TRAINING MANUAL ON RAINFALL INDEX INSURANCE LITERACY
TO SMALL AND MARGINAL FARMERS
(Trainers have to follow this manual to train the farmers during the second round of training in 30 villages)
Total Duration: 2 hours
Objective of training: To study the Impact of providing additional training to farmer on understanding
and purchases of weather securities
Before starting the subject there should be a general introductory session (10 minutes)
The trainers can ask few questions to check the understanding level of the farmers about the weather
insurance
1. Agriculture Risks
(This session has to be completed in 15 minutes)
Farming is filled with many risks. Given that agriculture is the main source of livelihood for small and
marginal farmers, any losses can have a big effect. You all have known what risks you face and how they
affect your welfare.
Ask the trainees: Can you just recall the major risks to income and the consequences of these risks on
the welfare and activities of your family
Answers shall be drought, excess rainfall during germination and flowering stages of crop growth, rainfall
during harvest, high temperature, pest and disease, market fluctuation etc ; Could also be non-crop
income answers: illness or disability of main bread winner; loss of livestock etc.
For the question on consequences, answers shall be reduction of ability to meet their family need, not
having three meals a day, skipping cultivation in the next season, going for other daily wage jobs,
migration;
List them on a flip chart (If needed)
Ask the trainees: What do you do when you face serious income/crop losses and needed to find some
money or food to feed your family?
Answers shall be Use savings / sell assets / depend on relatives or neighbours / depend on social
organisations / Depend on government relief / Depend on formal credit / Depend on Informal borrowings
from money lender.
List them on a flip chart (if needed)
At the end of this session, from the above discussion the facilitator should reitrate the farmers that
weather (rainfall) results in income losses and that current risk coping mechanisms do not allow farmers
to fully manage these risks.
2. Reducing exposure to risk
(This session has to be completed in 5 minutes)
Due to the unpredictability of the weather / rainfall these days, farmers sometimes take protective
measures to reduce their loss in cultivation. Would you agree?
After getting the response from the farmers the facilitator should focus clearly on the vulnerability and
uncertainties in crop cultivation for getting the economic yield and income even after doing so much of
agronomic adaptation measures.
The trainer should clearly explain, in reality the fear about the uncertainties reduces the risk taking
capacities of the farmer and ultimately results in reduced crop management strategies such as no or
reduced application of fertilizers and other practices, leading to subsistence nature of agriculture with
poor yield and less income.
3. Introduction to insurance
(This session has to be completed in 15 minutes)
Like savings, insurance is another way of protecting yourself against the threat or possibility of loss/risks.
It is something you pay for now to make sure you are compensated if an emergency or a risk occurs in
future.
In insurance you pay some minimum amount before the start of the cropping season. These payments
are put together, and used to pay benefits to a customer when she or he experiences a crisis. If you do
not experience any crisis, you do not get the money back.
Insurance is a form of protection that guarantees to pay when an emergency occurs. Some of you will
know that if you buy a bike you also buy insurance. The bike insurance is important because if your bike
met an accident you need to make sure that you do not lose everything, insurance can pay.
Insurance is a formal way of managing risks. Those who buy insurance always transfer a portion of their
risk to the insurance company.
We will learn about this insurance by talking about Ram Singh who was interested in buying Rainfall
insurance for his crops to overcome the uncertainties due to rainfall.
4. Story of Ram Singh
(This session has to be completed in 25 minutes)
Ram Singh owns 5 acres of land on which he cultivate Soya bean during Kharif season. He wants to buy
insurance that will protect him for the losses due to lack or excess of rain, so that if the rains fail and his
harvest is bad or if there is excess rainfall and his crop gets affected he will receive money from
insurance. Ram Singh believes the loss of income due to poor or excess of rainfall can be compensated
through insurance to some extent so that he doesn’t run short of money to meet his household needs
during the year. Then Ram Singh goes to speak to an insurance agent to find out more information about
insurance.
Premium
Ram Singh learns that to buy insurance he will have to pay money which is called as premium. He will
pay it and not get it back if the rain is good.
Policy
When he pays the premium he will be named on an insurance policy which is a contract between him and
the insurance company stating when the insurance will pay and when the insurance will not pay him. The
insurance policy is like a certificate / ticket which will act as a proof that he has taken an insurance with
the insurance company. Each individual who got the policy will get a ticket / certificate that tells them how
