Insurance is a federal subject in India. It is a subject matter of solicitation. The legislations that deal with insurance business in India are Insurance Act, 1938 and Insurance Regulatory & Development Authority Act (IRDA), 1999.Insurance is defined as is a form of risk management primarily used to hedge against unforeseen risks of contingent losses. Another definition for Insurance is the equitable transfer of the risks from the possibility of occurrence of losses, from one entity to another (or host of others), by the method of diversification in exchange for a premium. As a result the ramifications of a large and devastating loss can be minimized to a great extent. An Insurer is a company designing, promoting and selling the insurance products and services amongst the public. An insured or policyholder is the person or entity purchasing the insurance products and services. Risk management, the practice of appraising and controlling everpervading risks, has evolved as a discrete field of study and practice. The study of Insurance incorporates the discipline of Risk Management which acts as a driving force.
parametric weather parameters appear to account for majority of crop losses.BASIS RISK [difference between the yield of the Area (Block / Tehsil) and the individual farmers].CCEs MEANS CROP CUTTING EXPERIMENT.
Coverage FOR POST HARVEST LOSSES is available only for those crops, which are allowed to dry in the field after harvesting against specified perils of cyclone in coastal areas, resulting in damage to harvested crop. Further, the coverage is available only upto a maximum period of two weeks from harvesting. Assessment of damage will beon individual basis.
Crop Insurance in
Gourav Kumar Vani
What is Insurance ?
According to Word Web Dictionary “Promise of
reimbursement in the case of loss; paid to people or
companies so concerned about hazards that they
have made prepayments to an insurance company”.
A more technical definition can be “Insurance is a financial
arrangement whereby losses suffered by a few are met from
the funds accumulated through small contributions made by
many whom are exposed to similar risks”.
What is Crop Insurance ?
Crop insurance is an insurance arrangement
aiming at mitigating the financial losses
suffered by the farmers due to damage and
destruction of their crops as a result of various
Why we need Crop Insurance ?
stability in area
Can avoid the loose incurred due to vagaries of weather
Pest and Diseases
For consumers and traders, a
more stable market.
Other unpreventable losses.
For Farmer, it brings
stability in income.
Increasing the repayment capacity of debtor.
Avoiding the risk of non payment in events of crop damage or failure.
Reducing the payment of relief package.
A Prosperous, stable and happy nation.
Concepts need to be understood in Insurance
Indemnity: legal compensation given to claimant by insurance company.
•Area Approach: While in Life or Health Insurance company deals at individual level to
process the insurance claims but in Agriculture it is difficult in India owing to presence of
large no. of marginal and small land holdings and hence insurance company deals with a
group of farmers at District/Hobli/Taluka level.
Crop Cutting Experiment: In order to obtain fair, precise and accurate estimate of yield
of principal crops. These experiments are conducted through stratified random sampling
technique taking block as a primary unit of planning.
Claim ratio:Ratio of a insurance firm‟s claims total paid added to the loss adjustments
against the premiums earned. Known also as loss ratio.
Mechanism of Crop Insurance in India
1. Union Government announces the scheme for Crop Insurance.
2. State Government notifies it for its respective states to participate in the scheme.
3. State Government designates nodal authority in the state to look after the
implementation of scheme in addition to one Central Authority at National Level.
4. State nodal authority provides the administrative set up to facilitate implementation.
5. Farmers approach nearest office responsible for implementation.
6. For loanee farmers it is compulsory and bank sanctions additional amount for
7. Upon damage based on area approach insurance company will give indemnity
•1970- Expert committee on Crop insurance appointed by
GOI headed by Dharamnarain ruled out possibility of crop
2007-Kharif – WBCIS (Weather Based Crop Insurance
Scheme) on Pilot basis implemented in KARby AIC
covering 8 rain fed districts.
1973- Insurance on Pilot basis for H-4 cotton
introduced by GIC.
2010-11 Rabi -MNAIS
•1999-22nd–June- NAIS launched by GOI, implemented
from Rabi 1999-2000 by GIC.
•2002-20th –Dec- Responsibly of NAIS transferred from
GIC to AIC.
•1999-2000 Rabi- Seed Crop Insurance
introduced for 11 crops in 10 states.
1985-Comprehensive Crop insurance
Scheme (CCIS) by GIC started.
