maVr` ~r_m {d{Z`m_H$ Am¡a {dH$mg àm{YH$aU

72 Pages·2016·1.29 MB·English

Volume XIV, No. 1
January, 2016
Crop Insurance
– For protection of Farmers and prosperity of Nation
^maVr` ~r_m {d{Z`m_H$ Am¡a {dH$mg àm{YH$aU
Editorial Board
Shri D.D. Singh, Member (Distribution), IRDAI
Smt. Purnima Gupte, Member (Actuary), IRDAI
Shri Nilesh Sathe, Member (Life), IRDAI
Smt. V.R. Iyer, Member (F&I), IRDAI
Shri Lalit Kumar, Financial Advisor, IRDAI
Dr T. Narasimha Rao, Managing Director, IIRM
Shri Sushobhan Sarker, Director, National Insurance Academy
Shri P Venugopal, Secretary General, Insurance Institute of India,
Shri V.Manickam, Secretary General- Life Insurance Council
Shri R. Chandrasekaran, Secretary General,
General Insurance Council,
Dr. Nupur Pavan Bang, Associate Director,
Indian School of Business
Printed by
K. RAVINDRANATH
and published by T.S. VIJAYAN
on behalf of INSURANCE REGULATORY AND
DEVELOPMENT AUTHORITY OF INDIA.
Printed at Lakshmisri Enterprises © 2010 Insurance Regulatory and Development
#3-4-417, G-3, Near Kachiguda X Roads, Hyderabad. Authority of India.
and published from Parishram Bhavan, 3rd Floor
Please reproduce with due permission.
Basheer Bagh, Hyderabad - 500 004
Phone: [phone] Unless explicitly stated, the information and
views published in this Journal may not be
Fax: [phone]
construed as those of the Insurance Regulatory
e-mail: [email protected]
and Development Authority of India.
From the Publisher
Crop insurance is important in a country like India
with millions of farmers largely dependent on
monsoons for the success of their crops. Monsoons
also have a bearing on the production costs and
agricultural production in respect of irrigated areas
too in the country.
The need for crop insurance has to be seen in the
light of improved security for farmers, enthusing them
for investing in better agricultural inputs, blending
with other insurance products for overall improved risk cover, assured access to institutional credit
facilities and an overall boost to the agricultural sector in particular, the rural economy at large and
growth of the country in general.
There is a gross mismatch between the risk associated and the profit margins in the agricultural
economy making it necessary for subsidy inputs to the farmers through the Governmental mechanism.
The recently launched ‘Pradhanmantri Fasal Bima Yojana’ factors this subsidy component suitably
and also addresses needs of integration with other available insurance covers to the farming families.
This coupled with initiatives that the insurers may take in the rural areas may provide an overall
improved risk cover that is much needed for the rural sector. IRDAI on its part would endeavor to
provide the necessary regulatory environment to support the required development in this area.
It is hoped that through a concerted approach, the subscription to the crop insurance in the country by
the farmers would go from the current level of 20% to much larger levels that are needed not just for
the farmers alone but also to lend viability to the lending institutions working in the area of rural
credit. It is hoped that the quantum of insurance coverage in the farm sector would go from the
present level of about 10% to majority of the agricultural output. This will not only boost the agricultural
sector but also the Insurance sector more particular the General Insurance segment.
I am pleased to find that the articles being published in this issue have covered various aspects of Crop
Insurance. I hope the articles presented in this issue will not only incite further debate but also provide
necessary inputs and fresh solutions that would boost the Crop Insurance in the country. The importance
of intermediaries is significant and hence the next issue would Focus on “Role of Intermediaries in
Insurance Industry”
T.S. Vijayan
Ensure - Crops are Insured
ISSUE FOCUS
Crop Insurance : A few perspectives
4
Some Suggestions and considerable hope
- Sriram Taranikanti
9 Issues and Challenges for Rural Insurance in India:
A brief disposition
- A. Sudhakar & V. Jayalakshmi
Pradhan Mantri Fasal Bima Yojana (PMFBY):
16
Issues and Concerns
- Dr. Tapas Kumar Parida
Pradhan Mantri Fasal Bima Yojana (PMFBY)....
