5. NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS) OR RASHTRIYA KRISHI BIMA YOJANA (RKBY)

Transcription

1 5. NATIONAL AGRICULTURAL INSURANCE SCHEME (NAIS) OR RASHTRIYA KRISHI BIMA YOJANA (RKBY) 5.1 INTRODUCTION The vast majorities of India s 116 million farms cultivates rainfed crops and are particularly vulnerable to the vagaries of the Indian monsoon. In this context, agricultural risk management products, particularly for the small and marginal farmers, are of critical importance. In order to address some of the shortcomings and improve the scope and contents of CCIS, the government of India expressed its intentions to launch a new crop insurance scheme during budget speech. A broad-based National Agricultural Insurance Scheme (NAIS) or Rashtriya Krishi Bima Yojana (RKBY) was introduced with effect from the Rabi season of A copy of the detailed scheme (Appendix 7) and proposal forms (Appendix 9 12) is appended. The scheme was designed to cover all the farmers irrespective of the size of holding and both borrowers and non-borrowers of the 115

2 institutional credit. NAIS provides for greater coverage of crops and sum insured when compared with CCIS. The new crop insurance scheme was intended to address the issue of financial viability by raising the premium to 4 per cent for food crops and still higher premium for cash crops like sugarcane, potato, groundnut, etc. The government intended to bring down the claim premium ratio from more than 5 to a manageable 1.4. The government also proposed to set-up a separate subsidiary company under GIC to operate the scheme and give it freedom to alter or modify insurance charges to make the venture internally viable. Finally, Agriculture Insurance Company of India Limited came into being in The new crop insurance scheme NAIS / RKBY was introduced during Rabi in 9 States / Union Territories (UT). The states/ UT, which adopted the new scheme during Rabi season, were Assam, Goa, Gujarat, Himachal Pradesh, Kerala, Madhya Pradesh, Maharashtra, Orissa and Pondicherry. The number of States/UT implementing NAIS increased to 17 in Kharif 2000 and reached 21 in Kharif However, prosperous States like Punjab and Haryana preferred to stay out. States like Rajasthan having large area under rain-fed agriculture also preferred not to join the scheme. 116

3 Presently NAIS is being implemented by 25 States & 2 Union Territories. The details about the operation of NAIS have been presented below in Figure

4 Figure 1: FLOW CHART OF PARTICIPATION OF FARMERS AND PAYMENT OF COMPENSATION UNDER RASHTRIYA KRISHI BIMA YOJNA LOANEE FARMER NON-LOANEE Avails crop loan for a Notified crop (Compulsory Insurance cover) Approaches for Insurance Coverage under NAIS Seeks Extended Coverage Fill up Non-loanee proposal Fill up proposal for additional coverage BANK BRANCH / PACs Consolidate Loanee details with Cut off Consolidate Loanee details with Cut off NODAL BANK Consolidate into Loanee Consolidate Into Non- Loanee Declaration Incorrect / Incomplete Declarations For Premium receipt Acknowledgement Claim INSURANCE COMPANY Notification Submission of Yield Data Funds Share of Claims Approval of Claim Share of Claim STATE CENTRAL Note : Claims are paid to GOVERNMENT Nodal Bank, from where reach account GOVERNMENT of farmer through bank branch / PACS. 118

5 5.1.1 OBJECTIVES OF THE NAIS / RKBY ARE AS UNDER : 1. To provide insurance coverage and financial support to the farmers in the event of failure of any of the notified crop as a result of natural calamities, pests & diseases. 2. To encourage the farmers to adopt progressive farming practices, high value inputs and higher technology in Agriculture. 3. To help stabilise farm incomes, particularly in disaster years CROPS COVERED The Crops in the following broad groups in respect of which i) the past yield data based on Crop Cutting Experiments (CCEs) is available for adequate number of years, and ii) requisite number of CCEs are conducted for estimating the yield during the proposed season : 1. Food crops (Cereals, Millets & Pulses) 2. Oilseeds and 119

