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OVERVIEWOVERVIEW

• Indian Agriculture

• Agriculture Risks

• Crop Insurance: Evolution

• Crop Insurance: Types of Products & Perils Insured

• Crop Insurance: Government Support

• Crop Insurance: Major Players

• Crop Insurance: Risk Transfer Mechanism

• Crop Insurance: Distribution Channels

• Crop Insurance: New Initiatives

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Indian AgricultureIndian Agriculture

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• 1.2 billion population• 120 million farm holdings• 80% farmers own less than two hectares• 61% of rural households are farming households• 145 million hectares of cultivated land• 190 million hectares of gross cropped area• 1.2 Hectare Average Farm-holding size • 50% of area under cereals and millets• 52% of the employment provided • 69% of population is sustained• Subsistence agriculture dominates• Agrl. GDP estimated at US $ 285 billions (FAO,

2010)

Indian Agriculture: Salient Features

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Agriculture RisksAgriculture Risks

Rainfall variability is dominant due to the presence of the Monsoon (seasonal winds blowing from the Indian Ocean and Arabian Sea in the southwest bringing heavy rainfall)

Monsoons contribute 78% India’s annual rainfall - undergoes wide inter annual variations

Large variations in rainfall distribution (<10cm in western desert to >1000cm in northeast)

Disparity in the rainfall distribution is so great – droughts and floods occur at different parts of the country at the same period and in the same place at different periods

One - third of the country is mostly under threat of drought

One - sixth of the country prone to floods

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Crop Insurance: HistoryCrop Insurance: History

IndiaIndia

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• J S Chakravarthi proposed ‘Drought Insurance’ based on rainfall index in 1920

• First ever crop insurance started in 1972 for H-4 cotton based on ‘individual farm’

• In 1979 a pilot insurance was introduced based on ‘homogenous area’ based yield index (Pilot Crop Insurance Scheme – PCIS)

• In 1985 the PCIS was converted into a country-wide ‘yield index’ based crop insurance covering cereals, millets, pulses and oilseeds (Comprehensive Crop Insurance Scheme – CCIS)

• Scope of CCIS expanded in 1999 as National Agricultural Insurance Scheme – NAIS

• Pilot Seed Crop Insurance Scheme• Pilot Farm Income Insurance Scheme(FIIS)• Weather Based Crop Insurance Scheme – WBCIS was introduced from

2007• Modified NAIS as pilot in 50 Districts from Rabi 2010-11 season• Index Plus (Weather Index + Traditional)

Evolution of Crop InsuranceEvolution of Crop Insurance

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Agriculture Insurance Company Agriculture Insurance Company

of Indiaof India

IndiaIndia

Agriculture Insurance Company of IndiaAgriculture Insurance Company of India

Created at the behest of the Government and took over crop insurance operation w.e.f. 1st April 2003

Stakeholders: GIC (35%), NABARD (30%) and NIA, NIC, OIC & UIIC (8.75% each)

Authorized Share Capital – INR 15 billion Paid-up Share Capital – INR 2 billion Net-worth as on 31st Mar 2012- INR 15.75 billion

2-Tier structure of Corporate Office and Regional Offices 17 Regional Offices as Underwriting Centres 240 dedicated technically qualified manpower 3rd tier at District level: one-man office (own) / franchise model

(out-sourced) AICNET (ANNAPOORNA) for seamless IT integration

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Crop Insurance: Crop Insurance:

Types of Products & Perils InsuredTypes of Products & Perils Insured

IndiaIndia

1. Traditional: (i) Named Peril, (ii) Multi-Peril: Mainly for high value crops

2. Index: (i) Yield Index (ii) Weather Index (iii) Crop Health Index

(iv) Multiple Trigger : Almost All Crops

3. Hybrid (Index Plus): Weather + Named peril: pilot on Grapes & Apples

4. Income: Revenue Based (piloted in 2002-03): stopped after 2003 due to conflict with existing government price stabilization mechanism

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National Agricultural Insurance Scheme [NAIS]

(Government’s flagship Yield index Crop Insurance Program)

• Introduced in 1999 and presently in operation countrywide

• Area-Yield Guarantee

• Homogenous Area approach

• Available to all Farmers - compulsory for borrowing & optional for non-

borrowing

• Covers Food crops, Oilseeds & Annual Commercial / Horticultural Crops

• Indemnity levels vary from 60% to 90% of past average yield

• Sum Insured - Loan amount to 150% of value of Yield

• Premium rates

Food crops & Oilseeds – ranges from 1.5% to 3.5%

Annual Commercial / Horticultural Crops – Actuarial

• Indemnities exceeding Premium for food crops & oilseeds; and 150% of

Premium for annual commercial /hort. crops are borne by the Government

Modified NAIS: How it Works?

