Index Based Insurance: BASIX experience

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Presented by Vatsal Joshi at the Workshop on Developing Index-Based Livestock Insurance to Reduce Vulnerability due to Drought-related Livestock Deaths, ILRI, Addis Ababa, Ethiopia, 12 July 2010.

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Index Based Insurance: BASIX experience

  1. 1. Index Based Insurance BASIX Experience Workshop on Developing Index-Based Livestock Insurance to Reduce Vulnerability due to Drought-related Livestock Deaths ILRI, Addis Ababa, Ethiopia 12 July 2010
  2. 2. Approach to Risk Mitigation Risk Mitigation Approach Preventive Vet Care for Livestock Non Financial Interventions Financial Interventions <ul><ul><ul><li>Offer Livestock Insurance </li></ul></ul></ul>
  3. 3. Insurance Product Suite BASIX strives to offer complete risk management services to its customers and its journey to develop appropriate solutions still continues……. Life Insurance Health Insurance Micro Enterprise Insurance Weather Based Crop Insurance PA Insurance Micro Pension Livestock Insurance ?? ??? ??? ???
  4. 4. Weather Based Crop Insurance Background Eco System Experience so far Challenges Ahead The Current Product
  5. 5. Background <ul><ul><li>Risk management particularly for rain fed-agriculture was identified as an important credit plus service to be offered to its customers </li></ul></ul><ul><ul><li>Between 1999-2001, BASIX carried out research and pilots in testing the insurance concept for crop loss </li></ul></ul><ul><ul><li>Which culminated in the first weather insurance pilot in 2003, in collaboration with ICICI Lombard and World Bank covering 230 farmers from 7 villages </li></ul></ul>
  6. 6. The Current Product Sample Product Configuration Cover Phase I II III Duration 35 days 35 days 40 days PUT Strike (mm) < 45 55 - Exit (mm) < 5 5 - Notional (Rs / mm) 10.00 10.00 - Policy Limit (Rs) 1,000 1,000 - Phase premium (Rs) 110 100   CALL Strike (mm) > - - 500 Exit (mm) > - - 570 Notional (Rs / mm) - - 10.00 Policy Limit (Rs) - - 1,000 Phase premium (Rs) - - 90
  7. 7. The Current Product (Continued) <ul><li>Weather conditions at a weather station treated as proxy to assess the expected economic loss of farmer </li></ul><ul><li>Sum insured unitized @ Rs. 1,000/-. </li></ul><ul><ul><li>Farmer to choose appropriate cover depending on his exposure and his attitude towards risk </li></ul></ul><ul><li>Policy starts on the day when cumulative rainfall reaches 50 mm- enough for sowing </li></ul><ul><li>Three phases: Sowing, Flowering, and Harvest </li></ul><ul><li>Each phase pays out or not separately </li></ul>
  8. 8. Eco System for Weather Insurance BASIX Customer Insurance Co ICICI Lombard Re-Insurance Co Swiss Re Facilitators *World Bank (CRMG) *Indian Met Dept *NCMSL/INGEN (Pvt met data provider) *ICRISAT (crop research inst) *ILRI (Lac research inst) *State Agri Dept
  9. 9. Experience so far
  10. 10. Experience so far (Continued)
  11. 11. Experience so far (Continued) <ul><li>Implementing a contract with Development International Desjardins (DID) and FADQDI for replicating index based crop insurance in Sri Lanka. </li></ul><ul><li>Worked with World Bank and the Asian Development Bank in transferring a part of the knowledge and experience gained in India to other stakeholders at: </li></ul><ul><ul><ul><li>Bangkok, Thailand in May-06 for Bank for Agriculture and Agricultural Cooperatives (BAAC) </li></ul></ul></ul><ul><ul><ul><li>Dhaka, Bangladesh in Apr-07 for the MFIs in Bangladesh </li></ul></ul></ul><ul><ul><ul><li>Addis Ababa, Ethiopia in May-07 for various stakeholders in Ethiopia including Insurance companies and government ministries. </li></ul></ul></ul>
  12. 12. Challenges ahead <ul><li>Need to reduce basis risk through </li></ul><ul><ul><li>Deepening the network of weather stations to make the weather data more relevant to farms that are scattered over a wide geography </li></ul></ul><ul><li>Improved design of the product to increase the correlation of the indices to crop requirements </li></ul><ul><ul><li>yet simple enough for the easy comprehension of the majority of farmers, who are illiterate </li></ul></ul><ul><li>Product pricing has to be in an affordable range to be able attract a larger number of farmers </li></ul>
  13. 13. Areas of our work related to IBLI <ul><li>We currently offer </li></ul><ul><ul><li>Livestock Insurance </li></ul></ul><ul><ul><li>Index Based Insurance </li></ul></ul><ul><li>Experience from the same may be relevant to this project </li></ul>
  14. 14. How can we interact with current project <ul><li>Setting up our operation in Ethiopia </li></ul><ul><ul><li>Will act as TA providers to MFI’s </li></ul></ul><ul><ul><li>Can assist by acting as distribution partners through our partner MFI’s </li></ul></ul><ul><li>Can overcome some of the limitations of the current products in India and pilot IBLI even in India </li></ul><ul><ul><li>With the new technology </li></ul></ul><ul><ul><li>With the new experience </li></ul></ul>
  15. 15. Challenges or issues we perceive would impact on the research or collaboration in this project <ul><li>We currently have </li></ul><ul><ul><li>People </li></ul></ul><ul><ul><li>Process </li></ul></ul><ul><ul><li>Experience in Index and Livestock Insurance </li></ul></ul><ul><li>But we lack experience in IBLI </li></ul>
  16. 16. Thank You [email_address]
  17. 17. LSA travel to village Interacts, assesses and provides… Credit Insurance Agri-Business development services Are Manager Branch Head FX1 FX 2 FX 5 Accountant Transaction Assistant LSA 1 LSA 2 LSA 3 15 to 20 villages 15 to 20 villages 15 to 20 villages FX- Field Executive LSA- Livelihood Service Advisor FX4 FX 3 LSA 5 LSA 4 15 to 20 villages 15 to 20 villages The delivery model BASIX Branch
  18. 18. Financials   2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-2010 Cumulative No of customers 230 402 6,689 11,716 4,545 7,334 8,948 39,864 Claims settled 154 319 864 2379 537 1003 6694 11,950 % of farmers who received claims 67% 79% 13% 2% 12% 8% 74.81% 30% Premium Collected (Rs) 88,685 824,681 1,703,098 1,430,171 1,539,175 1,867,780 2,084,252 9,537,842 Claim amount Paid (Rs) 41,860 471,485 950,000 2,063,160 298,922 692,100 9,312,880 13,830,407 Loss Ratio 47% 57% 56% 144% 20% 22% 447% 145% Weather Stations 1 5 36 50 45 40 11  

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