agricorp 2015 “risk mitigation in agriculture”agriconference.bombaychamber.com/files/chandan...
TRANSCRIPT
General Insurance Corporation of India (GIC Re)
Your Partner in Risk
Mumbai 04/11/2015
Conference on
AGRICORP 2015 “Risk Mitigation in Agriculture”
November 3rd & 4th, 2015, Mumbai, India
1
Agriculture Insurance & Policy Intervention for Risk Mitigation
Current Agriculture Insurance System-challenges, innovation and way forward(MNAIS, WBCIS, FARM INCOME INSURANCE SCHEME , capacity Building)
Chandan Verma, Deputy Manager, GIC Re
2
An Overview
• Crop insurance in India – Various Schemes
• Issues for success
• Issues and challenges
• Capacity Building
• Way forward
• First ever scheme on ‘Individual’ approach basis(1972-78)
• Pilot Crop Insurance Scheme –PCIS (1979-1984)
• Comprehensive Crop Insurance Scheme–CCIS(1985-1999)
• Experimental Crop Insurance Scheme –ECIS (1997-98)
• National Agriculture Insurance Scheme – NAIS (1999……)
• Farm Income Insurance Scheme – FIIS (2003-04)
• Weather Based Crop Insurance Scheme - WBCIS (Kharif
2007….)
• Modified NAIS – MNAIS (Rabi 2010……)
• National Crop Insurance Program - NCIP (Rabi 2013……)
Evolution of Crop Insurance in India
National Agriculture Insurance Scheme (NAIS) Broad features
• Introduced in 1999 and presently in operation countrywide • ‘Homogenous Area’ and Yield Guarantee based insurance • Available to all States / Union Territories • Covers all Farmers - Borrowing on compulsory & Non-
borrowing on voluntary basis • Covers Food Crops & Oilseeds (FCO) & Annual Commercial /
Horticultural Crops (ACH) • Sum Insured - Loan amount ; maximum 150% of yield value • Premium - 2.5% to 3.5% during Kharif & 1.5 to 2% during
Rabi for FCO; Actuarial for ACH • Premium subsidy - 10% to Small / Marginal farmers • Claims in excess of 100% for FCO and 150% for ACH - equally
shared by Central Government & States • Covers more than 35 different crops each during Kharif and
Rabi
NAIS Benefits Limitations
Low Start-up cost Subsidized Premium Rate
Coverage No Pre-Sowing & Post Harvesting
Cover No crop cutting experiments for
Horticulture and Vegetables crops Insurance Principles
Adverse Selection Tampered yield Data
Indemnity Delayed Claims Larger Insurance Unit Size
Administrative High Loss Assessment Cost Unplanned claims subsidy
WEATHER BASED
• Government providing support since 2007 • Indemnifies farmers against deemed crop losses due to adverse
weather incidence • Risk based Premium rates with upfront premium subsidy from
government • Pay-outs based on pre-defined triggers on specified weather
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
WBCIS Benefits Limitations
Faster Claim Settlement Higher No. of Benefitted
Farmers Control on Adverse
Selection Good Risk Classification Low Loss Assessment Cost Better Seasonal Discipline
Complexly designed products by some of the States
High Start-up Cost due to installations of weather stations at closer radius
Basis risk - Geographical Product designing
mNAIS • Subsidy in premium & Insurer is responsible for the claim liabilities • 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 partial 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
• Actuarial regime. The mNAIS scheme operates on actuarially sound premium rates
• Up-front premium subsidies. AICI receives premiums (farmer collections + premium subsidies from the government) and is responsible for managing the liability of the mNAIS.
Key risks in the food value chain
Input suppliers (seeds,
fertilisers)
Agricultural production
(farmer)
Inland and international trading and
logistics
Food processing companies
Retailers
Production risk* ✓ ✓✓✓ ✓ ✓ ✓
Operational risk ✓✓ ✓✓✓ ✓✓ ✓✓✓ ✓✓
Market/ price risk ✓✓ ✓✓✓ ✓ ✓✓✓ ✓✓
Financial risk ✓ ✓✓✓ ✓ ✓ ✓
Technology risk ✓✓ ✓✓✓ ✓ ✓✓ ✓
Regulatory risk ✓ ✓✓ ✓ ✓✓ ✓
Infrastructure risk ✓ ✓ ✓ ✓ ✓✓
* Consists of weather risk that affects farmers and natural catastrophe risks that affect the region/country
Consumer
1
Issues for success
• Availability of historical yield
• Development of suitable/sustainable product
• Insurance for at least 400 acres/ village
• Support of Central & State Government
• Local support from Farmer Associations etc
• Interface with Remote Sensing Center / Agricultural
Universities /Colleges
• Awareness on Criticality & Importance of Initiative
12
Issues and Challenges !
