Jagdish Black Book B-20 PDF

TYB.M.S.
Bachelor Of Management Studies
SUBMITTED TO
UNIVERSITY OF MUMBAI
SHREE CHINAI COLLEGE OF COMMERCE AND

ECNOOMICS
ANDHERI (EAST) MUMBAI-400069.
ACADEMIC YEAR : 2014-2015.
T.Y.B.M.S. (Bachelor Of Management Studies)

SEMESTER V
Sem. 6th
Page 1
TYB.M.S. Bachelor Of Management Studies
SHREE CHINAI COLLEGE OF COMMERCE

AND ECONOMICS
ANDHERI (E), MUMBAI 400069.
Bachelor of Management Studies
VTH SEM.
ACADEMIS YEAR : - 2014-2015
PROJECT AGRICULTURAL INSURANCE IN INDIA

SUBMITTED BY
Solanki Jagdish kiranBhai.
Project Guided By
Miss Shaymoli Narvekar
Sem. 6th
Page 2
-: Declaration :-
I Solanki Jagdish Kiranbhai student of T.Y. B.M.S

Management Studies semester 5th (2014-2015) hereby declare
that I have completed this project on AGRICULTURAL
INSURANCE IN INDIA. All the information submitted is true
and original to the best of my knowledge.
Date:Place:Signature Of Student
Sem. 6th
Page 3
-: Certificate :-
I Prof. Shyamoli Narvekar, herby Certify that JAGDISH SOLANKI Of

SHRI CHINAI COLLEGE OF COMMERCE AND ECONOMICS, of T.Y.B.M.S
(SEMESTER V) has completed his project on AGRICULTURE INSURANCE
IN INDIA In the Academic Year 2014-2015. The information is
submitted is true and original to the Best of my knowledge.
Signature of Project Guide
Signature of Principal
Signature Of External Examiner
Signature Of Coordinator
Sem. 6th
Page 4
ACKNOWLEDGEMENT
There are times when words cannot express our gratitude. It is with us, as I
cannot find appropriate words that would express our deep sense of gratitude and
satisfaction. I would like to take this opportunity to thank everybody who helped
through the successful completion of this project. Many people have contributed to
my achievements during the project and take this opportunity to thank each one of
them at end of the project durations.
First I would like to thank the UNIVERSITY OF MUMBAI to include this
project in the curriculum which brings out our observes analyzing and interpreting
skills to the maximum.
I indebted to our inspiring Miss Shyamoli Narvekar who has extended all
valuable guidance, help and constant encouragement through the various difficult
stages in the development of the project.
I would like to express our heartfelt thanks to all who contributed their
valuable experience and knowledge and provided constant guidance to me. I
express our sincere gratitude to our respected coordinator Miss Henna Yajnik for
encouragement and facilities provided to me.
Thus I fully obliged and convey our thanks to the teaching as well as nonteaching staff of the department. Last but not least I would like to thanks to all
direct and indirect identities of the college for without them I couldnt make our
strides for this successful project.
Sem. 6th
Page 5
-: INDEX:Sr.
NO.Of.
no. Chapters
Contents
Pg. No.
1.
1.
Introduction
7-8
2.
2.
Overview Of The Insurance
9-14
3.
3.
Review Of Agricultural Insurance
15-18
4.
4.
Method and Data
19-20
5.
5.
Risk in Agricultural Production
21-23
6.
6.
Various Agricultural Insurance Schemes
24-28
7.
7.
Issues Related to Agricultural Insurance
29-33
8.
8.
Global Picture of Agricultural Insurance
34-37
9.
9.
Risks in Indian Agriculture
38-42
10.
10.
Conclusions and Policy Suggestions
43-46
11.
11.
Bibliography
47
12.
12.
Questionnaires
48-50
Sem. 6th
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Chapter : 1
-: Introduction :-
-: AGRICULTURAL INSURANCE IN INDIA :Agriculture production and farm incomes in India are frequently affected by natural
disasters such as droughts, floods, cyclones, storms, landslides and earthquakes. Susceptibility
of agriculture to these disasters is compounded by the outbreak of epidemics and man-made
disasters such as fire, sale of spurious seeds, fertilizers and pesticides, price crashes etc. All
these events severely affect farmers through loss in production and farm income, and they are
beyond the control of the farmers. With the growing commercialization of agriculture, the
magnitude of loss due to unfavorable eventualities is increasing. The question is how to
protect farmers by minimizing such losses. For a section of farming community, the minimum
support prices for certain crops provide a measure of income stability. But most of the crops
and in most of the states MSP is not implemented.
In recent times, mechanisms like contract farming and future s trading have been
established which are expected to provide some insurance against price fluctuations directly
Sem. 6th
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or indirectly. But, agricultural insurance is considered an important mechanism to effectively

address the risk to output and income resulting from various natural and manmade events.
Agricultural Insurance is a means of protecting the agriculturist against financial losses due
to uncertainties that may arise agricultural losses arising from named or all unforeseen perils
beyond their control (AIC, 2008). Unfortunately, agricultural insurance in the country has not
made much headway even though the need to protect Indian farmers from agriculture
variability has been a continuing concern of agriculture policy.
According to the National Agriculture Policy 2000, Despite technological and
economic advancements, the condition of farmers continues to be unstable due to natural
calamities and price fluctuations. In some extreme cases, these unfavorable events become
one of the factors leading to farmers suicides which are now assuming serious proportions.
Agricultural insurance is one method by which farmers can stabilize farm income and
investment and guard against disastrous effect of losses due to natural hazards or low market
prices. Crop insurance not only stabilizes the farm income but also helps the farmers to
initiate production activity after a bad agricultural year. It cushions the shock of crop losses
by providing farmers with a minimum amount of protection. It spreads the crop losses over
space and time and helps farmers make more investments in agriculture.
It forms an important component of safety-net programmes as is being experienced in
many developed countries like USA and Canada as well as in the European Union. However,
one need to keep in mind that crop insurance should be part of overall risk management
strategy. Insurance comes towards the end of risk management process. Insurance is
redistribution of cost of losses of few among many, and cannot prevent economic loss.
There are two major categories of agricultural insurance: single and multi-peril
coverage. Single peril coverage offers protection from single hazard while multiple 2
Peril provides protection from several hazards. In India, multi-peril crop insurance
programme is being implemented, considering the overwhelming impact of nature on
agricultural output and its disastrous consequences on the society, in general, and farmers, in
particular.
Agriculture in India is highly susceptible to risks like droughts and floods. It is
necessary to protect the farmers from natural calamities and ensure their credit eligibility for
the next season. For this purpose, the Government of India introduced many agricultural
schemes throughout the country.
In India crop insurance has been subsidized by the central and state governments,
managed by the General Insurance Corporation (GIC) and delivered through rural financial
institutions, usually tied to crop loans. The government has now established a separate
Agriculture Insurance Company with capital participation of GIC, the four public sector
general insurance companies, and NABARD. Insurance policies so far have provided crop yield
insurance. This year pilot programmes are being launched to provide crop income insurance.
Sem. 6th
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Chapter : 2
Overview Of The Insurance
Insurance is the equitable transfer of the risk of a loss, from one entity to another in
exchange for payment. It is a form of risk management primarily used to hedge against the
risk of a contingent, uncertain loss.
According to study texts of The Chartered Insurance Institute, there are the following
categories of risk:
1. Financial risks which means that the risk must have financial measurement.
2. Pure risks which means that the risk must be real and not related to gambling
3. Particular risks which means that these risks are not widespread in their effect, for
example such as earthquake risk for the region prone to it.
It is commonly accepted that only financial, pure and particular risks are insurable.
An insurer, or insurance carrier, is a company selling the insurance; the insured, or
policyholder, is the person or entity buying the insurance policy. The amount of money to
be charged for a certain amount of insurance coverage is called the premium. Risk
management, the practice of appraising and controlling risk, has evolved as a discrete
field of study and practice.
The transaction involves the insured assuming a guaranteed and known relatively
small loss in the form of payment to the insurer in exchange for the insurer's promise to
compensate (indemnify) the insured in the case of a financial (personal) loss. The insured
receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insured will be financially compensated.
Sem. 6th
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-: History :Early Methods : -
(Lloyd's Coffee House was the first marine insurance company.)

