’.
11. SEASONALITY DISCIPLINE:
(a) The broad seasonality discipline for Loanee and Non-Loanee farmers can be
as under:
Activity
Loaning period (loan sanctioned)
for Loanee farmers
Cut-off date for receipt of
Proposals of Non-Loanee farmers
Cut-off date for receipt of
Declarations of Loanee farmers
from Banks
Cut-off date for receipt of
Declarations
of
Non-Loanee
farmers from Banks
Cut-off date for receipt of yield data
Kharif
April to June /
July
15th June /
15th July
31st July
31st July
Rabi
October to
December
31st December
31st January
31st January
Within a month
Within a month
from final harvest from final harvest
______________________________________________________________________________________
71
Joint Group Report
In case of Kharif crops, the cut off dates are fixed in such a way that these
dates correspond to historical onset / coverage by the South-West Monsoon.
Further, in case of three crop / season pattern, a modified discipline keeping
in mind the overall seasonality discipline prescribed above, will be adopted by
the State Level Co-ordination Committee on Crop Insurance (SLCCCI).
Non-Loanee farmers can buy insurance before actual sowing / planting based
on advance crop planning for the season. For any reason, if farmer changes
the crop planned earlier at the time of buying insurance, such changes should
be intimated to financial institution at which insurance proposal was
submitted, within 30 days from the cut-off date for buying insurance,
accompanied by sowing certificate issued by concerned official of the State at
village level. Where required, the farmer will pay the difference in premium or
implementing agency will refund difference in premium, as per the premium
structure.
12. ESTIMATION OF CROP YIELD:
The State govt./UT will plan and conduct the requisite number of Crop Cutting
Experiments (CCEs) for all notified crops in the notified insurance units in
order to assess the crop yield. The State govt./ UT will maintain single series
of Crop Cutting Experiments (CCEs) and resultant yield estimates, both for
Crop Production estimates and Crop Insurance. Planning and supervision for
all CCEs will be of the same order as that of General Crop Estimation
Surveys (GCES).
CCEs shall be undertaken per unit area /per crop, on a sliding scale, as
indicated below:
S. No
Insurance Unit
1.
District
2.
Taluka / Tehsil / Block
3.
Mandal / Phirka / Revenue Circle /
Hobli or any other equivalent unit
4.
Village Panchayat
Minimum sample size of CCEs
24
16
10
08
______________________________________________________________________________________
72
Joint Group Report
A Technical Advisory Committee (TAC) comprising representatives from
Indian Agricultural Statistical Research Institute (IASRI), National Sample
Survey Organisation (NSSO), Ministry of Agriculture (GoI) and implementing
agency shall be constituted to decide the sample size of CCEs and all other
technical matters. Inputs from satellite imagery could also be utilized in
deciding sample size.
In instances where required number of CCEs could not be conducted due to
non-availability of adequate cropped area, the yield data for such units can be
generated by Insurer by proxy indicators, such as clubbing with neighbouring
/ contagious units, adopting yield of next higher unit, yield data generated by
correction / correlation factor with next higher unit, etc.
Alternative yield assessment techniques, such as satellite imagery, agrometeorological and bio-metric and a combination of such techniques, etc. can
be
explored
and
adopted
after
establishing
reasonable
level
of
standardization.
13. LEVELS OF INDEMNITY & THRESHOLD YIELD:
Two levels of Indemnity, viz., 90% & 80% corresponding to Low Risk & High
Risk areas shall be available for all crops. The criteria for deciding low and
high risk will be determined by implementing agency.
The Threshold yield (TY) or Guaranteed yield for a crop in a Insurance Unit
shall be the average of best five years out of preceding seven years,
multiplied by the level of indemnity.
14. NATURE OF COVERAGE AND INDEMNITY:
(A) WIDE SPREAD CALAMITIES:
If the ‘Actual Yield’ (AY) per hectare of the insured crop for the defined area
[on the basis of requisite number of Crop Cutting Experiments (CCEs)] in the
______________________________________________________________________________________
73
Joint Group Report
insured season, falls short of the specified ‘Threshold Yield’ (TY), all the
insured farmers growing that crop in the defined area are deemed to have
suffered shortfall in their yield. The Scheme seeks to provide coverage
against such contingency.
‘Indemnity’ shall be calculated as per the following formula:
Shortfall in Yield
X Sum Insured for the farmer
Threshold yield
[Shortfall = ‘Threshold Yield - Actual Yield’ for the Defined Area]
(i) ON ACCOUNT PAYMENT OF CLAIMS:
In case of adverse seasonal conditions during crop season, claim amount
upto 50 percent of likely claims would be released in advance subject to
adjustment against the claims assessed on yield basis. The on account
payment will be considered only if the expected yield during the season is
less than 50 percent of normal yield. The criteria for deciding on-account
payment of claims shall be based on agro-meteorological data / satellite
imagery or such other indicators to be decided by the Insurer, and will be
implemented in States and for crops for which such proxy indicators can be
established.
(ii) PREVENTED SOWING / PLANTING CLAIMS:
The extent of claims payable will be decided on the basis of rainfall position
issued by the concerned India Meteorological Department (IMD) for the area
during the sowing season and acreage-sown particulars issued by the State
government. Other authentic rain gauge stations which the government shall
install for the purpose / Insurer/ Insurer nominated agencies can also be
considered for the purpose of measuring rainfall. The maximum claims
payable will be 25 percent of the sum-insured. Having received indemnity
based on prevented sowing / planting, the insurance cover is automatically
terminated.
______________________________________________________________________________________
74
Joint Group Report
(iii) POST HARVEST LOSSES:
Coverage is available only for those crops, which are allowed to dry in the
field after harvesting against specified perils of cyclone in coastal areas,
resulting in damage to harvested crop lying in the field in ‘cut & spread’
condition. In other words, the crop, which after harvest is left in the field for
drying, is only covered against the peril specified above. The harvested crop
bundled and heaped at a place before threshing is beyond coverage under
post harvest losses. Further, the coverage is available only upto a maximum
period of two weeks (14 days) from harvesting. Assessment of damage will
be on individual basis.
(B) LOCALIZED RISKS:
The losses would be assessed on individual basis in case of loss / damage
resulting from occurrence of identified localized risks viz., hailstorm, landslide
and specified wild animals (neelgai, spotted dear & elephant). The cost of
inputs incurred until the time of occurrence of peril, and the expected loss in
final yield due to the peril, would form the basis for loss assessment.
In case of localized risks, implementing agency may utilise the services of
concerned departments of the State government, such as Agriculture,
Revenue etc.
15. COMMISSION & BANK SERVICE CHARGES:
Rural agents and Others who are engaged for procuring and servicing
business of Non-Loanee farmers may be paid appropriate commission as
decided by implementing agency. The servicing banks of Non-Loanee farmers
will receive 2.5% of gross premium as service charges.
______________________________________________________________________________________
75
Joint Group Report
16. REINSURANCE COVER:
Efforts will be made by the implementing agency to obtain appropriate
reinsurance cover for the Scheme in the national / international reinsurance
market. In the event of failure to procure such cover at competitive rates, the
Government of India should provide necessary protection in terms of interestfree loan.
17. REVIEW OF THE SCHEME:
The Scheme will be reviewed after two years and necessary modifications will
be incorporated based on the review.
18. IMPORTANT CONDITIONS/CLAUSES APPLICABLE FOR COVERAGE OF
RISK:
(a) The Joint Group also recommends that the banks display the list of all insured
farmers at the village panchayat office. Further, the banks will also display
the list of benefited farmers together with claim amount soon after the claims
are received from implementing agency.
(b) Implementing agency possesses the discretion to accept or reject any risk of
defined area(s) for any crop(s) considering the prevailing agricultural
situation. Mere sanctioning / disbursement of crop loans and submission of
proposals/ declarations and remittance of premium by the farmer / bank
without explicit intent to raise the crop, does not constitute acceptance of risk
by implementing agency.
