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5. NATIONAL AGRICULTURAL

INSURANCE SCHEME (NAIS) OR

RASHTRIYA KRISHI BIMA YOJANA

(RKBY)

5.1 INTRODUCTION

The vast majorities of India’s 116 million farms

cultivates rainfed crops and are particularly vulnerable to the

vagaries of the Indian monsoon. In this context, agricultural risk

management products, particularly for the small and marginal

farmers, are of critical importance.

In order to address some of the shortcomings and

improve the scope and contents of CCIS, the government of

India expressed its intentions to launch a new crop insurance

scheme during 1998-99 budget speech. A broad-based National

Agricultural Insurance Scheme (NAIS) or Rashtriya Krishi

Bima Yojana (RKBY) was introduced with effect from the Rabi

season of 1999-2000. A copy of the detailed scheme (Appendix

7) and proposal forms (Appendix 9 – 12) is appended. The

scheme was designed to cover all the farmers irrespective of the

size of holding and both borrowers and non-borrowers of the

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institutional credit. NAIS provides for greater coverage of crops

and sum insured when compared with CCIS. The new crop

insurance scheme was intended to address the issue of financial

viability by raising the premium to 4 per cent for food crops and

still higher premium for cash crops like sugarcane, potato,

groundnut, etc. The government intended to bring down the

claim premium ratio from more than 5 to a manageable 1.4. The

government also proposed to set-up a separate subsidiary

company under GIC to operate the scheme and give it freedom

to alter or modify insurance charges to make the venture

internally viable. Finally, Agriculture Insurance Company of

India Limited came into being in 2002.

The new crop insurance scheme NAIS / RKBY was

introduced during Rabi 1999-2000 in 9 States / Union

Territories (UT). The states/ UT, which adopted the new scheme

during 1999-2000 Rabi season, were Assam, Goa, Gujarat,

Himachal Pradesh, Kerala, Madhya Pradesh, Maharashtra,

Orissa and Pondicherry. The number of States/UT implementing

NAIS increased to 17 in Kharif 2000 and reached 21 in Kharif

2002. However, prosperous States like Punjab and Haryana

preferred to stay out. States like Rajasthan having large area

under rain-fed agriculture also preferred not to join the scheme.

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Presently NAIS is being implemented by 25 States & 2 Union

Territories. The details about the operation of NAIS have been

presented below in Figure 2.

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Figure 1: FLOW CHART OF PARTICIPATION OF FARMERS AND PAYMENT OF COMPENSATION UNDER RASHTRIYA KRISHI BIMA YOJNA

Note : Claims are paid to Nodal Bank, from where reach account of farmer through bank branch / PACS.

LOANEE FARMER NON-LOANEE

Avails crop loan for a Notified crop (Compulsory Insurance cover)

Seeks Extended Coverage

Approaches for Insurance Coverage under NAIS

Fill up proposal for additional coverage

Fill up Non-loanee proposal

BANK BRANCH / PACs

Consolidate Loanee details with Cut off

Consolidate Loanee details with Cut off

NODAL BANK

Consolidate into Loanee Consolidate Into Non-Loanee Declaration

Incorrect / Incomplete Declarations For

• Premium receipt • Acknowledgement • Claim

INSURANCE COMPANY

• Notification • Submission of Yield Data • Funds • Share of Claims

• Approval of Claim • Share of Claim

STATE GOVERNMENT

CENTRAL GOVERNMENT

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5.1.1 OBJECTIVES OF THE NAIS / RKBY ARE AS

UNDER :

1. To provide insurance coverage and financial support to

the farmers in the event of failure of any of the notified

crop as a result of natural calamities, pests & diseases.

2. To encourage the farmers to adopt progressive farming

practices, high value inputs and higher technology in

Agriculture.

3. To help stabilise farm incomes, particularly in disaster

years.

5.1.2 CROPS COVERED

The Crops in the following broad groups in respect of

which i) the past yield data based on Crop Cutting Experiments

(CCEs) is available for adequate number of years, and ii)

requisite number of CCEs are conducted for estimating the yield

during the proposed season :

1. Food crops (Cereals, Millets & Pulses)

2. Oilseeds and

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3. Annual Commercial / annual Horticultural crops -

Sugarcane, Cotton, Potato, jute, tapioca, coriander,

cumin, isabgol, fennel, fenugreek, annual banana, annual

pineapple etc. However, mangoes, apples, grapes and

oranges are not yet covered.

Ginger, onion, turmeric and chilies were covered under

insurance during the second year of the scheme. Other annual

commercial / horticultural crops have also been brought under

insurance cover in the subsequent years depending on the

availability of crop yield data. Table 11 shows number of

notified areas under NAIS in Maharashtra State during Kharif

2009.

Table 1 : NOTIFIED AREAS UNDER NAIS – KHARIF 20091 Sr. No.

Crops No. of Notified Circles To tal

District Pa- ddy

Kh. Jowar

Baj-jra

Ragi

Gr. Nut

Soya bean

Sun flower

Sesa mum

Niger seed

Mu-ng

Udid Tur Cotton

1 Thane 53 - - 22 - - - - - - 4 - - 79 2 Raigad 48 - - 33 - - - - - - - - - 81 3 Ratnagiri 48 - - 48 - - - - - - - - - 96 4 Sindhudurg 29 - - 26 - - - - - - - - - 55 Konkan Div 178 0 0 129 0 0 0 0 0 0 4 0 0 311 5 Nasik 35 40 57 26 72 29 - - 22 60 43 - 24 408 6 Dhule 5 32 32 4 32 17 - 15 - 15 20 6 29 207 7 Nandurbar 23 32 14 - 25 14 - - - 22 27 32 21 210 8 Jalgaon - 75 55 - 70 - - 74 - 72 75 70 75 566 Nasik Div 63 179 158 30 199 60 0 89 22 169 165 108 149 1391 9 Ahmednagar 3 - 51 - 41 17 - - - 29 4 43 10 198 10 Pune 45 27 52 35 63 6 - - 21 6 3 18 - 276 11 Solapur 15 11 59 - 38 9 61 - - 32 16 61 20 322 Pune Div 63 38 162 35 142 32 61 0 21 67 23 122 30 796

12 Satara 39 55 33 15 62 31 - - - 16 16 - - 267 13 Sangli 16 40 25 - 41 36 - - - 15 11 - - 184

1 NAIS Scheme for 2009 season Notification of Circles / Taluka, Government of Maharashtra, Government Resolution No. NAIS-2009/CR-153/11-A, Mantralaya Annex, Mumbai dated 8 June 2009

121

Sr. No.