much insurance they bought and when the insurance will pay.
Once Ram Singh pays a premium he will be entitled to receive the benefits of insurance and get a payout
in case the event written in the insurance contract happens.
It is important to understand both the benefits and limits of insurance coverage. Insurance will not cover
everything, but only specific risk events. This specific problem which will be covered by the insurance
would be clearly indicated in the policy.
For example, insurance against low rainfall will not protect Ram Singh’s from pests and disease that
might also affect his crop yields.
Even when insurance is for low rainfall it might not pay all the exact actual loss you experience from low
rainfall. It will only pay the amount of money which is mentioned in the insurance policy certificate. But the
amount is enough to cover basic necessities.
Payout
A payout is the amount of money paid to Ram Singh for the losses due to deficit or excess rainfall.
Examples to explain Insurance Cover & Payout:
Our friends Hukum Chand and Kanti Lal have some problems. Now I am going to place the problem
before you all to get the good judgment since you all have learnt about insurance after hearing Ram
Singh’s story
1. Hukum Chand signed up for weather insurance and used his savings to pay the premium. The
rains were good and Hukum Chand did not experience any yield loss. Hukum Chand thinks he
should get a refund of at least some of his premium because she did receive anything from the
insurance company.
Question: Should Hukum Chand get a refund, why or why not?
Answer: Hukum Chand is not entitled to a refund because his weather insurance protects against
risk; even if the rainfall is good and he does not need a payout for low rainfall.
2. Kanti Lal is concerned that he cannot afford the premium on the new rainfall insurance policy
that is being offered, but he knows that if the rain is bad in Kharif he will not get good soybean
harvest. He decided he will wait and see how in Kharif the rain is like. After the start of Kharif he
finds that there is poor rainfall and so in the second month of Kharif he decides that it would be
good to buy insurance for his crop.
Question: Can Kanti Lal purchase the insurance policy the way he plans? Why or why not?
Answer: Kanti Lal cannot purchase insurance like this because the premium has to be paid in
advance of the period that is being insured.
Game to understand the benefits and limitations of rainfall insurance schemes:
The game revolves around communicating the manifestation of idiosyncratic (Individual risks like pest / disease/ theft
etc) and covariate shocks (Common risks like drought, high temperature, excess rainfall etc) in agricultural operations
and the role of insurance in transferring covariate risks.
This game has to be played in groups of ten. The game will begin by giving each farmer a loan of Rs.15000
(hypothetical) and 1 acre of land to grow soya bean. Risk event cards with pictures of risk events like bad rainfall (4
Nos), crop diseases (1 No), pest attack (1 No) and good rainfall (4 No) along with the loss values of Rs.15000,
Rs.10000, Rs.5000 and zero losses respectively has to be randomly distributed among the farmers. The farmers are
then asked to thoroughly check what risk events they got and record the net amount left after deducting the loss which
is printed on their risk event card. Then the facilitator has to reveal that 4 out of 10 farmers were left with zero net
amounts. The fortune of the farmers left with zero net amount has to be contextualized by the facilitator to explain the
farmers the problems of covariate weather risks like bad rainfall. The facilitator has to clearly explain if this kind of risk
happens this would be common for all the farmers in a given region / village.
The second round of this will introduce insurance as a risk management option. In line with the risk pooling principle of
insurance, each farmer has to contribute Rs.1000 as premium, leaving them with Rs.14000. One of the facilitator
should act as an Insurance company and he should explain to the farmers that a pool of Rs.10, 000 has been
collected as premium and this money would be used by the insurance company if there is any losses to the farmers.
Then the game has to be played by distributing the risk cards same as before. 4 farmers would be left with negative
cash balance of Rs. 1000. At this point the insurance company will make a payout of Rs 2500 to all the 4 farmers who
faced bad rainfall, from the total collected premium of Rs 10000. The net amount position of the farmers in the post
insurance payout situation has to be explained by the facilitators and role of the fundamental risk transfer principle
behind insurance has to be clearly communicated.
The farmers should be made to play the game from scratch once more to make them understand that anyone might
end up in the bad situation as the other affected persons and also to make them realise how paying the premium is
important as it helped the six unaffected farmers compensate for the four affected.
In the final round of the second game, the farmers will be allowed to keep the Rs.14, 000 notes as they have paid
insurance premium as in the previous step. They will be asked to draw randomly from another set of risk cards. But