(c) In the event of near total crop failure during early or mid season affecting the
entire defined area, implementing agency shall adopt a graded scale
indemnity settlement restricting the indemnity to the proportion of input cost
upto that stage.
The graded scale shall be worked out by implementing
agency.
______________________________________________________________________________________
76
Joint Group Report
(d) Implementing agency, if deemed necessary, shall investigate the coverage on
its own or by an agency appointed for the purpose and shall for this purpose
utilize satellite imagery data for identification of anomalies in crop insurance
coverage vis-à-vis actual field conditions.
Upon identification of adverse
phenomenon based on such investigations, implementing agency may resort
to scaling down of sum insured.
19. BENEFITS EXPECTED FROM SCHEME:
The Scheme is expected to:

Be a critical instrument of development in the field of crop production,
providing financial support to the farmers in the event of crop failure.

Encourage farmers to adopt progressive farming practices and higher
technology in Agriculture.

Help in maintaining flow of agricultural credit.

Provide significant benefits not merely to the insured farmers, but to the
entire community directly and indirectly through spillover and multiplier
effects in terms of maintaining production & employment, generation of
market fees, taxes etc. and net accretion to economic growth.

Streamline loss assessment and enable expeditious settlement of claims.
______________________________________________________________________________________
77
Joint Group Report
5. SCOPE FOR PACKAGE INSURANCE POLICY
The loss or damage to crops is no doubt the major cause of concern for the
farmer. However, there are other assets of the farmer, such as livestock,
agricultural implements, bullock cart, agricultural pump set, stored grain, health,
etc. the loss of which is also an additional source of worry for him. In fact,
maintenance of these assets is absolutely important for him to ensure good
agricultural productivity.
A composite package insurance covering all assets of the farmer besides crops
is ideal for farmers as such policy / scheme could meet all insurance
requirements of a farmer under one contract. Ideally, therefore, farmer would
prefer to have single insurance policy covering all his assets, including crops.
Reasonable premium rates and providing composite insurance cover for all his
needs at his doorstep would go a long way in ameliorating the situation.
It may look seemingly convenient to cover such varied assets / items along with
crops under scheme like NAIS. However, there are practical difficulties, such as:
1. Crop Insurance is of seasonal nature (about 4-6 months), while all other
items / assets listed under package insurance need annual policies. Short
period policies could be issued for items other than crop, but the premium
rates would be high, and renewal would be cumbersome.
2. NAIS is based on ‘Area Approach’ treating all insured farmers growing a
particular crop as single entity, while other items would not be pliable to such
broad approach, as such items owned by different farmers would need
different treatment.
3. Agriculture Risks are co-variate (systemic) in nature. Thus it is deemed that
risks affecting all farmers in an area could be fairly dealt under ‘Area
Approach’.
The other risks affecting items other than crops are
‘independent’ in nature and hence, it will be difficult to connect loss / damage
of other assets to operation of co-variate risks. In other words, the assets
______________________________________________________________________________________
78
Joint Group Report
other than crops can be correctly indemnified in the event of loss only under
‘individual assessment’.
4. Crops can be categorized broadly under a generic name, while it would be
totally different in case of other assets.
For example, there would be
different age groups of livestock, different sexes, breeds, etc. all attracting
different premium rates etc.
5. Tractors, trucks etc. are covered under Motor Insurance as per MV Act, and
premium varies from vehicle to vehicle based on make, model, horsepower,
insured estimated value, accessories, electrical fittings, third party liability
etc. Combining tractors & trucks with crop insurance, therefore, will be
difficult. Further, as per MV Act third party liability is compulsory, while own
damage / comprehensive insurance is optional.
The Joint Group, therefore, feels that a composite policy covering all important
assets of farmers cannot be combined with area based crop insurance
programme. The practicable approach would be to differentiate crops and other
assets.
Crops to be covered under area approach and other assets to be
covered at individual farmer level.
The public sector general insurance companies are marketing ‘Kisan Package
Policy’, covering as many as 15 different items. However, standing crops are
not covered under the policy. These policies are sold to individual farmers, and
losses are assessed on individual basis.
Therefore, the farmers who need
package insurance can buy Kissan Package Policy available in the market. A
copy of Kissan Package Policy is enclosed, as Annexure-5.
The Joint Group also explored availability of such package covers from private
insurers. One such package offered by ICICI-Lombard has the following features:
a) Personal Accident Insurance: The Policy covers accidental death and only
few instances of Permanent Total Disability (PTD) at a premium of Rs. 7 for a
sum insured of Rs. 50,000.
______________________________________________________________________________________
79
Joint Group Report
b) Package health insurance cover: It provides for (a) critical illness, (b)
convalescence benefit, (c) accidental hospitalization. Part (c) is nothing but
personal accident insurance, while (b) follows (a) when the hospitalization
continues beyond 15 consecutive days.
c) Home Insurance: Since the All India Fire Tariff governs the insurance; the
premium and benefits are similar to public sector companies.
d) Cattle Insurance: While the scope of cover is same as Public Sector
Insurance Companies (PSICs), but the premium rate is high at 5% compared
to 4% of PSICs.
e) Tractor Insurance: Governed by All India Motor Tariff, so the premium and
benefits are similar to PSICs.
A composite policy covering all important assets of farmers, cannot be combined
with area based crop insurance programme. The Joint Group, therefore,
recommends single window approach in which crops can be covered under
area approach and “Other Assets” (dwelling & contents, personal accident,
hospitalisation, livestock, pedal cycle, agrl. pump-set, etc.) at individual farmer
level. However, farmer will have the advantage and convenience of having both
these covers available from single source.
Other Assets (Package):
This Category contains insurance covers generally required by farmers. Further,
the premium for many of these covers is nominal. The details of the covers is as
follows:
i) Building and Household contents (excluding jewelry & valuables) against
fire, lightning, explosion, flood, inundation, storm, tempest, typhoon,
hurricane, cyclone, impact damage, and earthquake for a sum of Rs.
30000 and Rs. 10000, respectively. The premium for this purpose will be
approx. Rs. 20. In case of hut the sum insured will be Rs. 8000 for
dwelling and Rs. 2000 for contents and the expected premium works out
to approx. Rs. 30.
______________________________________________________________________________________
80
Joint Group Report
ii) Personal accident against accidental death, permanent total disability and
permanent partial disability.
The sum insured will be Rs. 50000 at a
premium of Rs. 15. The coverage is for head of the family. In case the
farmer is older than 70 years, the person next in the family can be
covered. Refer to Table-10 for benefits.
iii) Medical insurance for a sum insured of Rs. 20,000 covering hospitalization
expenses of all diseases including pre-existing diseases, irrespective of
age. Earning member / head of the family / farmer covered under crop
insurance can get this cover. The expected premium is approximately Rs.
200.
iv) Livestock insurance against death by disease or accident.
v) Agriculture pump-set against fire, theft, burglary, mechanical or electrical
breakdown, etc.
vi) Animal driven cart - damage to cart by accidental means, fire, explosion,
malicious act, while in transit etc.; damage to animal by accidental injury
or death and injury / damage to third party.
vii) Stock of agricultural produces (grain and / or seeds of all kinds) against
fire, allied perils and earthquake.
viii) Biogas plant against fire, earthquake, flood, inundation, impact damage,
bursting and overflowing of water tanks/pipes, etc.
ix) Television Set against fire, burglary, housebreaking, theft, accidental
external means, mechanical or electrical breakdown.
x) Pedal cycle against fire & allied perils, burglary, housebreaking, theft,
flood, cyclone, earthquake, accidental external means, etc
xi) Agricultural tractors against third party; own damage
______________________________________________________________________________________
81
Joint Group Report
xii) Poultry insurance as per market agreement.
xiii)Honey Bee Insurance
[The premium rates quoted for covers (i) to (iii) above are only indicative. The
most competitive quotes will be obtained from the general insurance companies
when the package policy is approved for implementation]
The details of benefits under Personal Accident insurance proposed (Table 10)
are as follows:
Table - 10
S. No.
Condition
Payment
Injury resulting in loss of:
1.
