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Weather based crop insurance, training given to the Trainer of Trainers at Lam Farm, Guntur
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Insurance
Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment.
Individual entities can also self-insure through saving money for possible future losses
Floods
Drought
The Insurance Industry
The Insurance Industry
Drought
Flood
Extreme Rainfall
Storm
High Winds
Cold/Snow/Ice
Heat/SunFuel/Transport
Energy
Carb
on/G
reen
hous
e G
as e
mis
sion
s
Biod
iver
sity
Clea
n Ai
r/Po
lluta
nts
Serv
ice d
eliv
ery
Insu
rance
Financia
l
Legal
Market changes/demands for services
People/health & Social care
Procurement
Planning
Water
Environmental Risks
Waste
Risk reduction measures Drawing on accumulated savings of liquid assets (e.g.
cash, bank account balances etc.). Selling other assets (e.g. jewelry, land, livestock etc.). Borrowing from moneylenders, microfinance institutions
(MFIs), banks or other financial institutions. Informal risk-sharing arrangements with neighbors,
friends, family etc. (For example, if the household suffers an adverse shock, there may be an increase in remittance income sent by family members living abroad, or financial assistance provided by other households living in the same village, at least to the extent that those households are not also affected by the same shock).
Government assistance (e.g. government work programs, drought assistance programs etc.).
Formal insurance arrangements
Understanding
Natural catastrophes, especially weather related events, are increasing in number and magnitude especially in Asia.
There is more and more scientific evidence for causal links between climate change and increasing frequencies and intensities of natural catastrophes.
Global warming is real.
We have to mitigate global warming and adapt to the changing risks in respect to the regionally specific risk patterns.
In Copenhagen ambitious CO2-reduction targets should be fixed to avoid dangerous, unmanageable climate change.
The insurance industry supports climate change mitigation and adaptation measures by sharing its knowledge with the public and providing custom made covers for innovative technologies.
The Copenhagen outcome should provide adaptation funds for developing and emerging countries, including new insurance solutions.
India is considered to be the second most disaster-prone country in the world.
With a large and growing population, densely populated and low-lying coastline and an economy that is closely tied to its natural resource base, India is highly vulnerable to climate change.
Disaster insurance cover, however, is low compared to international standards and plays only a complementary role. Disaster risk management, including financing relief and reconstruction, is primarily the responsibility of governments, which provide actual assistance, or communities through informal risk sharing.
Frequently governments and communities do not have sufficient resources, and households lacking insurance typically turn to moneylenders, selling assets, reducing inputs in farming, or diversifying their activities. Another strategy is to send family members to work elsewhere and remit payments.
Low insurance penetration in India can be traced to a number of demand and supply side factors. On the demand side, the foremost difficulty is the unaffordability of insurance for low-income high-risk regions. Other hurdles include public myopia and low awareness among the public about insurance and risk management.
The experience of major insurance companies shows that following a major catastrophe there is a rush for insurance cover, particularly for life and assets. But this interest is short lived, and in a majority of cases these policies are not renewed. Finally, large sections of the Indian economy operate outside the formal economy – not just small businesses, but also housing.
On the supply side, easy access to insurance products is still an issue. The problem of scaling up small-scale schemes to encompass large rural areas is the biggest hurdle in enhancing overall penetration rates.
The poor in many rural areas have higher disaster risk exposure and also suffer more vis-à-vis their urban counterparts (World Bank, 2003).
More specifically, their vulnerability to climate- change risks is increased on two counts: their inability and/or unwillingness to involve in high-risk activities (for instance growing cash crops) that promise higher returns, and their inability to reside in disaster safe locations.
Article 4.8 of the United Nations Framework Convention on Climate Change (UNFCCC) and the supporting Article 3.14 of the Kyoto Protocol call upon developed countries to consider actions, including insurance, to meet the specific needs and concerns of developing countries in adapting to climate change.
Communities at risk, governments, international organizations, industry, and NGOs worldwide are seeking solutions for preventing and adapting to the rapidly multiplying impacts of climate change and weather-related disasters.
The Munich Climate Insurance Initiative (MCII) was formed in 2005 by NGOs insurers and reinsurers, climate-change experts and policy researchers to provide a forum for examining insurance-related options that assist with adaptation to the risks posed by climate change.
www.slf.ch/drf and www.iiasa.ac.at/Research/RMS.
Main characteristics of an index
Observable and easily measured Objective Transparent Independently verifiable Able to be reported in a timely manner Stable and sustainable over time
Weather indexes can form the basis of an insurance contract that protects farmers from weather risk
0% 20% 40% 60%
Drought
Crop Failure
Crop Disease
Drop in crop prices
Bad investment
0% 10% 20% 30%
Wait for rain before sow
Seek non-farm w ork
Sow less
Sow substitute crops
Don't sow (fallow )
Weighted self-reports:“What are the major sources of risk faced by your household?
Weighted self-reports:“If it does not rain, what do you do?”