Crops No. of Notified Circles To tal

District Pa- ddy

Kh. Jowar

Baj-jra

Ragi

Gr. Nut

Soya bean

Sun flower

Sesa mum

Niger seed

Mu-ng

Udid Tur Cotton

14 Kolhapur 55 36 - 48 53 50 - - - - - - - 242 Kolhapur

Div 110 131 58 63 156 117 0 0 0 31 27 0 0 693

15 Aurangabad 12 27 45 - 33 15 - - - 34 10 45 44 265 16 Jalna - 34 38 - 16 23 - - - 37 22 38 37 245 17 Beed 23 32 48 - 43 26 44 48 22 45 21 48 47 447 Aurangabad

Div 35 93 131 0 92 64 44 48 22 116 53 131 128 957

18 Latur 37 37 37 - 37 37 36 34 29 37 37 37 21 416 19 Osmanabad 26 29 30 - 30 30 29 30 25 29 30 30 - 318 20 Nanded 54 58 - - - 58 - 58 - 58 58 58 58 460 21 Parbhani 22 30 24 - - 30 30 - - 30 27 30 30 253 22 Hingoli 22 20 - - - 22 9 - - 22 22 22 22 161 Latur Div 161 174 91 0 67 177 104 122 54 176 174 177 131 1608

23 Buldhana - 65 - - 38 65 - 65 - 65 65 65 65 493 24 Akola - 33 - - 7 33 - 33 - 33 31 31 33 234 25 Washim 19 27 - - 14 27 - 17 - 25 27 27 26 209 26 Amravati 7 57 - - 34 57 - 30 - 45 18 55 59 362 27 Yavatmal 8 59 - - 4 59 - - - 44 29 55 59 317 Amravati

Div 34 241 0 0 97 241 0 145 0 212 170 233 242 1615

28 Wardha - 34 - - 9 34 - - - - - 34 34 145 29 Nagpur 20 32 - - 14 43 - - - 8 8 39 25 189 30 Bhandara 24 - - - - 15 - - - - - - - 39 31 Gondia 25 - - - - - - - - - - - - 25 32 Chandrapur 38 16 - - - 33 - - - - - 28 19 134 33 Gadchiroli 28 - - - - - - - - - - - - 28 Nagpur Div 135 82 0 0 - 125 0 0 0 0 0 101 78 560 State Total 779 938 600 257 776 816 209 404 119 779 624 872 758 7931

Contd…

Sr. No.

Crops Talukas Total

District Kharif Jowar

Kharif Onion

Sugarcane Adseli

Sugarcane Preseasonal

Sugarcane Suru

Sugarcane Ratoon

1 Thane - - - - - - 0 2 Raigad - - - - - - 0 3 Ratnagiri - - - - - - 0 4 Sindhudurg - - - - - - 0 Konkan Div 0 0 0 0 0 0 0

5 Nasik - 12 7 5 11 12 47 6 Dhule 4 3 1 2 3 2 15 7 Nandurbar 6 - 1 2 2 3 14 8 Jalgaon - - 3 4 8 8 23 Nasik Div 10 15 12 13 24 25 99

9 Ahmednagar - 11 11 12 14 14 62 10 Pune - 4 9 10 8 11 42 11 Solapur - 11 11 10 11 11 54 Pune Div 0 26 31 32 33 36 158

12 Satara - 5 8 8 8 9 38 13 Sangli - - 8 10 10 10 38 14 Kolhapur - - 9 10 12 12 43 Kolhapur Div 0 5 25 28 30 31 119

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Sr. No.

Crops Talukas Total

District Kharif Jowar

Kharif Onion

Sugarcane Adseli

Sugarcane Preseasonal

Sugarcane Suru

Sugarcane Ratoon

15 Aurangabad 8 - 5 7 8 8 36 16 Jalna - - 6 7 8 7 28 17 Beed - - 5 8 10 9 32 Aurangabad

Div 8 8 16 22 26 24 96

18 Latur - - 5 9 8 10 33 19 Osmanabad 8 - 4 5 8 8 33 20 Nanded - - 3 11 9 10 33 21 Parbhani - - 2 7 8 8 25 22 Hingoli - - 1 3 2 2 8 Latur Div 8 0 16 35 35 38 132

23 Buldhana - - 1 - 2 2 5 24 Akola - - - - - - 0 25 Washim - - - - - 1 1 26 Amravati - - 2 3 4 3 12 27 Yavatmal - - - 4 4 5 13 Amravati Div 0 0 3 7 10 11 31

28 Wardha - - - 4 4 4 12 29 Nagpur - - - - 3 3 6 30 Bhandara - - 1 - 1 1 3 31 Gondia - - 1 2 - - 3 32 Chandrapur - - - - - - 0 33 Gadchiroli - - - - - - 0 Nagpur Div 0 0 2 6 8 8 24 State Total 26 46 105 143 166 173 659

5.1.3 STATES AND AREAS COVERED

The scheme has been extended to all the States. The State

has the responsibility to extend it for all the crops identified for

coverage in a given year. Moreover, States / Union Territories

once opting for the Scheme have to implement it for a minimum

period of three years. The participation in NAIS/RKBY is

compulsory for farmers growing notified crops by availing crop

loans from formal credit institutions. However, non-borrower

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farmers growing notified crops are also eligible to opt for the

scheme on voluntary basis.

