Agro risk and microinsuranceproducts for farmers

K. Gopinath, Head (Rural and cooperatives)IFFCO TOKIO General Insurance Co. Ltd., India

IFFCO Tokio General Insurance Co. LtdA Blend of Complementary Competencies

•World’s largest fertilizer manufacturer in co-

operative sector

•Membership of about 39,564 cooperative

societies

•Having Plants at Phulpur, Aonla, Kandla, Kalol

& Paradeep.

•Production of Fertilizers (2009-10): 819.7 mill MT

•Turnover (2009-10): US$ 3.85 billion

•A group company of Millea Holdings•Established in 1879

•Japan’s oldest and largest general insurance company and one of the top ten largest worldwide

•Net written premiums (2009-10) of US$ 42.20 billion

74%-26% JV between IFFCO and TokioMarine Asia (Japan)

Some facts about India

Population of more than 1 billion 72% Live in rural areasMore than 300 million people live below poverty lineIndia ranks second worldwide in farm outputAgriculture employs 52% of the total workforceAgriculture accounts for 17.5% of India’s GDP (WDI - World bank – 2008)

Some facts about India.......

More than 50% of the farmers have no access to irrigation and are dependent on monsoonHighly draught and flood proneCharacterized by small land holdingsInput costs highly subsidizedMore than 250 thousand farmers have committed suicide in the past decadeNearly 80% of the population is without any kind of insurance cover

Natural risks:hail/storm/firedrought/floodfrost/heatdisease/pests/wild animals

Risks in agriculture

Social risk:man-made fire/burglary/theftstrike/riot/vandalismwar/terrorism

Economic risks:input/output price fluctuationDepreciationInterest rate,currency changes

Catastrophic risks

Risks difficult to manage on

farm

Risks managed through risk

management on farm

Risk transfer

Risk transfer

Risk retention

Catastrophic insurance coverage

Insurance industry coverage

On-farm risk management; risk

reduction technologies and

practices

Weather insurance for farmers

Evolution of Crop Insurance Market

Individual indemnity based

Pilot Crop Insurance

Comprehensive Crop Insurance Scheme (CCIS)

National Agriculture InsuranceScheme (NAIS)

Weather Based Crop Insurance (WBCIs)

1972

1979

1985

1999

2003

Modified national agriculture scheme (MNAIS)

2010

Why Index based weather Insurance

Index based weather insurance is a way of providing protection against correlated risks such as extreme weather events and crop output.It does not calculate individual risksIt pays out to all policy holders in a geographic area where certain conditions are reached in the proxy, or index.Index insurance solves some of the difficult Challenges of agri-insurance like:

TransparencyAdverse selectionCosts of loss adjustmentsReduces prospects of frauds

Measurable Weather Risks: TemperatureRainfallSnowfallWind SpeedSunshine hoursSoil MoistureHumidity

Measurable Weather Risks normally covered under Weather Insurance:

TemperatureRainfallHumidity

Agri insurance Products from IFFCO - TOKIO

BarishBima

• Covering Excess /deficit rainfall during Kharif (Monsoon crops)

• Period - June to October

MausamBima

• Covering excess rainfall/ Temperature and humidity during Rabi (Winter crops)

• Period –November to April

Fasal Bima

• Yield based index and additionally covers AOG perils, pre sowing and post harvest losses

Process of making an index based product

• Peril Identification: Detailed correlation analysis to ascertain the impact of weather on crops and associated risks

• Index Setting: Involves assigning weights to critical time periods of crop growth

• Back testing for payouts: Testing based on historical data to ascertain adequate indemnification in the past

• Pricing: Dependent on components of expected loss, volatility of historical losses and management expenses

• Monitoring: Entails collection of weather data during the policy period and concurrent assessment of the ground conditions.