Crop: SorghumSum Insured

(INR): 10000Year Yield

2004 350 calamity year12005 9502006 12002007 8752008 250 calamity year22009 9502010 1200

Current Yield - 2011 (Kg/Ha.): 650

Average Yield of latest 7 years: (Kg/Ha.): 825.00

Average Yield of latest 7 years less 2 calamity

years (Kg/Ha.): 1035

Risk categoryIndemnity

level TY (Kg/Ha.)Shortfall (Kg/Ha.) shortfall %

claim (INR)

high risk 70% 724.5 74.5 11.46% 1146.15medium risk 80% 828 178 27.38% 2738.46low risk 90% 931.5 281.5 43.31% 4330.77

NAIS: How it Works?

Crop: SorghumSum Insured

(INR): 10000Year Yield (Kg/Ha.)2004 3502005 9502006 12002007 8752008 2502009 9502010 1200

Current Yield - 2011 (Kg/Ha.): 650

Average Yield of latest 5 years: (Kg/Ha.): 895.00

Risk categoryIndemnity

level TY (Kg/Ha.)Shortfall (Kg/Ha.) shortfall %

claim (INR)

high risk 60% 537 0 0.00% 0.00medium risk 80% 716 66 10.15% 1015.38low risk 90% 805.5 155.5 23.92% 2392.31

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NAIS - Coverage HighlightsNAIS - Coverage Highlights

• Being Implemented in 25 States & 2 Union Territories

• Covers more than 35 different crops each during Kharif and Rabi

• About 75% of claims attributed to drought

SUM INSURED

PREMIUM SUBSIDY CLAIMS

Kharif 2010 12.684 17.195 5267.80 160.38 10.09 361.56

Rabi 2010-11 4.897 6.856 2376.00 64.00 19.78 128.312010-11 17.581 24.051 7643.80 224.38 29.87 489.84Kharif 2011 11.554 15.774 5193.07 158.11 10.78

Rabi 2011-12 5.177 7.173 2222.22 61.11 16.67 2011-12 16.731 22.947 7415.29 219.22 27.44

1.0653.308

Claims under Process

Risk on

2.243

SEASONFARMERS COVERED

(Mil.)

AREA (Mil. HA.)

US $ Millions. FARMERS BENEFITTED

(Mil.)

The risk based premium equals approx. US $ 750 million

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Weather Based Crop Insurance Scheme Weather Based Crop Insurance Scheme (WBCIS)(WBCIS)

• Government providing support since 2007

• Indemnifies farmers against deemed crop losses due to

adverse weather incidence

• Crops covered include perennial & horticulture crops like

mango, apple, cashew, grapes & orange

• Sum Insured based on ‘cost of cultivation’

• Risk based Premium rates

• Upfront Premium Subsidy from Government

• Payouts based on pre-defined triggers on specified

weather parameters

• AIC + 4 Private sector Insurers involved

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Weather Index ParametersWeather Index Parameters

• Rainfall: Deficit rainfall, Excess rainfall, Consecutive Dry/ Wet Days , Number of rainy days

• Temperature: Maximum Temperature (heat), Minimum Temperature (frost), Mean temperature, daily chilling units

• Relative Humidity

• Wind : Speed

• Disease proxy: Combination of rainfall, temperature & humidity

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Pilot WBCISPilot WBCIS

Crop: Groundnut Season: Kharif

PHASE-I PHASE - II PHASE – III

1 A. Rainfall Volume

PERIOD 21st June to

15th July 16th July to

15th Aug 16th Aug to

30th Sept TRIGGER I (<) 80 mm 160 mm 80 mm TRIGGER II (<) 40 mm 80 mm 40 mm EXIT 20 30 20 RATE I (Rs./ mm) 25 25 25 RATE II (Rs./ mm) 75 60 75 Max. Payout (Rs.) 2500 5000 2500