Methods
for
transferring
or
distributing
risk
were
practiced
by Chinese and Babylonian traders as long ago as the 3rd and 2nd millennia BC, respectively.
Chinese merchants travelling treacherous river rapids would redistribute their wares across
many vessels to limit the loss due to any single vessel's capsizing. The Babylonians developed a
system which was recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by
early Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he
would pay the lender an additional sum in exchange for the lender's guarantee to cancel the
loan should the shipment be stolen or lost at sea.
At some point in the 1st millennium BC, the inhabitants of Rhodes created the 'general
average'. This allowed groups of merchants to pay to insure their goods being shipped
together. The collected premiums would be used to reimburse any merchant whose goods
were jettisoned during transport, whether to storm or linkage.
Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of
contracts) were invented in Genoa in the 14th century, as were insurance pools backed by
pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and
in the next century maritime insurance developed widely and premiums were intuitively
varied with risks. These new insurance contracts allowed insurance to be separated from
investment, a separation of roles that first proved useful in marine insurance.
Sem. 6th
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Modern insurance : -
(Leaflet promoting the National Insurance Act 1911.)

Insurance became far more sophisticated in Enlightenment era Europe, and
specialized varieties developed. Property insurance as we know it today can be traced to
the Great Fire of London, which in 1666 devoured more than 13,000 houses. The devastating
effects of the fire converted the development of insurance "from a matter of convenience into
one of urgency, a change of opinion reflected in Sir Christopher Wren's inclusion of a site for
'the Insurance Office' in his new plan for London in 1667". A number of attempted fire
insurance schemes came to nothing, but in 1681, economist Nicholas Barbon and eleven
associates established the first fire insurance company, the "Insurance Office for Houses", at
the back of the Royal Exchange to insure brick and frame homes. Initially, 5,000 homes were
insured by his Insurance Office.
At the same time, the first insurance schemes for the underwriting of business
ventures became available. By the end of the seventeenth century, London's growing
importance as a centre for trade was increasing demand for marine insurance. In the late
1680s, Edward Lloyd opened a coffee house, which became the meeting place for parties in
the shipping industry wishing to insure cargoes and ships, and those willing to underwrite
such ventures. These informal beginnings led to the establishment of the insurance
market Lloyd's of London and several related shipping and insurance businesses.
The first life insurance policies were taken out in the early 18th century. The first
company to offer life insurance was the Amicable Society for a Perpetual Assurance Office,
Sem. 6th
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founded in London in 1706 by William Talbot and Sir Thomas Allen. Edward Rowe
Mores established the Society for Equitable Assurances on Lives and Survivorship in 1762.
It was the world's first mutual insurer and it pioneered age based premiums based
on mortality rate laying the framework for scientific insurance practice and development
and the basis of modern life assurance upon which all life assurance schemes were
subsequently based.
In the late 19th century, "accident insurance" began to become available. This
operated much like modern disability insurance. The first company to offer accident insurance
was the Railway Passengers Assurance Company, formed in 1848 in England to insure against
the rising number of fatalities on the nascent railway system.
By the late 19th century, governments began to initiate national insurance programs
against sickness and old age. Germany built on a tradition of welfare programs in Prussia and
Saxony that began as early as in the 1840s. In the 1880s Chancellor Otto von
Bismarck introduced old age pensions, accident insurance and medical care that formed the
basis for Germany's welfare state. In Britain more extensive legislation was introduced by
the Liberal government in the 1911 National Insurance Act. This gave the British working
classes the first contributory system of insurance against illness and unemployment. This
system was greatly expanded after the Second World War under the influence of
the Beveridge Report, to form the first modern welfare state.
In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The writings
talk in terms of pooling of resources that could be re-distributed in times of calamities such as
fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance.
Ancient Indian history has preserved the earliest traces of insurance in the form of marine
trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing
from other countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829,
the Madras Equitable had begun transacting life insurance business in the Madras Presidency.
1870 saw the enactment of the British Insurance Act and in the last three decades of the
nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897)
were started in the Bombay Residency. This era, however, was dominated by foreign
insurance offices which did good business in India, namely Albert Life Assurance, Royal
Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard
competition from the foreign companies.
Sem. 6th
Page 12
In 1914, the Government of India started publishing returns of Insurance Companies