6 3. Annual Commercial / annual Horticultural crops - Sugarcane, Cotton, Potato, jute, tapioca, coriander, cumin, isabgol, fennel, fenugreek, annual banana, annual pineapple etc. However, mangoes, apples, grapes and oranges are not yet covered. Ginger, onion, turmeric and chilies were covered under insurance during the second year of the scheme. Other annual commercial / horticultural crops have also been brought under insurance cover in the subsequent years depending on the availability of crop yield data. Table 11 shows number of notified areas under NAIS in Maharashtra State during Kharif Table 1 : NOTIFIED AREAS UNDER NAIS KHARIF Sr. No. Crops No. of Notified Circles To tal District Paddy Kh. Jowar Baj -jra Ra gi Gr. Nut Soya bean Sun flower Sesa mum Niger seed Mung Udid Tur Cot ton 1 Thane Raigad Ratnagiri Sindhudurg Konkan Div Nasik Dhule Nandurbar Jalgaon Nasik Div Ahmednagar Pune Solapur Pune Div Satara Sangli NAIS Scheme for 2009 season Notification of Circles / Taluka, Government of Maharashtra, Government Resolution No. NAIS-2009/CR-153/11-A, Mantralaya Annex, Mumbai dated 8 June

7 Sr. No. Crops No. of Notified Circles To tal District Paddy Kh. Jowar Baj -jra Ra gi Gr. Nut Soya bean Sun flower Sesa mum Niger seed Mung Udid Tur Cot ton 14 Kolhapur Kolhapur Div 15 Aurangabad Jalna Beed Aurangabad Div 18 Latur Osmanabad Nanded Parbhani Hingoli Latur Div Buldhana Akola Washim Amravati Yavatmal Amravati Div 28 Wardha Nagpur Bhandara Gondia Chandrapur Gadchiroli Nagpur Div State Total Contd Sr. No. Crops Talukas Total District Kharif Jowar Kharif Onion Sugarcane Adseli Sugarcane Preseasonal Sugarcane Suru Sugarcane Ratoon 1 Thane Raigad Ratnagiri Sindhudurg Konkan Div Nasik Dhule Nandurbar Jalgaon Nasik Div Ahmednagar Pune Solapur Pune Div Satara Sangli Kolhapur Kolhapur Div

8 Sr. No. Crops Talukas Total District Kharif Jowar Kharif Onion Sugarcane Adseli Sugarcane Preseasonal Sugarcane Suru Sugarcane Ratoon 15 Aurangabad Jalna Beed Aurangabad Div 18 Latur Osmanabad Nanded Parbhani Hingoli Latur Div Buldhana Akola Washim Amravati Yavatmal Amravati Div Wardha Nagpur Bhandara Gondia Chandrapur Gadchiroli Nagpur Div State Total STATES AND AREAS COVERED The scheme has been extended to all the States. The State has the responsibility to extend it for all the crops identified for coverage in a given year. Moreover, States / Union Territories once opting for the Scheme have to implement it for a minimum period of three years. The participation in NAIS/RKBY is compulsory for farmers growing notified crops by availing crop loans from formal credit institutions. However, non-borrower 122

9 farmers growing notified crops are also eligible to opt for the scheme on voluntary basis FARMERS COVERED All farmers including sharecroppers, tenant farmers growing the notified crops in the notified areas are eligible for coverage. a) On a Compulsory basis : All farmers growing notified crops and availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions i.e. Loanee Farmers b) On a Voluntary basis : All other farmers growing notified crops (i.e. Non-Loanee Farmers) who opt for the Scheme RISKS COVERED AND EXCLUSIONS Comprehensive risk insurance cover provided by NAIS is multi-peril in nature. It covers yield losses due to nonpreventable risks, which includes : 1. Natural fire and lightning 2. Storm, Hailstorm, Cyclone, Typhoon, Tempest, Hurricane, Tornado etc. 123