TOTAL PAYOUT (Rs.) 10000

1 B.

Rainfall Distribution

(Consecutive Dry Days)

PERIOD 1st July to 31st August TRIGGER DAYS (>=) 20 25 30

PAYOUT (Rs.) 1500 3000 5000

TOTAL PAYOUT (Rs.) 5000

Rainfall of less than 2.5 mm in a day shall not be considered as a rainy day; and multiple payouts considered

Max. Payout (Rs.) 15000

S.No Year States Districts Farmers Insured (Millions)

Area (Ha.) (Millions)

Sum Insured (US $ Mill) Premium

(US $ Mill)Payouts (US $ Mill)

Claim Ratio

1 2007-08 5 34 0.664 1.042 350.31 48.47 21.33 44.02%2 2008-09 14 91 0.375 0.482 177.38 16.34 9.89 60.54%3 2009-10 14 143 2.362 3.421 994.49 89.51 69.00 77.09%4 2010-11 17 205 9.295 13.2 2866.46 258.86 126.98 49.05%5 2011-12 17 230 11.607 15.629 4179.99 370.28 234.38 63.30%

 TOTAL 24.303 33.774 8568.63 783.45 461.59 58.92%Source: Government of India and AIC 2011-12 figures are provisional

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Pilot on Modified NAIS

• Premium rates actuarial, supported by up-front subsidy in premium & Insurer responsible for the claim liabilities

• Insurance unit for major crops is village panchayat or any other equivalent unit

• In case of prevented / failed sowing, claims upto 25% of the sum insured is payable, and insurance cover ceases thereafter

• Post harvest losses caused by cyclonic rains are assessed at farm level for the crop harvested and left in ‘cut & spread’ condition

• Individual farm level assessment of losses to be done in case of localized calamities, like hailstorm and landslide

• On-account payment up to 25% of likely claim will be released as advance, for providing immediate relief to farmers in case of severe calamities

• Threshold yield will be based on average yield of past seven years, excluding upto two years of declared natural calamities

• Coverage levels are 70%, 80% & 90% corresponding to high risk, medium risk & low risk crops / areas

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Pilot Modified NAISPilot Modified NAIS

Season Farmers (‘000)

Area (‘000 Ha.)

Sum-insured (US $ Millions)

Farmers' Prem. (US $ Millions)

Total Prem. (US $ Millions)

Kharif 2011427 694 298.33 10.89 25.53

Rabi 2011-12 657 588 432.22 14.87 41.112011-12

1084 1182 730.56 25.76 66.67

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Biomass Index:• Piloted for crops like wheat and mustard

• Needs to be stabilized

Traditional:• Named Peril for high value crops like fruits, plantation crops

(mainly natural calamities , and specified pests & diseases)

Other Products… Other Products… (Contd…)(Contd…)

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IndiaIndia

Crop Insurance: Government SupportCrop Insurance: Government Support

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Yield Index:• Crop Cutting Experiments are organized by Provincial governments

• Claims subsidy (NAIS) and premium subsidy (MNAIS), equally

shared by Federal & Provincial governments

• Service Tax exemption

• Provincial governments support insurance awareness programmes

Weather Index:• Public weather station network

• Premium subsidy, equally shared by Federal & Provincial

governments

• Service Tax exemption

• Provincial governments support insurance awareness programmes

Government SupportGovernment Support

Crop Insurance: Distribution ChannelsCrop Insurance: Distribution Channels

Existing:

1. RFIs (nominal service charge)

2. Insurance Intermediaries & Micro insurance agents (commission / brokerage)

3. Livelihood / Community Organizations (No fees)

4. GIPSA network of insurance agents (commission)

5. Direct

Proposed:

1. Portal based on-line service

2. Common Service Centres (CSCs)

3. Banking Correspondents (BCs)

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Crop Insurance: Risk TransferCrop Insurance: Risk Transfer

IndiaIndia

1. NAIS (Food crops & Oilseeds): Government

(Administered Premium: US $ 200 million) ~ Risk Prem. US $ 750

million`

2. Others:NAIS (Commercial / Horticulture) (Premium: US $ 40 million)

WBCIS (Premium: US $ 375 million)