5.1.4 FARMERS COVERED

All farmers including sharecroppers, tenant farmers

growing the notified crops in the notified areas are eligible for

coverage.

a) On a Compulsory basis : All farmers growing notified

crops and availing Seasonal Agricultural Operations

(SAO) loans from Financial Institutions i.e. Loanee

Farmers

b) On a Voluntary basis : All other farmers growing notified

crops (i.e. Non-Loanee Farmers) who opt for the Scheme.

5.1.5 RISKS COVERED AND EXCLUSIONS

Comprehensive risk insurance cover provided by NAIS is

multi-peril in nature. It covers yield losses due to non-

preventable risks, which includes :

1. Natural fire and lightning

2. Storm, Hailstorm, Cyclone, Typhoon, Tempest,

Hurricane, Tornado etc.

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3. Flood, Inundation and Landslide

4. Drought and dry spells

5. Pests / Diseases etc.

Losses arising out of war and nuclear risks, malicious

damage and other preventable risks are excluded from the

insurance cover.

5.1.6 SUM INSURED / LIMIT OF COVERAGE

The Sum Insured may extend to the value of the

threshold yield of the insured crop at the option of the insured

farmer. However a farmer also has the option to insure his crop

beyond the value of threshold yield level (up to 150% of average

yield) of the crop in the notified area on payment of premium at

commercial / actuarial rates.

In case of Loanee farmers the sum insured would be at

least equal to the amount of crop loan advanced.

Further, in case of Loanee farmers, the Insurance Charges

shall be additionality to the Scale of Finance for the purpose of

obtaining loan.

In matters relating to Crop Loan disbursement

procedures, guidelines of RBI / NABARD will be binding.

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5.1.7 PREMIUM RATES

The Government at the time of introduction of NAIS

decided to continue with the 'flat rate' system of premium

followed in the CCIS. Flat rate is crop specific and depends on

the level of indemnity desired by the farmer and is the same

across the whole country. The flat rate of premium applies to all

the major crops including food grains, pulses and oilseeds. The

limited number of commercial and horticultural crops, which are

included in the list of insurable crops, attracts actuarial rate of

premium. The premium rates fixed for the crop year 1999-2010

have been presented in Table 12. The premium rates being

charged currently are ad-hoc in nature. The actuarial premium

will be charged for cereals, millets, pulses and oilseeds within a

period of five years.

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Table 2 : PREMIUM RATES CHARGED UNDER NAIS / RKBY

Sr.No. Season Crops Premium Rate

01 Kharif Bajra and oilseeds 3.5% of Sum Insured (SI)

or Actuarial rate

whichever is less

Other crops (cereals,

other millets and pulses)

2.5% of SI or Actuarial

rate whichever is less

02 Rabi Wheat 1.5% of SI or Actuarial

rate whichever is less

Other crops (other

cereals, millets, pulses

and oilseeds)

2% of SI or Actuarial rate

whichever is less

03 Kharif

and Rabi

Annual Commercial /

horticultural crops

Actuarial Rates

5.1.8 PREMIUM SUBSIDY

Small / Marginal farmers are subsidized in premium to

the extent of 50% to be shared equally between the Central and

State Governments. The premium subsidy is, however, to be

phased out over a period of three to five years, subject to review

of the financial results and the response of the farmers at the end

of the first year of the implementation of the scheme.

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5.1.9 SCHEME APPROACH

The scheme covers losses from sowing to harvesting, and

operates on an ‘Area Approach’ for widespread calamities. For

this purpose, a unit of insurance is defined. It may be a Gram

Panchayat, Mandal, Hobli, Circle, Phirka, Block, Taluka etc., to

be decided by the State Government / UT. However, each

participating State Government / UT, was required to reach the

level of Gram Panchayat, as the unit, within a maximum period

of three years.

The Scheme is to operate on ‘individual’ basis for

specified localized calamities. Scheme would be implemented in

limited areas on experimental basis initially and shall be

extended in the light of operational experience gained. The

District Revenue administration will assist Implementing

Agency in assessing the extent of loss.

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5.1.10 SEASONALITY DISCIPLINE

a) The broad seasonality discipline followed for Loanee

farmers is as under :

Activity Kharif Rabi

Loaning period April to

September

October to next

March

Cut-off date for

receipt of

Declarations

November May

Cut-off date for

receipt of yield

data

January / March July / September

b) The broad cut-off dates for receipt of proposals in respect

of Non-loanee farmers is as under :

Kharif Season : 31st July

Rabi Season : 31st December

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5.1.11 FUNDING

All the claims related to food crops and oilseeds beyond

100 per cent of the premium shall be borne by the government

of India and the States on 50:50 basis till a complete transition is

made from flat rate to actuarial regime. The claims beyond 150

per cent of the premium in the first three years and 200 per cent

of the premium for an extended period of additional three years

thereafter shall be met by implementing agency. Claims beyond

the limits of implementing agency shall be paid out of the

Corpus fund for a period of three years. However, the period of

three years stipulated for this purpose will be reviewed on the

basis of the financial results after the first year of

implementation and the period will be extended to five years if

considered necessary.

In the case of commercial / horticultural crops, the

implementing agency shall bear claims up to 150 per cent of the

premium in the first three years and 200 per cent of the premium

thereafter subject to satisfactory claims experience. The claims

beyond the limits of implementing agency shall be paid out of

Corpus fund. A Corpus Fund is to be created with contributions

from the Government of India and State/Union Territories on

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50:50 basis to meet the catastrophic losses. A portion of

Calamity Relief Fund will be used for contribution to the Corpus

Fund.