20
Transforming Indian Farmer’s Destiny
- Dr.Ashish Barua
Insuring Agriculture
24
- P.C. James
Crop Insurance for Risk Management
29
in Agriculture
- Sh. Joseph Plappallil J.
Crop Insurance - Tool for Tackling Economic
34
Distress & Economic Development
\$gb ~r_m - geº$ Am{W©H$ {dH$mg H$m AmYma
- Dr.S.Sankara Muthu Kumar, Dr.K.Alamelu 58 - S>m° AO` Hw$_ma {_lm
Crop Insurance an Indian Perspective Outlook
39
- A painful cryings from farmers H¥${f àYmZ Xoe _| H¥${f ~r`m H$s gmoMZr` pñWVr
61 - OJoÝX Hw$_ma
- S. Subashini
Crop Insurance : Truth Versus Hype
49
67 Snapshots - Life Insurance
16 - Jagendra Kumar
0
2
y
ar Awareness and Willingness of Farmers
u
n Statistics - Non Life Insurance
a 53 68
al J towards Crop Insurance in Punjab
n
our - Pooja Kansra
AI j
D
R
I
A take off from Curtain Raiser
Crop Insurance
Protection from vagaries of nature in one's livelihood has been the practice from time
immemorial. It is for such reason, joint family system in vouge in our country is considered as
natural form of social insurance. With favourable weather conditions & low input costs in the
past, farmers were mainly self reliant. However with climatic change & consequential so called
green house effect, they are now regularly facing crop losses due to natural disasters, besides
the effect of market fluctuations involving farm products. Hence the need for Crop Insurance
to support the farmers and his family in conditions of dire straits.
The recent launch of the "Pradhanmantri Fasal Bima Yojana" which is marked by affordable
premium, full insurance cover and use of mobile/satellite technology is definitely a great
opportunity and challenge for the general insurers. With this initative along with effective
awareness programme by the service providers, it is expected that farmers will develop the
habit of insuring their crops. This will certaintly increase insurance penetration as far as farm
sector is concerned, thereby ensuring higher productivity & prosperity for the agriculture sector
- in turn for the economy as a whole.
B.K. Sahu
Consultant, Communication
6
1
0
2
y
ar
u
n
a
J
al
n
ur
o
AI j
D
R
I
3
Ensure - Crops are Insured
ISSUE FOCUS
Crop Insurance : a few perspectives,
somesuggestions and considerable hope
- Sriram Taranikanti
Background Current Status Crop Insurance taken is only a
I fraction of the total institutional
n the country of 130 million A large number of those dependent
credit made to them.The total Crop
farmers, 28% of the farmers on Agriculturalsector also subscribe
Insurance premium in the year 2014-
subscribe to crop insurance. It to institutional credit. The target
15is ofthe order of about Rupees
is also seen that less than 25% of for farm institutional credit for the
5000 crores and the Sum Insured isof
the cropped area falls under crop year 2015-16 has been fixed at 8.5
the order of Rs.82000 crores.This
insurance while in terms of lakh crores, higher over the previous
Sum Insured accounts for just 1/
agricultural output, it is less than year by Rs 50000 crores. Ordinarily,
10th of the credit taken for the farm
10%. This being the scenario on one it would be natural to expect that
sector alone and of much lesser
hand and the difficulties farmers the extent of Crop Insurance should
order when compared with the
face on the other, provide a paradox atleast cover the loan taken, more
value of agricultural output, even
as to why crop insurance, despite so when crop insurance is
at factor costs. Allowing for
serious efforts on the part of the compulsory for loanee farmers to
consideration of only short term
Government, keeness of the insurers subscribe to. Besides, credit
loans which are generally covered
to expand their business and institutionsare also required to show
under Crop Insurance which could
promotion of insurance among the required numbersin this
be of the order of Rs 300000 crores,
inclusive groups on the part of the category of the priority sector.
