Crop insurance is a part of agriculture insurance (Detail information)

Crop insurance is a part of agriculture insurance. It has included the risks of weather, yield and so on.

Weather Insurance:

Weather insurance is part of crop insurance which started since Kharif 2003 season through BASIX, a micro-finance institution. Agriculture Insurance Company of India Limited (AIC), a government entity is created to ensure agriculture risks.

ICIC1 Lombard General Insurance Company and IFFCO. Tokyo General Insurance Company have been piloting weather based crop insurance. Farmers have not responded positively because of unaffordable premium rates and lack of subsidies from the Government, technical challenges, unrealistic expectations, poor communication and lack of clarity AIC has been running a pilot weather insurance scheme since Kharif 2004.

It has started weather based crop insurance scheme during Kharif 2007 in Karnataka. AIC designed the weather indices using weather parameters us unseasonal rains, frost heat relative humidity and technical inputs from the apex scientific institutions in designing the customised insurance product for Rabi 2007-08 season.

Weather insurance seems to score better when it causes to data accuracy, transparency and quick settlement of payouts.

Weather based crop insurance program and the challenges are designing a proxy weather index with predictive capability to realistically measure crop losses and is closer to the indemnity principle and the basis risk.

A good insurance product should be able ensure either no claim if the crop is good or high claim of the crop is poor.

Role of Weather Insurance :

Weather insurance has a role to play, particularly, as complimentary to the existing area yield crop insurance weather insurance is the solution for the areas where yield data are not available.

Weather index is used to make early payments under area yield crop insurance. It is also used to design double trigger insurance products. Triggers are weather index and area yield estimate.

Weather insurance is designed for micro level insurance products. It is an ideal tool for protecting a large port- folio at District/Regional/State level against droughts or floods.

Weather, insurance produce design is to taken to minimise to basis risk creating realistic and appropriate communication, adopting reliable and sustainable pricing and product servicing.

Yield Insurance:

Yield insurance covers the loss of Hurricane, Tornado, Flood, Inundation and Landslide, Drought, Dry Spells, Pests and diseases. Yield based crop insurance covers Food Crops, Cereals, Millets and Pulses, Oilseeds and Animal Crops, Commercial Crops and Horticultural Crops.

It operates on ‘Area Approach’. Individual assessment of losses is also being implemented on experimental basis. The size of area is Block/Mandal/ Nyaya Panchayat/Gram Panchayat. Village may be area for selected crops.

Sum Assured:

The amount of crop loan is the minimum sum assured which is on compulsory basis. Additional coverage upto 150% value of average yield by paying premium at actuarial rate. For the non-loaned farmers, the coverage is available at normal flat rates of premium for the value of normal coverage of yield.

The value of sum assured is arrived at by multiplying the thresh hold yield/ average yield with the latest available Minimum Support Price (MSP) announced by the Government or the market price is MSP is not announced.

Premium:

The premium at actuarial rate as (AIC) communicated by Agriculture Insurance Company of India Ltd. (AIC) is generally 3.5% of Sum Insured for beggar and oilseeds, 2.5% for other food crops, 1.5% for wheat and 2% for other food crops. The premium for small and marginal farmers is subsidised to the extent of 10% which is shared by the State Government and Government of India.

Settlement of claims:

Claim is a Notified Area, automatically payable if these is a shortfall in (NFA) become yield, i.e., current season’s yield is less than the guaranteed yield. The shortfall is converter into claims by multiplying the percentage shortfall with sum insured.

The guaranteed yield or Threshold Yield (TY) for a crop in an insurance unit based on moving average of the preceding 3/ 5 years multiplied by the indemnity level, i.e., 90% or 80% or 60% depending upon the variability in the yield of the crop.