in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the
Government to collect statistical information about both life and non-life business transacted
in India by Indian and foreign insurers including provident insurance societies. In 1938, with a
view to protecting the interest of the Insurance public, the earlier legislation was consolidated
and amended by the Insurance Act, 1938 with comprehensive provisions for effective control
over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a
large number of insurance companies and the level of competition was high. There were also
allegations of unfair trade practices. The Government of India, therefore, decided to
nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and
Life Insurance Corporation came into existence in the same year. The LIC absorbed 154
Indian, 16 non-Indian insurers as also 75 provident societies245 Indian and foreign
insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened
to the private sector.
The history of general insurance dates back to the Industrial Revolution in the west and
the consequent growth of sea-faring trade and commerce in the 17th century. It came to India
as a legacy of British occupation. General Insurance in India has its roots in the establishment
of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the
Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes
of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton
of India. The General Insurance Council framed a code of conduct for ensuring fair conduct
and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency
margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general
insurance business was nationalized with effect from 1st January, 1973. 107 insurers were
amalgamated and grouped into four companies, namely National Insurance Company Ltd.,
the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United
Sem. 6th
Page 13
India Insurance Company Ltd. The General Insurance Corporation of India was incorporated
as a company in 1971 and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to nearly 200
years. The process of re-opening of the sector had begun in the early 1990s and the last
decade and more has seen it been opened up substantially. In 1993, the Government set up a
committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose
recommendations for reforms in the insurance sector. The objective was to complement the
reforms initiated in the financial sector. The committee submitted its report in 1994 wherein ,
among other things, it recommended that the private sector be permitted to enter the
insurance industry. They stated that foreign companies be allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the Insurance
Regulatory and Development Authority (IRDA) was constituted as an autonomous body to
regulate and develop the insurance industry. The IRDA was incorporated as a statutory body
in April, 2000. The key objectives of the IRDA include promotion of competition so as to
enhance customer satisfaction through increased consumer choice and lower premiums, while
ensuring the financial security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the
power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000
onwards framed various regulations ranging from registration of companies for carrying on
insurance business to protection of policyholders interests.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were
restructured as independent companies and at the same time GIC was converted into a
national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July,
2002.
Today there are 27 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the countrys GDP. A welldeveloped and evolved insurance sector is a boon for economic development as it provides
long- term funds for infrastructure development at the same time strengthening the risk
taking ability of the country.
Sem. 6th
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Chapter : 3
Review of Agricultural Insurance
In the absence of formal risk sharing / diffusion mechanisms, farmers rely on
traditional modes and methods to deal with production risk in agriculture. Many cropping
strategies and farming practices have been adopted in the absence of crop insurance for
stabilizing crop revenue. Availability and effectiveness of these risk management strategies or
insurance surrogates depend on public policies and demand for crop insurance.
The risk bearing capacity of an average farmer in the semi-arid tropics is very limited.
A large farm household or a wealthy farmer is able to spread risk over time and space in
several ways; he can use stored grains or savings during bad years, he can diversify his crop
production across different plots. At a higher level of income and staying power, the farmer
would opt for higher average yields or profits over a period of time even if it is achieved at the
cost of high annual variability on output. Binswanger (1980), after studying the risk in
agricultural investments, risk averting tendencies of the farmers and available strategies for
shifting risk, concludes that farmers own mechanisms for loss management or risk diffusion
are very expensive in arid and semi-arid regions.
The major role played by insurance programmes is the indemnification of risk-averse
individuals who might be adversely affected by natural probabilistic phenomenon. The
philosophy of insurance market is based on large numbers where the incidence of risk is
distributed over individual. Insurance, by offering the possibility of shifting risks, enables
individuals to engage in risky activities which they would not undertake otherwise.
Individuals cannot influence the nature and occurrence of the risky event. The
insurance agency has fairly good but generalized information about the insurer. However,
this does not hold true in the case of agriculture or crop insurance. Unlike most other
insurance situations, the incidence of crop risk is not independently or randomly distributed
among the insured. Good or bad weather may affect the entire population in the area.
Lack of data on yield levels as well as risk position of the individual farmer puts the
insurance company in tight spot. As in the case of general insurance, agricultural insurance
market also faces the problem of adverse selection and moral hazard. The higher premium
rates discourage majority participation and only high risk clients participate leading to
adverse selection. Moreover, in crop insurance the individuals do not have control over the
event, but depending on terms of contract, the individuals can affect the amount of indemnity.
Tendency of moral hazard tempts an insured individual to take less care in preventing the loss
Sem. 6th
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than an uninsured counterpart when expected 4 indemnity payments exceed the value of
efforts. The imperfect information (gathering information is costly) discourages participation
of private agencies in crop insurance market. Similarly, incidence of random events may not
be independent. Natural disasters may severely damage crops over a very large area and the
domain of insurance on which it is based crumbles down i.e., working of the law of large
number on which premium and indemnity calculations are based breaks down. The private
insurance companies of regional nature will go bankrupt while paying indemnity claims
unless it spread risk over space.
Farming or crop production being a biological process, converting input into output
carries the greatest risk in farming. This, coupled with market risk, impinges on the profits
expected from farming.
Efficient risk reducing and loss management strategies such as crop insurance would
enable the farmers to take substantial risks without being exposed to hardship. Access to
formal risk diffusing mechanisms will induce farmers to maximize returns through adoption
of riskier options. Investment in development of groundwater, purchase of exotic breeds for
dairy will be encouraged due to insurability of the investment. This will help the individual to
augment and increase the farm income (micro perspective) and also help to augment
aggregate production in the country (macro perspective). The benefits of crop insurance vary
depending on the nature and extent of protection provided by the scheme.
It is argued that farmers' own measures to reduce the risk in farming in semi-arid
tropical India were costly and relatively ineffective in reducing risk in farming and to adjust
to drought and scarcity conditions. we finds that the riskiness of farming impinges upon the
investment in agriculture leading to suboptimal allocation of resources. He also finds that
official credit institutions are ill equipped to reduce the exposure of Indian farmers to risks
because they cannot or do not provide consumption loans to drought-affected farmers.
Crop insurance is based on the principle of large number. The risk is distributed across
space and time. The losses suffered by farmers in a particular locality are borne by farmers in
other areas or the reserves accumulated through premiums in good years can be used to pay
the indemnities. Thus, a good crop insurance programme combines both self as well as mutual
help principle. Crop insurance brings in security and stability in farm income.
Crop insurance protects farmers' investment in crop production and thus improves
their risk bearing capacity. Crop insurance facilitates adoption of improved technologies,
encourages higher investment resulting in higher agricultural production.
Crop credit insurance also reduces the risk of becoming defaulter of institutional
credit. The reimbursement of indemnities in the case of crop failure enables the farmer to
repay his debts and thus, his credit line with the formal financial institutions is maintained
Sem. 6th
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intact. The farmers do not have to seek loans from private moneylenders. The farmer does not
have to go for distress sale of his produce to repay private debts.
Credit insurance ensures repayment of credit, which helps in maintaining the viability
of formal credit institutions. The government is relieved from large expenditures incurred for
writing-off agricultural loans, providing relief and distress loans etc., in the case of crop
failure.
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.
The farmer is likely to allocate resources in profit maximizing way if he is sure that he
will be compensated when his income is catastrophically low for reasons beyond his control. A
farmer may grow more profitable crops even though they are risky. Similarly, farmer may
adopt improved but uncertain technology when he is assured of compensation in case of
failure. This will increase value added from agriculture, and income of the farm family.
Access and availability of insurance, changes the attitude of the farmer and induces
him to take decisions which, otherwise, would not have taken due to aversion to risk. For
example, rain-fed paddy was cultivated in one of the riskiest districts i.e., Anuradhapur
district, of Sri Lanka, for the first time in 1962, as insurance facility was available to the
farmers.
We found that income of the farm households from semi-arid tropics engaged
predominantly in rain-fed farming was positively associated with the level of risk. Hence, the
availability of formal instrument for diffusion of risk like crop insurance will facilitate farmers
to adopt risky but remunerative technology and farm activities, resulting in increased income.
Though crop insurance is based on area yield, it insures the loan amount. This leads to
improved access of small and marginal farmers to institutional credit. In the event of crop
failure or drought, loan is repaid in the form of indemnity and thus there is reduction in the
cost of recovery of loans to lending institutions and reduction in the overdue and defaults.
It is observed that insured households invest more on agricultural inputs leading to
higher output and income per unit of land. Interestingly, percentage increase in output and
income is more for small farms. Based on 1991 data, CCIS was found to contribute 23, 15, and
29 per cent increase in income of insured farmers in Gujarat, Orissa and Tamil Nadu,
respectively.
Sem. 6th
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We analyzed the impact of a credit-linked Comprehensive Crop Insurance Scheme

