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Agriculture Insurance

Crop Insurance as Safety Net for Farmers By Milind Kharat,  CMD, Agriculture Insurance Company of India Ltd.

Indian agricultural sector is largely dependant on vagaries of the monsoons which are erratic and uneven causing fluctuations in yield, thus farmers are invariably exposed to the risk of insecurity.  In this situation, farmers need security net. In India, the risk and insurance needs vary across agro-climatic zones as well as socio-economic conditions of farmers. Agriculture Insurance Company of India (AIC) was set up with the objective of providing crop insurance.  The specific objectives of the company are to provide insurance coverage and extend financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests and diseases and to encourage the farmers to adopt progressive farming practices, high value inputs and improved technology in agriculture.

AIC has started implementing the Government of India’s National Agricultural Insurance Scheme (NAIS) as the designated Implementing Agency. NAIS provides insurance cover to millions of farmers both loanee and non-loanee irrespective of their size of land holding. NAIS insures farmer’s shortfall in the yields as against the threshold yield of the notified area.  Under NAIS, from Rabi 1999-2000 to Kharif 2011  i.e. for 24 seasons (as on 20th March 2012 ), 18.76  crore farmers have been covered for a sum insured of Rs. 244679.33 crore and cultivating area of 28.39 crore hectares; the total amount of claims of Rs. 23134 crore have become payable, thus benefiting 4.90  crore farmers under the Scheme.

AIC is implementing Weather Based Crop Insurance Scheme (WBCIS) as a pilot scheme since Kharif 2007, covering more than 35 different crops, including perennial crops like apple, citrus crops, grapes, mango, cashew nut, Oil palm etc. WBCIS provides insurance protection to farmers against adverse weather incidence, such as deficit and excess rainfall, long dry spells, fluctuations in temperature, relative humidity, wind speed etc. which impact the crop production adversely. It has the advantage faster claim settlement. WBCIS is based on actuarial rates of premium, but to make the Scheme attractive, premiums actually charged from farmers in respect of food and oilseed crops is capped “at par” with NAIS, and for annual commercial and horticultural crops, the same has been capped at 6 percent. The National Agricultural Insurance Scheme (NAIS) is not available for the loanee farmers in the locations and crops selected for WBCIS. This Scheme is more compatible with practices world wide. 

Apart from WBCIS, through the non-NAIS segment, coverage has been improved in terms of the number of States, the number of locations and the number of crops insured under different schemes/products. AIC has also implemented the Modified National Agricultural Insurance Scheme (MNAIS) on pilot basis during Rabi 2010-11 in 32 districts in 12 States. The scheme is an improved version of NAIS where farmers bear a minimum scale of premium and rest is shared by central government and the concerned implementing State government. The total liability of claim lies with the Company.  Some of the advantages imbibed in the Scheme are unit of insurance area reduced to village/village panchayat for major crops, indemnity level raised to 70%, individual assessment of losses due to localized risks; ‘on account’ payment upto 25% of the likely claim & losses due to prevented sowing/post-harvest losses due to cyclone are the other provisions.  The Pilot MNAIS is being continued during 2011-12 as well.

The other sponsored schemes viz. Rainfall Insurance Scheme for Coffee (RISC), the premium subsidy is upto 50% by Coffee Board; in case of Coconut Palm Insurance Scheme (CPIS), premium subsidy is available @ 2:1:1 ratio shared by Coconut Development Board and the respective State Government where farmer needs to pay only 25%; both these schemes are being implemented by us in the potential crop growing States. We also cover Rubber Plantation, Pulpwood, Bio-fuel Plant/Tree, Mango etc. on individual farm basis.

The task before AIC is to enhance crop insurance knowledge amongst the farmers and improve the level of awareness for its benefits to reach them.  Especially, when insurance for food and oil seed crops is proposed much before the start of sowing and literally nothing is seen on the field, needs encouragement to opt for insurance. Crop insurance is a means of protecting the farmers against financial losses due to uncertainties that may arise from crop failures/losses due to unforeseen perils beyond their control. AIC’s prime aim is to spread the message that ‘insurance is not a tool to make money but to help compensate  the farmers for unexpected losses that might otherwise cause a financial disaster’

AIC is always keen in introducing scientifically designed products to address the insurance needs of the farming community. Insured’s expectation of deriving some benefits out of his insurance paves way to innovate crop insurance products.  While conforming to sound actuarial (commercial) principles, AIC also strives to make them affordable to the farmers.

 At present about 20% of the farmers are insured, while the potential for coverage, particularly of non-loanee farmers is huge. The primary thrust area, therefore, is to increase insurance penetration and bring in more farmers under crop insurance net. Secondly, to improve the service in terms of transparency, accessibility, product delivery in a manner a great majority of farmers availing crop insurance are satisfied with the service. Thirdly, to work on innovative crop insurance products like 'double trigger' insurance, 'savings linked insurance' etc. in order to provide relevant and farmer-friendly crop insurance solutions. Fourthly, to consolidate the gains made in the past eight years to make AIC a global brand in crop insurance.

AIC's future plans centre around providing increased access to crop insurance for non-loanee farmers; work on financial literacy and  insurance awareness programs; expanding  network to almost all districts; providing an objective and easy to access technology platform for availing insurance and claim service. We are also thinking as a first step, to adopt during 2012-13 a few villages to develop them as 'model Krishi Bima Gram’. In the next few years we will accomplish these objectives by working together with all the stakeholders.

This is not brought about by opening a number of ‘no-frills’ accounts but must include safe banks deposits, affordable credit, safe funds transfers, micro insurance/micro-pensioners and financial literacy/counseling. The formation of Self Help Groups (SHGs) sand SHG Federations as also micro loans by microfinance institutions is also part of financial inclusion. There is a need to implement the Banking Correspondent/Facilitators Model by banks in unbanked areas so as to lower transaction costs for banks and clients as also set up a large number of micro ATMs so that cashless transactions within a common technology platform, is possible in rural areas. The Unique Identification Numbers proposed to be given to all citizens, will also enable quicker financial inclusion. The creation of Rural Credit Bureau would help in quicker credit decisions than hitherto.

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