10 3. Flood, Inundation and Landslide 4. Drought and dry spells 5. Pests / Diseases etc. Losses arising out of war and nuclear risks, malicious damage and other preventable risks are excluded from the insurance cover SUM INSURED / LIMIT OF COVERAGE The Sum Insured may extend to the value of the threshold yield of the insured crop at the option of the insured farmer. However a farmer also has the option to insure his crop beyond the value of threshold yield level (up to 150% of average yield) of the crop in the notified area on payment of premium at commercial / actuarial rates. In case of Loanee farmers the sum insured would be at least equal to the amount of crop loan advanced. Further, in case of Loanee farmers, the Insurance Charges shall be additionality to the Scale of Finance for the purpose of obtaining loan. In matters relating to Crop Loan disbursement procedures, guidelines of RBI / NABARD will be binding. 124

11 5.1.7 PREMIUM RATES The Government at the time of introduction of NAIS decided to continue with the 'flat rate' system of premium followed in the CCIS. Flat rate is crop specific and depends on the level of indemnity desired by the farmer and is the same across the whole country. The flat rate of premium applies to all the major crops including food grains, pulses and oilseeds. The limited number of commercial and horticultural crops, which are included in the list of insurable crops, attracts actuarial rate of premium. The premium rates fixed for the crop year have been presented in Table 12. The premium rates being charged currently are ad-hoc in nature. The actuarial premium will be charged for cereals, millets, pulses and oilseeds within a period of five years. 125

12 Table 2 : PREMIUM RATES CHARGED UNDER NAIS / RKBY Sr.No. Season Crops Premium Rate 01 Kharif Bajra and oilseeds 3.5% of Sum Insured (SI) or Actuarial rate whichever is less Other crops (cereals, other millets and pulses) 2.5% of SI or Actuarial rate whichever is less 02 Rabi Wheat 1.5% of SI or Actuarial rate whichever is less Other crops (other cereals, millets, pulses 2% of SI or Actuarial rate whichever is less and oilseeds) 03 Kharif and Rabi Annual Commercial / horticultural crops Actuarial Rates PREMIUM SUBSIDY Small / Marginal farmers are subsidized in premium to the extent of 50% to be shared equally between the Central and State Governments. The premium subsidy is, however, to be phased out over a period of three to five years, subject to review of the financial results and the response of the farmers at the end of the first year of the implementation of the scheme. 126

13 5.1.9 SCHEME APPROACH The scheme covers losses from sowing to harvesting, and operates on an Area Approach for widespread calamities. For this purpose, a unit of insurance is defined. It may be a Gram Panchayat, Mandal, Hobli, Circle, Phirka, Block, Taluka etc., to be decided by the State Government / UT. However, each participating State Government / UT, was required to reach the level of Gram Panchayat, as the unit, within a maximum period of three years. The Scheme is to operate on individual basis for specified localized calamities. Scheme would be implemented in limited areas on experimental basis initially and shall be extended in the light of operational experience gained. The District Revenue administration will assist Implementing Agency in assessing the extent of loss. 127

14 SEASONALITY DISCIPLINE a) The broad seasonality discipline followed for Loanee farmers is as under : Activity Kharif Rabi Loaning period April to September Cut-off date for November receipt of Declarations Cut-off date for January / March receipt of yield data October to next March May July / September b) The broad cut-off dates for receipt of proposals in respect of Non-loanee farmers is as under : Kharif Season : 31 st July Rabi Season : 31 st December 128

15 FUNDING All the claims related to food crops and oilseeds beyond 100 per cent of the premium shall be borne by the government of India and the States on 50:50 basis till a complete transition is made from flat rate to actuarial regime. The claims beyond 150 per cent of the premium in the first three years and 200 per cent of the premium for an extended period of additional three years thereafter shall be met by implementing agency. Claims beyond the limits of implementing agency shall be paid out of the Corpus fund for a period of three years. However, the period of three years stipulated for this purpose will be reviewed on the basis of the financial results after the first year of implementation and the period will be extended to five years if considered necessary. In the case of commercial / horticultural crops, the implementing agency shall bear claims up to 150 per cent of the premium in the first three years and 200 per cent of the premium thereafter subject to satisfactory claims experience. The claims beyond the limits of implementing agency shall be paid out of Corpus fund. A Corpus Fund is to be created with contributions from the Government of India and State/Union Territories on 129