(CCIS) on crop loans, especially to small farmers in Gujarat. It is observed that CCIS had a
collateral effect as reflected through the increased loan amount per borrower and reduction
in the proportion of non-borrowers among small farmers. The implications of credit
expansion are that increased availability of credit can enhance input use and output and
employment that increased share of small farmers in the total loan can have desirable effects
on equity and efficiency considerations.
Though crop insurance is based on area yield, it insures the loan amount. This leads to
improved access of small and marginal farmers to institutional credit. In the event of crop
failure or drought, loan is repaid in the form of indemnity and thus there is reduction in the
cost of recovery of loans to lending institutions and reduction in the overdue and defaults.
It is observed that insured households invest more on agricultural inputs leading to
higher output and income per unit of land. Interestingly, percentage increase in output and
income is more for small farms. Based on 1991 data, CCIS was found to contribute 23, 15, and
29 per cent increase in income of insured farmers in Gujarat, Orissa and Tamil Nadu,
respectively.
Many of the risks insured under public insurance programme are essentially uninsurable risks. Moreover, they occur frequently and hence are expensive to insure. The
financial performance of most of the public crop insurance has been ruinous in both
developed and developing countries. The multi-peril crop insurance thus is very expensive and
has to be heavily subsidized.
Insurance, by nature, involves spatial and temporal spread of risk, wherein lossespaid
to farmers in an area are made good by farmers of other areas, and also losses paid during
bad years are made good by normal years. Typically, in crop insurance, the participation of
cultivators availing insurance on voluntary basis has thrown-up an important problem
challenging the very nature and foundation of insurance concept.
However, it was felt that participation would be limited and premium collection
difficult if the insurance were not made compulsory. It is feared, with considerable
justification, that collection of premium will prove a formidable if not an impossible task. The
reasons are two fold. Firstly, there is the general difficulty of collecting any cash payments
from the farmers on a regular basis because, for a large majority of the farmers, the cash
position is usually nil if not minus. Secondly, in relation to the somewhat better-off farmers, as
the Expert Committee says even if, in the initial stages, the farmers are attracted towards the
Crop Insurance Scheme in the hope that they would get, in bad years, indemnities in excess of
the premium payments, it would be difficult to sustain their interest in the Scheme once they
realise that would, by large be getting back what they pay over a period. Collection of
premium from the farmers is undoubtedly a difficult task and may prove impossible if this to
be done on a voluntary basis.
Sem. 6th
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Chapter : 4
Method and Data
The study estimates risk associated with crop production at national level and at
disaggregate level. The state of Andhra Pradesh was selected to represent disaggregate level.
Similarly, various aspects of crop insurance were studied at national level and by undertaking
a case study in the state of Andhra Pradesh. This state has a diverse set of crops covered under
insurance scheme of government and it is one of the few states where private sector insurance
for agriculture is also operating. Initially, new Insurance product namely Rainfall Insurance
was first started in the country in Mahboobnagar district of Andhra Pradesh for castor and
groundnut by ICICI Lombard General Insurance Company.
Risk associated with agriculture and various crops was estimated by using instability
index as an indicator of risk as below:
Instability index = Standard deviation of natural logarithm (Yt+1/Yt).
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Page 19
Where, Yt is the crop area / production / yield / farm harvest prices / gross returns in
the current year and, Y t+1 represent the same in the next year. This index is unit free and very
robust and it measures deviations from the underlying trend (log linear in this case). When
there are no deviations from trend, the ratio Yt+1/Yt is constant, and thus standard deviation
in it is zero. As the series fluctuates more, the ratio of Yt+1/Yt also fluctuates more, and
standard deviation increases. Slightly different variant of this index has been used in the
literature before to examine instability and impact of drought on it.
This study is based on an analysis of primary and secondary data. Required data on
production aspects and prices of selected crop was taken from publications of Central
government and state of Andhra Pradesh. Detailed information about crop insurance at the
national level were collected from the Agriculture Insurance Company of India Limited
(AICL), New Delhi and Report of XI Plan Working Group on Risk Management in Agriculture,
Planning Commission, Government of India. In order to understand ground level working of
National Agricultural Insurance Scheme (NAIS) and Insurance products recently launched by
some private sectors, a case study was conducted in the state of Andhra Pradesh. This involved
survey of farmers who have been covered under NAIS, called beneficiaries and a control
sample of farmers who were not covered under the crop insurance, called non beneficiaries.
The main aim of the field survey was to know the perception of beneficiaries and nonbeneficiaries of NAIS.
During October 2005, the Primary data was collected from 150 farmers in district
Vizianagaram representing rainfed typology and West Godavari district representing
irrigated typologies. From each of these selected districts, one mandal each with highest 8
area / farmers covered under NAIS were selected. From the selected mandal three villages
having substantial coverage under NAIS were identified. From the identified villages a sample
of 25 farmers from different size of holdings were randomly selected. Thus sample size
consists of 1 state, 2 districts, 2 mandals, 6 villages and 150 respondents.
We also collected information from the farmers who adopted Rainfall Insurance of
private sector. Whosoever adopted private insurance (RI) in the villages selected for the study
of NAIS were interviewed to get information about their experience and views about RI.
The questionnaire used in the field survey is included in Annexure I to II. A different
questionnaire was canvassed to officials of NAIS is included in Annexure III and to know their
opinion and suggestions for improvement of National Agricultural Insurance Scheme.
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Chapter : 5
Risk in Agricultural Production
Agriculture in India is subject to variety of risks arising from rainfall aberrations,

