M.Karthikeyan, Program Leader

11-13th April 2012University of Twente

Micro Crop Insurance for

Enhancing the Livelihoods of Small Farmers-

Pilots by DHAN Foundation

1. About DHAN Foundation

2. Context of DHAN’s action research on micro crop insurance

3. Crop insurance initiatives

4. Action research on product design and delivery

5. Challenges in need of further

research

Content of my presentation

About DHAN Foundation

• DHAN is a grassroots development organisation working with 0.9 million poor families across 12 states in India

• Currently working with around 287000 farming families as part of Tank-fed Agriculture and Rainfed Farming programs

• Has been taking up insurance related interventions since 1997

Risk context of tank-fed and rainfed farming families

Controllable risks ?!!!• Pests• Diseases• Weeds

Uncontrollable risks Rainfall – Deficit

(major), Excess, Mismatch in distribution

Climate change

Risk context of tank-fed and rainfed farming families…• Deficit rainfall, a production risk, is a

major risk affecting more than 60 to 80 % of the yield– 25% of annual income drop is noticed– Directly affect in rainfed agriculture– Indirectly affect by inadequate filling of

rainfed tanks in tank-fed agriculture• It is recurrent

Market context

• Insurance companies were not able to meet the location specific needs through customized policies on a micro scale

– An exclusive issue like un-controllable pest problem

- Difference in crop practices across the locations and so the risk

- Affordable and functional farm unit

size

Agriculture insurance demand context

• Lack of knowledge on insurance• Farmers not ready to pay actuarial based

premiums- Classic problem in pricing risk: People forget bad events

• Lack of customised products• Lack of free access to institutions offering

insurance• Lack of effective insurance delivery

mechanism

DHAN intervention context

• As part of a comprehensive intervention program involving natural resource management (land development, tank rehabilitation), crop production support like supply of quality seeds, microfinance for agriculture & livestock development

• With farmers’ organisations as platform

Organisational context

Instit utions 15-20 members

Men/women farmers Adjacent land holders

Microfinance as supporting

tool

10 – 20 UK in 2 – 3 villages

Institutions 150 to 200 UK in 10 to 15

villages

Rainfed Farmers

Association

Uzhavar groups

(UK)

Rainfed Farmers

Federation

Research Institutions,

Banks, Agriculture department

Crop insurance initiatives

Products piloted

•Deficit Rainfall Insurance

•Dryspell insurance

•Mutual Deficit Rainfall Insurance

•Mutual Pest Insurance

•Mutual Crop Income Insurance

Enrollment so farSl.no Year & Type No of farmers Extent (hec)

Premium(Rs.)

Claims(Rs.)

1 2004-05 Colla 272 58.00 50168 53673

2 2005-06 Colla 604 142.00 151095  

32006 - 07 Colla &

Mutual 374

136.00 80,426

-

42007 - 08

Mutual 909

726.33

2,45,166

7,16,325

52008 - 09

Mutual 1,042

566.50

4,64,288

3,03,152

62009 - 10

Mutual 1,051

617.11

4,69,014 88,680

72010 - 11 Mutual &

Colla- AIC 5,914 1,558.76

15,58,244

23,90,354

82011 - 12

Colla- AIC 5,633 1,164.23

10,09,838

2,75,040

Action research on product design

Design issue Changes exploredFirst year: Single phase deficit rainfall index products customised to the specific site; Farmers’ perception of rainfall requirement – quality and criticality as the basis for design

Changes in the 2nd year based on learning in the first year

Mismatch between the policy date and actual sowing date- basis risk

Preparing in advance policies for various dates in the sowing season at 5 days interval and selection of the nearest day policy based on actual sowing date.

Excess rainfall in one day skewing the index & ineffective low amount of rainfall inflating the index

Max. rainfall limit per day as 60mm and min. as 5mm.

Action research on product design…

Design issue Changes explo

Rainfall in the first week of a segment (Say July 25th to Aug 23rd) and in the last week of next segment (Say Aug 24th to Sep 23rd), with continuous dry spell in between for 6 weeks skewing the index

Increasing segmentation of crop period from 4 to 5.

Rainfall cap for each segment based on historical average

Based on crop water requirement

Action research on product design…

Design issue Changes explo

Changes in the third year over the second yearSingle phase policy Multiple phase policy- More

close to water requirement of the crop

Max. rainfall per day 60 mm To 40 mm- Improve the effectiveness

Action research on product design…

Design issue Changes explored

Changes in the fourth over the third year

Spatial basis risk Installation of raingauges in the working villages and using their data for payout calculation-158 automatic raingauges installed at 2 to 8 km radius

Action research on product design…

Design issue Changes exploChanges in the fourth over the third year…

Weather index based insurance for groundnut

Mutual crop income insurance

-Design did not properly reflect the impact of ‘pattam’- ideal sowing period

-Indemnity based

-Difficulty in evolving a near perfect product – significant basis risk exist even after lot of fine tuning

-Both yield and price risk covered

-Difficult to comprehend by farmers; they see the results and not the only parameter covered by the index

Action research on product delivery mechanism

Delivery issue Changes explored

Less flexibility of the insurance companies in terms of coverage of crops, products and organisations involved

Co-creation with private insurer- joint product design and delivery

Mutual model with reinsurance support from Achmea Re

Co-creation with public insurer

Mutual crop insurance

• Mutual crop insurance is a ‘process based’ insurance mechanism, built on time tested mutuality practice in the farming community

• It is owned by the insured farming community, and designed and managed by the wiser farmers from the insured farming community

Why DHAN went for Mutual Crop Insurance?...

• To meet the location specific needs

• Housing design, implementation and decision making with the local community

There by increasing their ownership and awareness

Thereby attempting to link risk transfer and risk education and prevention

Inspiration and Support for this initiative

• Experience of mutual crop insurance in Netherlands

• The training and technical support given by Mutual Insurance Association of Netherlands (MIAN) and financial support and back up guarantee support given by Achmea Re

Community organisation (CO) for livelihood enhancement and risk management- RFDP

Instit utions 15-20 members

Men/women farmers Adjacent land holders

Microfinance as supporting

tool

10 – 20 UK in 2 – 3 villages

Institutions 150 to 200 UK in 10 to 15

villages

Rainfed Farmers

Association

Uzhavar groups

(UK)

Rainfed Farmers

Federation

Research Institutions,

Banks, Agriculture department

Mutual Insurance Committee

Banks

Modalities of mutual crop insurance

• A Mutual insurance committee (MIC) has 15 to 30 members

• The generic roles of this committee is • Policy making and reviewing the policy

• Implementation of the insurance product along with staff

• The specific roles will vary depending on the product

Challenges in need of further research

• Insurance education – what works and what does not

• How crop insurance can become demand driven?

• Combining risk transfer with risk education and reduction practices in agriculture

Challenges in need of further research…

• Conducive policy for crop insurance product development and delivery• Modalities of investing on

• Customised product development for an area/crop

• Infrastructure and data (raingauges)

• Modalities for reinsurance

• Addressing affordability issue

THANK YOU!