MNAIS (Premium: US $ 65 million)

a) Retention: 20% - 40% (AIC - 30%)

b) Domestic Reinsurance: 10% - 40% (AIC - 40%)

c) International Reinsurance: 30% - 70% (AIC – 30%)

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Crop Insurance: New InitiativesCrop Insurance: New Initiatives

IndiaIndia

WBCIS:1. Index +

2. Double-Trigger product

3. Savings linked (Loyalty Discount) based product

4. TOPS based weather data generation

MNAIS:1. GPS enabled cell phones to audit yield estimation

2. Satellite imagery based area estimation and crop health reporting

3. Remote Sensing based Information and Insurance for Crops in Emerging Economies (RIICE)

Micro Health InsuranceMicro Health Insurance

Population DemographicsPopulation Demographics

Land Area: 3.28 Million Sq. KM (2% of Global) Population: 1.21 billion (17.5% of Global) Population Density: 324 / Sq. KM

- Males: 623.72 (51.54%) - Females: 586.46 (48.46%)

- Rural:

833 million (68.84%) - Urban: 377 million (31.16%)

Sex Ratio: 940 F / 1000 M Life Expectancy: 64.6 Yrs

Infant Mortality: 47 (1000) Maternal Mortality: 212 (100000)

Source: The Census of India, 2011

MICRO INSURANCE (MI) REGULATIONS

• Called: IRDA(MI) Regulations 2005• UNDER SEC 114 A OF INS ACT 1938, SEC 26 IRDA ACT 1999, issued

on 10th November 2005• Purpose: special care/attention of the resource poor• Provide- small value pol + low price+ higher benefits+ simple

contract+ maximum reach+ need of people• The product should have caption “MI” product• Product literature in ‘local’ / ‘vernacular’ language• Cross branding between Life and Non-life is allowed• Micro Insurance Agents can be from SHGs / NGOs / MFIs, to be

appointed by insurers, with 25 hours training• Life Micro Insurance Agents (31.03.2011): 10482• Non-Life Micro Insurance Agents (31.03.2011): 9460

Health Insurance for the Poor

• For people living below poverty line, an illness represents a permanent threat to their income earning capacity

• Fall into debt trap• Ignore treatment due to lack of resources, fearing wage

loss, force of selling assets• These tragic outcomes can be avoided through a health

insurance which shares the risk of a major health shocks across many households by pooling them together

• Hence Rashtriya Swasthya Bima Yojana –RSBY (National Health Insurance Scheme) came into picture

Rashtriya Swasthya Bima Yojana (RSBY)• Launched Ministry of Labour and Employment, Government of

India for BPL families• The beneficiary is any Below Poverty Line (BPL) family, whose

information is included in the district BPL list prepared by the State government

• The eligible family needs to come to the enrollment station, and the identity of the household head needs to be confirmed by the authorized official

• Beneficiaries need to pay Rs. 30 per family at the time of enrollment

• RSBY provides cover for hospitalization expenses upto INR 30,000/- for a family of five on a floater basis

• Transportation charges are also covered upto a maximum of INR 1,000/- with INR 100/- per visit

• Federal government pays 75% of the total premium while State Government pays the remaining premium

• States select insurance provider based on competitive bidding

Unique Features of RSBY

• Empowering the beneficiary• Business Model for all Stakeholders - Insurers - Hospitals - Intermediaries - Government• Information Technology (IT) intensive• Safe and foolproof• Portability• Cashless and paperless transactions• Robust monitoring and evaluation

RSBY Display At Accredited Hospital

STATUS AS ON 31ST MARCH 2011

• Total BPL families: 64.57 million• BPL families covered under RSBY: 32.34 million• Total Hospitals accredited: 12556 (8637 private and 3919

government)

RSBY Signage At Accredited Hospital

Health Insurance PremiumHealth Insurance Premium

Insurer

Non-Life Private 12240 18325 22663 23498 30315

Non-Life Public 19736 31365 38240 48833 69126Standalone Health insurers 112 1559 5351 10721 15357Total 32088 51249 66254 83052 114798US $ Millions (Approx.) 641.76 1024.98 1325.08 1661.04 2295.96

Source: IRDA Annual Report 2011

(INR Millions)

4141

नमस्का�रम