•1973- GIC (General Insurance Company) set up by
GOI to do all types of insurance business throughout
nation with four Subsidiaries.
was launched. It is
modified version of
NAIS. It was initially
launched in 50
districts of India.
2007-08 Rabi- WBCIS
implemented on larger Scale.
2004 Jan- FIIs (Farm Income Insurance scheme)
inaugurated by MOA and
National Agricultural Insurance Scheme (NAIS)
•In vogue since Rabi 1999-00
•Greater coverage of farmers, crops & risks
•Rationalized premia structure
•Optional to States/ UTs
•Compulsory for loanee farmers
Non- preventable risks
Sum insured- upto value of TY
Insurance beyond TY upto 150%
of AY at actuarial rate
FOOD CROPS AND OILSEEDS
•Bajra & Oilseeds: 3.5% of Sum Insured(SI) or Actuarial rate, whichever is less
•Other Kharif crops: 2.5% of SI or Actuarial rate, whichever is less
•Wheat: 1.5% of SIor Actuarial rate, whichever is less
•Other Rabi Crops: 2.0% of SIor Actuarial rate, whichever is less
ANNUAL COMM./HORT. CROPS: Actuarial rates
•50% subsidy for SF/MF - to be phased out in 5 years on sun set basis. At present 10%
subsidy is available to be shared on 50 : 50 basis by Central & State govt.
LIMITATIONS OF NAIS
•Larger unit area results in unrealistic assessment of crop loss and payment
•Low indemnity level and unfavorable threshold yield.
•Limited Coverage - Perennial crops; pre-sowing and post-harvest losses
are not covered
•Compulsory coverage of loanee farmers.
•Phasing out of premia subsidy on sunset basis is resisted/ objected to by
•Delay in payment of claims on account of late submission of yield data,
share of funds by Centre/State and discrepancies/disputes in the claims
•Inadequate infra-structure in the field.
•Little interest is shown by Banks in the implementation of the scheme
•Low awareness of the scheme at the ground level.
Constitution of Joint Group
•To study the improvements required in the existing
schemes a Joint Group was constituted in the
Ministry of Agriculture.
•The Joint Group made in-depth study of each and
•The Group submitted its report on 20.12.2004 and
made number of recommendations.
Main recommendations of the Group are:Reduction in the unit area of insurance to the level of village panchayat for
Threshold/guaranteed yield is proposed to be based on best 5 years out of
preceding 7 years yield data.
Indemnity levels will be 90% for low risk areas/crops and 80% for other
It is proposed to cover pre-sowing/planning risks (i.e. prevented sowing on
account of adverse seasonal conditions). The indemnity payable may range
between 20% - 25% of sum insured.
Post-harvest losses on account of cyclone are to be
covered in coastal areas.
Uniform seasonality discipline for loanee and non-loanee
farmers is to be followed in consultation with the
On account payment of claims is to be made during the
season on the basis of weather data or satellite imagery
so as to make timely payment of claims.
An individual assessment of claims will be carried out in
case of specified localized calamities viz. hailstorm,
landslide and damage due to wild animals.
Insurance cover to perennial horticultural crops and
vegetables is to be provided.
The NAIS is proposed to be placed on actuarial regime. But
the premium actually paid by the farmers are to be suitably
A composite Package insurance covering all assets of the
farmers besides crops should be included so as to provide
comprehensive insurance coverage.
NAIS FROM RABI
1999-2000 TO KHARIF
Table No. 1: Share (%) Of Top Five States In NAIS by Different Parameters
19 W.B. 19 A.P. 18 M.H.
16 T.N. 17 GUJ 17
14 A.P. 16 RAJ 10
9 M.H. 14 BIH
7 GUJ 9 M.H.
Share of top
M.P. : MADHYA PRADESH , A.P.: ANDHRA PRADESH , T.N.: TAMIL NADU, BIH:
BIHAR, M.H.: MAHARASHTRA, RAJ: RAJASTHAN, GUJ: GUJARAT, KAR:
KARNATAKA, U.P.: UTTAR PRADESH, W.B.: WEST BENGAL.
Source: Agriculture Insurance Company of India Limited.
Table No.2: Overall Performance of Different States
Source: Agriculture Insurance Company of India Limited.