5.1.12 ESTIMATION OF CROP YIELD

The State/UT Government will plan and conduct the

requisite number of Crop Cutting Experiments (CCEs)

(Appendix 8) for all notified crops in the notified insurance units

in order to assess the crop yield. A Technical Advisory

Committee (TAC) comprising representatives from N.S.S.O.,

Ministry of Agriculture (G.O.I) and Implementing Agency shall

decide the sample size of CCEs and all other technical matters.

The minimum number of CCEs to be carried out at different

levels of insurance units has been presented in Table 13.

Table 3 : MINIMUM NUMBER OF

CROP CUTTING EXPERIMENTS PER UNIT AREA Sr. No. Unit Area Minimum

Number of

CCEs

01 Taluka / Block 16

02 Mandal / or smaller area comprising 8-10

villages

10

03 Gram Panchayat comprising 4-5 villages 08

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5.1.13 LOSS ASSESSMENT, LEVELS OF

INDEMNITIES AND THRESHOLD YIELD

The indemnity levels are fixed at 90 per cent, 80 per cent

and 60 per cent corresponding to low risk, medium risk and high

risk areas based on variability (coefficient of variation) in yields

in the past 10 years. The crops are classified as Low Risk when

the coefficient of variation (CV) is less than 15 per cent,

Medium Risk when the CV is between 16 per cent and 30 per

cent and High Risk when the CV is higher than 30 per cent. The

insured farmers of the notified area may opt for higher level of

indemnity on payment of additional premium based on actuarial

rates. The difference between the level of indemnity and the

actual yield loss acts as a sort of deductible.

The Threshold Yield or the guaranteed yield for a crop in

the particular notified area is the moving average based on past

three year average yield in case of rice and wheat and five year

average in case of other crops multiplied by the level of

indemnity. If the actual yield per hectare of the insured crop for

the defined area (based on Crop Cutting Experiments) in the

insured season falls short of the specified Threshold Yield, all

the farmers growing that crop in the defined area are deemed to

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have suffered shortfall in their yield. The shortfall in actual yield

as the proportion of threshold yield times the sum insured is the

indemnity claim.

5.1.14 NATURE OF COVERAGE AND INDEMNITY

If the ‘Actual Yield’ (AY) per hectare of the insured crop

for the defined area [on the basis of requisite number of CCEs in

the insured season, falls short of the specified ‘Threshold Yield

(TY), all the insured farmers growing that crop in the defined

area are deemed to have suffered shortfall in their yield. The

Scheme seeks to provide coverage against such contingency

Indemnity is calculated as per the following formula :

Farmers TheFor InsuredSumXYieldThresholdYieldinShortfall

[Shortfall = Threshold Yield – Actual Yield for the Defined

Area]

5.1.15 PROCEDURE FOR APPROVAL &

SETTLEMENT OF CLAIMS

Once the Yield Data is received from the State / UT

Government as per the prescribed cut-off dates, claims will be

133

worked out and settled by Implementing Agency. The claim

cheques along with the claim particulars will be released to the

individual Nodal Banks. The Banks at the grass root level, in

turn, shall credit the accounts of the individual farmers and

display the particulars of beneficiaries on their notice board.

In case of localized phenomenon viz. hailstorm, landslide,

cyclone and flood, the Implementing Agency shall evolve a

procedure to estimate such losses at individual farmer level in

consultation with DAC / State / UT. Settlement of such claims is

on individual basis between Implementing Agency and insured.

5.1.16 FINANCIAL SUPPORT TOWARDS

ADMINISTRATION & OPERATING (A&O)

EXPENSES

The A&O expenses are shared equally by the Central

Government and respective State Government on sunset basis

(100% in 1st year, 80% in 2nd year, 60% in 3rd year, 40% in 4th

year, 20% in 5th year and ‘zero’ thereafter).

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5.2 PERFORMANCE OF THE NAIS / RKBY

Initially, during Rabi 1999-2000 seasons, only 9

States/UT participated in the National Agricultural Insurance

Scheme. The scheme covered 579940 farmers and 780569 ha of

cropped area (Table 5.4). The coverage under NIAS increased

dramatically after kharif 2000. The number of farmers covered

under NAIS increased from 8409374 farmers in Kharif 2000 to

12983876 by Kharif 2008 and the area coverage reached

17693192 hectares from 13219829 during this period. The

number of participating farmers and area covered under NAIS

were lower during Rabi season when compared with Kharif

season. In eight Kharif seasons, since Kharif 2000, a total of

100522926 farmers have been covered, as against 35146282

farmers in nine Rabi seasons since Rabi 1999-2000. The trend in

Kharif coverage appears to be linked to the expansion of

participating States, crop notified, extent of drought and non-

borrower farmer’s decision to participate in the scheme. Non-

borrower farmers generally opted for crop insurance only

selectively, after being almost certain of crop failure2. During

2 In Kharif a farmer can go for insurance during 1st April to 30th June. Some indication of monsoon becomes available around that time. Based on the subjective assessment about rainfall and consequent impact on crop, farmers opted for crop insurance if they expected severe damage to crop

135

the entire period from 1999-00 through 2009-10, the NAIS

covered 135669208 farmers and 210910866 hectares area. The

total sum insured during Kharif and Rabi seasons taken together

was to the tune of Rs. 148278.19 Crores and the premium

collected was Rs. 4427.39 Crores (Table 14).

and were sure to get insurance claim. The phenomenon is often referred to as “Adverse Selection” in technical parlance.

