Climate based agricultural insurance experiences from India

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CIRM presented at a paper at the Climate based Microinsurance: Providing Protection for Nigerian farmers held at Abhuja, Nigeria.

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  • Present mkt size – in no. of farmers and premium
  • Climate based agricultural insurance experiences from India

    1. 1. Weather based Agricultural and Catastrophe Insurance:Experiences from India<br />Rupalee Ruchismita <br />Arindom Baidya<br />Center For Insurance & Risk Management,<br />March 23, 2011<br />
    2. 2. Centre for Insurance & Risk Management (CIRM)<br />Established in the year 2006 as a design and research centre at Institute of Financial Management and Research (IFMR), Chennai<br />Engage in product design & action research to facilitate greater market outreach of risk management solutions among poor households<br />About Us <br />
    3. 3. Growth of Weather Insurance in India <br />The key challenges <br />Distribution Challenges<br />Product Irrelevance <br />Poor acceptance of complex products<br />High Transaction Costs <br />Product Level Challenges<br />Market Entry Challenges<br />Recommendations for the Government & other implementation agencies<br />Flow of the Presentation <br />
    4. 4. Weather Insurance In India<br />Timeline<br />Source: Ulrich Hess<br />
    5. 5. The Progress of Indian Market<br />CRITICAL MASS?<br />Agri-Market Linkages<br />Distribution through State Credit programs<br />Timeline<br />Better products & design<br />Government Subsides<br />Improved AWS network<br />Contract farming links<br />Real Time weather data<br />Reinsurance<br />Champions<br />
    6. 6. Product Irrelevance <br />Lack of Insurance Literacy<br /><ul><li>Limited farmer comfort with new & complex index based products</li></ul>Renewal Challenges<br /><ul><li>Farmers (clients) perceive premium amount lost in case of no payout
    7. 7. Farmers evaluate the scheme as a gamble rather than risk hedging mechanism</li></ul>Distribution Challenges<br />
    8. 8. Increase product relevance for the farmer<br />Free weather forecasts, advisory messages & regular real time weather data through SMS on Farmers’ Mobile Phones<br />Providing Weather Insurance Bundled with Weather Forecasting SMS Service to Small & Marginal Farmers<br />CIRM is testing the concept of bundling weather insurance with ancillary services, to explore greater acceptance<br />Distribution Solutions<br />Project Details:<br />Implementation : WRMS <br />Research: CIRM<br />Insurer: ICICI Lombard<br />Project Location:West Bengal & Assam<br />Initiation: 2009<br />
    9. 9. Increase product relevance for the farmer.<br />Bundling with output procurement channels: PepsiCo <br />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.<br />Distribution Solutions<br />Bundling with input (seed) distribution channels: Pioneer Seeds<br />Pioneer Hi-bred, bundled a free drought cover with each seed packet, where the post sowing germination failure due to low rain was covered.<br />
    10. 10. Poor acceptance for complex products<br />Complex product considered opaque by the farmers & distributors.<br />-Farmers may view the process to be vulnerable to manipulation.<br />Distribution Challenges<br />The Tradeoff<br />
    11. 11. Improving acceptability <br />Handling Product Complexity <br />Split product according to multiple weather variables for ease of understanding. <br />Distribution Solutions<br />Handling Trust Issues <br />Enroll Local Agro-input dealers, cooperatives, MFIs and NGOs as point of servicing <br />
    12. 12. Improving acceptability <br />Smallholder access to weather securities:<br />Demand & impact on consumption & production decisions<br />CIRM is testing the acceptability of simple contracts amongst farmers by offering: <br /><ul><li>Choice to the farmer to build his risk hedging strategy through building block approach
    13. 13. Risk cover for shorter period and identifiable loss triggers</li></ul>Distribution Solutions<br />Project Details:<br />Design : IFPRI, CIRM<br />Insurer: HDFC Ergo<br />Project Location: Madhya Pradesh<br />Initiation: 2010<br />
    14. 14. High Transactions Costs<br />Insufficient Point of Services & Sales<br /><ul><li>Marketing cost comprise almost 10-15% of total premium in retail sales</li></ul>Distribution Challenges<br />
    15. 15. Lowering Transaction Costs<br />Group Insurance<br />The high servicing cost for micro-insurance schemes is one of the major challenges in scaling up<br />Bundling Insurance with Input/Output Channels to reduce transaction costs<br /><ul><li>Pioneer Hi-Bred provided free insurance for germination failure with each seed packet
    16. 16. Insurance while crop loan processing </li></ul>Distribution Solutions<br />
    17. 17. Lowering Transaction Costs<br />Meso Level Catastrophe Floods Insurance in Bangladesh<br />CIRM is testing the viability of index – based insurance schemes for catastrophic events like floods, where the MFIs are insured.<br />Distribution Solutions<br />Project Details:<br />Design : CIRM, IWM<br />Implementation : OXFAM GB<br />Insurer: Pragati Insurance <br />Project Location: Sirajgunj , BD<br />Initiation: 2010<br />
    18. 18. Obstacles in Scaling up <br />Data (weather and crop productivity correlation) availability <br />Insurers not able to identify potential & scope of business of a region<br />No clear risk profile of a region<br />Limited information about farmer preference on ‘what’of the total risk to be insured<br />Post Launch hiccups in scaling up due to lack of ‘full service’ Point of servicing<br />Market Entry Challenges<br />
    19. 19. www.microinsurancemap.com<br />Facilitative Infrastructure<br />Choose a desired block (e.g-Papanasmin Thanjavur district of TN)<br />
    20. 20. CIRM<br />www.microinsurancemap.com<br />Facilitative Infrastructure<br />Right click on Papanasmto open block information window<br />
    21. 21. CIRM<br />www.microinsurancemap.com<br />Choose type of crop & variety for which info is desired (KuruvaiPaddy)<br />Facilitative Infrastructure<br />Agronomy report for kuruvai paddy can be downloaded from this link<br />
    22. 22. CIRM<br />www.microinsurancemap.com<br />Facilitative Infrastructure<br />
    23. 23. Learning<br />Invest in Infrastructure <br /><ul><li>Increase Automated Weather Stations coverage</li></ul>Make data available to the Champions<br /><ul><li> Collate Historical Weather Data of the country in a central database
    24. 24. Soil & Topography Map
    25. 25. Crop Data (yield, variety, acreages)</li></ul>Recommendations<br />
    26. 26. Learning<br />Invest in Models <br /><ul><li> Design Crop Yield Models for different regions
    27. 27. Better weather to crop loss correlation
    28. 28. Invest in weather modeling.
    29. 29. Will improving pricing and at the same time will allow monitor climate change.</li></ul>Recommendations<br />
    30. 30. Thank you<br />Visit us at<br />http://ifmr.ac.in/cirm/<br />Follow our blog athttp://ifmr.ac.in/cirm/blog/<br />For any queries email us at<br />cirm@ifmr.ac.in<br />arindom.baidya@ifmr.ac.in<br />ashutosh.shekhar@ifmr.ac.in<br />

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