Agricultural Insurance for Rural India

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Agricultural Insurancefor Rural India

• Digvijay (02d05012)
• Neelesh(02d07025)

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Overview

• Agriculture in India
• Need of Insurance
• Risks in Agriculture and management practices
• What is crop insurance and issues related to it
• Various crop insurance schemes in India
• Strategies for success of Insurance in future
• References

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Agriculture in India

• India sustains 16 of the worlds population on
  2.4 of land resource
• Agriculture contributes 24 of the Indian GDP
• Livelihood support to two-thirds of the
  population
• Employment to 57 of work force
• Single largest private sector occupation
• Raw material source to large number of industries
  like (textiles, silk, sugar, rice, flour mills,
  milk products)
• Any change in this sector has a multiplier effect
  on the economy

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Need of Insurance

• High dependence on weather
• 40 of net sown area irrigated, 60 dependent on
  rains
• Most irrigation from non-perennial sources
• Affects adoption of improved crop production
  techniques because of high risks and low margins
• Dwindling ground water resources

Farmer at the mercy of rains
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Risks in Agriculture
Production Risks
Out put Risks
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Risk management Techniques
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Issues with Crop Insurance

• Highly subsidized premiums and claims
• Administrative Cost
• Asymmetry of Information
• Claims assessment not transparent
• Lengthy claims settlement cycle
• Low acceptance amongst farmers Less than 10 of
  the farmers avail of crop insurance
• Distorted Incentives
• Adverse Selection
• Moral Hazard

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Evolution of Crop insurance in India
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Comprehensive Crop Insurance Scheme (CCIS)

• Was in effect during Kharif85Kharif99
• Implemented in 15 States and 2 Union Territories
• Insurance linked to short-term credit
• 2 premium, subsidy for small farmers
• Basic rainfed food grains covered
• Very poor coverage of farmers
• Very low premium to claims ratio
• Claims ratio 1 5.71

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National Agricultural Insurance Scheme (NAIS)

• In operation since Rabi 1999-2000
• At present implemented in 23 States and 2 Union
  Territorie
• Low Claims Ratio 1 2.9
• Higher premiums
• Option of higher risk for higher premium
• Extended to non-loanee farmers
• Commercial crops included
• Coverage and financial viability still an issue
• Assessment of yield to be protected is
  unrealistic and is on lower side.

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Weather Insurance Schemes

• Insurance for losses due to vagaries of weather
  - excess of rainfall, shortfall in rainfall, lack
  of sunshine, etc.
• Weather insurance schemes launched
• Varsha Bima 2005
• Insurance against the adverse incidence of
  rainfall.
• Sookha Suraksha Kavach (SSK)
• Insured against the likelihood of diminished
  agricultural output/yield resulting from
  shortfall in the actual normal rainfall index
  within a specific geographical location and
  specified time period

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Other Insurance Schemes

• Coffee Insurance
• Coconut Insurance
• Rubber Insurance
• Tea Plantation Insurance
• Poppy Insurance
• Basmati Rice Insurance
• Aromatic Medicinal plants Insurance
• Contract Farming Insurance
• Apple Insurance (Input) Policy

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Institutions Involved in Insurance

• Agriculture Insurance Company of India Ltd.
  (AICI) -- promoted by
• General Insurance Company (GIC)
• National Bank for Agriculture and Rural
  Development (NABARD)
• Four other Insurance Subsidiaries are
• National Insurance Company Ltd.
• New India Assurance Company Ltd.
• Oriental Insurance Company Ltd
• United India Insurance Company Ltd.
• ICICI Lombard - provides first-ever Weather
  Insurance

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Barriers for Insurance

• Poor comprehension of insurance in terms of the
  key benefit and the process what / why / how
  it works
• An unnecessary expense ---- No long term benefit
  perceived as no money back scheme in case of no
  claim
• Lack of sufficient push and effort from the
  channel due to ---- lack of attractive commission
  for agents
• Sheer lack of promotion, education and
  information
• Weak distribution channel ......inaccessibility
  of the agent
• Processes cumbersome
• Stoic belief in fate coupled with apathetic
  attitude
• Therefore tendency to not purchase / renew

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Strategies for success

• Heighten need for insurance
• Education on benefits of general insurance ...
  though not a saving but a risk cover in case of
  adversities
• Ease of process
• Subscription
• Renewal
• Claim settlement
• Product
• Need to promote agriculture pump set and cattle
  insurance among owners
• Also need to promote health and personal accident
  policies, low awareness but high concerns
• Existing owners and lapsers of General Insurance
  would be an easier target

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Strategies Continued

• Price
• Lower premiums would be preferable, even by the
  richer states like Punjab
• Place
• Preferred channels are Banks, Co-operatives
  Sarpanch
• Promotion
• Participative information dissemination
  ..through small cohesive groups at farmer
  meets, melas, co-operative society meets.

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Role of ICT

• Information regarding new insurance policies
  through
• Kiosk Centres
• Community Portals
• Forums
• Providing information regarding weather
  predictions through GIS/GPS
• Spreading awareness about other Risk Management
  techniques

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References

• http//aicofindia.nic.in/index1.html
• http//www.basixindia.com/WeatherInsurance-new
  frontier in India.ppt
• http//www.ficciagroindia.com/funding-schemes/bank
  /nabard.htm
• http//www.agriculture-industry-india.com/agro-pro
  gramme-schemes/credit3.html

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• Thank you