Cyclone Phailin: Insurance firms may pay `1,500 cr for crop losses

Kolkata: Cyclone Phailin, the most powerful tropical storm to hit India in 14 years, may trigger insurance payouts of as much as 1,500 crore because of losses in crop production even though the storm killed far fewer people than the super cyclone in 1999.

Though the super cyclone had claimed close to 10,000 lives, India’s lone crop insurer at that time had to pay only ₹ 66 crore for losses. Going by insurance claims, it affected only three districts of Odisha—Jagatsinghpur, Kendrapara and Cuttack, whereas this time at least six districts of the state were badly affected.

Odisha has estimated its crop losses because of Cyclone Phailin at around ₹ 2,500 crore. Estimates for crop losses in Andhra Pradesh, the other state immediately affected by the cyclone’s landfall, aren’t immediately available.

Major crops destroyed were rice, banana, groundnut, maize, jute, turmeric and ginger. The heavy rain that followed the cyclone affected crops more than the cyclone itself, which claimed at least 23 lives.

Compared with 1999, the huge claim likely this year shows farmers were better covered for crop damage, said insurers. Fourteen years ago, only about 214,000 farmers in the affected districts of Odisha were covered, and they received a compensation of ₹ 66 crore. The biggest ever crop insurance claim came from drought-affected Gujarat last year, resulting in a payout of around ₹ 3,400 crore.

Crops worth only ₹ 255.66 crore were insured when the cyclone of 1999 hit Odisha, but this year crops worth ₹ 3,500 crore were covered. Only around 460,000 farmers in the state were covered 14 years ago compared with 1.6 million this year, according to Choudhury B.N. Praharaj, regional manager at the Odisha branch of Agriculture Insurance Co. of India Ltd (AIC).

Allowing private companies to provide cover to farmers and introduction of schemes under which insurers can assess risk and determine premium on their own have resulted in better protection against natural calamities, said Mukesh Kumar, head of strategy, planning, marketing and human resource at HDFC ERGO General Insurance Co. Ltd. That apart, crop insurance has now been made mandatory for farmers who take bank loans.

Earlier, when the government used to determine the premium for crop cover, benefits were limited. But slowly, schemes that allow insurers to determine premium based on their own risk perceptions are being rolling out.

Claims under such new schemes are expected to increase to ₹ 600 crore from four districts of Odisha where they were available, according to Sonu Agrawal, managing director of Weather Risk Management Services Ltd, a climate-risk consulting firm incubated at the Indian Institute of Technology Kanpur.

Substantial claims are also expected from Bihar, which received excessive rainfall following the cyclone, said Agarwal. Farmers from Bihar could be claiming as much as ₹ 500 crore, according to him, followed by those from Jharkhand ( ₹ 30 crore) and Chhattisgarh ( ₹ 10 crore).

Claim from Srikakulam district in northern Andhra Pradesh is expected to be around ₹ 25 crore, Agarwal added.

AIC, according to Praharaj, expects to receive claims for at least ₹ 520 crore from Odisha alone. Two other private insurers—HDFC ERGO and ICICI Lombard General Insurance Co. Ltd—sell crop cover in the state.