GLOSSARY. 1 Crop Cutting Experiments

Transcription

1 GLOSSARY 1 Crop Cutting Experiments Crop Cutting experiments are carried out on all important crops for the purpose of General Crop Estimation Surveys. The same yield data is used for purpose of calculation of premium rates, threshold yield and actual yield under National Agriculture Insurance Scheme. Yield data per unit per crop should be based on following requisite number of CCEs : Unit of Insurance Requisite number of CCEs Gram Panchayat : 8 Revenue Circle level : 10 Taluka : 16 2 Actual Yield Average Yield for arrived at based on the above crop cutting experiments is actual yield for that season for a crop in a unit of insurance. 3 Levels of Indemnity: There are three level of Indemnity viz., 90%, 80% and 60% corresponding to Low Risk, Medium Risk and High Risk areas are available for all crops based on coefficient of variation. (CV) in yield of past 10 years data. However, the insured farmers can opt higher level of indemnity on payment of additional premium based on actuarial rates. 260

2 4 The Threshold Yield (TY) The Threshold yield or guaranteed yield for a crop in a insurance unit shall be the moving average based on past three years average yield in case of rice and wheat crops and five years average yield in case of other crops multiplied by level of indemnity. 5 Settlement of Claims If the Actual Yield (AY) per hectare of the insured crop for the defined area in insured season falls short of the specified Threshold Yield (TY), all the insured farmers growing that crop in the defined area are deemed to have suffered shortfall in their yield. Claims shall be calculated as per the following formula: Claims payable = (Shortfall in Yield / Threshold Yield) X Sum Insured. (Shortfall = ( TY AY) 6 Adverse selection Selective participation observed under voluntary crop insurance program: increasing participation during potential adverse seasons and decreasing participation during potential normal seasons. 7 Area yield Insurance scheme under which insurance based insurance payments are based on an area yield estimate determined by harvest production measurements taken at a series of randomly chosen Crop Cutting Experiments locations 8 Block/Mandal Administrative sub-division of the district, which in turn is a sub-division of the state. 261

3 9 Claim ratio Claims expressed as percentage of premiums collected. 10 Guaranteed Probable yield multiplied by indemnity limit. yield 11 Insurance unit Administrative level (e.g., Block, Tehsil) where the crop yields are estimated through the crop cutting experiment process. 12 Loss cost Claims expressed as percentage of sum insured. 13 Moral hazard Moral hazard arises with traditional insurance when insured parties alter their behavior so as to increase the potential likelihood or magnitude of a loss 14 Probable yield Moving average of seasonal area yields. 15 Sum insured Amount of risk coverage on which the premium is paid. It is also the maximum value of the claim. 16 Agricultural Insurance Insurance applied to agricultural enterprises. Types of business include crop insurance, livestock insurance, aquacultural insurance and forestry, but normally excludes building and equipment insurance although these may be insured by the same insurer under a different policy. 17 Area Approach (area-yield basis) An agriculturally homogeneous area that can be insured as one unit. This unit may comprise several blocks of land farmed by the same farmer or different farms farmed by different farmers. For loss adjustment in this approach, the actual average yield is assessed by simple survey 262

4 through crop cutting or other methods, and compared with the normal (insured) yield. The average yield loss is applied to all land of all farmers within the defined area, disregarding individual differences in actual damage and crop yield. 18 Catastrophe A severe, sudden and unexpected disaster which results in heavy losses 19 Crop Credit Coverage is decided based on the amount of the Insurance production loan of individual farmers. Each farmer has a different amount according to the different value of his loan, regardless of his cropped area. 20 Crop Insurance Provides protection against loss or damage to growing crops including perennial crops such as tree crops against specified or multiple perils, e.g. hail, windstorm, fire, flood. Measurement of loss could be by yield basis, production costs basis, agreed value basis or rehabilitation costs basis. While most crop insurance is geared towards loss of physical production or yield, cover may also be provided to loss of the productive asset such as tree crops. 21 Drought This is one of the most commonly requested perils by farmers, but it also one of the most difficult perils to insure because of problems of its definition, isolation and measurement of effects on crop production. In contrast to most weather 263

5 perils, drought is a progressive phenomenon, in terms of an accumulating soil moisture deficit for plant growth, and its impact on crop production and yields is often extremely difficult to predict then measure and isolate from other non insured causes 22 Gross Premium The premium paid by the insured, which is aggregate of components including risk premium plus operating expenses, commissions, reserves and other expenses paid by the insured. 23 Hail Precipitation in the form of ice granules which according to the size and quantity thereof can cause severe damage to livestock and crops. 24 Insurer The company which issues an insurance policy and is named in the policy as being responsible for paying a claim should a loss event result in damage to the insured property. 25 Loss Cost Claims expressed as a percentage of the total sum insured or total liability. 26 Net Premium The premium necessary to cover any anticipated losses, before loading to cover commission and other expenses. Also called risk premium or pure premium. 27 Peril A potential cause of loss or damage to the property. Perils can be insured or uninsured, both are usually named on the insurance policy. It is therefore important that loss adjustment procedures enable distinction to be made between 264

6 damage caused by insured and uninsured perils. This main natural perils covered in agricultural insurance include fire, flood, freeze, hail, wind, excess rain, drought. 28 Premium The monetary consideration payable by the insured to the insurers for the period (or term) of insurance granted by the policy. 29 Reinsurance When the total exposure of a risk or group of risks presents a hazard beyond the limit which is prudent for an insurance company to carry, the insurance company may purchase reinsurance i.e. insurance of the insurance. Reinsurance has many advantages including (i) leveling out the results of the insurance company over a period of time; (ii) limiting the exposure of individual risks and restricting losses paid out by the insurance company; (iii) may increase an insurance company s solvency margin (per cent of capital and reserves to net premium income), hence the company s financial strength. (iv) The re-insurer participates in the profits of the insurance company, but also contributes to the losses, the net result being a more stable loss ratio over the period of insurance. 265

7 30 Risk 1) The subject matter of insurance; the insured property. 2) Uncertainty attached to the outcome of an event. 3) The probability of a loss. 4) The insured peril. 5) Danger. 31 Risk Management Care of risk to maintain income and avoid/ reduce loss or damage to a property resulting from undesirable events. Risk management therefore involves identifying, analyzing and quantifying risks and taking appropriate measures to prevent or minimize losses. Risk management may involve physical treatment, such as spraying a crop against aphids or planting windbreaks and/or financial treatment, e.g. hedging, insurance and self insurance. 32 Sum Insured The amount specified in the policy up to which the insurer will pay indemnities should the insured peril(s) occur and result in a loss to the insured property. 33 Uncertainty Not knowing whether an event is going to occur and being unable to measure the likelihood of occurrence of the event. 266