136

Table 4 : NATIONAL AGRICULTURAL INSURANCE SCHEME ALL

INDIA YEARWISE / SEASONWISE BUSINESS STATISTICS 21 SEASONS

SINCE RABI 1999-20003

3 Source : Agricultural Insurance Company Of India Limited, New Delhi

S.N. Season Farmers

Covered

Area (Ha) Rs. In Crores Farmers

Benefitted Sum

Insured

Premium Subsidy Claims

1 Rabi 1999-00 579940 780569 356.41 5.42 1.66 7.69 55288

2 Kharif 2000 8409374 13219829 6903.38 206.74 47.40 1222.48 3635252

3 Rabi 2000 -01 2091733 3111423 1602.68 27.79 8.24 59.49 526697

Total 2000 - 01 10501107 16331252 8506.07 234.52 55.64 1281.97 4161949

4 Kharif 2001 8696587 12887710 7502.46 261.62 47.62 493.54 1741873

5 Rabi 2001-02 1955431 3145873 1497.51 30.15 7.79 64.66 453325

Total 2001-02 10652018 16033583 8999.97 291.77 55.41 558.20 2195198

6 Kharif 2002 9768711 15532349 9431.69 325.47 44.86 1824.31 4297155

7 Rabi 2002-03 2326811 4037824 1837.55 38.50 6.73 188.55 926408

Total 2002-03 12095522 19570173 11269.24 363.97 51.59 2012.86 5223563

8 Kharif 2003 7970830 12355514 8114.13 283.33 24.45 652.68 1712269

9 Rabi 2003-04 4421287 6468663 3049.49 64.06 6.24 497.06 2098125

Total 2003-04 12392117 18824177 11163.62 347.39 30.69 1149.74 3810394

10 Kharif 2004 13687104 24273394 13170.62 458.94 20.09 1038.17 2674743

11 Rabi 2004-05 3531045 5343244 3774.21 75.85 4.12 160.57 772779

Total 2004-05 16218149 29616638 16944.83 534.79 24.21 1198.74 3447522

12 Kharif 2005 12673833 20531038 13519.10 449.95 20.44 1059.94 2666221

13 Rabi 2005-06 4048524 7218417 5071.66 104.82 5.23 338.30 980511

Total 2005-06 16722357 27749455 18590.76 554.77 25.67 1398.24 3646732

14 Kharif 2006 12934050 19672930 14759.25 467.30 26.55 1774.91 3131511

15 Rabi 2006-07 4977980 7632882 6542.21 142.88 7.97 515.96 1390430

Total 2006-07 17912030 27305812 21301.46 610.18 34.52 2290.87 4521941

16 Kharif 2007 13398561 20754384 17007.56 524.31 26.65 913.37 1589973

17 Rabi 2007-08 5044016 7387156 7466.63 158.71 14.69 809.45 1576748

Total 2007-08 18442577 28141540 24474.19 683.02 41.34 1722.82 3166721

18 Kharif 2008 12983876 17693192 15658.32 511.66 34.10 2371.55 4206590

19 Rabi 2008-09 6169515 8864475 11013.33 289.89 68.95 1237.42 1645564

Total 2008-09 19153391 26557667 26671.65 801.55 103.05 3608.97 5852154

Grand Total 134669208 210910865 148278.19 4427.39 423.77 15230.11 36081462

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5.3 PERFORMANCE ACROSS THE STATES

Table 5 : NATIONAL AGRICULTURAL INSURANCE SCHEME

STATEWISE BUSINESS STATISTICS FROM

(RABI 1999-2000 TO RABI 2008-2009)4

4 Source : Agricultural Insurance Company Of India Limited, New Delhi

State Farmers Covered

(000)

Area (000) (Ha)

Rs. In Crores Farmers Benefitted

(000)Sum

InsuredGross

PremiumPremium Subsidy Claims

Andhra Pradesh 22270 34719 36712 1060 107 3332 5192Assam 192 149 260 7 0.768 9 35A & N Islands 1 2 2 0.04 0.011 0.006 0.059Bihar 4792 5906 8948 221 21 1703 1810Chhattisgarh 6667 13761 5417 139 8 367 1597Goa 7 12 2 0.042 0.011 0.024 0.702Gujarat 10147 23806 21557 874 48 3846 3670Haryana 586 684 662 20 0.603 34 118Himachal Pradesh 214 157 192 4 1 17 104Jammu & Kashmir 27 38 26 0.504 0.035 0.544 2Jharkhand 5078 2744 2218 56 3 473 1865Karnataka 10302 17113 11863 373 21 1590 4361Kerala 351 301 510 11 2 22 65Madhya Pradesh 18869 48665 21779 637 23 1018 3715Maharashtra 25741 23361 14989 579 76 1859 8584Manipur 11 11 30 0.748 0.066 2 11Meghalaya 23 26 34 2 0.288 0.418 2Mizoram 0.121 0.134 0.232 0.006 0.0006 0.112 0.119Orissa 10311 10414 11091 275 37 543 1756Puducherry 28 42 62 1 0.276 2 5Rajasthan 15059 31380 16203 458 7 2622 5201Sikkim 2 1 2 0.025 0.004 0.013 0.086Tamilnadu 3333 4588 7430 172 78 1253 1340Tripura 16 10 20 0.6 0.067 0.583 3Uttar Pradesh 16228 22314 19078 389 34 859 3785Uttarakhand 235 231 446 9 0.795 29 89West Bengal 8141 4143 7376 296 94 855 1933Total 158631 244577 186912 5584 563 20437 45245

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Currently NAIS has been adopted by 24 states and two

union territories by 2008-09. Their performance in the states has

been judged on the basis of their contribution to the six selected

performance indicators, namely, farmers covered, area covered,

sum insured, premium collected, claims made and farmers

benefited Table 15. The performance differed significantly

across the states. We found that 11 of the states, namely, Andhra

Pradesh, Bihar, Gujarat, Karnataka, Madhya Pradesh,

Maharashtra, Orissa, Rajasthan, Tamilnadu, Uttar Pradesh and

West Bengal accounted for over 90 per cent to total value of

individual indicators as shown in Table 16. In fact Bihar

contributed significantly only to claims made and farmer

beneficiaries, Orissa to farmers covered, sum insured and

subsidy claimed, Tamilnadu to subsidy and claims and West

Bengal to subsidy claimed.

Seven among the eleven states identified in Table 16

ranked from 1-7 for the first four performance indicators (Table

17). Gujarat was selected with overall rank of 3 and Karnataka

with overall rank of 7.