this time, there will be a twist in the risk event depicted by the risk cards. There should a severe drought and 8
farmers will be receiving bad rainfall card and 2 with pest attack. Then the farmers will be asked to calculate the cash
balance and 8 will be left with debt. Now the Insurance company will make a payout of Rs. 2500 to all the affected 8
farmers. Here the facilitator should emphasise that the Insurance company has only Rs 10000 from the pooled
premium collected. This could be possible to pay only for 4 farmers since 8 farmers got affected now the Insurance
company is using its own money of Rs. 10000 to compensate the other 4. Facilitator should clearly bring to the table
that insurance company is not depending on the premium alone but it also uses its own money for making payouts.
5. Specific characteristics of index insurance
The type of rainfall insurance we are talking is called as index based insurance. It does not measure
whether you have a good or bad harvest, but uses a suitable and measurable proxy such as rainfall at a
nearby weather station to construct an Index that is highly associated with the crop failure or poor yield.
This index then serves as the measure upon which insurance payments are, or are not, made.
This type of rainfall insurance operates on the concept of “Area Approach” (villages in one area are linked
to a Reference Weather Station). On the basis of the rainfall readings in the Reference Weather Station,
the insurance company will make a payout to Ram Singh. If there is deficit rainfall he will get a payout. If
there is excess rainfall in that area he will get a payout. If the rainfall is good (not too much and not too
little) he will not get a payout.
How excess rainfall and deficit rainfall is measured will be stated in the insurance contract / ticket.
For Insurance to pay out, a predetermined threshold level of the Index, often refered to as the trigger
point, marks the point at which payment begins.
Historical correlation studies of crop yield with Rainfall help Insurance Companies in developing rainfall
thresholds (Triggers) beyond which the crop starts getting affected adversely. Payout structures are
developed to compensate farmers to the extent of losses deemed to have been suffered by them using
the rainfall trigger. In other words Rainfall Index Insurance uses rainfall parameter as proxy for crop yields
in compensating the cultivators for deemed crop losses.
Since Ram Singh has taken a Rainfall Insurance there is no need for him to measure the rainfall or to go
and ask the insurance company for payouts. Payouts would be automatically sent to his address by the
insurance company in the form of cheque if there is deficit or excess rainfall.
Show the following table on a flip chart (The trainers should make this table well in advance before the
start of the training and the same can be used for subsequent trainings) and explain it to the trainees
quickly the difference between the conventional Insurance and Index based Insurance
Conventional Insurance
Suitable for Individual risks such as the bike
accident or theft in the farm or field get burnt etc
Compensation is done on actual losses. The actual
losses have to be assessed by the insurance
company before making the payout
For making a payout it takes longer time
Index based Insurance (Rainfall Insurance)
Suitable for common widespread risk such as
drought
Compensation is based on the index reading (Eg.
Rainfall amount) for a locality
Payout is made at a faster rate
6. Commonly asked questions of index insurance
(This session has to be completed in 30 minutes)
Hukum Chand signed up for weather insurance and used his savings to pay the premium. The rains
were bad and Hukum Chand experenced yield loss. Hukum Chand thinks he should get a payout
because he has bought the insurance from the insurance company. Should Hukum Chand get a payout
or not?
(ALLOW TIME TO RESPOND)
Answer: Yes Hukum Chand should get a payout. In this season as his crop received bad rainfall the
insurance company will make a payout.
Kanti Lal signed up for weather insurance and used his savings to pay the premium. The rains were
good at the weather station but Kanit Lal experienced yield loss because of poor field managemnt and
pest problems. Kanti Lal thinks he should get a payout because he has bought the insurance from the
insurance company. Should Kanti Lal get a payout or not?
(ALLOW TIME TO RESPOND)
Answer: Kanti Lal is not entitled for a payout because he has taken rainfall insurance for yield loss due to
deficit rainfall. In this season as the rainfall was recorded as good at the weather station the insurance
company won’t make a payout of any amount, even though he had a bad harvest.
Buying insurance is a personal decision. Each person has to think about the benefits of insurance and the
cost of buying the insurance. One person may think the benefit to them is higher than the cost and decide
to buy. Other person may think that insurance is too expensive and it is better not to buy it and take the
chance that an emergency will not occur and just paying the costs if it does.
Ram Singh was interested in insurance because he thought it would protect him from rain. You too can
buy insurance for this problem.
Friends you know Ram Singh has understood certain things very clearly in rainfall insurance before
purchasing