• Variability in weather and soil conditions
• Yield variability & uncertainty of crop yields
• Seed sown but not germinated
• Post harvest losses
• Poor quality of monitoring during crop growing season
• Maintenance of weather station
• Non availability of reliable long period data on crop yield
& losses at farm level
• Farmers awareness and capacity building
• Inter-Agency Coordination
• Local officials do not maintain Govt. records about crops
in the field of farmer.
Improving efficiency of Agricultural insurance markets: What potential roles for governments?
Market/regulatory failures Potential public role
Informational asymmetries Enhancing data & information systems
Post-disaster assistance programs
Discipline in post-disaster assistance
Systemic risk Public private catastrophic risk sharing
Limited access to global reinsurance
Public private catastrophic risk sharing
Undeveloped risk market infrastructure
Research & development (products) Enhancing data & information systems
Low awareness Education and capacity building
Regulatory impediments Enabling legal & regulatory framework
Affordability Public premium subsidies
1
Types of government support to agricultural insurance: selected countries
Source: The World Bank Government premium subsidies are very popular in 63% of all surveyed countries, but are available in only 40% of low income countries
Country Forms of Government Financial Support
Year of Inception
Agriculture Insurance POOL
(coinsurers)
Public sector MPCI
insurer
Premium Subsidies
Subsidies on Administrative costs
of crop insurance
Financial Support to R & D and Training
Public Sector Crop Reinsurance
USA 1930’s No No Yes Yes Yes Yes
Canada 1970’s No Yes Yes Yes Yes Yes
Spain 1980 Yes No Yes No No Yes
Portugal 1979 No No Yes No No Yes
Italy 1970’s No No Yes No No No
France 2005 No No Yes No No No
Turkey 2005 Yes No Yes No No No
India 1985 No Yes Yes Yes No Yes
Philippines 1980 No Yes Yes Yes No No
S. Korea 2001 Yes No Yes Yes No Yes
China 1950’s Yes No Yes Yes No Yes
Brazil 1950’s No Yes Yes Yes No Yes
Mexico 1990 No No Yes No Yes Yes
Chile 2000 No No Yes No Yes No
Colombia 2000 No No Yes No No No
1
Agriculture Reinsurance
• Access to additional risk capital & capacity
• Helps to reduce volatility in results
• Without reinsurance, insurers may not be able to meet the demand for agriculture insurance
• Ensure Diversity of portfolio, geo-spread,
• Transfer of Catastrophic risks internationally
• Adequacy of Retro protection
• Earn optimally on Investments to ensure the asset –liability perfect match
• Role for Governments as Reinsurers of last resort and by way of premium and claim subsidies to make agriculture insurance viable
GIC Re’s Role in Agriculture Insurance/Reinsurance
• GIC Re was the Implementing Agency for various Government-sponsored crop insurance schemes in India from 1972 to 2004
• GIC Re is founder-promoter of the Agriculture Insurance Company of India (AICIL) with majority equity of 35%
• GIC Re has a specialist team for Agriculture Reinsurance • Started underwriting Agriculture Reinsurance from 2004. • GIC Re’s Agri Reinsurance premium grew from INR10 million in
2005 to INR 640 crores in 2014-15 • GIC Re receives 5% obligatory cessions from Indian insurers as per
regulatory norms including Agri insurance • GIC Re provides reinsurance to private insurers in India, apart from
AICIL, for their weather index based crop insurance products and insurance of commercial crops.
• GIC Re also accepts foreign inward & domestic Agriculture business.
The way forward…
• Address the two core risks • the weather based perils (droughts, floods, unseasonal rains, hails, etc)
• market based price risk.
• State support is a must. Subsidy could go up to an estimated 75% of total
premium amount.
• Extensive use of technology to Scale up and speedy delivery of insurance.
• More automatic weather stations to be installed
• Emphasis on physical infrastructure for assessing crop damages.
• Use of handheld devices to verify coordinates
• Use of drones and satellite imagery for damage assessment
• Digitisation of land records
• Using bank accounts infrastructure for direct benefit transfers.
• Innovations like use of prepaid cards, especially for non loanees farmers
• More accountable public & private sector participation could also be encouraged.
• Awareness among farming community
• Agriculture reinsurance pool may be formed for innovation, technical support &
as capacity provider
22
Innovation &
Product design
Public Support
High Value Service
Insurance Penetration Use of
Technology
Way Forward: to improve margins and increase stability
Transparency &
alignment of interest
Improve margins
Increase Stability
23