Both hands or Feet or sight
100%
2.
One Hand and One Foot
100%
3.
Either hand or foot and sight of one eye
100%
4.
Hearing of both Ears
100%
5.
Speech
100%
6.
Either Hand or Foot (loss or Loss of
50%
Function)
7.
Sight of One Eye
50%
8.
Loss of function of one hand and one foot
50%
without separation
9.
Permanent and Total Loss of use
resulting in :
Quadriplegia (All four limbs paralysed)
100%
10.
Paraplegia (Both legs paralysed)
100%
Of the package insurance covers listed above, personal accident, dwelling &
contents, medical (health) and livestock insurance covers are most important for
the farmer, impacting his livelihood. The insurance premium for personal
accident and dwelling & contents is very meager, which can be entirely paid by
the government. The Joint Group examined medical and livestock insurance with
______________________________________________________________________________________
82
Joint Group Report
particular interest, and feels that both need to be covered. Under livestock
insurance, it is felt that one pair of cattle can be covered for each farmer who has
taken crop insurance by giving 50 percent subsidy in premium. Assuming that the
public sector general insurance companies would offer net premium rates
applicable to ‘scheme animals’ (cattle financed under government schemes), the
premium for a pair of cattle may work out to Rs. 500 on an estimated insured
sum of Rs. 20,000 at a premium of 2.5%. The premium subsidy for the
government works out to Rs. 250 per pair of cattle @ 50 percent subsidy.
Joint Group’s Recommendations:
The Joint Group is of the view that personal accident, medical (health) and
insurance for ‘dwelling & contents’ be made compulsory along with crop
insurance, while other covers in the package on optional basis. However, in view
of the fact that another Joint Group has been set up on ‘Health Insurance’ in the
Ministry of Finance under the chairmanship of Secretary (Financial Sector), it
recommends that only personal accident and ‘dwelling & contents’ be made
compulsory along with crop insurance. Further, the Group recommends that the
entire premium on personal accident and ‘dwellings & contents’ be borne by the
government. The Group while appreciating the importance of livestock in
agriculture also recommends that a pair of cattle should be covered under
insurance for every crop insured farmer with 50 percent subsidy in premium
payable by the government. The premium subsidy for the government to cover a
pair of cattle works out to Rs. 250 crores per one crore farmers. Since the
livestock cover is optional, assuming that only 25 percent of those crop insured
farmers go for cattle insurance, the subsidy liability for the government would be
Rs. 62.5 crores for every one crore crop insured farmers.
In order to simplify insurance procedures and to avoid hassles to insured, the
claims of personal accident and ‘dwelling & contents’ can be settled on the basis
of verification and certification by village panchayat administration. Such system
will also empower grass root level democratic institutions.
______________________________________________________________________________________
83
Joint Group Report
6. PRIVATE SECTOR PARTICIPATION IN CROP INSURANCE
The first license for a private insurer was issued in October 2000. As of today,
eight private insurers have started general insurance business: Reliance, TataAIG, Royal Sundaram, IFFCO-Tokio, Bajaj-Allianze, ICICI-Lombard, HDFC –
Chubb, and Cholamandalam. The fact remains that these insurers have not yet
undertaken agricultural insurance to a significant extent. Only two companies in
the private sector have initiated agriculture insurance, albeit on a small scale.
ICICI-Lombard was the first company to experiment rainfall insurance. The
concept is also being extended to weather insurance during 2004. IFFCO-Tokio
General Insurance (ITGI), the second company in private sector, piloted rainfall
insurance during 2004.
It is likely that these efforts especially in weather insurance by the two companies
will gain momentum. There are no indications of other private insurers joining the
efforts. During June 2004, Maharashtra government convened a meeting of all
public and private sector insurers to find out their interest in implementing an
improved agricultural insurance scheme covering all cultivators. As per
information, no private sector insurer has shown interest in traditional yield based
crop insurance. Their interest was limited to personal accident insurance of the
cultivators and limited pilot in weather insurance.
The Insurance Regulatory and Development Authority (IRDA) has stipulated that
every new insurer undertaking general insurance business has to underwrite
business in the rural sector to the extent of at least 2 per cent of the gross
premium during the first financial year which is to be increased to 5 per cent
during the third financial year of its operation. Crop insurance is included in the
rural sector insurance for this purpose. The business targets stipulated in rural
insurance apparently are very small. Those who do not meet even these small
targets are getting away by paying penalties of nominal amounts. If private
insurers are to be spurred to enter rural insurance market in a significant manner,
the business targets have to be raised substantially by IRDA.
______________________________________________________________________________________
84
Joint Group Report
The experience of government supported and subsidized crop insurance and the
recent entry of private insurers raise questions about the co-existence of
government and private agriculture insurance. One view is that the private sector
will be unable to compete with government insurance, given the subsidies and
access to the administrative machinery for delivering insurance. An alternative
view is that given only 10 percent coverage by government insurance, the private
sector can carve out a reasonable market for itself based on improved efficiency,
better design and superior services. Here one can even think of public-private
partnership in providing agriculture insurance as against public-private
competition. However, it is possible only when agriculture insurance can be run
in a more professional manner with clear objectives.
Three different models of private partnership could be visualized: (1) The first is
Implementing Agency (IA) model, where IA bears no risk, earns no return and is
merely reimbursed its administrative expenses. Such a model provides poor
incentives for extending coverage and monitoring and controlling moral hazard
and adverse selection. (2) The second is a model where the private insurer bears
all the risk. Given the significant component of systemic risk in agriculture such a
model will require international reinsurance to be sustainable. The premium for
such insurance is likely to be high, requiring subsidy from the government. Under
this model, the government through a technical body works out commercial
premium rates and offers up-front subsidy in premium to all insurers, who would
be required to write policies. The farmer pays premium less the subsidy. There is
level playing field for all insurers. Another modification could be allocating
territories to insurers who would be exclusively writing policies in specified
territories. (3) The third is in between the two models discussed above with
possibility of public-private sharing of risks. In this case the government is likely
to be at informational disadvantage vis-à-vis the insurance companies which
generate the policies. Hence, the risk sharing agreement will have to be
appropriately designed to reduce problems of moral hazard and adverse
selection. The agreement will also have to provide adequate measures to
counteract the natural incentive of private insurers to target larger farmers and
pay less attention to small and marginal farmers.
______________________________________________________________________________________
85
Joint Group Report
Agriculture Ministry & Joint Group’s Initiative:
As mentioned under section 3 of chapter-3, the Department of Agriculture &
Cooperation (DAC) has written to all general insurance companies, both public
and private, inviting them to submit proposals on rural insurance, particularly
agricultural insurance. Among public sector companies, National Insurance Co
and New India Assurance Co. have responded by giving a list of rural insurance
covers. National Insurance Co. informed that it had not yet ventured into field
crops. New India Assurance Co. provided details of farmers package policy and
horticulture / plantation insurance. But, the package policy does not include
insurance for crops.
Among private insurers, ICICI-Lombard, IFFCO -Tokio General Insurance (ITGI),
Cholamandalam, HDFC Chubb, Royal Sundaram, ECGC, Bharatiya Cooperative General Insurance (BCGI) have responded. Majority of the private
insurers apparently have taken initiatives in rural insurance and health insurance,
but its only ICICI-Lombard and ITGI who have products for crop insurance based
on weather / rainfall parameters.
These companies in the private sector were invited to make presentation on the
schemes available in the rural sector, particularly in agriculture. However, only
ICICI Lombard, ITGI, Cholamandalam General Insurance, BCGI and Rabo Bank
turned up for the presentations. BCGI is in the process of registering with IRDA
and Rabo Bank is playing advisory role.
