Crop insurance policies of India, USA, China and Philippines.

1. Crop insurance: Indian and a
Global scenario
Seminar II
Presented by,
Adeeth Cariappa. A. G
Sr. MSc (Agri)
Major Advisor,
Dr. Lokesh. G. B
Department of Agricultural Economics, UAS Raichur

2. What is agricultural insurance?
• In general, insurance is an equitable transfer of a risk of loss from
one entity to another in exchange for a premium or a guaranteed
and quantifiable small loss to prevent a large and possibly
devastating loss.
• Agricultural insurance is a special line of property insurance applied
to agricultural farms.
• In recognition of the specialized nature of this type of insurance,
insurance companies either have dedicated agribusiness units or
outsource to agencies that specialize in it.
• Agricultural insurance is not limited to crop insurance, it also
applies to livestock, bloodstock, forestry, aquaculture, and
greenhouses.

3. History of Crop Insurance
• First crop insurance programme (hail insurance) started in 1820s in
France and Germany for Grapes
• First crop insurance programme (hail insurance) in US started in 1883
for tobacco
• The earliest Multi-Peril Crop Insurance (MPCI) started in US in 1939,
with formation of Federal Crop Insurance Corporation (FCIC)
‘I have sometimes thought that it might be well to
establish an office of insurance for farms against the
damage that may occur to them by storms, blight,
insects etc. A small sum paid by a number of farms
would repair such losses and prevent much distress’
- Benjamin Franklin
likely first person to have thought about Crop Insurance.
Based on a severe storm of 24th October 1788 in French
countryside which destroyed crops
Source: AIC (2012)

4. Why Crop Insurance?
• Natural hazards affect 1.42 million ha crop area annually
• Detrimental effect of climate change
• Nearly 70% of India’s cultivable land is rain-fed
• Direct yield losses caused by pathogens, animals, and weeds, are altogether
responsible for losses ranging between 20 and 40 % of global agricultural productivity
(Oerke 2006)
• According to National Crime Record Bureau data, there is an 41.7 % increase in
farmer suicides in 2015 over 2014
• The existing relief and compensation mechanism for farmers against crop loss is ad
hoc, chaotic and politicized—has failed to bring timely and adequate help to affected
farmers (CSE, 2015)
• A properly designed and implemented crop insurance programme will protect the
numerous vulnerable small and marginal farmers from hardship, bring in stability in
the farm incomes and increase the farm production (Bhende, 2002)

5. Catastrophic losses due to natural
disasters
• In Africa, 1,098 natural disasters occurred during 1995 and 2015
with 279 million people affected and damages of US$ 14.5
billion. The most frequent type of disaster was floods (65%)
followed by storms (14%) and droughts (12%).
• In Asia, there were 2,816 natural disasters in the last 20 years
with floods (42%) and storms (28%) being the most common ones,
affecting 3.8 billion people which costs US$ 1.1 trillion.
• In the case of Latin America and the Caribbean 1,212 natural
disasters occurred within the last 20 years. 110 million people
were affected which accounts for a total damage of US$154
billion.
• Almost 7,000 natural disasters occurred in the last 20 years
worldwide, affecting a total of 4.2 billion people with damages
estimated at US$ 2.2 trillion (Hess and Hazel, 2016).

6. Average Temperature by Cropping Season: Kharif
and Rabi
(degrees Celsius)
Source: Economic Survey 2017-18

7. Average Precipitation by Cropping Season:
Kharif and Rabi (Millimetres)
Source: Economic Survey 2017-18

8. Impact of Weather Shocks on Agricultural Yields
(percentage decline in response to temperature
increase and rainfall decrease)
Source: Economic survey, 2017-18

9. Source: Economic Survey 2017-18.
Spatial Changes in Rainfall(change
in average rainfall between the last
decade and 1950-1980 period)
Spatial Changes in
Temperature(change in average
temperature between the last decade and
1950-1980 period)

10. Effects of Extreme
Temperature Increase
on Crop
Yields(percentage
decline)
Effects of Extreme
Rainfall Decrease on
Crop
Yields(percentage
decline)
Source: Economic survey, 2017-18

11. 2013
States affected: 5
Crops damaged
0.35 million ha
Economic loss
Rs 500 crore
(approx.)
2014
States affected: 6
2015
States affected: 15
Crops damaged
5.5 million hectares
Economic loss
Rs 5,000 crore
(approx.)
Crops damaged
18.23 million
hectares
Economic loss
Rs 20,453+ crore
When freak becomes the norm
When hailstorms and unseasonal rains destroyed large swathes of rabi crops in 2013, they were
thought to be freak weather events. But they hit again in 2014 and then in 2015, each time with
more intensity and causing more damage
Source: CSE, 2015

