I was thinking about how since the time I got involved in crop insurance, I have seen it change as the scheme moved from strength to strength and thought of writing an article on the same. It all started in the year 2007 when I had brief exposure to weather-based Insurance at IFFCO – Tokio in Madhya Pradesh as the Regional Head there. Most of it was collectedfrom individual insured and was settled based on IMD-based weather insurance. The premium collection was a major challenge for us as we used the channels like district cooperative banks, who were our business partners.As I moved back to Delhi with IFFCO- Tokio in 2008, this brief experience was temporarily curtailed.
Cut to 2014, and at Universal Sompo, a decision at the highest level was taken that we will empanel our company as a partner in the crop insurance scheme and offer crop insurance with the Ministry of Agriculture through various states based on the tender. The Ministry of Agriculture, based on the presentation and our inclination to participate in crop insurance, considered us for empanelment. They had empanelled certain insurance companies earlier and USGI joined that list. Agriculture Insurance Corporation(AIC) has been a master at crop insurance since then, but the other Government companies were not implementing crop insurance at this point.
From there, I have witnessed the crop insurance’s transition from mNAISto Pradhan Mantri Fasal Bima Yojana(PMFBY) in 2016, further revisions, improvement in the form of revamping the operational guidelines and other changes till date. As a part of the reinsurance programs, as an implementer of the scheme in various states of the country, as a committee member of various committees with the administrators, as a stakeholder of the scheme, as a service provider towards enrollment of farmers or co-observing the yield estimation or attending to the individual farmer losses,looking back I have acted in many roles in crop insurance. This realization aroused in me a desire to read and further understand crop insurance’s journey in our country.
Crop Insurance is based on statistical tools, administration machinery down to the grass root level, technology, satellite imagery services, insurance intellect and many other highly specialized expertise being used in crop insurance in the country making it more effective and the largest crop scheme in the world in terms of farmers enrollment, having millions of applications every year and amongst the top 3 in terms of premium received.
Crop insurance in India date back to the early 70s. The crop insurance was introduced in 1972-73 to provide insurance coverage to farmers on individual approach basis. Later it was changed to area approach in 1979 as Pilot Crop Insurance Scheme. In 1985, the Comprehensive Crop Insurance Scheme (CCIS) was launched, which aimed to provide additional coverage to farmers against pests and disease risks. It was further expanded to be more comprehensive and was known as National Agricultural Insurance Scheme (NAIS) in 1999. It was implemented by most of States for more than a decade till 2010. To make the scheme more effective and efficient, the Modified National Agricultural Insurance Scheme (MNAIS) has been introduced in 2010 to address the shortcomings of the NAIS. The MNAIS aimed to provide comprehensive insurance coverage to farmers against all types of risks.
In 2016, the Government of India introduced the Pradhan Mantri Fasal Bima Yojana (PMFBY), the aim of which was to provide affordable crop insurance coverage to farmers. Whereas this scheme was also on “Area Approach” basis, herein the coverage has been introduced to cover the individual farmers’ loss also, though only for limited perils like inundation and hailstorms. This has been a turning point for crop insurance in the country. In the last FY 2022-23, the total premium of the General Insurance Industry has been INR 2.5 Lac Crore and Crop Insurance premium touched INR 35,000 Crores; i.e. 14% of the General Insurance Industry. The current focus of the Department of Finance and IRDAI to increase the insurance penetration manifold in the country, rural insurance certainly has to play an important role, given the fact that the Indian economy is an agrarian economy.
Under the PMFBY scheme, the premium rates are also the actuarial premium rates, wherein the insurers bid in the States’ tenders. The farmers are required to pay a nominal premium of 2% of the sum insured for Kharif crops, 1.5% for Rabi crops, and 5% for commercial & horticultural crops. The remaining amount of the premium is paid by the State and Central Governments in their given proportions as subsidy.
Such a huge scheme, with so many agricultural diversities in the country to be covered, huge number of people working for its success, the job of the Department of Agriculture is commendable in terms of the spread & control over the scheme in differently led states, the robust software system NCIP to cater the needs of enrollment of farmers in each season through Banks, CSC, intermediaries and even directly from farmers. The recent development of having all the claims to be disbursed through the NCIP is a great achievement of the Department.