The insurance will pay ACCORDING TO THE RAINFALL RECORDED AT THE REFERENCE
WEATHER STATION MENTIONED IN THE CONTRACT. This station would be normally located
near your village

It would be nice if the insurance company could measure the rainfall on Ram Singh’s farm, but it
is not practically possible to measure that. More over there might be 100 people like Ram Singh
who might have all purchased rainfall insurance and it cannot be possible for the insurance
company to measure the rainfall every day in each and every one’s farm. Hence the insurance
company uses the WEATHER STATION closest to Ram Singh’s farm where rainfall is accurately
measured.
Discussion: How similar is rain within the village? Do you know people who live closer to the weather
station? How similar is their rain to yours?
You might be also listening to the local News in Radio or TV which sometimes says about the weather
condition / rainfall in your district or block – How similar this announcement and the real ground condition
you experienced during that particular point of time.

Rainfall on a particular day could be different even in smaller geographical area, but in a span of
fortnight / month / season it evens out. Normally Reference Weather Station are located at Block
/Tehsil level, by and large this weather station reflects the weather experience of individual
farmers within that block.
(ALLOW TIME TO RESPOND)
7. Introduction to CIRM – IFPRI Rainfall Index Insurance
(This session has to be completed in 30 minutes)
You all will grow Soya bean for this Kharif... right. The duration of Soybean crop is about 90-100 days (3
months). For a very good crop yield we need to have a good rainfall which should be equally distributed
during the entire crop growth period. But in reality it is not happening. In one day there will be heavy
rainfall with water flooding and in next few days there will be no rainfall at all. We can even observe a dry
period for 10 to 20 days. These kinds of variation in rainfall will normally affect our soya bean crop.
(The trainer should make this table on a flip chart and explain the trainees about the rainfall risks)
Crop Stage
Period
Major rainfall risks
Sowing & Germination
15th June - 7th July
Heavy rainfall on a single day
Vegetative Phase
25th July- 15th August
Lack of rain
Reproductive Phase
20th- 30th August
Maturity Phase
1-25th September
Lack of rain
Heavy rain on a single day
Heavy rain
Harvesting
25th Sept. – 5th October
Heavy rainfall on a day

If there is a heavy rain immediately after sowing the seeds will rot;

if there is a complete dry period of more than 10 days the sprouted seeds will start wilting

If there is no rain or heavy rain during flowering it will affect your yield

If there is heavy rain during maturity or harvest stage it will make your produce to rot
Now you would have understood that during every stage of crop growth there is a risk from rainfall.
We are now going to explain more about the insurance which you will be offered to overcome these kinds
of rainfall risk in Soya bean cultivation. This insurance is very simple for you to understand and it would
be offered in the form of tickets. You can buy these tickets from the agents who would be visiting your
villages.
This Insurance will be offered for different periods of crop growth, say 15th June to 7th July, 25th July to
15th August, etc which coincides with different stages of your soya bean crop. If you find that flowering
stage of crop growth has high rainfall risk you can buy the insurance for that period alone. If you want to
buy for the entire crop growth period, you can also buy. Each insurance policy covers you for the period
mentioned in the ticket; you will have to buy more than one policy to cover more than one period.
There are two types of policy for each period. One is cheaper but only covers extreme risk, this situation
will happen about one in ten years on average. The other is slightly expensive and covers moderate risk,
this situation will happen about two in ten years on average.
To make you understand the concept see the graph below which states that the crop growth gets affected
with increase and decrease in rainfall: (This graph has to be included in the handouts)
To understand how the policy pays according to the increase and decrease in rainfall see the table below
Rainfall Index (in mm)
Below 145 and equal to or above 85
Insurance
Pay-off
( Rs.)
1
1000
Below 85
Below 185 and equal to or above 85
4000
2
Below 85
Above 465 and equal to or below 515
4000
3
Above 515
Above 385 and equal to or below 515
Above 515
1000
1000
4000
4
1000
4000
Similarly you all would be offered different sets of rainfall insurance for different periods of your soybean
crop. The Insurance agents will come to your village before the start of the specific crop period and offer
you the insurance. The Insurance will be like a ticket which mention the duration of insurance cover, the
rainfall levels, the payout amount and the premium amount.
Suppose if you are cultivating one acre of soya bean crop and you want to buy the insurance for
germination period, you can buy any number of tickets you wish for your one acre of soybean crop. It is
not that you have to buy only one ticket per acre per period.
Hope you all would have learnt about the weather Insurance and how it is important for your crop. Now it
is your choice to decide. You can interact with your agents who market these products in your villages to
get more clarity.
Evaluate whether the training objectives have been met by asking the trainees the following
questions:

What is meant by Premium?

What is meant by payout?

How does conventional Insurance works?

What is Rainfall Index Insurance?

What are the differences between the conventional Insurance and Index based Insurance?