temperature fluctuations, hailstorms, cyclones, floods, and climate change. These risks are
exacerbated by price fluctuation, weak rural infrastructure, imperfect markets and lack of
financial services including limited span and design of risk mitigation instruments such as
credit and insurance. These factors not only endanger the farmers livelihood and incomes but
also undermine the viability of the agriculture sector and its potential to become a part of the
solution to the problem of endemic poverty of the farmers and agricultural labour.
Management of risk in agriculture is one of the major concerns of the decision makers
and policy planners, as risk in farm output is considered as the primary cause for low level of
farm level investments and agrarian distress. Both, in turn, have implications for output
growth. In order to develop mechanisms and strategies to mitigate risk in agriculture it is
imperative to understand the sources and magnitude of fluctuations involved in agricultural
output. The present section is an effort in this direction. The section examines extent of risk by
estimating year to year fluctuations in national production of major crops and also analyze
whether risk in the post reforms period declined or increased. The analysis is extended to
district level as there are vast variations in agro climatic conditions across states and
districts.
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ALL INDIA PICTURE : Among the selected crops, rice area showed 4 per cent fluctuation around trend during
1980-81 to 1992-93 which declined to 3.1 per cent during post reform period. Area under
wheat also showed almost similar fluctuations but there was no change in extent of
fluctuations in area over time. However, there are significant differences in yield and
production risk in the two crops. Instability in wheat yield declined from 5.8 per cent in the
first period to 5.3 per cent during the second period which also led to small decline in
production risk over time. In contrast, risk in rice productivity increased from 7.4 per cent to
8.6 per cent causing increase in production risk from 10.9 per cent during 1980-81 to 1992-93
to 11.25 per cent during 1992-93 to 2003-04.
In the case of groundnut, area followed declining trend after 1992-93 but fluctuations
in area reduced and remained quite low. This narrowing down of production base, made
national production and productivity more volatile. Yield risk between the two periods
increased from 22 per cent to 31.3 per cent and output risk increased from 25.3 per cent to
33.2 per cent. This made the groundnut a most risky crop at national level.
Among all the crops, area under rapeseed/mustard, which is cultivated in rabi season,
is affected most by vagaries of nature annual deviation exceeded 12 per cent from trend line.
After 1993, fluctuations in rapeseed/mustard yield more than doubled. One reason for this
seems to be depression in rapeseed/mustard prices caused by large scale imports of edible oil
after 1993-94 through impact on input used in its cultivation. Despite this increase, output of
rapeseed/mustard in India fluctuate much les than groundnut.
Cotton crop faced difficult phase due to attack of cotton boll worm during 1997-98 to
2002-03. This affected area more adversely than yield. The net impact on production show
only small increase in risk.
STATE LEVEL PICTURE : Further, the study also uses the state level time series annual data on area, yield and
production and area under irrigation for six major crops viz. rice, wheat, groundnut, rapeseed
and mustard, cotton and sugarcane for the period 1980-81 to 2003-04. Risk in crop area,
production and yield for state level are calculated for two periods: Period I 1981-82 to 199293 and Period II 1992-93 to 2003-04. The states have a diversified cropping pattern in
different regions depending upon agro-climatic conditions and hence all the important crops
were selected for the present study. Selected crops accounted for more than 80 per cent of the
cropped area. The selection of the crops for the study was thus dictated by the availability of
data.
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Factors affecting risk : Factors that have affected risk over-time vary from crop to crop. The main reason for
increase in risk of cotton area and production after 1992-93 seems to be extension of cotton
cultivation to non traditional areas where cotton has replaced jowar, pulses and other cereal
crops. Cotton cultivation has been extended to red chalka soils which are not quite suitable for
cotton cultivation.
The major source of increase in risk and its high level in groundnut yield is frequent
and severe droughts during the period II, that is, from 1992-93 to 2003-04. Eight out of 11
years, successive droughts were reported in Anantapur and their neighboring districts which
are major groundnut growing areas. In one year excessive rains caused the failure of crop in
two or three districts. Further, decline in area under irrigation also contributed to the
increase in yield instability. Groundnut producers suffered not only due to increase in year to
year fluctuations but they also harvested lower yield in the second period.
Despite progress of irrigation and other infrastructure supporting agriculture the risk
in agricultural production show increase after early 1990s in major crops grown in Andhra
Pradesh. In contrast to this, farm harvest prices of groundnut and cotton show a decline in
risk during 1993 to 2004 as compared to 1981 to 1993. More than half to 89 per cent districts
witnessed decline in price fluctuations. The results of the study indicate that in a large state
like Andhra Pradesh, picture of risk as seen in state level data may turn out to be vastly
different than what is experienced at disaggregate level. In some cases state level estimate
may be completely misleading as seen in the case of risk in cotton production which show
increase at state level but decrease in two third districts. The effect of technology in
stabilizing yield varies across districts. Yield variability in cotton declined in more than 80 per
cent of the districts after 1993 despite increase in rainfall deviations. Among the three crops
selected for the study groundnut has turned the most risky crop in respect of production as
well as gross returns.
The net effect of fluctuations in production and prices on farm income show that risk
in area, production, yield and prices do not negate each other. Risk in farm income is found
higher than risk in area, production and prices in all the cases, and this has not changed over
time. This underscores the need for addressing risk in farm income by devising area specific
crop insurance or other suitable mechanisms.
Increase in risk in rice area and production seems mainly due to erratic, irregular and
insufficient power supply for irrigation purpose and more erratic rainfall distribution during
the period II. In the case of cotton, expansion in irrigation seems to have lowered yield
instability but not area and production risk.
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Chapter : 6
Various Agricultural Insurance Schemes
At present four crop Insurance schemes namely National Agricultural Insurance
Scheme (NAIS), Pilot Modified National Agricultural Insurance Scheme (MNAIS), Pilot
Weather Based Crop Insurance Scheme (WBCIS) and Pilot Coconut Palm Insurance Scheme
(CPIS) is being implemented in the country.
National Agricultural Insurance Scheme : National Agricultural Insurance Scheme (NAIS) is the Government sponsored crop