12. Classification of Agricultural Insurance Products
Source: World Bank, 2009

13. Example of Indemnity of a named peril insurance
contract
Source: World Bank, 2009

14. Example of Indemnity of a multi peril insurance contract
Source: World Bank, 2009

15. Indemnity v/s index based insurance
products
Index‐based Insurance
Products
• Losses assessed using
measure of an index that
is assumed to proxy actual
losses
• Crop Insurance Products:
1. Area yield‐based index
insurance
2. Weather index‐based
insurance
3. Normalized difference
vegetation index (NDVI)
insurance
Indemnity‐based
Insurance Products
• Losses assessed at
individual farmer or
herder level
• Crop Insurance Products:
1. Damage‐based products
– include hail and other
named‐peril insurance
2. Yield‐based products –
include MCPI yield
shortfall cover and crop
revenue insurance
Source: World Bank, 2013

16. The market for index insurance keeps growing (with many
small scale pilots) but is still marginal (except India and
Mexico)
Index‐based agricultural insurance programs (and pilots): Geographic
Distribution
Source: World Bank (2013)

17. Source: Hess and Hazel, 2016

18. Agricultural insurance is under-developed
in developing countries
Source: World Bank, 2013
Market penetration
remains small, even in
rich countries.
The total insurance
premium collected
(including subsidies)
amounted to 0.9% of
agricultural GDP,
ranging from virtually
zero in low-income
countries to 2% in
high-income countries
(5% in North America).

19. • The total agricultural insurance premium collected in 2007 in 65 countries
was an impressive $15.1 billion.
• But 88% in high income countries (mostly North America and Europe)
7.47% in lower middle income and low income countries.
– Clearly, agricultural insurance is largely the preserve of better off
countries.
• Private insurance was available in 54% of the countries, while the public
sector operated in only 9%.
• However, there were (PPPs) in 37% of countries.
• Named peril insurance and MPCI was available in >65% of countries and
was even available in half of the low-income countries.
• Area-yield insurance was reported available in 15% of the countries, and
weather index insurance was available in 22% of countries (Mahul and
Stutley, 2010).
Agricultural insurance is under-developed in developing
countries

20. Estimated Financial Performance of Selected Agricultural
Insurance Programs (percent, except where otherwise
indicated)

21. Estimated Average Producer Loss Ratio in
Selected Countries, 2003–07
Source: Mahul and Stutley, 2010

22. Global Picture of De-risking Agriculture
Source: AIC (2012)
• Sum insured during Kharif 2016 is only 3.54% of Agriculture GDP
in India
• Only 32% of farmers are insured during Kharif 2016 in India
• 23.53% of arable land is insured during Kharif 2016 in India against
more than 90% coverage in USA
Source: Authors calculation based on data collected from various sources

23. Crop insurance in India
Sl No. Scheme Year
1 PCIS - Pilot Crop Insurance Scheme 1979
2 CCIS - Comprehensive Crop Insurance
Scheme
1985
3 NAIS- National Agricultural Insurance
Scheme
1999
4 WBCIS - Weather Based Crop
Insurance Scheme
2003
5 MNAIS- Modified National Agricultural
Insurance Scheme
2010
6 PMFBY – Pradhan Mantri Fasal Bima
Yojana
2016

24. Product Period Approach Crops covered Salient features Limitations
Crop Insurance
Scheme
1972-78 Individual
H-4 Cotton,
groundnut,
wheat, potato
Voluntary
Implemented in 6 states
Non viability due to high claims
ratio and administrative costs.
Non popularity.
Pilot Crop
insurance
scheme
1979-85 Area
Cereals, Millets,
oilseeds,
Cotton, potato,
chickpea
Confined to loanee farmers,
voluntary. Pilot in 12
states.
Small farmers couldn’t participate
- poor access to institutional
credit.
Comprehensive
Crop Insurance
Scheme
1985-99 Area
Food grains and
oilseeds
Compulsory for loanee
farmers
Coverage capped at Rs. 10000 per
farmer.
Experimental Crop
Insurance Scheme
1997-98 Area
Cereals, pulses
and oil seeds
Covered non-loanee, small
and marginal farmers also.
High administrative costs.
High financial burden to the union.
National
Agricultural
Insurance Scheme
1999-00
Area and
Individual
All crops
Available to all farmers.
10 per cent premium
subsidy to small farmers.
Private companies not involved.
Prevented sowing and post-harvest
losses not considered.
Farm Income
Insurance Scheme
2003-04 Area Wheat and Rice
Insurance against
production and market
risks.
High administrative costs and lack
of infrastructure to assess losses
accurately.
Weather / Rainfall
Insurance
2003-15 Individual All crops
Available to all farmers.
Based on rainfall received
at the IMD / block rain
gauges.
Distance of the field from weather
stations. Basis risk is high due to
poor density of weather stations.
Modified National
Agricultural
Insurance Scheme
2010-15
Area and
Individual
All crops
Unit area reduced to village
/village panchayat level.
Private companies
involved.
Less coverage of farmers.
Delay in claim settlement.
Pradhan Mantri
Fasal Bima Yojana
and Restructured
WBCIS
2016
onwards
Area and
individual
All crops
One season one premium
rate.
Mandatory use of smart
phones, RST and drones
for rationalization of CCEs.
Delay in claim settlement due to
delayed payment of premium
subsidy to insurance companies by
the government.
Lack of adequate AWS.
Less coverage of tenant farmers.
Source: Authors compilation from different sources