this would still constitute just over
regulator, has not been lifted to any Given this backdrop, the low
25% of the Credit taken, revealing
significant level. In terms of subscription to this class of
an implementation gap. It is also
numbers, even if agricultural Insurance in the country is rather
reported that contrary to banks
output constitutesonly 15% of the surprising. Should not subscription
taking it as an opportunity to secure
GDP of the country, in terms of the to crop insurance give the required
the loans made by them, they
shareof people engaged in comfort to the credit institutions to
complain that crop insurance is a
agriculture,it is more than 50%.Nine improve ease of lending to
reason for their inability to fulfil
crore of the thirteencrore rural Agriculture sector ? Should it not
their priority sector commitments.If
households are dependent on take it as an opportunity to have
we take the average Sum Insured
agriculture. The well being of this assured return of loans in the event
of the Loanee farmers for the year
6 sector could be ensured through of crop failures ? Will it not help in
01 2014-15, it is about Rs 22000/-. On
2
uary bofe twtehri crhis Ck rmopa nInasguermanecnet ssthroautledg ibees rseedcutcotri o?n Hofo NwPeAvse inr, t heev Aegnr ifcourlt utrhael the other hand, the average
n institutional credit when spread
a
J an integral part. loanee farmers, the quantum of
al over perhaps the 50 million active
n
ur
o
AI j
D
R
I
4
Ensure - Crops are Insured
short term borrowings byfarmers is and unviable.The number of non- seen on the higher side. This has
of the order of Rs 60000/-. loanee farmers taking crop been explained as greater
insurance is abysmally low in any extraction of ground water and
Issues
case.That farmers do not generally increased effort on the part of the
find current form of Crop Insurance farmers during such times. As the
There is gross mis-match between
asa useful tool for risk mitigation production cost in respect of
the Institutional Credit given to
explains this virtual non electricity towards
loanee farmers taking crop
participation of non loanee farmers. increasedpumping charges is
insurance and the quantum of Sum
The banks too, which are the credit generally borne by the State
Insured covered for them. The huge
institutions, find it extremely Government that provides freeor
gap of possibly Rs 150000 crorescan
difficult to convince the farmers to subsidised power to farmers, a view
be explained by the fact that these
take Crop Insurance and are also at was even expressed whether the risk
farmers do not find it attractive
a loss to explain this short fall of the State Government could be
enough to take crop insurance and
especially when crop insurance is covered instead.One of the more
subscribe to it only to the minimum
compulsory to the loaneefarmers. important reasons that is made for
extent required. National
poor subscription to Crop Insurance
Agricultural Insurance Scheme
During the interaction that IRDAI
is that as the yield assessment is
(NAIS), which constitutes about 2/
had in meetings in a few states with
made at the area level, individual
3rds of the total Sum Insured under
some stakeholders including
farmersfind the basis risk far too
Crop Insurance does not have
farmers, farmer associations and
high and the vagaries in individual
features of coverage of prevented
officials, a cross section of
farms are not covered. Parametric
sowing and post harvest losses.