insurance scheme under implementation in the country since Rabi 1999-2000 season as part
of risk management in agriculture with the objective of providing financial support to the
farmers in the event of failure of crops as a result of natural calamities, pests and diseases.
Agriculture Insurance Company of India (AIC) Ltd. is the Implementing Agency of the Scheme.
The scheme is available to all the farmers loanee and non-loanee both - irrespective of their
size of holding. It envisages coverage of all the food crops (cereals, millets and pulses), oilseeds
and annual commercial/horticultural crops, in respect of which past yield data is available
for adequate number of years.
The premium rates are 3.5% per cent (of sum insured) for bajra and oilseeds, 2.5% for
other Kharif crops; 1.5% for wheat and 2% for other Rabi crops. In the case of
commercial/horticultural crops, actuarial rates are being charged. At present small and
marginal farmers are entitle to subsidy of 10% of the premium charged from them which is
shared equally by Centre and State Governments. The scheme is operating on the basis of
Area Approach i.e. defined areas for each notified crops block, tehsil, mandal, firka, circle,
gram panchayat etc.
Presently the scheme is implemented by 24 States and 2 Union Territories. During the
last twenty five crop seasons (i.e. from Rabi 1999-2000 to Rabi 2011-12), 1930 lakh farmers
have been covered over an area of about 2919 lakh hectares insuring a sum amounting to
about Rs 256065 crore under the scheme. Claims to the tune of about Rs. 25001 crore have
been paid/payable against the premium of about Rs. 7565 crore benefiting about 518 lakh
farmers (upto Rabi2011-12 season).
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Modified National Agricultural Insurance Scheme : To improve further and make the scheme easier & more farmer friendly, a Joint Group
was constituted by GOI to study the existing crop insurance schemes. Based on the
recommendations of the Joint Group and view/comments of various stakeholders, a proposal
on Modified National Agricultural Insurance Scheme (MNAIS) was prepared which has been
approved for implementation on pilot basis in 50 districts during the remaining period of
11th Plan from Rabi 2010-11. The salient improvements made in MNAIS are as under :1. Actuarial premium with subsidy in premium ranging upto 75% to all farmers;
2. Only upfront premium subsidy is shared by the Central and State Government on 50:50
basis and all claims liability is on the insurance Company.
3.Unit area of insurance reduced to village/ village panchayat level for major crops.
4.Indemnity for prevented sowing/planting risk and for post harvest losses due to cyclone
(coastal areas);
5. On account payment up to 25% of likely claims as immediate relief to farmers;
6. Uniform seasonality discipline for loanee and non-loanee farmers;
7. More proficient basis for calculation of threshold yield; and minimum indemnity level
increased to 70% instead of earlier 60%;
8. The scheme is compulsory for loanee farmers and voluntary for nonloanee farmers;
9. Participation of private sector insurers for creation of competitive environment for crop
insurance.
10. Setting up a catastrophic fund at the national level contributed by the central and the
state government on 50:50 basis to provide protection to the insurance companies in the
event of premium to claim ratio exceeds 1:5 at national level and failure to procure
appropriate reinsurance cover at competitive rates;
11. NAIS is withdrawn from those area(s)/crop(s) where MNAIS is implemented.
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The Scheme has been implemented in all the 50 districts during Rabi 2011-12 season
and in 44 districts during Kharif 2012 and is being implemented in 35 districts during Rabi
2012-13. Since inception of the Pilot, 33.26 lakh farmers have been covered over an area of
36.27 lakh hectares insuring a sum amounting to Rs.8063.73 crore. The claims amounting to
about Rs. 234.27 crores have become payable against the premium of about 824.38 crore
benefiting about 2.29 lakh farmers (upto Kharif 2012 season).
Pilot Weather Based Crop Insurance Scheme (WBCIS) : With the objective to bring more farmers under the fold of Crop Insurance, a Pilot
Weather Based Crop Insurance Scheme (WBCIS) was launched in 20 States (as announced in
the Union Budget 2007). WBCIS aims to provide insurance protection to the farmers against
adverse weather incidence, such as deficit and excess rainfall, high or low temperature,
humidity etc. which are deemed to impact adversely the crop production. It has the advantage
to settle the claims within shortest possible time. The WBCIS is based on actuarial rates of
premium but to make the scheme attractive, premium actually charged from farmers are
restricted at par with NAIS. In addition to Agriculture Insurance Company of India Ltd. (AIC)
private General Insurance Companies i.e. ICICI-Lombard, IFFCO-TOKIO, HDFCERGO and
Cholamandalam MS Ltd. have also been allowed for implementation of the scheme. From
Current Kharif 2013 season five more private insurance companies have also been allowed.
Since inception of the Pilot in Kharif 2007, 323.74 lakh farmers have been covered over
an area of 450.31 lakh hectares insuring a sum amounting to Rs. 55813.40 crore. The claims
amounting to about Rs. 2764.35 crores have become payable against the premium of about
5113.25 crore benefiting about 181.26 lakh farmers (upto Kharif 2012 season).
Pilot Coconut Palm Insurance Scheme (CPIS) : The Coconut Palm Insurance Scheme (CPIS) has also been approved for
implementation on pilot basis from year 2009-10 in the selected areas of Andhra Pradesh,
Goa, Karnataka, Kerala, Maharashtra, Orissa and Tamil Nadu. The Sum Insured (SI) is based
on the average input cost of the plantation and the age of the specific plant which varies from
Rs. 600 per palm (in the age group of 4-15 years) to Rs. 1150 per palm (in the age group of
16-60 years). The premium rate per palm ranges from Rs. 4.25 (in the age group of 4 to 15
years) to Rs. 5.75 (in the age group of 16 to 60 years). Fifty per cent of premium is contributed
by GOI; 25% by the concerned State Govt. and the remaining 25% by the farmer. The
Insurance Company i.e. Agriculture Insurance Company (AIC) of India Ltd. is the
implementing agency of the scheme and responsible for making payment of all claims within
a specified period. The CPIS is being administered by the Coconut Development Board (CDB).
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Other Agricultural Insurance Schemes : Agriculture insurance in India till recently concentrated only on crop sector and
confined to compensate yield loss. Recently some other insurance schemes have also come into
operation in the country which goes beyond yield loss and also cover the non- crop sector.
These include Farm Income Insurance Scheme, Rainfall Insurance Scheme and Livestock
Insurance Scheme. All these schemes except rainfall insurance and various crop insurance
schemes discussed above remained in the realm of public sector.
1. Farm Income Insurance : The Farm Income Insurance Scheme was started on a pilot basis during
2003-04 to provide income protection to the farmers by integrating the
mechanism of insuring yield as well as market risks. In this scheme the farmers
income is ensured by providing minimum guaranteed income.
2. Livestock Insurance : Livestock insurance is provided by public sector insurance companies