16 50:50 basis to meet the catastrophic losses. A portion of Calamity Relief Fund will be used for contribution to the Corpus Fund ESTIMATION OF CROP YIELD The State/UT Government will plan and conduct the requisite number of Crop Cutting Experiments (CCEs) (Appendix 8) for all notified crops in the notified insurance units in order to assess the crop yield. A Technical Advisory Committee (TAC) comprising representatives from N.S.S.O., Ministry of Agriculture (G.O.I) and Implementing Agency shall decide the sample size of CCEs and all other technical matters. The minimum number of CCEs to be carried out at different levels of insurance units has been presented in Table 13. Table 3 : MINIMUM NUMBER OF CROP CUTTING EXPERIMENTS PER UNIT AREA Sr. No. Unit Area Minimum Number of CCEs 01 Taluka / Block Mandal / or smaller area comprising villages 03 Gram Panchayat comprising 4-5 villages

17 LOSS ASSESSMENT, LEVELS OF INDEMNITIES AND THRESHOLD YIELD The indemnity levels are fixed at 90 per cent, 80 per cent and 60 per cent corresponding to low risk, medium risk and high risk areas based on variability (coefficient of variation) in yields in the past 10 years. The crops are classified as Low Risk when the coefficient of variation (CV) is less than 15 per cent, Medium Risk when the CV is between 16 per cent and 30 per cent and High Risk when the CV is higher than 30 per cent. The insured farmers of the notified area may opt for higher level of indemnity on payment of additional premium based on actuarial rates. The difference between the level of indemnity and the actual yield loss acts as a sort of deductible. The Threshold Yield or the guaranteed yield for a crop in the particular notified area is the moving average based on past three year average yield in case of rice and wheat and five year average in case of other crops multiplied by the level of indemnity. If the actual yield per hectare of the insured crop for the defined area (based on Crop Cutting Experiments) in the insured season falls short of the specified Threshold Yield, all the farmers growing that crop in the defined area are deemed to 131

18 have suffered shortfall in their yield. The shortfall in actual yield as the proportion of threshold yield times the sum insured is the indemnity claim NATURE OF COVERAGE AND INDEMNITY If the Actual Yield (AY) per hectare of the insured crop for the defined area [on the basis of requisite number of CCEs in the 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. The Scheme seeks to provide coverage against such contingency Indemnity is calculated as per the following formula : Shortfallin Yield ThresholdYield XSumInsuredFor The Farmers [Shortfall = Threshold Yield Actual Yield for the Defined Area] PROCEDURE FOR APPROVAL & SETTLEMENT OF CLAIMS Once the Yield Data is received from the State / UT Government as per the prescribed cut-off dates, claims will be 132

19 worked out and settled by Implementing Agency. The claim cheques along with the claim particulars will be released to the individual Nodal Banks. The Banks at the grass root level, in turn, shall credit the accounts of the individual farmers and display the particulars of beneficiaries on their notice board. In case of localized phenomenon viz. hailstorm, landslide, cyclone and flood, the Implementing Agency shall evolve a procedure to estimate such losses at individual farmer level in consultation with DAC / State / UT. Settlement of such claims is on individual basis between Implementing Agency and insured FINANCIAL SUPPORT TOWARDS ADMINISTRATION & OPERATING (A&O) EXPENSES The A&O expenses are shared equally by the Central Government and respective State Government on sunset basis (100% in 1 st year, 80% in 2 nd year, 60% in 3 rd year, 40% in 4 th year, 20% in 5 th year and zero thereafter). 133

20 5.2 PERFORMANCE OF THE NAIS / RKBY Initially, during Rabi seasons, only 9 States/UT participated in the National Agricultural Insurance Scheme. The scheme covered farmers and ha of cropped area (Table 5.4). The coverage under NIAS increased dramatically after kharif The number of farmers covered under NAIS increased from farmers in Kharif 2000 to by Kharif 2008 and the area coverage reached hectares from during this period. The number of participating farmers and area covered under NAIS were lower during Rabi season when compared with Kharif season. In eight Kharif seasons, since Kharif 2000, a total of farmers have been covered, as against farmers in nine Rabi seasons since Rabi The trend in Kharif coverage appears to be linked to the expansion of participating States, crop notified, extent of drought and nonborrower farmer s decision to participate in the scheme. Nonborrower farmers generally opted for crop insurance only selectively, after being almost certain of crop failure 2. During 2 In Kharif a farmer can go for insurance during 1 st April to 30 th June. Some indication of monsoon becomes available around that time. Based on the subjective assessment about rainfall and consequent impact on crop, farmers opted for crop insurance if they expected severe damage to crop 134