WEATHER BASED CROP INSURANCE SCHEME
While due to adverse weather conditions, crop may not suffer the loose of yield but
there can be lose in the quality of produce.
It is not Yield guarantee insurance.
It takes into account weather parameters like rainfall, temperature, frost, humidity etc.
Based on concept of Area Approachi.e., for the purposes of compensation, a ‘Reference Unit
Area (RUA)’ shall be deemed to be a homogeneous unit of Insurance. This RUA shall be
notified before the commencement of the season by the State Government and all the insured
cultivators of a particular insured crop in that Area will be deemed to be on par in the assessment
of claims. Each RUA is linked to a Reference Weather Station (RWS), on the basis of which
current weather data and the claims would be processed.
Amount of insurance protection (sum insured) is broadly the cost of inputs
expected to be incurred by the insured in raising the crop. Sum insured is predeclared per unit area (Hectare) by AIC at the beginning of every crop season, in
consultation with experts in State Government; and it may be different for different
crops in different RUAs.
Sum Insured = cost of inputs per unit area * acreage under the
crop declared by the farmer.
Premium rates depend on the „expected loss‟, which in turn depends on the
patterns of weather parameters of historical period of about 25 to 100 years in the
context of ideal weather requirements of a crop. In other words, the premium
rate could vary with each RUA and with each Crop.
Premium rates are capped for the cultivator; and the premium (rates) beyond the
cap are shared by the Central and concerned State government on 50:50
CROPS PREMIUM PAYABLE BY THE INSURED CULTIVATOR
FOOD CROPS & OIL SEEDS
1 Wheat: 1.5% or Actuarial Rate, whichever is less
2 Other Crops (other cereals, Millets, Pulses, Oilseeds): 2.0% or Actuarial Rate, whichever
ANNUAL COMMERCIAL / HORTICULTURE CROPS (subsidy and
1 Upto 2%: No Subsidy
2 >2 - 5%: 25%subsidy, subject to minimum net Premium of 2% payable by farmer
- 8%: 40%, subject to minimum net Premium of 3.75% payable by farmer
4 >8%: 50% subsidy, subject to minimum net Premium of 4.8% & Max 6% payable by
farmer The ‘net premium payable in case of the insured loanee cultivator is financed the
WHAT ARE CRITICAL
BETWEEN NAIS AND
Practically all risks covered
(drought, excess rainfall, flood,
hail, pest infestation,
Parametric weather related risks are covered.
AND EASE OF
Easy-to-design if historical yield
data up to 10 years‟ is available.
Technical challenges in designing weather
indices and also correlating weather indices
with yield losses. Needs up to 25 years‟
historical weather data.
High basis risk
high for rainfall and moderate for others like
frost, heat, humidity etc.
To some extent gets reflected through
COST OF CCEs
open ended, as it supports the
close ended, as it supports the premium
KHARIF 2007 TO
Table No. 3:Share (%) Of Top Five States In WBCIS by Different Parameters
Area covered Sum insured
M.P. : MADHYA PRADESH, A.P.: ANDHRA PRADESH, BIH: BIHAR, GUJ: GUJARAT,
M.H.: MAHARASHTRA, RAJ: RAJASTHAN.
Source: Agriculture Insurance Company of India Limited.
Advantages of WBCIS
a) Trigger events like adverse weather (rainfall, temperature, relative humidity etc.) can be independently
verified & measured.
b) It allows for speedy settlement of claims, say within 45 days from the end of the insurance period.
c) All cultivators – irrespective of Loanee or Non-Loanee; Small / Marginal or Others; Owners or Tenants /
Sharecroppers can buy Weather Based Crop Insurance Scheme (WBCIS).
d) The Government is providing Subsidy in Premium and hence, the premium payable by the
cultivator is affordable.
e)It provides transparent, fully objective, efficient & direct payouts for adverse weather incidences
and thus, an effective risk mitigation tool against weather risks.
f) The insured is not required to submit claim form or other documents as proof for his/ her
loss. The claim payout is automatically calculated on the basis of weather data collected from the Reference
Weather Station at the Tehsil / Block level.
g) Since the weather data decides the compensation, the insured retains the incentive for putting in
extra effort for getting better yield of his / her crop.