and the insurance cover is available for almost all livestock species. Normally,
an animal is insured up to 100 per cent of the market value. The premium is 4
per cent of the sum insured for general public and 2.25 per cent for Integrated
Rural Development Programme (IRDP) beneficiaries. The government
subsidizes premium for IRDP beneficiaries. Progress in livestock insurance,
however, has been slow and poor (Table 5.9). In 2004-05 about 32.18 million
heads were insured which comprised 6.58 percent of livestock population. The
implementation of the livestock insurance as it obtains now, does not satisfy the
farmers much. The procedure for verification of claims and their settlement is a
source of constant irritation and subject of many jokes. This calls for a re- look.
3. Weather Based Crop Insurance / Rainfall Insurance : During the year 2003-04 the private sector came out with some
insurance products in agriculture based on weather parameters. The insurance
losses due to vagaries of weather, i.e. excess or deficit rainfall, aberrations in
sunshine, temperature and humidity, etc. could be covered on the basis of
weather index. If the actual index of a specific weather event is less than the
threshold, the claim becomes payable as a percentage of deviation of actual
index. One such product, namely Rainfall Insurance was developed by ICICI
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Lombard General Insurance Company. This move was followed by IFFCO-Tokio

General Insurance Company and by public sector Agricultural Insurance
Company of India (AIC). Under the scheme, coverage for deviation in the
rainfall index is extended and compensations for economic losses due to less or
more than normal rainfall are paid.
ICICI Lombard, World Bank and the Social Initiatives Group (SIG) of
ICICI Bank collaborated in the design and pilot testing of Indias first Index
based Weather Insurance product in 2003-04. The pilot test covered 200
groundnut and castor farmers in the rain-fed district of Mahaboobnagar,
Andhra Pradesh. The policy was linked to crop loans given to the farmers by
BASIX Group, a NGO, and sold through its Krishna Bhima Samruddhi Area
Bank. The weather insurance has also been experimented with 50 soya farmers
in Madhya Pradesh through Pradan, a NGO, 600 acres of paddy crop in Aligarh
through ICICI Banks agribusiness group along with the crop loans, and on
oranges in Jhalawar district of Rajasthan.
Similarly, IFFCO-Tokio General Insurance (ITGI) also piloted rainfall
insurance under the name- Baarish Bima during 2004-05 in Andhra Pradesh,
Karnataka and Gujarat.
Agricultural Insurance Company of India (AIC) introduced rainfall
insurance (Varsha Bima) during 2004 South-West Monsoon period. Varsha
Bima provided for five different options suiting varied requirements of farming
community. These are (1) seasonal rainfall insurance based on aggregate
rainfall from June to September, (2) sowing failure insurance based on rainfall
between 15th June and 15th August, (3) rainfall distribution insurance with the
weight assigned to different weeks between June and September, (4) agronomic
index constructed based on water requirement of crops at different phenophases and (5) catastrophic option, covering extremely adverse deviations of
50 per cent and above in rainfall during the season. Varsha Bima was piloted in
20 rain gauge areas spread over Andhra Pradesh, Karnataka, Rajasthan and
Uttar Pradesh in 2004-05.
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Chapter : 7
Issues Related to Agricultural Insurance
Issues related to agriculture are of two types. One, issues concerning or related to
existing scheme namely NAIS, and two, issues of general nature which go beyond the present
mechanisms for agricultural insurance.
ISSUES RELATED TO NAIS : The farming community at large does not seem to be satisfied with the partial
expansion of scope and content of crop insurance scheme in the form of NAIS over
Comprehensive Crop Insurance Scheme (CCIS). There are issues relating to its operation,
governance and financial sustainability. After extensive reviewing, gathering perceptions of
the farming community and discussion with experts from AIC, agricultural department,
bankers, academicians and other representatives in Andhra Pradesh on the performance of
NAIS, some modifications have been suggested in its designing to make to it more effective
and farmer- friendly.
Reduction of insurance unit to Village Panchayat level : As of now, the National Agricultural Insurance Scheme is implemented on the basis of
"homogeneous area" approach, and the area (insurance unit) at present is the Mandal /
Taluk / Block or equivalent unit, in most instances. These are large administrative units with
considerable variations in yields and impact of natural calamities. For the scheme to become
more popular, the unit for determining claim should be reduced to the level of village in the
case of large villages and to cluster of villages in the case of small villages. However,
because of infrastructural and financial constraints States could not lower the unit to village
panchayat. Ideally, "Individual approach" would reflect crop losses on a realistic basis, and
has been regarded most desirable.
Threshold / guaranteed yield : Presently, Guaranteed Yield, based on which indemnities are calculated, is the moving
average yield of the preceding three years for rice and wheat, and preceding five years for
other crops, multiplied by the level of indemnity. The concept does not provide adequate
protection to farmers, especially in areas with consecutive adverse seasonal conditions,
pulling down the average yield. It is proposed to consider the best 5, out of the preceding 10years yield.
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Levels of indemnity : At present, the levels of indemnity are 60 per cent, 80 per cent and 90 per cent
corresponding to high, medium and low risk areas. It is perceived that the 60 per cent
indemnity level, does not adequately cover the risk, especially in the case of small/ mediumintensity adversities, since losses get covered only if and when, the loss exceeds 40 per cent.
Consequently, suggestion was made that instead of three levels of indemnity there should be
only two levels of indemnity, viz. 80 per cent and 90 per cent. But, these higher levels of
indemnity may escalate the premium rates, and would, increase the subsidy burden of the
government. Therefore, it may be wise, to continue with the three levels, with up gradation of
60 per cent to 70 per cent. Since, the majority of crops are being covered presently in the 60
per cent level category, its up-gradation to 70 per cent level would be a reasonable
improvement.
Extending risk coverage to prevented sowing / planting, in