21 the entire period from through , the NAIS covered farmers and hectares area. The total sum insured during Kharif and Rabi seasons taken together was to the tune of Rs Crores and the premium collected was Rs Crores (Table 14). and were sure to get insurance claim. The phenomenon is often referred to as Adverse Selection in technical parlance. 135

22 Table 4 : NATIONAL AGRICULTURAL INSURANCE SCHEME ALL INDIA YEARWISE / SEASONWISE BUSINESS STATISTICS 21 SEASONS SINCE RABI S.N. Season Farmers Area (Ha) Rs. In Crores Farmers Covered Sum Premium Subsidy Claims Benefitted Insured 1 Rabi Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Kharif Rabi Total Grand Total Source : Agricultural Insurance Company Of India Limited, New Delhi 136

23 5.3 PERFORMANCE ACROSS THE STATES Table 5 : NATIONAL AGRICULTURAL INSURANCE SCHEME STATEWISE BUSINESS STATISTICS FROM (RABI TO RABI ) 4 State Farmers Covered (000) Area (000) (Ha) Sum Insured Rs. In Crores Gross Premium Premium Subsidy Farmers Benefitted (000) Claims Andhra Pradesh Assam A & N Islands Bihar Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Manipur Meghalaya Mizoram Orissa Puducherry Rajasthan Sikkim Tamilnadu Tripura Uttar Pradesh Uttarakhand West Bengal Total Source : Agricultural Insurance Company Of India Limited, New Delhi 137

24 Currently NAIS has been adopted by 24 states and two union territories by Their performance in the states has been judged on the basis of their contribution to the six selected performance indicators, namely, farmers covered, area covered, sum insured, premium collected, claims made and farmers benefited Table 15. The performance differed significantly across the states. We found that 11 of the states, namely, Andhra Pradesh, Bihar, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal accounted for over 90 per cent to total value of individual indicators as shown in Table 16. In fact Bihar contributed significantly only to claims made and farmer beneficiaries, Orissa to farmers covered, sum insured and subsidy claimed, Tamilnadu to subsidy and claims and West Bengal to subsidy claimed. Seven among the eleven states identified in Table 16 ranked from 1-7 for the first four performance indicators (Table 17). Gujarat was selected with overall rank of 3 and Karnataka with overall rank of

25 Table 6 : SHARE OF MAJOR STATES IN SELECTED PERFORMANCE INDICATORS ( ) State Farmers Area Sum insured Premium Subsidy Claims Benefited Andhra Pradesh Bihar Gujarat Karnataka Madhya Pradesh Maharashtra Orissa Rajasthan Tamilnadu Uttar Pradesh West Bengal Table 7 : RANKING OF MAJOR STATES ON FOUR PERFORMANCE INDICATORS State Farmers Area Sum Premium Overall Insured Andhra Pradesh Gujarat Karnataka Madhya Pradesh Maharashtra Rajasthan Uttar Pradesh

26 The area covered under NAIS per farmer averaged to 1.57 hectares in (Table 18). It ranged from 0.46 hectares for Jharkhand to 2.62 hectares for Madhya Pradesh. The only other states for which area covered per farmer was more than 2.00 hectares were Gujarat, Rajasthan and Chhatisgarh and up to 1.00 hectares for were Sikkim, West Bengal, Tripura, Himachal Pradesh, Assam, Kerala and Maharashtra. The sum insured per hectare Rs.3538 for Chhatisgarh to Rs for Tripura with all India average of Rs.7030 in It was more than Rs for Sikkim, West Bengal, Uttaranchal, Kerala, Assam, Bihar, Tamilnadu, Pondicherry and Meghalaya. In these states the high cost crops were covered. Nevertheless the premium as per cent of the sum insured was highest for Meghalaya (5.51%) followed by Gujarat (4.15%), Maharashtra (3.81%), West Bengal (3.52%) and Karnataka (3.19%) for the state as a whole. It was lowest for Sikkim (1.01%) though per hectare sum insured was the highest in this state. The claims were about 10 per cent of the sum insured. It was highest for Tamilnadu (23.6%) followed by Bihar (16.8%), Gujarat (16.4%), Jharkhand (13.7%), Karnataka (13.5) and Maharashtra (11.8%). The claims were 2.8 times the premium collected. It was more than 7 times in Bihar followed 140