The Company wise details are as follows:
ICICI-Lombard:
The company has weather insurance, package insurance, which are already
dealt under weather insurance (chapter-3) and package insurance (chapter-5).
The other insurance products in the rural area include personal accident and
package health insurance, home insurance, tractor insurance and pump set
______________________________________________________________________________________
86
Joint Group Report
insurance of farmers; farm credit and weather based loan portfolio insurance for
Banks, etc.
The Company urged the government to facilitate interaction with AIC for
collaboration, and support in premium to make the insurance covers affordable to
the farmers.
IFFCO -Tokio General Insurance:
The Company has rainfall index insurance for crops and personal accident
insurance for farmers purchasing fertilizer from IFFCO and its associate
companies. The details of rainfall insurance have been covered in chapter-3.
Other products in rural areas include Tractor insurance, Health & Home
insurance.
Cholamandalam General Insurance:
The Company has only livestock insurance for rural areas. The policy is almost
same as the one sold by Public Sector General Insurance Companies.
Bhartiya Cooperative General Insurance Ltd.
The Company is interested in providing package covering health insurance,
dwelling & contents, grain in godown, pedal cycle, Television, etc. through other
insurance companies. For crop insurance, it would like to work with AIC in
providing composite insurance.
Rabo India:
Rabo India is a subsidiary of Rabobank, Netherlands. Interpolis Insurance, the
insurance company in the Rabo group is one of the largest insurance companies
in the Netherlands with a premium income of  4.5 billion in 2001. Moreover
______________________________________________________________________________________
87
Joint Group Report
Interpolis is the largest insurer of Agribusiness in Netherlands with 55% market
share.
Rabo India has strong knowledge and relationships in the Agri Insurance
business, and, therefore, in an ideal position to provide business consultancy
service to AIC and the government on agriculture insurance. Rabo India can
leverage on the advisory and insurance experience of Rabobank group
companies. The Company plays advisory role in terms of providing advisory
solutions to insurance companies for product design, marketing and distribution
etc.
Joint Group’s Recommendations:
The Group recommends involving private insurers to join hands with AIC in
providing meaningful risk mitigation support to the farming community. The
Group’s recommendations with respect to rainfall and weather insurance has
been dealt in chapter-3 under ‘weather insurance’. The Group has therefore,
dealt in this chapter only other insurances.
In case of package insurance to be made available through ‘single window’ along
with area based yield (crop) insurance, the Group recommends that AIC should
consider scope of cover and premium rates of all the general insurance
companies in deciding the partner for insurances other than crop. In case of area
based yield insurance, the Group recommends that AIC will continue to
spearhead the insurance programme. However, private insurers be explored if
they could submit premium quotes for area based yield insurance for a few areas
and crops. If private insurers are willing and premium rates are competitive, the
government may consider allocating a few territories on experimental basis.
Alternatively, private insurers can also share co-insurance arrangement with AIC.
The Joint Group further explored various alternatives of involving private insurers
in area based yield insurance. Some of the alternatives explored are discussed
below:
______________________________________________________________________________________
88
Joint Group Report
1. AIC rated method: The indicative premium rates worked out by AIC for
the proposed scheme would be circulated to all private insurers to enable
individual insurers to quote premium rates for various crops and areas.
The rates quoted by private insurers would be discussed with AIC, and a
final lowest rate would be arrived for different crops and areas. The
government can then allocate the areas and crops to insurers on the
basis of the lowest and competitive premium rate. Before allocating areas
and crops to private insurers, the government should make sure that
these insurers have adequate solvency and have signed a MoU w.r.t. the
terms of implementation of the programme.
2. Lowest Rate Method: In the second alternative, the government would
finalize and circulate the scheme to all insurers for expression of interest
in implementation of the scheme and quoting premium rates. The
insurers are required to quote premium rates for each crop at state level.
The government shall allocate the states & crops to insurers on the basis
of lowest and competitive premium rate.
3. Modified USA model: In USA the government supported crop insurance
programme is implemented by about 15 private insurers, besides Federal
Crop Insurance Corporation (FCIC), a government company.
The
programme is administered by Risk Management Agency (RMA) on
behalf of US Department of Agriculture (USDA). Once a crop insurance
programme is approved by the government, the RMA gets the premium
rates calculated for different crops / states / counties by utilising services
of National Crop Insurance Services (NCIS). Any approved insurer can
sell these insurance products at the rates certified by the RMA.
All
insurers implementing the programme are eligible for same level of
premium subsidy, and further the administrative and operating expenses
of the insurer towards implementing crop insurance programme are
entirely reimbursed by the government. Since the insurance companies
are implementing the crop insurance programme at a premium rate set
by RMA, the government also provides reasonable level of reinsurance
support. The reinsurance support would be highest for developmental
______________________________________________________________________________________
89
Joint Group Report
lines (new and unstable crops) and lowest for commercial lines
(established and stable crops).
On the lines of USA model, the government through an exclusive
technical agency may get the premium rates worked out and offer the
product to all insurers. The insurers can implement the product enjoying
same level of support and subsidy. As a variation from USA method, the
government would not provide reinsurance support and reimbursement of
administrative and operating expenses, as these costs would be loaded
in the actuarial rates. The government can decide whether or not different
insurers compete in the same area or allocate specific crops and areas to
particular insurer.
The Joint Group is of the view that entry of private insurers and healthy
competition / partnership with AIC should be encouraged so as to make
insurance available to as many farmers and at competitive rates backed
by efficient service.
The Group considered various alternatives
discussed above and noted pros & cons of each method. First two
methods (AIC Rated Method & Lowest Rate Method) are not workable
because the rating techniques and risk perceptions employed by each of
the insurer could be different. Further, except AIC no other insurer has
access to yield database of all crops and areas, the main component for
rating. The Group, therefore, would like to recommend ‘Modified USA
Method’ for area based yield insurance in the Country. For this purpose,
the government may create an exclusive technical agency or strengthen
CACP with actuarial experts to generate premium rates. To begin with,
the private sector participation may be limited to certain crops/areas,
leaving major crops / states with AIC. With experience and maturity in
the market, the entire programme will be thrown open to all players.
______________________________________________________________________________________
90
Joint Group Report
7. FINANCING CROP INSURANCE
7.1. Penetration Targets
As discussed in the previous chapters, National Agricultural Insurance Scheme
(NAIS) has certain shortcomings, leading to poor penetration. The scheme,
which is compulsory for loanee farmers, could cover about only 1/3rd of potential
crop loans eligible for coverage. In all, the scheme could cover only about 10
percent of farmers / cropped area in the country. It is a paradox that the scheme
with nearly 75 percent subsidies could hardly attract 1/10th of the farmers. If
crop insurance programme is to be sold as an important tool in crop risk
management, the level of penetration will have to be close to 50 percent. In
other words, the present level of consumption of crop insurance will have to grow
five-fold. This kind of growth can only come with improvements in the scheme,
which are suggested in the earlier chapters.
The State-wise comparison of farmers covered and acreage insured under NAIS
(2003-04) with total farmers and acreage (1995-96) is presented in Table-11 to
understand level of penetration in various states.
The scheme during 2003-04 despite being largely comprehensive could cover
only 10.69 percent of all cultivators and only 11.77 percent of area (Table-11).
Karnataka spurred by drought, had highest participation levels both in terms of
farmers & acreage (29.88 percent & 28.44 percent, respectively). Other major
States include Gujarat, Maharashtra, Orissa, Madhya Pradesh & Andhra
Pradesh. Among bigger States, Bihar, Rajasthan, Tamilnadu & Uttar Pradesh
had lowest participation levels. A good effort and appropriate marketing can
significantly improve the penetration levels in these states. Rajasthan during
Kharif 2004 has already reported good coverage. Based on improved
performance during 2004-05, the penetration level is expected to be between 12
to 15 percent.