An illustration of Ganganagar Tehsil of Ganganagar District in
Rajasthan for Wheat crop is given below:
District: Ganganagar, Block: Ganganagar
Crop: Wheat ,Sowing: Standard Sowing Period
Sum Insured per Hectare: (Rs.) 22,500
Sum Insured per Acre: (Rs.) 9,000
Reference Weather Station: IMD/ Automatic Weather Stations (AWS) at
COVER 1: Heat or Rise in Mean Temperature
Cover Objective: To cover anticipated yield loss due to rise in atmospheric
Cover period: 1st January to 31st March
Payout starts if the mean temperature for any fortnight rises
above certain critical level
over & above the trigger
temperatures. , a rise in fortnightly mean temperature by 4 C
during 2nd fortnight of January would result in a payout of
3.99% of sum insured, i.e. Rs. 897.75 per hectare or Rs. 359.10
per acre. The payouts determined on the above basis, in each
of the fortnights shall be added for all the fortnights from
January to March to arrive at the final payout under this cover
subjected to the terms and conditions specified in the policy.
WHAT IS MNAIS ?
TO MAKE THE NAIS MORE FARMER FRIENDLY , NAIS WAS MODIFIED
AND RENAMED AS MNAIS W.E.F. RABI 2010-11.
(i)actuarial premiums will be paid for insuring crops and hence claims liability will be on insurer;
(ii) unit area of insurance for major crops is village/village Panchayat;
(iii) indemnity amount will become payable, for prevented sowing/planting risks and for post harvest losses,
due to cyclones;
(iv) on account payment up to 25% of likely claim under MNAIS will be released as advance, for providing
immediate relief to farmers;(ONLY IF ACTUAL YIELDS ARE LESS THAN 50% OF ASSURED YIELD).
(v) uniform seasonality norms will be applicable for both loanee and non-loanee farmers;
(vi) more proficient basis for calculation of threshold yield (average yield of last seven years excluding up to
two years of declared natural calamity) will be applicable; and
(vii) minimum indemnity level in case of MNAIS of 70% will be, instead of 60% as in NAIS.
•Loanee farmers will be insured under „compulsory category‟ while non-loanee farmers will be
insured under „voluntary category‟.
•Private sector insurers with adequate infrastructure and experience will also be permitted
to implement MNAIS. NAIS will be withdrawn for those area(s)/crop(s) of districts, in which
MNAIS will be implemented.
Subsidy to Farmers
1 Up to 2% Nil
2 >2 - 5% 40% subject to minimum net premium of 2%
3 >5 – 10% 50% subject to minimum net premium of 3%
4 >10 –15% 60% subject to minimum net premium of 5%
5 >15% 75% subject to minimum net premium of 6%.
In case of localized risks, viz. hailstorm and landslide, the claims will be assessed
on individual basis. For other calamities the assessment will be on the basis of
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Chronology of Agricultural Insurance in India
•1970- Expert committee on Crop insurance appointed by GOI headed by
Dharamnarain ruled out possibility of crop insurance.
•1973- GIC (General Insurance Company) set up by GOI to do all types of
insurance business throughout nation with four Subsidiaries.
•1973- Insurance on Pilot basis for H-4 cotton introduced by GIC.
•1985-Comprehensive Crop insurance Scheme (CCIS) by GIC started.
•1999-23rd –June- NAIS ( National Agricultural Insurance Scheme) launched by
Prime Minister and implemented from Rabi 1999-2000 by GIC.
•1999-2000 Rabi- Seed Crop Insurance introduced for 11 crops in 10 states.
•2002-20th –Dec- Responsibly of NAIS transferred from GIC to AIC (Agriculture
Insurance Company of India Ltd.).
•2004 Jan- FIIs (Farm Income Insurance scheme) inaugurated by MOA and AIC
jointly. This scheme provides broader risk insurance for agricultural income due
to adverse natural calamities and fluctuation
agricultural crops. The farmers income would
minimum guarantee income.
2007-Kharif – WBCIS (Weather Based Crop Insurance Scheme) on Pilot basis
implemented in Karnataka by AIC covering 8 rain fed districts.
2007-08 Rabi- WBCIS implemented on larger scale.
2010-11 Rabi -MNAIS was launched. It is modified version of NAIS. It was initially
launched in 50 districts of India.