• Claims Settlement: Data is collected regularly and within 30 days of policy period, claims are settled

170mm

60mm

170mm

60mm 170mm 170mm

170mm

Wat

er

requ

irem

ent

Stag

es

Tim

e

Output

Phase-1

Seedling

15 DaysPhase-2

Vegetative

30 days

Phase-3

Reproductive

45 days

170mm

60mm

170mm

60mm 170mm 170mm

100mm

170mm

Loss in yield

Wat

er

requ

irem

ent

Stag

es

Tim

e

Actual Output

100mm

Phase-1

Seedling

15 DaysPhase-2

Vegetative

30 days

Phase-3

Reproductive

45 days

Product ExampleSample Product Termsheet

Period

Phase 1   (Sowing)

Phase 2 (Vegetative)

Phase 3 (Flowering)

1st June to 15th June

16th June to 15th July

16th July to 30th August

Rainfall Strike 60 170 170

Notional INR                                                        10.00 

Sum Insured INR                                                  4,000.00 

Claim Calculation

PeriodPhase 1 Phase 2 Phase 3

1st June to 15th June

16th June to 15th July

16th July to 30th August

Rainfall Required 60 170 170Rainfall Received 60 100 100

Deficit 0 70 70Payoff INR          ‐ INR   700.00  INR   700.00 

Total Payoff INR                                                   1,400.00 

Claims ProcessPolicy USP - Fast claim settlement.The calculation of a claim, if any, is done on thebasis of weather data recorded by a neutral 3rd partyweather monitoring agency.Insurer collects the certified weather data on aregular basis and computes the claim, if any after theexpiry of the policy period as per the policy termsand conditions.Insured farmer has to submit a simple Claim Form,copy of his or her Landholding proof and sign aDischarge voucher at the time of disbursal of claimcheque.Claims are settled within 45-60 days after the expiryof the policy.

Challenges in Weather Insurance Programs

Recent trend of Climate change.Historical data availability (30-35 years data).High cost of weather data.Basis risk- Inadequate no. of Automated Weather Stations (AWS).Lack of insurance education and awareness.Inadequate distribution channels.High distribution expenses.Delay in claim settlement to the farmers due to delay in receipt of premium subsidy from the Government.

Collaboration with RMSRMS and IFFCO TOKIO are collaborating on developing arobust Pricing tool for designing and pricing viable andaffordable Crop and Weather Insurance Products.A joint team of RMS & IFFCO–Tokio is closely working witheach other on this project. The first cut of the WBCIS tool isalready under testing and hope to use it in this monsoonseason itself.This tool will be equipped to handle the following:

Designing & PricingData cleansingPortfolio analysisCrop specific information GIS mapsWeather forecasting

Rashtriya Swasthya Bima Yojna

RSBY is a Govt. Of India sponsored scheme for the BPL population. The Premium is subsidized by the central and state governmentsBeneficiaries need to pay only Rs. 30 as registration fee to meet administrative expenses under the scheme.Eligibility - The beneficiary is BPL family, whose Information is included in the district BPL list prepared by the State Govt. RSBY Bima Yojana provides cover for hospitalization expenses Up to Rs. 30000/- for a family of five members on a floater basis. Transportation charges are also covered up to a maximum of Rs.1000/- With Rs. 100/ per visit.Each family is issued a biometric smart card and the policy administration is totally IT driven and cashless.

Rashtriya swasthya BimaFinger Print Scanner

Slot for Card Swipe

Sankat haran Bima Yojana

Personal Accident Policy for farmers buying IFFCOfertilizer through fertilizer Co-operativesLaunched in October 2001 for co-operative membersCompensation for a sum insured of Rs.4000/- per 50kgof Fertiliser bag in the event of Death or permanent totaldisablement due to accident.Maximum of Rs.1,00,000/- Sum Insured for one farmerirrespective of number of bags purchasedThe purchase bill is evidence of insurance contract.Policy will be effective for 12months : From 31st day of

date of cash memo

Sankat HaranClaims Documents

Claim Form duly filled in by claimantDeath CertificatePost-mortem Report Original receipt issued to the farmer at the time of purchasing fertiliser bag.IFFCO fertilizer officers certify the genuiness of the claim

Some more micro products …Janta Bima (Package policy for poor covering their House, personal assets and personal accident) Coverage ranging from Rs. 12,500 to Rs. 30,000 and premium ranges from Rs. 100 to Rs. 250Pasudhan Bima – Livestock Insurance covering death of the insured cattle due to disease or accidentMahila Suraksha – Personal accident policies for ladies self help groupsJan swasthya yojana – Group Hospitalisationcoverage for self help groups.

Thank you