interesting responses emerged for
based measurements such as the
Under Modified National Agricultural
the poor subscription to the Crop
weather based indices also fall
Insurance Scheme (MNAIS), the
Insurance. One of the reasons
under similar category as area based
extent of subsidy is also limited by
mentioned is the high premium that
yield assessments. On the other
the Premium cap thereby making it
the farmers have to pay, which even
hand it is not practically viable for
necessary for a proportionate
if in the order of 3%, is perceived
insurance companies to make the
reduction of Sum Insured available
by the farmers as an additional
assessment at an individual level not
to the farmers. The Premium to be
interest charged to the crop loans
just from the moral hazard point of
paid by the farmers in this scheme
that are offered by the State
view but also the associated
is much higher too as it is based on
Governmentat rates as low as 3%
administrative costsfor such
the Actuarial Premium. Besides,
and in some cases even zero
assessment. Besides, the
some of the loanee farmers do not
interest. The farmers are unable to
availability of historical data for
subscribe to Crop Insurance at all
perceive the premium paid as the
each field/plot, the associated land
either due to slippages in the system
costs to cover the risks associated
records, boundaries etc are also
or taking of loans outside the
with farming and are seeing
issues to contend with.There are
window when Crop Insurance is
compulsory subscription to Crop
also multiple crops with different
generally available. Some states like
Insurance as a straight increase in
type of measurements that need to
Punjab do not subscribe to Crop
the quantum of interest. In some
be factored which is difficult at
Insurance at all. Some other farmers
other cases, there were responses
individual level. As such area/
have got court rulings that stayed
that in irrigated areas, the 1616
subscription to Crop Insuranace. parametric based measurements 2020
Beyond the subsidy limit, the loanee comparative risk to the farmers is appear unavoidable.Efforts to ary ary
less and even during lean seasons, uu
farmers have to pay the actuarial reduce the basis risk, as has been anan
the agricultural output has been attempted in MNAIS, has increased al Jal J
premium which is both unaffordable nn
urur
oo
AI jAI j
DD
RR
II
5
Ensure - Crops are Insured
the Actuarial Premium far beyond varieties widely varying and there notwithstanding the margins in
the paying capacity of farmers is no independent mechanism of agricultural profits, given the
adversely affecting the viability in reporting the farm outputs at an economies of scale, there is
Agricultural sector itself should Crop individual level. All these make the substantial amount of federal
Insurance be subscribed to. yield assessment process subsidy which is learnt to be of the
administrative costly and order 10 billion dollars in USA. This
Different Scenarios
cumbersome on one hand and open accounts for about 7% of Agricultural
Countries like USA and Canada have to uncertainty and risk to the output and over 70% of the
Crop Insurance subscription close to Insurers themselves. Besides, when Agricultural premium in that
about 85% of their agricultural the basis risk is brought down, the country.In the other countries,
output. In these countries, three actuarial premium goes up where such economies of scale are
crops, namely Corn, Soyabean and substantially which was not possible, the component of
Wheat, account for about 80% of experienced under the MNAIS support has to be perhaps higher.
their agricultural output. The farm scheme. The Crop Insurance in the Therefore, any initiative on the part
sizes there too are also large enough current form has a high Premium and of the Insurer or the Government to
and provide the critical mass to there is no further scope for come out with products of Crop
allowyield assessment even at enhancement. Given this challenge, Insurance has to necessarily factor
individual plot level. Besides there the country had opted for an area elements of subsidy from the
is considerable mechanised farming based yield measurements and Governments more particularly
wherein usage of combines etc., parametric triggers as a substitute Government of India, in Indian
which when also fitted with for individual assessments. This in context. Likewise, if the entire Crop
gadgets, can make measurementof itself may not be inappropriate as loans have to be insured, there
the quantum of farm producemuch weather factors are generally not would be a total premium
closer to reality. Now there is some localized to farms and crop failures requirement close to Rs.70000
talk of sending such assessment generally affect larger areas rather crores at 9-10% premium cost, of
through satellite technology to a than individual farms. Even then which at least about Rs. 50000
central location. We also localised distress cannot be ruled crores may perhaps have to come
understand that agricultural income out but in the absence of feasible in the form of Governmental
in these countries is also assessed solutions for individual assessments, Subsidy, State and Central
for taxation purposes and a parallel other alternatives will have to be government put together. This
system of reporting is available that explored to address them rather. figure would be much higher if the
would itself make data entire agricultural produce of the
Governmental support & Challenge
manipulation discouraging. As country were to be insured and
of Subsidies
agricultural production makes its Given the current level of subsidies,
way to market yards / factories, Agriculture itself is a risky this itself would a big challenge. As
there is also another assessment proposition and the vagaries of mentioned earlier, the cap on
that could be possible which makes weather and climate changes have premium in MNAIS has itself been a
correlation with farm level output only accentuated in this regard. limitation on the subsidy
possible. Worldwide, even where crop component. While no such limit was
6 insurance is subscribed to a large existing in the form of claim subsidy
1
0 On the other hand,in the Indian
uary 2 context, the farm sizes are small, a laecvteula slu pchre ams iiunm U Sr aatneds Caarnea doaf, tthhee fsourb sNcAriIpSt, iogniv etno tChreo pg eInnseurraal nlcoew,
n large quantum of production is
Ja order of around 9 to 10%. Even in whether the Government would
al consumed at family level, crops and
urn these two countries, have been in a position to step up
o
AI j
D
R
I
6
Ensure - Crops are Insured
its subsidy component, had the need Firstly, subscription to crop would have a positive impact on the
arisen, is a matter of conjecture. insurance may improve the risk development of SMEs in the food
appetite of farmers and enthuse and Beverages sector in particular
In this context, the launch of
them to go for better inputs which and the service sector in general.