27 by 4 times in Jharkhand, Karnataka and Tamilnadu. It was less than premium only in some smaller states such as Goa, J&K, Sikkim and Tripura. The farmers benefited from compensation were 47 per cent in Tamilnadu followed by 42 per cent in Karnataka, 37 per cent in Uttaranchal, 34 per cent in Bihar, and 32 per cent in Maharashtra. Elsewhere it was less than average of 26 per cent for the country as a whole. Table 8 : PERFORMANCE OF NAIS IN STATE / UT s ( ) State Area / Farmer (Ha) Sum Insured (Rs/ha) Premium (% of SI) SI / Prem (Rs./Re) Claims (% of SI) Claims / Premium Farmers Benefitted (%) Claims / Farmer (Rs.) A.P Assam Bihar Chhattisgarh Goa Gujarat Haryana H.P J & K Jharkhand Karnataka Kerala M.P Maharashtra Meghalaya Orissa Rajasthan Sikkim Neg - Tamilnadu Tripura Uttar Pradesh

28 State Area / Farmer (Ha) Sum Insured (Rs/ha) Premium (% of SI) SI / Prem (Rs./Re) Claims (% of SI) Claims / Premium Farmers Benefitted (%) Claims / Farmer (Rs.) Uttaranchal W.B A&N Neg - Pondicherry Total COMPARATIVE PICTURE OF VARIOUS AGRICULTURAL INSURANCE SCHEMES A brief account of all crop insurance schemes 5 launched in India till date is presented in Table 19. Table 9 : VARIOUS SCHEMES RELATED TO CROP INSURANCE IN INDIA AND THEIR FEATURES Insurance scheme Period Crops covered Farmers covered (Lakh) Amount ( Rs. Crores ) Approach Premium Claim Salient features Crop Insurance Scheme Pilot Crop Insurance Scheme (PCIS) Individual H-4 Cotton, groundnut, wheat, potato Area Cereals, millets, oilseeds, cotton, potato and chick pea Voluntary Implemented in 6 states Confined to loanee farmers, voluntary, 50% subsidy on premium for small and marginal farmers 5 NCAP Working Paper No. 8, Agricultural Insurance In India- Problems and Prospects by S S Raju and Ramesh Chand, March

29 Insurance scheme Period Crops covered Farmers covered (Lakh) Amount ( Rs. Crores ) Approach Premium Claim Salient features Comprehen sive Crop Insurance Scheme (CCIS) Experiment al Crop Insurance Scheme (ECIS) National Agricultural Insurance Scheme (NAIS) Farm Income Insurance Scheme (FIIS) Weather / Rainfall Insurance Area Food grains and oil seeds Area Cereals, pulses and oil seeds Continui ng ( ) Area and Individu al Food grains, oilseeds, annual commercial and horticultura l crops Area Wheat and rice Continui ng Individual Food grains, oilseeds annual commercial and horticultural crops Compulsory for loanee farmers For covering non-loanee small and marginal farmers also in addition to loanee farmers (In lakhs) 3.60 (In lakhs) Available to all farmers. 10 per cent Premium subsidy for small and marginal farmers Insurance against production and market risks. Compulsory for loanee farmers N.A. N.A. Available to all farmers. Based on rainfall received at the IMD / block rain gauges. 143