25. INDIAN CROP INSURANCE – PMFBY &
RWBCIS
Source: Allianz Re, 2017

26. Penetration of crop insurance in India
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00 2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15(P)
2015-16(P)
2016Kharif
NAIS and PMFBY No. of
Farmers
covered in
lakhs
Area Insured
(In lakh
hectares)
2 per. Mov.
Avg. (No. of
Farmers
covered in
lakhs)
2 per. Mov.
Avg. (Area
Insured
(In lakh
hectares))

27. Premium collected and claims paid in
India
0.00
200000.00
400000.00
600000.00
800000.00
1000000.00
1200000.00
1400000.00
1600000.00
1800000.00
2000000.00
Claims
Paid
Gross
Premium

28. Crop Insurance in
USA
• The Congress established the federal crop insurance program in
1938 to help agricultural producers recover from the Great
Depression and the Dust Bowl.
• In 1938, Congress formed the Federal Crop Insurance Corporation
(FCIC) to protect the income of the farmer from falling prices and crop
failure.
• The insurance coverage was limited to only wheat and cotton and
this programme suffered from heavy losses and low participation rates.
Till 1980, this programme was mainly run by the government.
• With the passage of the Federal Crop Insurance Act of 1980, there is
increased involvement of private players that has laid the foundation
of its success.

29. Types of crop insurances available to farmers in
the USA
1. Crop hail policy
i. is not a part of the FCIP, they are directly provided to farmers
by private insurers.
ii. The farmers purchase this policy in areas where crops are
affected by frequent hailstorms. They can be purchased at
any time in the agricultural season.
2. Multi-peril crop insurance (MPCI)
i. is overseen and regulated by RMA. This is a PPP programme
and 19 private companies are currently authorized by USDA
RMA to write MPCI policies.
ii. These policies cover loss in yield due to extreme weather
conditions and price risk to protect framers against potential
loss in income. The crop insurance products include
individual plans as well as area plans.

30. Policy Terms Quantifying Losses
• Revenue policies
– which protect against shortfalls in revenue due to low crop
yields, lower-than-expected crop prices at harvest, or both.
• Yield policies
– which protect against losses due to low crop yields only.
• Producers can purchase a catastrophic coverage [CAT] policy,
which provides a minimal level of insurance coverage: 55 percent of
the value of yield losses that amount to at least 50 percent of the
expected harvest.
– However, in 2016, less than 4 percent of crop insurance policies were CAT
policies.
• Revenue policies are more popular among agricultural producers,
accounting for about 80 percent of all policies offered through the
program and about the same percentage of total premiums in 2016.

31. Federal Governments role
• The subsidy provided by the government accounts for approximately 70 per
cent of the total premium amount (including operating and administrative
expenses).
• Reimburses the operating and administrative expenses incurred by
private insurers.
• It cost the federal government $5 billion in 2016 and an average of nearly
$9 billion annually over the past five years.
Area Insured and Premiums paid by the Government (USA)
Source: CBO, 2017

32. Net Federal Cost of the Crop Insurance Program
and Components of Spending, 2000 to 2016
Premium subsidies are the largest
component
of federal crop insurance costs.
Source: CBO, 2017

33. Acres Enrolled in the Crop Insurance Program and
Claim Payments, by Crop, 2000 to 2016
Corn, soybeans, wheat, and cotton account for most of the acres and claim
payments in the federal crop insurance program.
Source: CBO, 2017