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Table 6 : SHARE OF MAJOR STATES IN SELECTED PERFORMANCE

INDICATORS (2008-09)

State Farmers Area Sum

insured Premium Subsidy Claims Benefited

Andhra Pradesh 14.0 14.1 19.8 18.8 21.6 17.4 13.9

Bihar 2.8 2.2 4.2 3.2 3.4 7.1 8.1

Gujarat 6.8 10.3 12.5 17.3 10.5 20.6 20.3

Karnataka 6.8 7.4 7.0 7.5 4.6 9.5 11.1

Madhya

Pradesh 12.0 20.3 11.4 11.3 4.8 5.9 6.8

Maharashtra 17.0 10.0 8.4 10.7 14.1 10.0 11.7

Orissa 6.8 4.4 6.2 5.2 8.0 3.3 3.8

Rajasthan 8.9 12.3 8.6 8.0 1.4 7.9 8.7

Tamilnadu 1.8 1.6 3.1 2.3 8.6 7.5 3.5

Uttar Pradesh 9.8 8.7 9.9 6.8 6.7 4.7 5.2

West Bengal 5.3 1.7 4.1 4.8 13.6 3.0 3.4

92 93 95.2 95.9 97.3 96.9 96.5

Table 7 : RANKING OF MAJOR STATES ON

FOUR PERFORMANCE INDICATORS

State Farmers Area Sum

Insured

Premium Overall

Andhra Pradesh 2 2 1 1 1

Gujarat 6 4 2 2 3

Karnataka 7 7 7 6 7

Madhya Pradesh 3 1 3 3 2

Maharashtra 1 5 6 4 4

Rajasthan 5 3 5 5 5

Uttar Pradesh 4 6 4 7 6

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The area covered under NAIS per farmer averaged to

1.57 hectares in 2008-09 (Table 18). It ranged from 0.46

hectares for Jharkhand to 2.62 hectares for Madhya Pradesh.

The only other states for which area covered per farmer was

more than 2.00 hectares were Gujarat, Rajasthan and

Chhatisgarh and up to 1.00 hectares for were Sikkim, West

Bengal, Tripura, Himachal Pradesh, Assam, Kerala and

Maharashtra. The sum insured per hectare Rs.3538 for

Chhatisgarh to Rs.21278 for Tripura with all India average of

Rs.7030 in 2008-09. It was more than Rs.10000 for Sikkim,

West Bengal, Uttaranchal, Kerala, Assam, Bihar, Tamilnadu,

Pondicherry and Meghalaya. In these states the high cost crops

were covered. Nevertheless the premium as per cent of the sum

insured was highest for Meghalaya (5.51%) followed by Gujarat

(4.15%), Maharashtra (3.81%), West Bengal (3.52%) and

Karnataka (3.19%) for the state as a whole. It was lowest for

Sikkim (1.01%) though per hectare sum insured was the highest

in this state. The claims were about 10 per cent of the sum

insured. It was highest for Tamilnadu (23.6%) followed by

Bihar (16.8%), Gujarat (16.4%), Jharkhand (13.7%), Karnataka

(13.5) and Maharashtra (11.8%). The claims were 2.8 times the

premium collected. It was more than 7 times in Bihar followed

141

by 4 times in Jharkhand, Karnataka and Tamilnadu. It was less

than premium only in some smaller states such as Goa, J&K,

Sikkim and Tripura. The farmers benefited from compensation

were 47 per cent in Tamilnadu followed by 42 per cent in

Karnataka, 37 per cent in Uttaranchal, 34 per cent in Bihar, and

32 per cent in Maharashtra. Elsewhere it was less than average

of 26 per cent for the country as a whole.

Table 8 : PERFORMANCE OF NAIS IN STATE / UT’s (2008-09)

State Area /

Farmer

(Ha)

Sum

Insured

(Rs/ha)

Premium

(% of SI)

SI / Prem

(Rs./Re)

Claims

(% of SI)

Claims /

Premium

Farmers

Benefitted

(%)

Claims /

Farmer

(Rs.)

A.P. 1.57 9855 2.84 11.0 8.75 2.11 21 4513

Assam 0.76 14479 2.61 12.4 2.77 1.05 14 2115

Bihar 1.21 13756 2.26 10.1 16.77 7.26 34 8081

Chhattisgarh 2.07 3538 2.59 5.98 5.76 2.22 21 1971

Goa 1.57 2127 1.71 25 0.86 0.50 14 200

Gujarat 2.36 8509 4.15 5.78 16.43 3.34 34 8177

Haryana 1.14 8895 2.72 2.94 5.92 2.13 21 2754

H.P. 0.75 9733 2.10 25.3 4.90 2.34 42 846

J & K 1.39 5894 1.91 8.33 0.53 0.28 4 1000

Jharkhand 0.46 6688 2.52 5.96 13.74 4.56 24 1500

Karnataka 1.69 6690 3.19 5.88 13.47 4.23 42 3663

Kerala 0.85 1660 2.11 17.9 4.97 2.35 20 3441

M.P. 2.62 3971 2.96 4.06 5.17 1.71 21 2560

Maharashtra 0.94 5908 3.81 12.60 11.83 3.10 32 2038

Meghalaya 1.17 10976 5.51 18.10 1.39 0.25 6 3200

Orissa 1.02 9953 2.49 14.60 5.29 2.09 18 2942

Rajasthan 2.15 4931 2.77 1.64 9.18 3.10 26 3452

Sikkim 0.50 19800 1.01 0 0.51 0.50 Neg -

Tamilnadu 1.44 13582 2.23 34.90 23.62 4.21 47 3873

Tripura 0.60 21278 2.92 10.70 3.03 0.95 20 1767

Uttar

Pradesh

1.38 8061 2.04 9.39 4.68 2.20 24 2067

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State Area /

Farmer

(Ha)

Sum

Insured

(Rs/ha)

Premium

(% of SI)

SI / Prem

(Rs./Re)

Claims

(% of SI)

Claims /

Premium

Farmers

Benefitted

(%)

Claims /

Farmer

(Rs.)