30 5.5 SHORTCOMINGS OF NAIS Though some of the shortcomings of the CCIS were addressed by enlarging the scope and coverage in terms of crops and farmers covered under NIAS/RKBY, the Scheme could not make much dent and covered less than 10 per cent of the cropped area in the country. The premium rates being charged had no relation with actuarial rates. This is largely because actuarial rates, which reflect the probability of a loss, have not yet been computed. The scheme is not financially viable, as it depends on government for subsidization. The claim premium ratio is still very high. The question is posed that if disaster strikes how the government will manage the claims? Secondly, it is argued that the scheme is not a crop insurance scheme in reality but rather a crop loan insurance scheme. It aims to underwrite agricultural lending and not the agricultural risk. Third, though the area yield approach minimizes or eliminates the problem of moral hazards, another problem closely associated with insurance business, i.e., adverse selection seems to be affecting the existing NIAS/RKBY as indicated by higher claim premium ratio or loss ratio (claims paid as the percentage of sum insured) for non-loanee farmers. Fourth, there is 144

31 inordinate delay in settling the claims in the event of crop failures or low yields. The farmer is hard pressed due to reduced or no access to institutional credit and faces liquidity crunch to begin new operation. Fifth, the government has not explored the avenues for reinsurance to absorb the shocks in case of widespread calamities and disasters. 5.6 AGRICULTURE INSURANCE COMPANY (AIC) OF INDIA LIMITED Prior to General Insurance Corporation of India spearheaded crop insurance programmes. Recognizing the necessity for a focused development of crop insurance programme in the country and an exclusive organization to carry it forward, the Union Finance Minister in his budget speech for 2002 proposed setting up an exclusive organization. A Task Force was constituted to oversee the setting up of the Agriculture Insurance Company of India Limited. The Task force decided that the new company will be named as Agriculture Insurance Company (AIC) of India Limited and will be registered under the companies Act Accordingly, the Agriculture Insurance Company of India Limited came into 145

32 being on December 20, The company has obtained registration from the Insurance Regulatory and Development Authority under the Insurance Act The General Insurance Corporation of India, National Bank for Agriculture and Rural Development (NABARD) and four public sector general insurance companies, viz., (i) National Insurance Company Limited, (ii) The New India Assurance Company Limited, (iii) The Oriental Insurance Company Limited and (iv) United India Insurance Company Limited are the promoters of the new Agriculture Insurance Company. General Insurance Corporation of India has subscribed 35 per cent and NABARD 30 per cent to the paid up capital while four public sector insurance companies have contributed 8.75 per cent each. The authorized capital of the new organization will be Rs. 1,500 crores, while the initial paid-up capital is Rs. 200 crores. The Agriculture Insurance Company of India Ltd is implementing NIAS/RKBY without effecting any change in its content, which was being managed by the General Insurance Corporation of India. However, the existing adhoc premium rates will be substituted by the actuarial rates in due course of time. 146

33 The government plans to shift to an actuarial regime soon. While this will push up premium rates, the approach will be more scientific. The government should subsidize a part of the premium to relieve farmers. A separate agency AIC of India, dedicated to agricultural insurance is expected to work on products suitable to Indian conditions and reduce the subsidy burden on the exchequer. Government support will be necessary, but comprehensive agriculture insurance will go a long way in protecting farmers from uncertainties. AIC of India will devise different insurance products suitable to Indian conditions and offer to farming community in the near future. 5.7 ICICI LOMBARD GENERAL INSURANCE COMPANY LIMITED ICICI Lombard has been a pioneer, in bringing weather insurance solutions to the country s farming community. It was started in 2003 with a small pilot for 230 groundnut and castor farmers in Mahbubnagar (Andhra Pradesh). In the year 2006, the product was offered to a larger geographical area and covered a wide range of crops. In the year, the company insured 1,29,440 farmers and 1,51,866 acres of cropped area of various crops and 147

