The Role of Private Sector in Agriculture Insurance


With the opening up of insurance sector in 2000, the scenario of insurance industry has taken a dramatic turn. There exists a vast potential in rural and semi urban, particularly in agriculture where benefit of insurance is highly-solicited but not reached.

It is to be mentioned that despite regulatory requirements, companies are not taking much initiatives to spread their reach in rural sector.

Most of their initiatives are just to fulfill the regulatory requirements of IRDA. One of the prominent features of rural sector is that of strong saving habits, and hence providing a huge potential to various industries including insurance. But lack of cost effective service delivery model and perception of huge investments in the sector deters them to exploit the opportunities.


Role of private sector in agriculture insurance had been limited to certain index based weather schemes. It started in year 2003 when ICICI Lombard, a private general insurance company, started its pilot program on rainfall insurance to protect the farmers of specified crop against deviation in rainfall.

Since it was a pilot approach, the numbers were limited. Following the path, during Kharif 2004, IFFCO-Tokyo General Insurance, another private general insurance company, launched its own variant of index based rainfall insurance program during karif season, initially in four states and as on date in ten states.

Having learnt valuable lessons from such enterprises, pilots are now being done on protection from weather vagaries occurring during Rabi crops.

Private weather insurance products have been gaining momentum in agricultural market. Some of the prominent features of these products are:


i. Point of sale policy insurance – receipt cum policy,

ii. Policy and promotion in vernacular language,

iii. Revision of policy every year based on past data / experiences,

iv. Local IMD weather station to be considered as reference stations.


Issues with private weather insurance schemes which curtail expansion in wider geographical areas are as:

i. Service and claims issues,

ii. Price not affordable,

iii. Farmers perceiving insurance as investment with sure returns instead of risk mitigation tool,


iv. Absence of relevant weather data,

v. Absence of government infrastructure in setting up weather stations to be used as reference weather stations,

vi. Misappropriate data correlation with risk occurrence,

vii. Small Holding size and wide variety of agricultural practices,


viii. Moral hazards.

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