Uttaranchal 1.13 16394 1.79 8.26 7.49 2.83 37 2573

W.B. 0.51 16561 3.52 27.00 7.25 2.01 18 3340

A&N 2.00 7850 1.91 33.30 0.64 0.33 Neg -

Pondicherry 1.54 13486 1.90 18.90 4.55 1.87 21 3560

Total 1.57 7030 2.99 9.56 9.96 2.85 26 3552

5.4 COMPARATIVE PICTURE OF VARIOUS

AGRICULTURAL INSURANCE SCHEMES

A brief account of all crop insurance schemes5 launched

in India till date is presented in Table 19.

Table 9 : VARIOUS SCHEMES RELATED TO CROP INSURANCE IN

INDIA AND THEIR FEATURES

Insurance scheme

Period Appro-ach

Crops covered

Farmers covered (Lakh)

Amount ( Rs. Crores )

Salient features

Pre-mium

Claim

Crop Insurance Scheme

1972-78 Indivi-dual

H-4 Cotton, groundnut, wheat, potato

0.03 0.05 0.38 Voluntary Implemented in 6 states

Pilot Crop Insurance Scheme (PCIS)

1979-85 Area Cereals, millets, oilseeds, cotton, potato and chick pea

6.23 1.95 1.56 Confined to loanee farmers, voluntary, 50% subsidy on premium for small and marginal farmers

5 NCAP Working Paper No. 8, Agricultural Insurance In India- Problems and Prospects by S S Raju and Ramesh Chand, March 2008

143

Insurance scheme

Period Appro-ach

Crops covered

Farmers covered (Lakh)

Amount ( Rs. Crores )

Salient features

Pre-mium

Claim

Comprehensive Crop Insurance Scheme (CCIS)

1985-99 Area Food grains and oil seeds

763 404 2303 Compulsory for loanee farmers

Experimental Crop Insurance Scheme (ECIS)

1997-98 Area Cereals, pulses and oil seeds

4.78 2.86 39.78 For covering non-loanee small and marginal farmers also in addition to loanee farmers.

National Agricul-tural Insurance Scheme (NAIS)

1999-Continuing (2008-09)

Area and Individual

Food grains, oilseeds, annual commercial and horticultural crops

191.53 0.80 (In

lakhs)

3.60 (In

lakhs)

Available to all farmers. 10 per cent Premium subsidy for small and marginal farmers.

Farm Income Insurance Scheme (FIIS)

2003-04 Area Wheat and rice

2.22 15.68 1.5 Insurance against production and market risks. Compulsory for loanee farmers.

Weather / Rainfall Insurance

2003-04- Continuing

Indivi-dual

Food grains, oilseeds annual commercial and horticul-tural crops.

5.39 N.A. N.A. Available to all farmers. Based on rainfall received at the IMD / block rain gauges.

144

5.5 SHORTCOMINGS OF NAIS

Though some of the shortcomings of the CCIS were

addressed by enlarging the scope and coverage in terms of crops

and farmers covered under NIAS/RKBY, the Scheme could not

make much dent and covered less than 10 per cent of the

cropped area in the country. The premium rates being charged

had no relation with actuarial rates. This is largely because

actuarial rates, which reflect the probability of a loss, have not

yet been computed. The scheme is not financially viable, as it

depends on government for subsidization. The claim premium

ratio is still very high. The question is posed that if disaster

strikes how the government will manage the claims? Secondly,

it is argued that the scheme is not a crop insurance scheme in

reality but rather a crop loan insurance scheme. It aims to

underwrite agricultural lending and not the agricultural risk.

Third, though the area yield approach minimizes or eliminates

the problem of moral hazards, another problem closely

associated with insurance business, i.e., adverse selection seems

to be affecting the existing NIAS/RKBY as indicated by higher

claim premium ratio or loss ratio (claims paid as the percentage

of sum insured) for non-loanee farmers. Fourth, there is

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inordinate delay in settling the claims in the event of crop

failures or low yields. The farmer is hard pressed due to reduced

or no access to institutional credit and faces liquidity crunch to

begin new operation. Fifth, the government has not explored the

avenues for reinsurance to absorb the shocks in case of

widespread calamities and disasters.

5.6 AGRICULTURE INSURANCE COMPANY

(AIC) OF INDIA LIMITED

Prior to 2002-03 General Insurance Corporation of India

spearheaded crop insurance programmes. Recognizing the

necessity for a focused development of crop insurance

programme in the country and an exclusive organization to carry

it forward, the Union Finance Minister in his budget speech for

2002 proposed setting up an exclusive organization. A Task

Force was constituted to oversee the setting up of the

Agriculture Insurance Company of India Limited. The Task

force decided that the new company will be named as

“Agriculture Insurance Company (AIC) of India Limited” and

will be registered under the companies Act 1956. Accordingly,

the Agriculture Insurance Company of India Limited came into

146

being on December 20, 2002. The company has obtained

registration from the Insurance Regulatory and Development

Authority under the Insurance Act 1998. The General Insurance

Corporation of India, National Bank for Agriculture and Rural

Development (NABARD) and four public sector general

insurance companies, viz., (i) National Insurance Company

Limited, (ii) The New India Assurance Company Limited, (iii)

The Oriental Insurance Company Limited and (iv) United India

Insurance Company Limited are the promoters of the new

Agriculture Insurance Company. General Insurance Corporation

of India has subscribed 35 per cent and NABARD 30 per cent to

the paid up capital while four public sector insurance companies

have contributed 8.75 per cent each. The authorized capital of

the new organization will be Rs. 1,500 crores, while the initial

paid-up capital is Rs. 200 crores. The Agriculture Insurance

Company of India Ltd is implementing NIAS/RKBY without

effecting any change in its content, which was being managed

by the General Insurance Corporation of India. However, the

existing adhoc premium rates will be substituted by the actuarial

rates in due course of time.