Pradhanmanti Fasal Bima Yojana is
could lead to boost in the Finally, it may reflect in theboost
a significant milestone that
agricultural production. Secondly, in agricultural and rural income as
addresses the important challenges the direct involvement of Insurers well as their consumption pattern
faced in the promotion of Crop would make them take up extension which, on a larger platform,could
Insurance. A bold step of not keeping activities that may help the boost the growth of the country. At
a cap on Premium while keeping a farmersto boost their agricultural a governmental level, it would boost
cap on the amount payable by production on one hand, and on the the collection of indirect taxes
farmers is significant in itself. This other, may make the Insurers significantly. The above propositions
open ended approach would no minimise their losses which may may be theoretical but perhaps
doubt send the right message inturn reduce the premium rates logical enough and have a
across, that crop insurance is the and consequently subsidy burden. presupposed understanding that
priority of the Government and the Thirdly, subscription to Crop crop insurance would reach to such
partner institution such as Insurers, Insurance may further liberalise levels and create an overall
banks etc can go full stream to institutional credit for loanee economic impact that may help fund
farmers and for the non loanee associated subsidies.
provide the same. The factoring of
farmers, access to Institutional
Post Harvest Losses and Localised
Alternative approaches
credit. This in itself may improve
calamities at an individual level
the viability of rural credit
might also address some of the Some time back, IRDAI made an
concerns of the farmers relating to institutions, who are very important attemptto explore the possibility of
Basis risk. These positive features stakeholders. Fourthly, subscription of Crop Insurance at an
liberalization of institutional credit individual farm level. The initiative
may enthuse the stakeholders
could trigger drop in interest rates was first taken up with the hope
including farmers, insurers and
by local money lenders on one hand
that Remote Sensing
banks to subscribe and boost the
and on the other,reduce their imageryobtained from Satellites
numbers in crop insurance
interest rates on their own with the would be available to make
substantially thereby improvingthe
comfort of assured risk mitigation
individual yield assessment possible
viability. The Government’s positive
for the borrowing farmers. Over a
and that it would be possible to
reachout to the stakeholders will
third of credit in Agriculture is make estimations at plot level at a
help in popularising the scheme and
through non institutional
reasonable cost. An end to end
the law of large numbers, so critical
mechanism and 80% of it through approach was also conceived that
for success of any Insurance
the moneylenders. Over aperiod of would make liberal use of satellite
scheme, could come into play. No time, they could even strive to
technology and mobile technology.