34 sum insured was Rs crores. The crops, parameters and states covered are, Soyabean -for deficit rainfall in Rajasthan and Madhya Pradesh. Generic product for all field crops - covering deficit rainfall during flowering and vegetative phases, excessive rainfall during maturity and harvesting phases in Andhra Pradesh, Madhya Pradesh, Maharashtra, Jharkhand, Karnataka, Orissa, Rajasthan and Tamilnadu. Grapes - excessive rainfall during fruit bud differentiation, resting storage, fruit setting and ripening & maturity stages, deficit rainfall during resting storage stage, excessively high temperature and high variation in diurnal temperature during berry growth and harvesting stages in Maharashtra and Andhra Pradesh. Paddy - Prolonged dry spell during transplanting and vegetative growth phases, excessive rainfall during maturity and harvesting phases in Punjab. Cumin - High relative humidity for a continuous period of time during the vegetative growth phase. Coriander- covering frost like temperature conditions during sowing and vegetative phases, unseasonal rainfall during the crop maturity phase. Fenugreek-covering excessively high temperature during days with high relative humidity during the crop growth. Kinnu - covering excessively high temperature during the initial growth cycle, deficit rainfall during the 148

35 flowering stage, high temperature during the maturity phase. Oranges - for deficit rainfall, prolonged dry spell during flowering, in Rajasthan. Wheat for high temperature during the heading and flowering stages, unseasonal rainfall during the harvesting phase in Punjab, and Haryana. Cotton - for deficit rainfall during the seed germination phase in Maharashtra. Premium - in the absence of any support, premium rates have varied from 8% to 12%, depending on the crop and weather parameters covered. Claims experience has also varied depending on the degree of loss and deviation of weather parameters, with claims ratio going as high as 1800%, for some crops CONCERNS : High premium Rates: Risk costs for weather insurance are higher, due to extreme variations in weather conditions, year on year. For example, in Rajasthan, every five years, the chances of drought are very high. Hence, insurance companies need to charge risk premium adequately, in order to cover their costs. In the process, if the cost of risk transfer by farmers to insurance companies (through weather insurance), becomes 149

36 higher than the cost of risk-retention; the potential customers may not find weather insurance an attractive proposition. In order to bring down costs and subsequently for the future success of this product, Government needs to provide as much support, as it has been providing for Crop insurance. Unlike crop insurance, weather insurance needs a reference weather station, which provides weather data to settle claims. Till a year ago, the India Meteorological Department (IMD) was the only agency recording weather data, which could be used to settle claims. Weather parameters such as Rainfall is spatially variable, hence, rainfall at a district level need not necessarily reflect the rainfall in all villages in that district. This is also known as Basis risk. However, now National Collateral Management Services Ltd (NCMSL) has entered into installing automated weather stations at any Taluka level, which considerably reduces basis risk. NCMSL has installed 93 such stations spread across various states for ICICI Lombard. 5.8 IFFCO TOKIO GENERAL INSURANCE COMPANY LIMITED 150

37 Barish Bima Yojana (Coverage and claims experience of weather insurance pilots) The product was launched in Kharif 2004 in 9 districts of 4 states-gujarat, Maharashtra, Andhra Pradesh and Karnataka on a pilot basis. Availability of rainfall data and rainfed regions were and are the factors in identifying these districts. Considering the response in Kharif 2004, the Yojna was extended to 100 districts across 7 states for Kharif In Kharif 2006, another 25 districts were added, making a total of 125 districts in the following states - Gujarat, Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh, Chhattisgarh, Tamil Nadu, Punjab, Haryana and Rajasthan. The Claims under this Policy are settled within 3 months of expiry of the policy. This Policy is not linked to the declaration or nondeclaration of drought, by any official agency. The actual yield of crops is not measured, as the insurable event is rainfall deficiency, and not the actual shortfall in the crop yield. Barish Bima Yojana is an index based Insurance product, which provides protection to farmers against deficiency in rainfall. The policy covers shortfall of rainfall based on the variation between the Total Weighted Actual Rainfall (total of specified 4 months of Kharif season June to September or July 151

38 to October) and Total Weighted Normal Rainfall (total of specified 4 months of Kharif season June to September or July to October), of a specified reference weather stations based on rainfall data provided by IMD / centers recognized by IMD. At present the policy is for the Kharif season, and covers practically every crop prevalent in the Kharif season. These include food rains like Paddy, Bajra, Jowar, Maize, Pulses, Groundnut, Sesame, Soya bean, sunflower and other oilseeds. 152