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Weather Index Insurance in Practice: Insurers’ Experience
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Weather Index Insurance in Practice: Insurers’ Experience

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Pranav Prashad of the Microinsurance Innovation Facility presents on the topic of Weather Index Insurance at the World Climate Conference 3.

Pranav Prashad of the Microinsurance Innovation Facility presents on the topic of Weather Index Insurance at the World Climate Conference 3.

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Weather Index Insurance in Practice: Insurers’ Experience Weather Index Insurance in Practice: Insurers’ Experience Presentation Transcript

  • Weather Index Insurance in Practice: Insurers’ Experience World Climate Conference 3 Pranav Prashad Micro-insurance Innovation Facility: International Labour Organization Learn & Share DISSEMINATION RESEARCH TECHNICAL ASSISTANCE INNOVATION GRANTS MICROINSURANCE INNOVATION FACILITY Large number of low income people making informed choices to manage risk
  • To stimulate new ideas and test new approaches to provide better products
    • Grants: Provide ~ 50 grants ranging from $25,000 to $1,000,000;
    • Frequency: Issue 8-12 grants every 6 months from 2008-2010
    • Eligible organizations: Insurance companies, semi-formal insurers, labour unions, cooperatives, NGOs, other people’s organizations & distribution channels
    • Results after 3 rounds: > 400 applications from over 40 countries; 35 grantees have been selected; see www.ilo.org/microinsurance for details
    • 4 in the field of Weather Index insurance
      • India:
        • Evolving Climatic Adaptation through Weather Index Insurance: DHAN Foundation
        • Providing Comprehensive Agriculture Risk Management Services to small and marginal farmers in North-East India: Weather Risk Management Services
      • Sri Lanka: Development of successful replication and dissemination strategy for weather-based crop insurance: SANASA Insurance Co
      • Africa: Developing Index based crop insurance for farmers in Mali: Planet Guarantee
    Encouraging Innovation in the Field
  • Agricultural Landholdings in India
  • Marginal and small land holdings predominate
  • Agriculture in India
    • High dependence on weather
      • 40% of net sown area irrigated, 60% dependent on rains
    • Causal analysis of agricultural losses as compiled by General Insurance Corporation of India’s crop insurance cell shows majority of crop failures due to weather vagaries **
    Farmer at the mercy of rains **Source: Varsha Bonds and Options – Rajas Parchure
  • Initiatives in Weather Insurance
    • Launched in 2003 with support from the World Bank
    • Pilot was launched for Castor and Groundnut crop in Mehbubnagar in Andhra Pradesh against deficit rainfall in partnership with BASIX (microfinance institution). Around 250 farmers bought the cover
    • Over the years, covered 400,000 farmers in 180 different locations and an acreage of over 600,000. Market has grown to 2 mn farmers with active subsidy support from the government
    • 14 crops and 12 states involved, being evaluated by at least 3 others
    • Deficit, excess and unseasonal rainfall
    • High relative humidity (RH)
    • Excessively high and low temperatures
    • Prolonged dry spell
    • And combination of above
    • Products developed for entire cropping cycle involving multiple risks
    • Diversify to other industries: Salt manufacturing
    Field Crops: Soybean, Paddy, Cumin, Coriander, Fenugreek, Wheat, Chillies, Cotton, Groundnut, Isabgol Horticulture crops : Oranges, Grapes, Apples, Peach Weather perils Crops covered
  • Government Subsidy Support: Catalyst for growth
    • Rajasthan government provided 33% subsidy since 2005
    • Union Budget of 2007 opened the doors for 20 states across variety of crops
      • Winter crop 2007 first to get subsidy support
      • Private sector participation restricted to non loanee farmers
      • AIC coverage linked to credit took market beyond 1.5 mn mark
      • Kharif 2009 coverage of over 400,000 farmers
    • Challenge of Basis Risk, distribution, customer education and payment collection continues
      • Infrastructure needs re-look to reduce costs
  • Risk Diversification: increase in no. of states WI WI WI WI WI WI WI WI WI WI WI WI WI WI WI
  • Reducing Basis risk - Automated weather stations at Block level
    • Basis risk –Inability to measure weather data at precisely the customer location
      • Over 300 weather stations installed
    • MIF supporting 2 programmes involving development and installation of weather stations in Tamil Nadu, West Bengal and Assam
  • Challenges
    • Minimize distribution costs
      • Establish partnerships with organizations engaged in servicing the rural areas
      • Link with another transaction
      • Much more efficient if insurance can be layered on top of another financial transaction
    • Timing : collect premiums when people have them
    • Use technology to reduce costs
    • Focus on training & information dissemination due to the low awareness & literacy levels
    • Reinsurance support: linked to infrastructure
  • Cost effective distribution - Channels Villages Admin System, Self help Groups, E-Choupal, MFIs, NGOS Bank Branches Agents MFIs, NGOs, Franchisee, Agents Villages Admin System, Kiosks,MFIs, NGOS, SHGs Villages <5000 population Villages >5000 population Tehsil / Blocks Semi-Urban locations Locally available channels are effective Trust is the cornerstone of relationships
  • Reaching hinterland – Insurance on wheels with partners
  • Reaching closer through direct contact: Farmers’ meetings and Van Campaigns
  • On field on wheels training: more learn, more sell Dedicated training team Partners during training session Customer interaction in and around kiosks
  • Stick to basics: mantra for success
    • Availability of relevant and fairly priced product
    • Establishment of cost effective distribution
    • Easy accessibility and quality service
    Thank you The future lies with those companies who see the poor as their customers … C.K. Prahalad Pranav Prashad [email_address] Tel +41 22 799 7931 www.ilo.org/microinsurance