doubt there could be challenges become agents of Crop Insurers. All The leveraging of one lakh odd
faced by the Central and State these would augur well for the Common Service Centres with
Government in the form of subsidies demand of Agricultural inputs which
access to a portal system was also
but on a larger platform, the in the form of increased seed planned. However, the applicability
Governments could also be in a intake, pesticides, fertilizers etc. of Satellite technology seemed to
6
position to bear the same with the would also boost the indirect taxes be a work in progress for several 01
2
indirect benefit that boost in significantly. The growth in decades now with no meaningful ary
Agricultural Production, Rural agricultural output and productivity estimations having been reported to nu
a
J
incomes and Rural consumption could lead to surplus that in turn a reasonable level of accuracy al
n
could bring about. our
AI j
D
R
I
7
Ensure - Crops are Insured
beyond estimations at a regional with a few State Governments was other Stakeholders to work in this
level. Though a few works have also made but the bottleneck direction. The existing IT
been done by researchers showing appeared to be the size of funding infrastructure of Common Service
some correlation at small unit sizes of subsidy as well as assurance of a Centres, availablefor one for six
but no such extension was ever substantial intake of Crop Insurance. villages and likely to be extended
made nor was conceived to go for The latter was difficult in itself given to one for 2.5 villages as a part of
practical substitution of physical the current level of subscription Digital India, besides the rapid
assessment by Remote Sensing which is atmost 10 % of the value of growth of internet and its reach to
Imagery based assessments. Agri produce. In respect of the the villages could also be leveraged
Thereafter, in consultation with subsidy requirement, for an average by the Insurers. Ultimately, for real
some Insurers, the approach was district size, this works out to Rs.500 inclusiveness, there is a need for
shifted to one of physical crores. Given this dimension and the scale neutral insurance products
measurements. However, given the heavy dependence on the which is possible only by increased
conventional costs associated with Government of India for the subsidy use of Technology. Such scale
insurance products, it was and the possibility of the neutral products can provide risk
conceived that if crop insurance is Government of India itself revisiting mitigation mechanism for all and
subscribed only by a majority of the Crop Insurance schemes in a bring allround development.
farmers, say 60 % or so, in a holistic manner, this concept has
Insurance is generally recognised
particular area or any village, given been currently put in the
as one of the drivers for economic
the size of agricultural produce, it backburner.
growth. Can Crop Insurance too be
may still be possible to provide yield
Conclusion & Hope the driver for economic growth in
assessment at an individual level.
Agricultural Sector ? It seems so,
Even calculations in this regard were Perhaps with the success of the
given the recent approaches made
made in consultation with a few Pradhanmantri Fasal Bima Yojana in
so far.
Insurers. The key for the success of
the form of subscription by the
the same, would require, apart from majority of the farmers, of say 50% Acknowledgements : From IRDAI,
critical mass of subscription to Crop or more, as envisagedby the Central S/Shri Vivek Nayak, Assistant
Insurance, methods to overcome Government, the required platform (Statistics) and Dhiraj Kumar Nath,
moral hazards for which apart from may be available to the Insurers and OSD (Research) for crosscheck of
increased used of technology, encourage them to ultimately also data & Shri H Ananthakrishnan,
substantial cooperation of local develop insurance products suitable Joint Director(Legal) for editorial
administrative machinery would be to the farmers at an individual plot help, Dr. K.L.Rao, Ex- Chief Risk
needed. This approach when level. Given the possible large Officer, Agriculture Insurance
converged with other Insurance quantum of subscription to the Company of India Ltd (AICL) for his
schemes could improve the viability Pradhanmantri Fasal Bima Yojana, insights from time to time and
of the same. However, this calls for there would be a need for various newspapers, magazines,
a conventional distribution model of infrastructure on the part of the journals, websites and internet for
an ‘agents’ for sale and‘surveyors’ Insurers to be created, if not at the content.
for assessment, making distribution village level, atleast for a cluster of
and administrative costs higher at villages. The promotion of
a significant 20% or so. This is technology in the form of Mobile Shri Sriram Taranikanti, is an IAS
6
1 different from the current banking officer, currently working as
0 Technology and Innovative Technogy
2
ary model of distribution of Crop including Satellite Technology under Evixeewcsu etixvpere Dssierde cbtyo hr,i mIR aDreA Ip.u Trehley
anu Insurance that has comparatively Pradhanmantri Fasal Bima Yojana personal and not that of the
J
al much lower costs. Some discussions could motivate the Insurers and the organisation.
n
ur
o
AI j
D
R
I
8
Ensure - Crops are Insured