34. Total Claim Payments Received and Premiums Paid by Producers
Under the Crop Insurance Program, 2000
to 2016
• Over the 2000–2016 period, producers as a group received
$65 billion more in claim payments than they paid in
premiums.
Source: CBO, 2017

35. ASIAN ECONOMIES, KEY METRICS
Source: Allianz Re, 2017

36. China
• Chinese agricultural insurance is distinguished by
its quick success and efficiency.
• State support through premium subsidization
in 2007 significantly increased market penetration
of agricultural insurance.
• There were 26 insurance companies in 2016
offering about 170 types of insurance products
for main crops, cash crops, livestock, forest,
fruits, vegetables, medicinal herbs and local
agricultural products.
• At present, the insurers offer multi-peril
insurance, index-based insurance, price index
insurance, indemnity-based insurance and
revenue insurance (pilot program) (Krychevska,
L., et al., 2017).

37. Chinese success story
• During 1982-2002 agricultural insurance products have proved to
be strongly unprofitable and insurers became less interested in
selling them further on.
• As a consequence, agricultural insurance premiums decreased from
USD 140 million in 1992 to only USD 57 million by 2002.
• The new turn in development has started in 2003 by introduction of
various pilot subsidy programs.
• In 2007, the premium subsidy for selected crops had such
constitution:
• 25% of the premium was financed by central government, 25% -
by provincial governments, and 50% of crop insurance premiums
were covered by farmers
• State support by premium subsidy program in 2007 has
significantly increased market penetration of agricultural insurance
(Krychevska, L., et al., 2017).

38. Source: Krychevska, L., et al (2017)

39. Total Premium Paid and Claims Received from Agriculture
Insurance (2001-2013)
Source: World Bank, 2013

40. The total area insured for the period 2006-
2016, million ha
Source: Krychevska, L., et al (2017)

41. • The Chinese case study vividly illustrates a significant role and importance
of state support and a structured public-private partnership efforts
along with the long-term strategy and policy moves in development of
national agricultural insurance system.
Source: Krychevska, L., et al (2017)

42. Agricultural insurance products available
on the market in China in 2017
Source: Krychevska, L., et al (2017)

43. Area under Crop Insurance in India, China
and USA
Source: Agricultural Statistics at a Glance (various years), Industry data, USDA and Krychevska (2017) for
China

44. Philippines - Product lines and risks covered
• The PCIC has seven major insurance product lines
1. Rice
2. Corn
3. High-value commercial crops (HVCC)
4. Livestock
5. Fishery
6. Non-crop agricultural asset
7. Term insurance packages.
• PCIC started with its non-crop agricultural asset (NCAA) insurance
program in 1996.
• The insurance program provides protection to agricultural producers
against losses of their non-crop agricultural assets such as
warehouses, rice mills, irrigation facilities, and other farm
equipment due to perils like fire, lightning, theft, and earthquake
(PCIC, 2014; Cajucom, 2013).

45. Term insurance packages
1. Agricultural Producers Protection Plan - “insurance protection
that covers death of the insured due to accident, natural causes,
and murder or assault.”
2. Loan Repayment Protection Plan – is an “insurance protection
that guarantees the payment of the face value or the amount of the
approved agricultural loan upon the death or total permanent
disability of the insured borrower.”
3. Accident and Dismemberment Security Scheme - meanwhile, is
an “insurance protection that covers death or dismemberment or
disablement of the insured due to accident” (PCIC, 2014).

46. Premiums Collected, Claims Paid and Loss Ratio,
Rice, 1981-2013 Philippines
Source: Celia M. Reyes et al., 2015

47. Premium sharing
Source: PCIS, 2014

48. Premium rate and discount as percent of
approved loan/sum insured for the Loan
Repayment Protection Plan
insurance

49. Conclusion
• In Philippines, banks are made to share a part of the premium burden.
• For rice where the premium is 10.81%, the lending institution pays 2.00%
• A similar arrangement can be suggested for participating banks in India.
• Such arrangement would bring non-loanee farmers into the fold of banking
network, thus institutional lending of crop loans.
• In USA, revenue policy covers yield and also price risk. Insurance against loss in
revenue of the farmer either due to loss in yield or price is taken care of. Similar policy
can be suggested in India to cover, frequently fluctuating prices of agricultural
commodities.
• In Philippines, PCIC provides insurance against losses of crop, livestock, non-crop
agricultural asset and life of farmer. Such a holistic cover of all risks related to
agriculture under a single scheme can be endorsed so as to achieve maximum
coverage of farmers.
• Premium discounts for group coverage of insurance like in Philippines.

50. THANK YOU