______________________________________________________________________________________
91
Joint Group Report
Table - 11
Comparison of Total Farmers & Acreage cultivated (1995-96) and Farmers & Acreage covered
under National Agriculture Insurance Scheme (2003-04)
States/UTs
Total
Farmers
Andhra Pradesh
Arunachal Pradesh
Assam
Bihar
Goa
Gujarat
Haryana
Himachal Pradesh
10603000
104000
2683000
14155000
70000
3781000
1728000
863000
1336000
6221000
6299000
9603000
10653000
143000
160000
66000
149000
3966000
1093000
5364000
44000
8012000
301000
21529000
6547000
107000
Jammu & Kashmir
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Manipur
Meghalaya
Mizoram
Nagaland
Orissa
Punjab
Rajasthan
Sikkim
Tamil Nadu
Tripura
Uttar Pradesh
West Bengal
All UTs
All India
Farmers
Covered
under
NAIS
1737117
*
12358
175199
793
1029931
*
3871
*
1858771
40213
2017528
2761657
*
1381
*
*
841002
*
58634
316
65964
1005
1002257
748173
3013
115580000 12359183
NAIS
covered
farmers
as percent
of total
16.38%
*
0.46%
1.24%
1.13%
27.24%
*
0.45%
*
29.88%
0.64%
21.01%
25.92%
*
0.86%
*
*
21.21%
*
1.09%
0.72%
0.82%
0.33%
4.66%
11.43%
2.82%
Total
Acreage
(Hect)
Acreage
under NAIS
(Hect)
NAIS
covered
acreage
as % of total
14374000
344000
3138000
10682000
59000
9904000
3676000
1000000
1013000
12109000
1712000
21890000
19880000
174000
85000
213000
720000
5144000
4147000
21250000
73000
7303000
181000
18570000
5588000
130000
2621026
*
9050
179675
676
2203685
*
3926
*
3443351
32429
4880325
3040009
*
1718
*
*
812158
*
67208
174
102812
490
1448986
382122
4456
18.23%
*
0.29%
1.68%
1.15%
22.25%
*
0.39%
*
28.44%
1.89%
22.29%
15.29%
*
2.02%
*
*
15.79%
*
0.32%
0.24%
1.41%
0.27%
7.80%
6.84%
3.43%
10.69% 163359000
19234276
11.77%
Marketing Effort:
The non-loanee farmers for whom the scheme is voluntary continued to show
patchy participation, often exhibiting extreme symptoms of adverse selection and
moral hazard. Presently their participation in NAIS is around 2 percent, which
again is contributed by a few states, viz. Karnataka, Maharashtra & Orissa. The
single most important reason quoted for low participation is the effort required by
the farmer to go to a bank to submit insurance proposal. Quite often these
farmers are turned away by Banks because of their pre-occupation with routine
activities. Therefore, making available insurance at the doorstep of farmer /
village through rural agents will be the key to improve participation of non-loanee
farmers.
______________________________________________________________________________________
92
Joint Group Report
The implementing agency will have to put in place immediately proper insurance
delivery mechanism, such as rural agents, micro insurance agents, bima seva
sansthans etc. to reach out to non-loanee farmers.
Assuming that there will be improvements in yield guarantee insurance, which
will be patronized by large number of farmers; more farmer friendly weather
insurance products; improvement in insurance delivery mechanism and
participation of private insurers, the Joint Group proposes the following
penetration targets in terms of farmers / acreage covered under insurance:
By the end of Xth Plan Period (2006-07)
3 crore farmers (25% of all farmers)
By the end of XIth Plan Period (2011-12)
6 crore farmers (50% of all farmers)
7.2. Financing Mechanism
Considering the very nature of the agriculture sector, it may not be appropriate to
view the viability of crop insurance merely from financial statistics, as it may not
be viable in such sense. This is very relevant, as the crop insurance schemes
both in developed and developing nations are greatly dependent on the support
of the government. A developing nation like India is not just dependent on
weather conditions, but also suffers the brunt of natural disasters, as it is ill
equipped to deal with such events. With nearly 2/3 rd of the population dependent
on agriculture, considerations, which have direct bearing on the policy for
agriculture in India, include the effects of socio, economic and financial disarray
as a result of agricultural risks. Further agricultural risks are systemic in nature
wherein a single event may lead to multiple losses. It is with such considerations
that crop insurance has been receiving governmental subsidies in most of the
countries where it is successfully implemented.
It will be quite in order for crop insurance to be regarded as a support measure in
which government plays an important role, because of the benefit it provides not
merely to the insured farmers, but to the entire national economy due to the
forward and backward linkages with the rest of the economy. Society can
significantly gain from more efficient sharing of crop and natural disaster risks.
The principle behind the evaluation of crop insurance schemes all over the world
______________________________________________________________________________________
93
Joint Group Report
are along these lines for receiving the active support and finance of the
government. Integrating the various risk mitigation methods and streamlining the
funds not only injects accountability and professionalism into the system, but also
increase economic efficiency.
7.2.1. Subsidy levels in other countries:
The crop insurance support mechanism of some of the major countries is given
in Table-12:
Table-12
Government Crop Insurance Support Mechanism In Major Countries
S.No
Country
Nature of Support
1.
USA
- Subsidy in premium (ranges from 38 percent to 67 percent;
(covered nearly
average for 2003 is 60 percent)
2 million out of - Reimbursement of administrative expenses of insurance
total 8 million
companies (these were about 22 percent of total cost of the
farmers and
program during 2003-4)
about 78% of
- Reinsurance support for risky crop lines
cropped area
- Technical services in premium, policy guidelines
during 2003)
- free insurance of catastrophic cover for resource poor
farmers
- non insured assistance to farmers for crops no insurance is
available
Over all subsidy is about 70-75 percent
subsidy in premiums (80-100 percent for lower levels of
coverage and 50-60 percent for higher levels of coverage)
- significant contribution towards provincial administrative
costs
- provides deficit financing to provincial governments
- technical services by setting premium rates
2.
Canada
-
3.
Philippines
-
4.
Spain
Over all subsidy is about 70 percent
subsidy in premium (ranges from 50 percent -60 percent)
Banks share premium of loanee farmers (15-20 percent of
total premium cost)
- Financial support to Philippines Crop Insurance Corporation
(PCIC) in extreme adversities
Over all subsidy is about 70 percent for loanee farmers
& about 50 percent for non-loanee farmers
- Subsidy in premium (average 58 percent during 2003)
- Reinsurance support (50 percent of reinsurance cost is paid
by the government)
- Technical guidance
Over all subsidy between 50-60 percent
______________________________________________________________________________________
94
Joint Group Report
7.2. Farmers capacity to pay premium:
In terms of Agricultural Census 1995-96, marginal farmers having upto 1 hectare
of land, comprised 61.6 percent of the farm holding population owning only 17.2
percent of the area. Similarly small farmers (1-2 hectares) comprise 18.7 percent
of the farm holding population and own 18.8 percent area. Only 19.7 percent of
farmers have landholdings of more than 2 hectares. The Table –13 given below
amply demonstrates the small landholding size, particularly of marginal and small
farmers:
Table-13
State-wise Average Size of Operational Holdings by Major Size-Groups, 1995-96 (Hectares)
States/UTs
Marginal Small
SemiMedium
Medium
Large
Andhra Pradesh
0.46
1.43
2.68
5.74
15.34
Arunachal Pradesh
0.48
1.30
2.66
5.50
12.83
Assam
0.37
1.37
2.63
5.16
65.60
Bihar
0.34
1.32
2.73
5.57
16.52
Goa
0.35
1.38
3.00
8.00
Gujarat
0.54
1.47
2.80
5.90
14.79
Haryana
0.50
1.40
2.79
5.90
16.53
Himachal Pradesh
0.41
1.39
2.69
5.71
15.60
Jammu & Kashmir
0.39
1.38
2.66
5.39
Karnataka
0.48
1.45
2.74
5.87
15.03
Kerala
0.15
1.34
2.54
5.20
34.00
Madhya Pradesh
0.46
1.44
2.76
5.94
16.11
Maharashtra
0.49
1.45
2.73
5.76
16.20
Manipur
0.57
1.37
2.57
4.67
Meghalaya
0.49
1.25
2.41
4.50
Mizoram
0.61
1.38
2.33
Nagaland
0.56
1.10
2.60
5.95
14.71
Orissa
0.50
1.38
2.67
5.54
16.20
Punjab
0.60
1.31
2.60
5.73
14.98
Rajasthan
0.48
1.44
2.85
6.22
18.69
Sikkim
0.42
1.40
3.00
6.00
Tamil Nadu
0.37
1.39
2.70
5.68
23.62
Tripura
0.33
1.40
2.50
6.00
Uttar Pradesh
0.39
1.41
2.73
5.54
15.54
West Bengal
0.48
1.48
2.74
5.27
203.00
All India
0.40
1.42
2.73
5.84
17.21
Source: Agricultural Census Division, Ministry of Agriculture, New Delhi.
