New Delhi / Chandigarh: A year after the government launched a new crop insurance scheme that makes payouts based on objective criteria, it has found few takers in agriculturally advanced states such as Punjab, Haryana and Uttar Pradesh because it has a better risk-assessment system that could result in fewer claims being paid out.
The scheme, the weather-based crop insurance scheme, or WBCIS, would have also reduced the government’s subsidy on crop insurance.
Punjab, Haryana and Uttar Pradesh account for almost 40% of India’s foodgrain yield.
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WBCIS was first tried out in 2003 but it was rolled out in scale last year. In these three states, however, farmers preferred to stay with the older National Agriculture Insurance Scheme, or NAIS, because it is a more “general” policy that measures risks at a very generic level. The state-owned Agriculture Insurance Company, or AIC, offers both schemes to farmers. Last year, the government also permitted two private insurers, ICICI Lombard General Insurance Co. Ltd and Iffco Tokio General Insurance Co. Ltd, to offer weather-based insurance.
The government is keen to push the new insurance scheme: it is more sophisticated; offers protection against unexpected weather phenomena; and reduces its own subsidy payout by bringing the premium-to-claims ratio on agricultural insurance policies to a more manageable level. In the case of NAIS, the claims paid out every year are, on average, around three to four times the premium paid.
One reason for this is the flat premium rates administered by AIC. In 2007-08, around 18 million farmers took out policies under NAIS and paid gross premiums of approximately Rs675 crore. The claims for the year are expected to be about Rs1,800 crore. The premium for 2006-07 was Rs610 crore, and the claims, Rs2,275 crore.
WBCIS will reduce the government’s subsidy payout because the government only pays for a part of the premium. Under the old scheme, the government subsidized the claims on AIC. In the case of the private companies offering policies under WBCIS, the subsidy on the premium is at the discretion of the government.
Last year, the government gave out a subsidy of Rs103 crore under WBCIS. Under NAIS, the corresponding amount was Rs1,600 crore.
HOW THEY STACK UP? (Graphic)
The weather-based package works by identifying insurable parameters such as average rainfall, temperature and frost for each block of villages. And similar to NAIS, all the farmers in the block have to buy the product. If any one of the insured parameter falls outside a band fixed in the policy, claims for the entire district are automatically triggered.?Since there is a clear method to determine the liability, the payout of claims is considered “objective and transparent”. The scheme has, for a host of reasons, has however failed to find traction.
Manpreet Singh Badal, Punjab’s finance minister said the new scheme is not suitable for agriculturally progressive states like his own. “The spectre of complete crop failure is rare in Punjab. Even if there are no rains, assured irrigation implies that there shall never be a complete crop failure,” said P.S. Rangi of the Punjab State Farmers Commission.
Some experts say a hybrid scheme would work better.
“AIC strongly feels that the positive features of weather insurance could be fused with NAIS to create a better insurance product, which may offer the best of both weather insurance and NAIS. For instance, to tackle delayed payments under NAIS one can allow initial payment to farmers based on weather index, which can later be adjusted against payments worked out based on yield estimates,” said K.N. Rao, head of product development of AIC.
This year, of the 15 states where it wanted to sell the product, AIC has managed to secure the approval of the local government to market WBCIS in nine states: Bihar, Haryana, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra, Orissa, Punjab and Rajasthan. ICICI Lombard is marketing the product in eight states. “Few states such as Rajasthan, Jharkand, Tamil Nadu are very supportive of the concept,” said Pranav Prashad, head rural and agriculture business group of ICICI Lombard General Insurance Co. Ltd.