147

The government plans to shift to an actuarial regime

soon. While this will push up premium rates, the approach will

be more scientific. The government should subsidize a part of

the premium to relieve farmers. A separate agency AIC of India,

dedicated to agricultural insurance is expected to work on

products suitable to Indian conditions and reduce the subsidy

burden on the exchequer. Government support will be

necessary, but comprehensive agriculture insurance will go a

long way in protecting farmers from uncertainties. AIC of India

will devise different insurance products suitable to Indian

conditions and offer to farming community in the near future.

5.7 ICICI LOMBARD GENERAL INSURANCE

COMPANY LIMITED

ICICI Lombard has been a pioneer, in bringing weather

insurance solutions to the country’s farming community. It was

started in 2003 with a small pilot for 230 groundnut and castor

farmers in Mahbubnagar (Andhra Pradesh). In the year 2006, the

product was offered to a larger geographical area and covered a

wide range of crops. In the year, the company insured 1,29,440

farmers and 1,51,866 acres of cropped area of various crops and

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sum insured was Rs. 37.0 crores. The crops, parameters and

states covered are, Soyabean -for deficit rainfall in Rajasthan

and Madhya Pradesh. Generic product for all field crops -

covering deficit rainfall during flowering and vegetative phases,

excessive rainfall during maturity and harvesting phases in

Andhra Pradesh, Madhya Pradesh, Maharashtra, Jharkhand,

Karnataka, Orissa, Rajasthan and Tamilnadu. Grapes -

excessive rainfall during fruit bud differentiation, resting

storage, fruit setting and ripening & maturity stages, deficit

rainfall during resting storage stage, excessively high

temperature and high variation in diurnal temperature during

berry growth and harvesting stages in Maharashtra and Andhra

Pradesh. Paddy - Prolonged dry spell during transplanting and

vegetative growth phases, excessive rainfall during maturity and

harvesting phases in Punjab. Cumin - High relative humidity for

a continuous period of time during the vegetative growth phase.

Coriander- covering frost like temperature conditions during

sowing and vegetative phases, unseasonal rainfall during the

crop maturity phase. Fenugreek-covering excessively high

temperature during days with high relative humidity during the

crop growth. Kinnu - covering excessively high temperature

during the initial growth cycle, deficit rainfall during the

149

flowering stage, high temperature during the maturity phase.

Oranges - for deficit rainfall , prolonged dry spell during

flowering, in Rajasthan. Wheat – for high temperature during

the heading and flowering stages, unseasonal rainfall during the

harvesting phase in Punjab, and Haryana. Cotton - for deficit

rainfall during the seed germination phase in Maharashtra.

Premium - in the absence of any support, premium rates have

varied from 8% to 12%, depending on the crop and weather

parameters covered. Claims experience has also varied

depending on the degree of loss and deviation of weather

parameters, with claims ratio going as high as 1800%, for some

crops.

5.7.1 CONCERNS :

High premium Rates: Risk costs for weather insurance

are higher, due to extreme variations in weather conditions, year

on year. For example, in Rajasthan, every five years, the

chances of drought are very high. Hence, insurance companies

need to charge risk premium adequately, in order to cover their

costs. In the process, if the cost of risk transfer by farmers to

insurance companies (through weather insurance), becomes

150

higher than the cost of risk-retention; the potential customers

may not find weather insurance an attractive proposition. In

order to bring down costs and subsequently for the future

success of this product, Government needs to provide as much

support, as it has been providing for Crop insurance.

Unlike crop insurance, weather insurance needs a

reference weather station, which provides weather data to settle

claims. Till a year ago, the India Meteorological Department

(IMD) was the only agency recording weather data, which could

be used to settle claims. Weather parameters such as Rainfall is

spatially variable, hence, rainfall at a district level need not

necessarily reflect the rainfall in all villages in that district. This

is also known as Basis risk.

However, now National Collateral Management Services

Ltd (NCMSL) has entered into installing automated weather

stations at any Taluka level, which considerably reduces basis

risk. NCMSL has installed 93 such stations spread across

various states for ICICI Lombard.

5.8 IFFCO – TOKIO GENERAL INSURANCE

COMPANY LIMITED

151

Barish Bima Yojana (Coverage and claims experience

of weather insurance pilots) The product was launched in Kharif

2004 in 9 districts of 4 states-Gujarat, Maharashtra, Andhra

Pradesh and Karnataka on a pilot basis. Availability of rainfall

data and rainfed regions were and are the factors in identifying

these districts. Considering the response in Kharif 2004, the

Yojna was extended to 100 districts across 7 states for Kharif

2005. In Kharif 2006, another 25 districts were added, making a

total of 125 districts in the following states - Gujarat,

Maharashtra, Andhra Pradesh, Karnataka, Madhya Pradesh,

Chhattisgarh, Tamil Nadu, Punjab, Haryana and Rajasthan. The

Claims under this Policy are settled within 3 months of expiry of

the policy. This Policy is not linked to the declaration or

nondeclaration of drought, by any official agency. The actual

yield of crops is not measured, as the insurable event is rainfall

deficiency, and not the actual shortfall in the crop yield.

Barish Bima Yojana is an index based Insurance product,

which provides protection to farmers against deficiency in

rainfall. The policy covers shortfall of rainfall based on the

variation between the ‘Total Weighted Actual Rainfall’ (total of

specified 4 months of Kharif season – June to September or July

152

to October) and Total Weighted Normal Rainfall (total of

specified 4 months of Kharif season – June to September or July

to October), of a specified reference weather stations based on

rainfall data provided by IMD / centers recognized by IMD.

At present the policy is for the Kharif season, and covers

practically every crop prevalent in the Kharif season. These

include food rains like Paddy, Bajra, Jowar, Maize, Pulses,

Groundnut, Sesame, Soya bean, sunflower and other oilseeds.