All
Holdings
1.36
3.31
1.17
0.75
0.84
2.62
2.13
1.16
0.76
1.95
0.27
2.28
1.87
1.22
1.33
1.29
4.83
1.30
3.79
3.96
1.66
0.91
0.60
0.86
0.85
1.41
Given that great majority of farmers have very small landholdings, the success of
crop insurance significantly depends on the scope and extent to which these
farmers, who are poor, can be covered at affordable premium rates. Being
characteristically impoverished, these poor farmers have recourse mainly to
______________________________________________________________________________________
95
Joint Group Report
informal sources of finance and do not have access to latest technologies and
organized techniques and forms of marketing. The financial institutions have
been making efforts to reach this segment though with varied levels of success.
The nature of crop insurance business being highly dependent on the vagaries of
climatic factors, the premium rates are very high and in most cases beyond the
paying capacity of farmers.
Considering the above, the Joint Group recommends that the actuarial premium
rates have to be adequately subsidized to make the scheme affordable to
farmers. The various methods of providing subsidy are discussed below:
1.
Rupee subsidy: This is very simple method, in which the subsidy is fixed
in terms of rupees per hectare or rupees per farmer. For example, it could
be Rs. 250 and Rs. 500 per hectare for small / marginal and others,
respectively. The subsidy could be further limited to specified number of
hectares, say 5 hectares. Possibly, the rupee subsidy could be variable for
different crops. It is a simple method and the government on the basis of
insured acreage can easily estimate its financial liabilities. However,
extreme premium rates (Table -14) in the Indian context may render the
method ineffectual.
Table- 14: Sample Actuarial Premium Rates showing Extremes
State
Crop
S.No
1
2
3
4
Andhra Pradesh
Groundnut
Chilly
Rice
Gujarat
Groundnut
Bajra
Madhya Pradesh Cotton
Uttar Pradesh
Rice
Mustard
Sum insured
/ Hectare
(Rs.)
Expected Actuarial
Premium / Hectare
(Rs.)
12,000
25,000
15,000
15,000
10,000
20,000
15,000
10,000
3000
1250
1268
5250
1675
800
450
200
2. Percent basis: This is yet another simple method, wherein the premium
rates are subsidized in terms of particular percentage of actuarial
premium. The percentage could be different for various categories of
farmers. For example, it could be 75 percent subsidy for small / marginal
______________________________________________________________________________________
96
Joint Group Report
farmers and 50 percent for other farmers. If the actuarial premium rate is
10 percent; small / marginal farmer will pay a net 2.5 percent premium
(after 75 percent subsidy) and other farmer 5 percent premium (after 50
percent subsidy). An illustrative and indicative premium chart is given
below for major states and crops for Kharif (Table – 15) & Rabi (Table-16)
seasons:
Kharif seasons: Table-15
State
Crop
Loss cost
(%)
Andhra Pradesh
Paddy
Maize
Groundnut
Cotton
Chilly
Sugarcane
Paddy
Groundnut
Castor
Bajra
Cotton
Paddy
Jowar
Groundnut
Sugarcane
Potato
Onion
Paddy
Maize
Groundnut
Soybean
Cotton(I)
Paddy
Groundnut
Soybean
Jowar
Cotton
Paddy
Maize
Groundnut
Paddy
Maize
Groundnut
4.45
4.24
18.47
4.71
2.63
2.20
9.99
23.94
12.35
9.57
16.59
21.75
36.78
21.45
5.10
60.01
44.43
7.14
3.34
9.14
13.79
2.03
14.68
5.90
8.35
5.35
3.18
15.12
3.54
4.66
1.11
12.67
11.12
Gujarat
Karnataka
Madhya Pradesh
Maharashtra
Orissa
Uttar Pradesh
Expected premium rate
based on suggested
improvements
7.80%
7.40%
25.00%
8.25%
5.00%
3.50%
17.50%
35.00%
21.60%
16.75%
29.00%
25.00%
30.00%
30.00%
7.00%
30.00%
30.00%
12.50%
5.85%
16.00%
20.00%
4.00%
20.00%
10.30%
14.00%
9.35%
6.00%
25.00%
6.20%
8.20%
3.00%
20.00%
18.00%
______________________________________________________________________________________
97
Joint Group Report
Rabi seasons: Table-16
State
Crop
Loss cost
(%)
Andhra Pradesh
Paddy
Groundnut
Sunflower
Chilly
Wheat
Groundnut
Mustard
Paddy
Jowar
Wheat
Gram
Potato
Wheat
Gram
Mustard
Potato
Wheat
Jowar
Gram
Onion
Sugarcane
Paddy
Potato
Wheat
Mustard
Potato
2.96
2.19
11.52
3.66
17.65
1.07
2.59
7.83
6.18
8.47
7.59
8.49
5.91
5.17
4.20
4.55
23.05
54.84
47.67
20.54
3.15
1.00
1.35
2.94
1.00
4.93
Gujarat
Karnataka
Madhya Pradesh
Maharashtra
Orissa
Uttar Pradesh
Expected premium rate
based on suggested
improvements
5.20%
4.00%
20.00%
6.40%
25.00%
2.00%
5.00%
13.70%
10.80%
14.80%
13.30%
14.85%
10.35%
9.00%
7.35%
7.95%
30.00%
35.00%
35.00%
30.00%
5.00%
2.00%
2.50%
5.20%
2.00%
8.60%
The disadvantage of this method as could be noticed from the above
tables is that it provides subsidy at the same rate irrespective of whether
or not the actuarial premium rates are high or low. For example, the
actuarial premium rate is 2 percent (wheat), and affordable by farmer. Yet
as per subsidy formula, small / marginal farmer would be required to pay
only 0.5 percent and other farmer only 1 percent. On the other extreme, if
the actuarial rate is 30 percent (groundnut), despite subsidy, small /
marginal farmer is required to pay 7.5 percent and other farmer 15 percent
premium, which is still beyond farmer’s affordability.
