New Delhi: Following concerns that a deficient monsoon would hurt farm production, more farmers are opting for crop insurance in the ongoing kharif (summer crop) season, said a senior official of Agriculture Insurance Co. of India Ltd, or AIC.

Contingency plan: The Met department has downgraded its estimate of rainfall by 3 percentage points, the bleakest forecast in a decade. PTI

The kharif season is one of the two agricultural seasons in India (rabi, or spring harvest, is the other) and coincides with the onset of the monsoon.

“More farmers are buying crop insurance because they fear that low rainfall may lead to a drop in their yield," said K.N. Rao, chief manager with AIC. “Farmers mostly get insured when they go for bank loans but now even those who do not have any loans want to get insured, voluntarily."

Currently, state-owned AIC, with a market share of at least 90%, provides insurance to 20 million farmers in India, out of which one-third are without loans or those who take insurance on a voluntary basis.

AIC offers the National Agriculture Insurance Scheme, or NAIS, a weather-based crop insurance scheme, or WBCIS, and a few of its own crop insurance products to farmers. In 2007, the government also permitted two private insurers, ICICI Lombard General Insurance Co. Ltd and IFFCO-Tokio General Insurance Co. Ltd, to offer weather-based crop insurance.

While NAIS specifically indemnifies a farmer against any shortfall in crop yield, weather-based insurance uses weather parameters as a proxy for crop yields in compensating a farmer.

The weather-based package works by identifying insurable parameters such as average rainfall, temperature and frost for each block of villages. If any one of the insured parameter falls outside a band fixed in the policy, claims for the entire district are automatically triggered.?

Currently, NAIS accounts for 95% of total premium collected by AIC and the rest is shared between WBCIS and other schemes.

The country’s meteorological department in June downgraded its estimate of monsoon rainfall by 3 percentage points—the most bleak monsoon forecast in at least a decade. One basis point is one-hundredth of a percentage point.

The India Meteorological Department said rainfall between July and September is likely to be “below normal" at 93% of the long period average, or LPA (a 50-year average that pegs India’s normal rainfall at 89cm). Crucially, rainfall in July—considered the most important monsoon month—is also expected to be below normal, at only 93% of its LPA (29cm).

Uncertain monsoon and a larger customer base, however, can spell trouble for insurance companies. “We can get a hit this year in claims with uncertain monsoon conditions predicted," said, N.K. Kedia, director, marketing, IFFCO Tokio. The company provides Barish Bima Yojana, in which claims are paid based on data available for the last 50 years. He said that though awareness has increased for crop insurance, impact in terms of sales is still to be seen.

“Under various schemes farmers are signing up to get insurance protection," said another official of AIC. “The larger base can mean more claims if the monsoon (is) going to be below normal. But we have designed our products keeping in mind all such conditions," said the official, on condition of anonymity.

In the last kharif season, out of 13 million farmers covered under NAIS, around 4.1 million claimed benefits. These claims were estimated to be around Rs3,100 crore.