0% 10% 20% 30% 40% 50%
Security/risk reduction
Need harvest income
Advice from progressive farmers
High payout
Trusted farmers bought
Reasons for purchasing insurance | meeting participation
0% 10% 20% 30%
Do not understand product
No cash/credit to pay premium
Rain gauge too far aw ay
Too expensive
No castor, groundnut
Reasons for not purchasing insurance | meeting participation
Formal Responses
GOVT CROP INSURANCE WEATHER INSURANCE
Adverse Selection and moral hazard
YES NO
Transparency LOW HIGH
Premium Highly Subsidized Market rate
Linked to credit? YES NO
Basis Risk LOW MEDIUM
Administration Costs
HIGH LOW
Claim Settlement Between 6 to 24 months Less than 30 days
AGRICULTURE – Weather Based Crop Insurance Scheme (WBCIS) – Kharif2013 – Notification for Groundnut, Cotton, Red Chilly, Oil Palm, Sweet Lime and Tomato Crops in certain Districts for implementation of the Scheme - Orders – Issued.
AGRICULTURE & CO-OPERATION (FP.II.) DEPARTMENT
G.O.Rt.No. 768 Dated :21.05.2013.
Weather Based Crop Insurance Scheme (WBCIS) – ANDHRA PRADESH
1. CROPS NOTIFIED: (include both irrigated and Un-irrigated)
4. CULTIVATORS ELIGIBLE FOR COVERAGE:
All the cultivators (including sharecroppers and tenant cultivators) growing the Notified Crops either Irrigated or Unirrigated in any of the Reference Unit Areas shall be eligible for
coverage. The Scheme shall be: Compulsory: For all LOANEE APPLICANT CULTIVATORS i.e. those
who have Sanctioned Credit Limit from Financial Institutions (Co.op Banks,
Commercial Banks including private commercial Banks, RRB’s etc.,) for the Notified
Crops in a Reference Unit Area. Voluntary: For NON-LOANEE CULTIVATORS i.e. those who do not
have Sanctioned Credit Limit from any Financial Institution for the Notified Crops in a
Reference Unit Area.
High Probability, Low Consequence Risks Vs. Low Probability, High Consequence Risks
High probability
Low Consequence
Reduced yields
The producers generally perceive this as their risk
Normal weatherLow probability
High Consequence
Extremely low yields
Low probability
High Consequence
Extremely low yields
Extreme weather events (excess rainfall or flood)
Extreme weather events (droughts)
The cropping calendar
*Maize yields are particularly sensitive to rainfall during the tasseling stage and the yield formation stage – rainfall during the latter phase determines the size of the maize grain
Diagram taken from the FAO’s maize water requirement report*
Sowing and establishment period is also critical crop survival
• A rainfall index is normally split into 3 or more crop growth phases
• Objective: maximise the correlation between index and loss of crop yield
Other Models
Flood insurance concept
Design a flood index which can proxy losses caused to crop Rice is the strategic crop most exposed to flood Flood impact is dependent on variety, time of
occurrence, depth, speed and duration of flood water
Harness technology to support insurance underwriting and operations
2 key components for index design phase Flood modelling (FM) Agro meteorological modelling (AMM)
2 key components for operational phase Geographical information system Earth Observation (EO)
Pasak
River
LA4
LA2
LA3
LA1
LA5
“High Risk” Pricing Zone“Medium Risk” Pricing Zone
“Low Risk” Pricing Zone
Summary: Combining the Technology Components
FM + AMM Design a flood index that proxies crop loss
FM+EO+GIS
Define flood risk zones and pricing the contract
EO+ GIS Loss adjustment for payout determination according to the index
FM: flood modelling. AMM: Agro-meteorological modelling. EO: Earth observation. GIS: Geographical Information System.
ICICI LOMBARD / BASIX INSURANCE
Designed by ICICI Lombard, sold to farmers by BASIX, a microfinance institution (MFI).
Goal: Insure against deficient rainfall during primary monsoon season (~ June - September).
Rain gauges report daily rain at the mandal (county) level. Payout promised <30 days of verification of rainfall data. Survey villages average 10.6km (6.6 miles) from gauge.
Contract divides monsoon into three phases: (i) sowing; (ii) podding; (iii) harvesting Phase payout based on rainfall relative to trigger level.
Includes payouts for excessive rain during harvest.
Predictions about Takeup Patterns
Other predictions outside formal model: Product is new, and may not be well
understood by farmers. Suggests insurance takeup may be: higher for households who trust the insurance
provider (BASIX), such as current customers. higher for households with lower cost of
understanding, experimenting with product: younger, more educated households. ‘early adopters’: members of local council, and self
identified progressive households. Informally, have in mind a model of limited
cognition or limited information.
Weather index insurance - summary
The product is simple and weather measurements can be understood by farmers
Basis risk can be reduced by increasing the density of low cost weather stations
Low cost of distribution and loss adjustment Less specialist knowledge needed to
underwrite the product The product is suited for catastrophe hazards The product is highly flexible and can
multiply in the insurance market Reinsurers are interested to accept the risk
THANK YOU
Ref: http://.......