______________________________________________________________________________________
98
Joint Group Report
3. Premium Capping: This is a method, wherein actuarial rates are capped
for farmers, and the rate beyond the cap is subsidized. The rates are
capped in such a way that the net rates are affordable to farmers. The
indicative capping for proposed crop insurance program is give below in
Table – 17:
Table - 17
S.No Crop Groups
1
2
3
4
5
6
Cereal & Millets –
Rice and Wheat
Other Cereals &
Millets
Pulses
Oilseeds
Sugarcane
Annual commercial
/ horticultural crops
Premium cap for
Premium cap for
Small / Marginal farmers Other farmers
Kharif
Rabi
Kharif
Rabi
3%
4%
1.5%
3%
5%
6%
2.5%
5%
4%
4%
1%
2%
2%
1%
6%
6%
2%
4%
4%
2%
4%
4%
6%
6%
The disadvantage of this method is that the risk is not adequately
discriminated. Irrespective of difference in rates across states, farmers will
pay the same rate. Rice actuarial premium rate during Kharif is 6.5
percent in Orissa and 9.4 percent in Gujarat. However, in both the cases,
the ‘other category’ farmer would be required to pay 5 percent. Similarly
groundnut actuarial premium in Gujarat is about 35 percent and in
Maharashtra about 5 percent. As per the model suggested above,
Maharashtra farmer pays full groundnut premium (as the premium rate is
within the cap) and Gujarat farmer, only 6 percent, leaving balance 29
percentage points to be borne by the government.
4. Graded Percent basis: This is a method, evolved by fine-tuning ‘percent
method’, and takes care of extreme variations in actuarial premium rates.
In other words, the subsidy rate is lower for lower premium rates,
gradually increasing the subsidy rate with increase in premium rate. It
combines advantage of both ‘percent method’ and ‘premium capping
______________________________________________________________________________________
99
Joint Group Report
method’. The effectiveness of the method can be further improved by
fixing minimum and maximum premium rate for farmers.
Joint Group’ Recommendations:
The Joint Group keeping in mind huge differences in actuarial premium
rates across crops and states and considering the pros and cons of
various methods suggested above would like to recommend ‘graded
percent method’.
The indicative subsidy levels recommended by the
Joint Group are given in Table-18 below:
Table-18
S.No
1
2
Premium
slab
Upto 2%
>2 - 5%
3
>5 – 10%
4
>10 –15%
5
>15%
Subsidy to Small /
Marginal farmers
25%
40% subject to minimum
net premium of 1.5%
50% subject to minimum
net premium of 3%
60% subject to minimum
net premium of 5%
75% subject to minimum
net premium of 6% and
maximum net premium
of 8%
Subsidy to Other
farmers
Nil
25% subject to minimum
net premium of 2%
40% subject to minimum
net premium of 4%
50% subject to minimum
net premium of 6%
60% subject to minimum
net premium of 7.5% and
maximum net premium
of 12%
7.2.3. Government’s support
The government’s support in actuarial regime would be in terms of premium
subsidy, leaving all claims to the insurers. The average actuarial premium rate in
the country with proposed improvements would be in the range of 15 -18% of
sum insured. Considering that the premium for farmers is capped between 1.5%
- 6% (for premium rate upto 15%), the balance of the premium will have to come
from the government. The sharing between centre and states can be decided
keeping in mind the premium rates and the financial outlay.
______________________________________________________________________________________
100
Joint Group Report
7.3. Financial Outlay of the Government
As per the risk sharing arrangement of NAIS, the claims beyond 100 percent of
premium in case of food crops and oil seeds and 150 percent of premium for
annual commercial and horticultural crops are borne by the government (50:50
basis between the Government of India and States).
Besides, the premium
subsidy payable for small / marginal farmers is also borne by the government.
On the basis of the coverage and the claims experience of past four years, the
government is annually spending Rs. 1000 crores on NAIS for covering about 1.2
crore farmers.
The proposed improvements in NAIS are expected to significantly increase the
financial implications of the government. An indicative financial implications for
the government for various improvements are given in Table – 19.
The Notes governing the financial implications for the government are as follows:
1) Lowering insurance unit to village panchayat level: A sample exercise
was conducted a few years ago under CCIS which broadly indicated an
increase of about 35% for every one level of reduction, i.e. from block /
taluka to village panchayat.
Therefore, increase in liabilities by 35% is
estimated resulting from reducing the unit to village panchayat.
2) Threshold Yield to be based on best 5 out of 7 years: A random exercise
of Andhra Pradesh & Orissa on Kharif seasons for paddy under NAIS have
shown an increase in claims by approx. 20% if the best five years are
adopted from out of preceding seven years.
3) Minimum indemnity limit of 80%: As a result of this, all areas presently
eligible for 60% limit will now be eligible for 80%. Presently there are 58%
areas during Kharif eligible for 60% limit. Raising the level to 80% has two
implications – (i) increase in frequency of claims, and (ii) increase in
quantum of claim. It is estimated that the financial liability will be increased
by about 15%.
______________________________________________________________________________________
101
Joint Group Report
4) Prevented sowing / planting: It has implications mainly in Kharif season
due to its overwhelming dependence on southwest monsoon. Sowing
operations will be affected, if the actual rainfall during June and July is less
beyond a certain point. This problem was faced during Kharif 2002 and to
some extent during on-going Kharif 2004 season. This problem is not
encountered during normal monsoon, particularly in the early months. It is
estimated that the increase in financial liabilities could be to the extent of
5%.
5) Post harvest losses: It is intended to cover only the crop in ‘cut & spread’
condition lying in the field after harvest, against damage due to cyclone. The
main crops benefitted will be paddy in east coast region. The financial
liabilities may increase by a nominal 2%.
6) Individual assessment in case of localized calamities: The cover
available is against hailstorm, landslide & wild animals. Hailstorm is mainly
seen during Rabi seasons, especially in the north. Landslide is an issue only
in hilly regions. Wild animals cause damage mostly in areas close to forest.
Considering these, a nominal 0.5% increase in financial liabilities is
estimated.
7) Package Insurance - compulsory personal accident and cover for
dwelling & contents and optional insurance for cattle: At a premium of
Rs. 37.5 per head, the cost for covering one crore farmers for personal
accident and dwelling and contents is Rs. 37.5 crores.
The subsidy in
livestock premium for a pair of cattle for one crore crop insured farmers
assuming 25% coverage works out to Rs. 62.5 crores. The total cost to the
government is Rs. 100 crores for covering one crore farmers.
8) The financial liabilities for covering fruits and vegetables crops can be
accurately worked out only after finalizing the scheme design and crops to
be covered. Tentatively, a subsidy of Rs. 100 crores has been included in
the financial liabilities.
9) Administrative cost of CCEs: The additional CCEs required could be to
the tune of 55 lakhs @ 8 CCEs per Crop per GP (maximum of 3 crops). The
administrative cost @ Rs. 300 per CCE will be Rs. 165 crores.
______________________________________________________________________________________
102
Joint Group Report
Table – 19
The broad financial implications of modified NAIS
S.No
1
2
Improved Features
Likely liability
Government’s revised liability for 1.2 crore farmers
Rs. 750 crores
Government’s liability of actuarial regime with
insurance unit reduced to Village Panchayat for major
crops (on an average 35% increase in claims pay-out). Rs. 1015 crores
3
Above (2) + Average yield calculated by taking best 5
years from preceding 7 years (on an average 20%
increase in claims pay-out)
Rs. 1215 crores
Above (3) + Indemnity Limit of 90% & 80% in place of
90%, 80% & 60% (on an average 10% increase in
claims pay-out)
Rs. 1340 crores
4
5
Above (4) + Coverage of prevented sowing risk (on an
average 5% increase in claims pay-out)
Rs.1410 crores
6
Above (5) + Coverage of post harvest losses on
account specified perils (on an average 2% increase in
pay-out)
Rs. 1440 crores
7
Above (6) + on account payment based on rainfall
parameter. Theoretically, no increase is expected in
pay-out
Rs. 1440 crores
8
Above (7) + Individual assessment in case of localised
calamities (on an average 0.5% increase in pay-out)
Rs. 1450 crores
9
Above (8) + cover for personal accident; dwelling &
Rs. 1550 crores
contents and subsidy on livestock insurance (Rs. 100
crores)
Above (9) + cover of fruit crops and vegetables under
separate scheme (estimated liability of Rs. 100 crores) Rs. 1650 crores
10
11
Above (10) + Administrative liability of Rs. 165 crores
towards cost of additional CCEs.
