Getting farmers insured: Progress and gaps

Pramod AggarwalCGIAR Program on Climate Change, Agriculture, and Food Security BISA, CIMMYT, New Delhi, India

Number of people affected by weather-related disasters (1995-2015)

Source: The human cost of weather-related disasters:1995-2015. CRED and UNISDR, 2016

Natural disasters are increasing with time

Peter Hoeppe, 2016

Number of weather-related disasters reported per country (1905-2015)

Source: The human cost of weather-related disasters:1995-2015. CRED and UNISDR, 2016

This has led to a large interest in crop insurance: Share of agricultural premium by region

Progress in Crop Insurance in India

80% farmers still uninsured

Yield (NAIS) and weather (WBCIS) index schemes since 1985; Govt subsidy linked to credit

Yet all stakeholders dissatisfied. Why?

• All farmers: Governance, institutions, insurance literacy

• WBCIS farmers: weather variability- limited density of weather stations; design of products, no coverage of hailstorms, floods, post-harvest rains

• NAIS farmers: Crop-cutting limited and not scientific , compensation delayed and inadequate

• Industry: Frequent government intervention, smallholdings, scattered, remote, transaction costs

• Government: subsidy, agrarian distress increasing

• Farmers satisfaction index-payment when due and in right amount

• Industry: 70-80 % claim ratio• Government: Premium subsidy not to increase

Improved triggers for weather insurance: win-win products for farmers, industry and government

InfoCrop

DSSAT Statistical model-3

Statistical model-4

Statistical model-2

Stataistical model-1

Crop-weather historical data

Triggers for insurance product

Triggers for insurance product

Triggers for insurance product

Triggers for insurance product

Optimization of triggers, farmers satisfaction, premiums and claim ratiosFinal insurance product with highest farmers satisfaction, optimal claims ratio, and premium

Improved triggers for weather insurance: win-win products for farmers, industry and government (work done in collaboration with AIC, Aon Benfield and Govt of Maharashtra

Term-sheet I II III IV0 29.8 3.1 -0.40 0.0 58.3 -16.50 20.0 6.7 7.70 0.0 0.0 0.00 0.0 -43.3 0.00 0.0 0.0 0.0

Farmer Satisfaction

Proposed contract

Existing Contract Satisfaction Index-farmer Proposed Contract0

1

2

3

4

5

6

7

0

10

20

30

40

50

60

70

80

90

100Satisfaction Index Claim ratio claim frequency, %

Satis

fact

ion

Inde

x, C

laim

s ra

tio

Cla

im fr

eque

ncy,

%

Revised deficit rainfall triggers,

change over existing contract

Farmer’s satisfaction with rainfall indices: Example from Maharashtra

Paddy Pearl Millet Cotton Soybean0

1

2

3

4

5

6

7

Current Index New Index

Farm

er's

Sat

isfa

ctio

n In

dex

Research outcome of this initiative

• More than a million farmers using this product in one season in 2015 in Maharashtra state - chronic problems of climatic risks

• Continuous engagement with industry and government in model development and evaluation

New crop insurance scheme in 2016

Protection against all

risks including localized

ones

Area (village) approach

All food and commercial

crops

Farmers’ contribution to premium significantly

reduced

No capping of premium

PPP model- many private

insurance companies

Use of mobiles and

satellite data for quick

estimation of losses

Target to cover 50% farmers by

2018

Prime Minister’s Crop Insurance Scheme (PMFBY)

Research gaps to support this scheme

1. Yield index Identification of

vulnerable areas for targeting crop insurance

Smart sampling design Dispute resolution

2. Loss assessment including mid-season

3. Weather-based index design

Assimilating remote sensing in crop models

NDVI at maximum crop growth stage in Vidharbha

Area-yield index: Yield loss assessment at village/farmer scale

• High resolution, farmer specific schemes- VIs, satellite weather, crop models, crowd-sourced info

• Engaging farming communities in monitoring, reporting and verification of crop insurance

• Bundling with disaster relief/ management

• Bundling with other risk management initiatives such as drought/flood tolerant varieties, water management- climate smart villages

Next steps for scaling out crop insuranceProducts for comprehensive risk management

Climate-Smart Village components (www.ccafs.cgiar.org)

Is insurance contributing to agricultural development? Effects of rainfall insurance on agricultural investments (amount used)*

Fertilizer Seeds Pesticides Bullock Hired labor Credit for inputs

0%

20%

40%

60%

80%

100%

120%

50%41%

32%23%

35%26%

36%43%

41%48%

42%52%

14% 16%27% 29% 23% 22%

More No change Less

Perc

ent f

arm

ers

*Work done at Andhra Pradesh, India by Cole et al. 2014

Technology may not be the key constraint in scaling out insuranceTop 10 reasons for dissatisfaction in unsatisfied farmers*

Types of Risks Covered Period of Risk Coverage

Time Delay in Claim Settlement

Explanation on WBCIS Policy

Quantum of Sum Assured Responsiveness of Intermediary

Resolution of Queries

Mechanisms for Grievance Redress

Convenience in Enrollment

Location of Weather Station

0

40

8026.829.8

33.8

37.344.3

45.353.356.5

56.5

80.8

*Source: AFC, GOI, 2011