Overall, the PMFBY has been instrumental in providing much-needed financial security to farmers in India. The scheme has covered millions of farmers across the country and has been praised for its transparency and effectiveness. However, concerns have been raised about the scheme’s implementation, including delays in claims settlement and the exclusion of some farmers from the scheme’s benefits. Nevertheless, the government is continuously working to improve the scheme’s effectiveness and ensure that farmers can access affordable and comprehensive insurance coverage.
The major attraction of the PMFBY was the assessment of losses (of certain perils) on an individual basis, whenever required. And with the passage of time, there is a significant increase in the number of claim intimations from the farmers in the categories of Localized Calamity and Post Harvest claims. The surge in these loss intimations is a sign that the farmers’ community is getting educated day-by-day about the scheme and its benefits to them. The losses due to changing weather pattern are very well covered by this aspect of the scheme.
Going forward, if any scheme (insurance or otherwise) is to be improved and free from all biases, it has to enhance the usage of technology in it, without fail. The PMFBY scheme also introduced new technologies, such as remote sensing and drones, to assess crop damage accurately. The vision of the Agriculture Ministry is to assess more than 50% of the cropped area by 2023 through technology, without the intervention of ground-level teams. Further, with the introduction of Yes-Tech governed by the MNCFC in Maharashtra state, the usage of technology is being introduced in a planned and phased manner. Many models viz. semi-physical models, AI models, crop simulation models, and ensembled models are being used for the same. Initially, 10% weightage is given to the Yes-Tech in the yield estimation, which will gradually be increased.
Overall, crop insurance has played a crucial role in supporting Indian farmers against crop losses and other related risks. The government has taken various measures to improve the effectiveness of these schemes and ensure that farmers can access affordable and comprehensive insurance coverage.
Where the government-sponsored/subsidised scheme PMFBY, covering the shortfall in yield, is an area-approach scheme and majorly based upon the yield estimation; the insurers are coming up with new solutions to cover the left-out crops, majorly in horticulture. There are many avenues for the insurers to cover on a parametric basis. Even for parameters, there is a shift being implemented by the insurers i.e. from the traditional weather station data to satellite imagery based gridded data. Parametric insurance works on pre-defined events or triggers, such as natural disasters or adverse weather conditions. Unlike traditional insurance policies, which reimburse the policyholder based on the survey outcome of the losses, parametric insurance pays out a fixed amount in the event of a breach of the trigger points for weather parameters like rain, temperature, humidity, and so on.
Parametric insurance policies use pre-defined parameters or triggers, such as rainfall levels or humidity, to determine the claim payout amount. The pay-out is triggered automatically when the pre-defined parameters are met, without requiring the policyholder to submit any claims or undergo lengthy claims assessments.
The Government of India is covering certain crops in another scheme called RWBCIS i.e. Restructure Weather-based Crop Insurance Scheme. It’s majorly used to cover the horticulture crops in various states.
The Parametric insurance, apart from its coverage as mentioned above for the small, marginal, or big farmers, can also be used on a macro basis by the government. It will work as a shield to State funds in case of any major calamity such as a flash flood against which the State may consider taking insurance protection in the form of parametric insurance solution.
Going ahead, we do see a growing market for parametric insurance in the agriculture and rural sector under the ‘Model Insurance Village’ program from IRDAI. It will attract many distributors to the rural market by offering in conjunction with an insurer.The insurers to expand such parametric insurance solutions beyond extreme weather events and explore innovative solutions like energy production shortfalls and similar events for which data points are available for the underwriter to design the cover and rate the risk.
Looking ahead, I am excited about the future of crop insurance and the opportunities it presents for the agriculture industry. With advancements in technology, data analytics, and remote sensing, crop insurance has the potential to become even more effective and efficient in managing agricultural risks. I am committed to staying at the forefront of these developments and continuing to contribute towards the growth and evolution of crop insurance in the agricultural landscape.
In conclusion, my journey in crop insurance has been a fulfilling and meaningful one. It has been a privilege to work with farmers, insurance providers, and other stakeholders in the agricultural industry, and to witness the positive impact that crop insurance can have on farmers’ livelihoods. I am grateful for the opportunities I have had in this journey.