Rs. 1815 crores
(Financial implications for medical insurance have not been included)
Note: Originally the government’s annual liability on NAIS is Rs. 1000 crores.
Considering increase in proposed premium rates payable by the farmer in the
new scheme, the reduction in government’s liability is estimated at 25 per cent
i.e., Rs. 250 crores on Rs 1000 crores. The revised liabilities, therefore, are taken
at Rs. 750 crores as the base.
______________________________________________________________________________________
103
Joint Group Report
Assuming that the financial implication of the government is Rs. 1815 crores per
annum at 10% penetration (1.2 crore farmers), these financial implications have
been extrapolated for different levels of penetration. The details are as follows:
20% penetration
- Rs. 3135 crores
25% penetration
- Rs. 3861 crores
30% penetration
- Rs. 4563 crores
35% penetration
- Rs. 5248 crores
40% penetration
- Rs. 5908 crores
45% penetration
- Rs. 6552 crores
50% penetration
- Rs. 7171 crores
Note: Higher level of participation is expected to achieve good spread of risk.
Therefore, the liabilities as proportion may be somewhat lower at higher level of
participation.
______________________________________________________________________________________
104
Joint Group Report
8. SUMMARY OF RECOMMENDATIONS
National Agricultural Insurance Scheme (NAIS)
1. Insurance unit should be reduced to the level of village panchayat for
major crops. To counter scope for possible interference and manipulation
in the conduct of CCEs, certain checks and balances have been
suggested. The costs of CCEs are shared by the Government of India and
States on 50:50 basis. States can use existing manpower / re-deploy
surplus manpower of other departments or out-source manpower for
additional CCEs in consultation with Implementing Agency.
2. Guaranteed Yield should be based on average of the best five out of the
preceding seven years, as it is more appropriate and balanced.
3. Indemnity levels should be 90% for low risk areas / crops and 80% for
others.
4. Pre-sowing
/ planting risks (prevented sowing on account of adverse
seasonal conditions) should be covered, with indemnity payment ranging
from 20% - 25% of the sum insured depending on cost of pre-sowing /
planting expenses likely to incurred. It should be implemented on ‘area
equity’ basis. The parameters for eligibility shall be set up using weather
and scientific data, including remote sensing technology. The insured
farmers having received indemnity based on pre-sowing / planting will not
be eligible for yield based indemnity.
5. Post harvest losses on account of cyclone in coastal areas should be
covered for a period of two weeks from harvesting, provided the crop is
left in the field in ‘cut & spread’ condition.
6. Uniform seasonality discipline should be followed for loanee and nonloanee farmers. The dates for Kharif crops can be 15th June to 15th July for
different states on the basis of onset of the South-West monsoon. For
______________________________________________________________________________________
105
Joint Group Report
Rabi crops it may be 31st December and Summer crops 31st January.
Loanee farmers are covered based on loan-sanctioned, while non-loanee
farmers should be allowed to avail insurance before sowing. Maximum
sum insured per hectare is higher of quantum of loan sanctioned or value
of the guaranteed yield.
7. An amount upto 50 percent of likely claims should be released in advance
subject to adjustment against the claims assessed on yield basis.
However such an ‘on account’ payment will be made only if the expected
yield during the season is less than 50 percent of normal yield. The criteria
for deciding ‘on-account’ payment of claims shall be based on agrometeorological data / satellite imagery or such other indicators to be
decided by implementing agency, and will be implemented in those states
and crops for which such proxy indicators can be established.
8. In addition to the risks of hailstorm and landslide, the scheme should also
cover damage caused by wild animals (neelgai, spotted dear & elephant).
For all such localised risks, the claims will be settled on the basis of
individual assessment.
9. Implementing Agency should expand its network in order to provide better
service to farmers, particularly non-loanees.
The agency should have
presence at least at the taluka level, and if possible at the village level.
Services of rural agents, micro insurance agents could be utilised to
facilitate insurance marketing at village level. A facilitating agency could
be instituted by implementing agency at district level to support marketing
facilities.
10. Insurance coverage should be provided to perennial horticultural crops
and vegetables. A road map is suggested for designing and launching a
pilot insurance scheme w.e.f Kharif 2005 season.
11. The crop insurance scheme should be placed on actuarial regime w.e.f.
Kharif 2005 season. The premium subsidy may range from 40 percent to
______________________________________________________________________________________
106
Joint Group Report
75 percent for small / marginal farmers (subject to a maximum net
premium of 8 percent) and 25 percent to 60 percent for other farmers
(subject to a maximum net premium of 12 percent) at different slabs of
actuarial premium. All the claims in the actuarial regime will be borne by
the implementing agency.
12. The government should provide necessary solvency margin to AIC (as
required under actuarial regime as per IRDA regulations) through budget
allocation (non-plan).
13. Banks will bear 25 percent of net premium payable by loanee farmers
subject to a maximum of 1.00 percentage point of premium.
14. The government should allow private insurers in area based yield
insurance on experimental basis. The method suggested would entail all
insurers to enjoy premium subsidy at uniform rate.
15. AIC should take up a pilot project on use of remote sensing applications in
crop insurance, covering – crop health, crop acreage, yield estimation &
reduction of sample size of CCEs, etc.
16. Proposed Crop insurance scheme (in place of NAIS) will continue to be
compulsory for loanee farmers.
17. The banks should display the list of all insured farmers at the village
panchayat office.
Further, the banks should also display the list of
benefited farmers together with claim amount soon after the claims are
received from implementing agency. In addition to ensuring transparency,
the proposed measure will help contain legal litigation to a large extent.
This will also empower village panchayat and will induce them to own up
the responsibility of proper implementation of the scheme.
______________________________________________________________________________________
107
Joint Group Report
Package Insurance Policy
1. A single window approach is suggested for providing comprehensive
package insurance to farmers. In this approach, crops will be covered
under area approach and “Other Assets” (dwelling & contents, personal
accident, hospitalisation, livestock, pedal cycle, agrl. pump-set, etc.) under
individual approach.
2. Personal accident insurance and ‘dwelling & contents’ insurance should
be made compulsory, along with crop insurance. The government may
pay the entire premium for insurance of personal accident and dwelling &
contents.
3. Other insurance covers in the package should be made optional to
farmers. Of these other covers, livestock being most important to farmers,
a pair of cattle can be covered with the government paying 50 percent of
the premium.
Weather insurance
1. Private sector should be encouraged to provide competitive environment
and better service to farmers.
2. States should be permitted to take up small experimental and innovative
crop insurance products including weather insurance and insurance for
horticulture and plantation crops in collaboration with AIC and other
insurance companies as “new initiative” under the scheme of Macro
Management in Agriculture.
3. A Weather insurance scheme based on common denominators /
parameters should be finalised with the help of a consultant and circulated
to prospective insurance companies to submit financial proposals for
Kharif 2005 season. The scheme can be offered to the company quoting
the most competitive rates.
______________________________________________________________________________________
108
Joint Group Report
4. The existing infrastructure of IMD w.r.t. weather stations needs upgradation and automation to effectively feed data for weather insurance.
Using the services of third party weather data providers should also be
explored.
Farm Income Insurance Scheme (FIIS)
There is already National Agricultural Insurance Scheme (NAIS) for covering
yield risks and Minimum Support Price (MSP) regime for covering price risks.
In these circumstances there is no relevance for FIIS in the present form.
The pilot project on FIIS, therefore, should be wound up w.e.f. Rabi 2004-05
season.
Others
1. Crop Insurance income should be exempted from income tax provisions to
enable the insurer, particularly AIC to build adequate catastrophic reserve.
2. Crop insurance schemes should be exempted from service tax provisions.
3. The government may advise IRDA to raise targets for general insurance
companies in agriculture insurance area.
______________________________________________________________________________________
109