Climate based agricultural insurance experiences from India

Weather based Agricultural and Catastrophe Insurance:Experiences from India
Rupalee Ruchismita
Arindom Baidya
Center For Insurance & Risk Management,
March 23, 2011

Centre for Insurance & Risk Management (CIRM)
Established in the year 2006 as a design and research centre at Institute of Financial Management and Research (IFMR), Chennai
Engage in product design & action research to facilitate greater market outreach of risk management solutions among poor households
About Us

Growth of Weather Insurance in India
The key challenges
Distribution Challenges
Product Irrelevance
Poor acceptance of complex products
High Transaction Costs
Product Level Challenges
Market Entry Challenges
Recommendations for the Government & other implementation agencies
Flow of the Presentation

Weather Insurance In India
Timeline
Source: Ulrich Hess

The Progress of Indian Market
CRITICAL MASS?
Agri-Market Linkages
Distribution through State Credit programs
Timeline
Better products & design
Government Subsides
Improved AWS network
Contract farming links
Real Time weather data
Reinsurance
Champions

Product Irrelevance
Lack of Insurance Literacy
Limited farmer comfort with new & complex index based products
Renewal Challenges
Farmers (clients) perceive premium amount lost in case of no payout
Farmers evaluate the scheme as a gamble rather than risk hedging mechanism

Increase product relevance for the farmer
Free weather forecasts, advisory messages & regular real time weather data through SMS on Farmers’ Mobile Phones
Providing Weather Insurance Bundled with Weather Forecasting SMS Service to Small & Marginal Farmers
CIRM is testing the concept of bundling weather insurance with ancillary services, to explore greater acceptance
Distribution Solutions
Project Details:
Implementation : WRMS
Research: CIRM
Insurer: ICICI Lombard
Project Location:West Bengal & Assam
Initiation: 2009

Increase product relevance for the farmer.
Bundling with output procurement channels: PepsiCo
PepsiCo introduced multi parameter weather-based insurancefor farmers who supply potatoes for the company’s potato chips business. PepsiCo procured at a marginally higher to the farmers who opted for the insurance program.
Bundling with input (seed) distribution channels: Pioneer Seeds
Pioneer Hi-bred, bundled a free drought cover with each seed packet, where the post sowing germination failure due to low rain was covered.

Poor acceptance for complex products
Complex product considered opaque by the farmers & distributors.
-Farmers may view the process to be vulnerable to manipulation.
The Tradeoff

Improving acceptability
Handling Product Complexity
Split product according to multiple weather variables for ease of understanding.
Handling Trust Issues
Enroll Local Agro-input dealers, cooperatives, MFIs and NGOs as point of servicing

Improving acceptability
Smallholder access to weather securities:
Demand & impact on consumption & production decisions
CIRM is testing the acceptability of simple contracts amongst farmers by offering:
Choice to the farmer to build his risk hedging strategy through building block approach
Risk cover for shorter period and identifiable loss triggers
Project Details:
Design : IFPRI, CIRM
Insurer: HDFC Ergo
Project Location: Madhya Pradesh
Initiation: 2010

High Transactions Costs
Insufficient Point of Services & Sales
Marketing cost comprise almost 10-15% of total premium in retail sales

Lowering Transaction Costs
Group Insurance
The high servicing cost for micro-insurance schemes is one of the major challenges in scaling up
Bundling Insurance with Input/Output Channels to reduce transaction costs
Pioneer Hi-Bred provided free insurance for germination failure with each seed packet
Insurance while crop loan processing

Lowering Transaction Costs
Meso Level Catastrophe Floods Insurance in Bangladesh
CIRM is testing the viability of index – based insurance schemes for catastrophic events like floods, where the MFIs are insured.
Project Details:
Design : CIRM, IWM
Implementation : OXFAM GB
Insurer: Pragati Insurance
Project Location: Sirajgunj , BD
Initiation: 2010

Obstacles in Scaling up
Data (weather and crop productivity correlation) availability
Insurers not able to identify potential & scope of business of a region
No clear risk profile of a region
Limited information about farmer preference on ‘what’of the total risk to be insured
Post Launch hiccups in scaling up due to lack of ‘full service’ Point of servicing
Market Entry Challenges

www.microinsurancemap.com
Facilitative Infrastructure
Choose a desired block (e.g-Papanasmin Thanjavur district of TN)

CIRM
Right click on Papanasmto open block information window

CIRM
Choose type of crop & variety for which info is desired (KuruvaiPaddy)
Agronomy report for kuruvai paddy can be downloaded from this link

CIRM

Learning
Invest in Infrastructure
Increase Automated Weather Stations coverage
Make data available to the Champions
Collate Historical Weather Data of the country in a central database
Soil & Topography Map
Crop Data (yield, variety, acreages)
Recommendations

Learning
Invest in Models
Design Crop Yield Models for different regions
Better weather to crop loss correlation
Invest in weather modeling.
Will improving pricing and at the same time will allow monitor climate change.
Recommendations

Thank you
Visit us at
http://ifmr.ac.in/cirm/
Follow our blog athttp://ifmr.ac.in/cirm/blog/
For any queries email us at
cirm@ifmr.ac.in
arindom.baidya@ifmr.ac.in
ashutosh.shekhar@ifmr.ac.in

Climate based agricultural insurance experiences from India

by CIRM on Apr 25, 2011

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