adverse seasonal conditions : The NAIS under the existing mode covers risk only from sowing to harvesting. Many a
times sowing / planting is prevented due to adverse seasonal conditions and the farmer loses
not only his initial investment, but also the opportunity value of the crop. A situation where
the farmer is prevented from even sowing the field, is a case of extreme hardship and this risk
must be covered. Pre-sowing risk, particularly prevented I failed sowing / reseeding on
account of adverse seasonal conditions, should be covered, wherein up to 25 per cent of the
sum insured could be paid as compensation, covering the input - cost incurred till that stage.
Coverage of post-harvest losses : In some states, crops like paddy are left in the field for drying after harvesting. Quite
often, this cut and spread crop gets damaged by cyclones, floods, etc., especially in the
coastal areas. Since, the existing scheme covers risk only up to the harvesting, these postharvest risks are outside the purview of insurance cover. This issue was examined in the light
of difficulties in assessing such losses at the individual level. One 47 of the suggestions to
address this could be to extend the insurance cover for two weeks after harvest.
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On-account settlement of claims : The processing of claims in NAIS begins only after the harvesting of the crop. Further,
claim payments have to wait for the results of Crop Cutting Experiments (CCE s) and also for
the release of requisite funds from the central and state governments. Consequently, there is a
gap of 8-10 months between the occurrence of loss and actual claim payment. To expedite the
settlement of claims in the case of adverse seasonal conditions, and to ensure that at least
part payment of the likely claims is paid to the farmer, before the end of the season, it is
suggested to introduce 'on-account' settlement of claims, without waiting for the receipt of
yield data, to the extent of 50 per cent of likely claims, subject to adjustment against the
claims assessed on the yield basis.
Service to non-loanee farmers : The awareness about the scheme is poor, partly due to lack of adequate localized
interactions and substantially due to the lack of effective image building and awareness
campaigns. For loanee farmers, with premia being deducted at the time of loan disbursement
and claim settlements being credited to the farmer's loan account, the illiterate or poorly
educated farmer is hardly aware of the scheme's existence, let alone its benefits. The poor
participation of non-loanee farmers is even worse. Hence, major pilot studies, to build
effective communication models, in this regard need to be conducted, as an integral aspect of
policy planning.
NAIS being a multi-agency approach, the implementing agency presently has no
presence, except in the state capitals. The scheme is marketed to non-loanee farmers through
the rural credit agencies. These farmers are neither familiar nor comfortable in going to the
distantly-located credit agencies. Dedicated rural agents, who could provide service,
supported by the effective communication and training programs, would be a needed
initiative (Planning Commission, 2007).
Premium sharing by financial institutions : Crop Insurance claims are paid for adverse seasons, the loan availed of which in any
case could not have been repaid by the farmer. The claim amount is automatically adjusted
against the outstanding crop loan, leading to the recovery of dues for the financial institutions
(FIs), and providing the farmer eligibility for fresh loan. In other words, Crop Insurance helps
the flow of credit, to crop production.
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GENERAL ISSUES : Even several years after the initiation of first agriculture insurance project in 1972, the
coverage and scope of agriculture insurance remains far from adequate, even-though the
need for various forms of insurance for agriculture sector has been widely expressed. Some of
the issues related to expansion of agriculture insurance and improving its effectiveness are
discussed below.
Role of Government : As mentioned before, crop insurance to be successful requires public support. This
could be in terms of subsidy on premium, meeting part of administrative expenditure, and
reinsurance etc. Global experience shows that due to special nature of agriculture production,
in several countries, premiums payable by farmers is subsidized by government. Agriculture in
India is not just dependent on weather conditions, but also suffers the brunt of natural
disasters. It will be quite in order for crop insurance to be regarded as a support measure in
which government plays an important role, because of the benefit it provides not merely to
the insured farmers, but to the entire national economy due to the forward and backward
linkages with the rest of the economy. Society can significantly gain from more efficient
sharing of crop and natural disaster risks. The principle behind the evaluation of crop
insurance schemes all over the world are along these lines for receiving the active support and
finance of the Government. Integrating the various risk mitigation methods and streamlining
the funds not only injects accountability and professionalism into the system, but also increase
economic efficiency.
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Government can facilitate agricultural insurance in several ways. In case farmers are
asked to pay full premium themselves then chances of adoption of insurance are bleak. There
is a need for some subsidisation by government. It can provide information, on weather
patterns, locations of farms and crops, incidence and history of perils and crop yields. It can
help to meet the costs of the research to be undertaken before starting an agricultural
insurance program. It can also provide reinsurance.
Perils to be covered : Fundamental issue in the design of a crop insurance scheme is whether to cover all or
certain specified risks. The former implies yield insurance. In other words, an insured farmer
is eligible to get indemnity if the yield is below certain guaranteed level for any reason. As it is
very difficult to identify losses arising out of uninsured events, it 50 is more practical to
ensure yield rather than yield loss due to specific factors. A scheme based on named perils is
feasible if the insured crops are affected by specific perils, causing damage, which are
measurable. If a scheme envisages coverage of all risks, it is necessary to provide adequate
safeguards to minimize the incidence of moral hazard (Jain, 2004).
Involvement of Public or Private Sector : The above discussed crop insurance schemes have been developed in the public sector
are often of multi-risk or all-risk type. Most of these schemes are linked to agricultural credit.
Public sector insurance companies are helped by government in various forms like: a) bearing
fully or partly the cost of administration; b) sharing a part of the indemnity, or paying a part
of the premium with a view to ensuring that farmers can afford to buy insurance.
Private agricultural insurance has been in existence from 2003-04 in the form of
rainfall / weather insurance in India. Private sector insurance is voluntary and it covers
specific risks which are insurable. There is no direct government support to private sector
players (Sinha, 2004). It is worthwhile to seek increased involvement of private sector in
agriculture by extending similar support to them as available to public sector.
INDIVIDUAL/ AREA APPROACH AND COVERAGE : Agriculture insurance in India has been based so far mostly on area approach because
of several problems associated with determining indemnity for individual farmers (Dandekar,
1976). However, pressure is growing from farming community for individual approach.
Obviously, individual approach would reflect crop losses on realistic basis and hence, most
desirable, but, in Indian conditions, implementing a crop insurance scheme at individual
farm unit level is beset with serious problems like non-availability of past records on
production and performance of individual farm to assess risk.
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Chapter : 8
Global Picture of Agricultural Insurance
The agricultural insurance schemes both in developed and developing nations are
highly dependent on the government support in various forms like subsidy on premium,
reimbursement of administrative expenses of insurance companies, reinsurance support for
risky crop lines, technical guidance and financial support. Subsidy on insurance premium in
the recent years was estimated to be 60 per cent in USA, 70 per cent in Canada, 50-60 per cent
in Philippines and 58 per cent in Spain. Over 100 countries in the world have some form of
crop insurance. The USA, Canada, Mexico, and Spain dominate the world crop insurance
market in terms of premium. The total annual agricultural insurance premiums, worldwide,
in 2003 was US$ 7.1 billion which amounted to 0.6 per cent of estimated farm gate value of
agricultural production. As against this, premium to farm gate value of output in India in the
same year was 0.015. Geographically these insurance premiums are concentrated in
developed farming and forestry regions, i.e. in North America (69 per cent), Western Europe
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(21 per cent), Latin America (5 per cent), Asia (3 per cent). Australia and Africa 1 per cent
each (Roberts, 2005). It would be useful to draw lessons from the experience of other
countries in agriculture insurance.
LESSONS FROM OTHER COUNTRIES : In 1929 a group of farmers started a pool scheme which was the beginning of crop
insurance in South Africa . Many hazards are covered in this program, and hail is the main
risk. Initially, multi-peril insurance was subsidized, but for the past 15 years it has not been
subsidized. Many private players have now entered the field of crop insurance. These
companies fix the premium amount based on the history and past of the particular risk.
Estimation of damage is the biggest challenge faced by the crop insurers. Several crops such
as maize, wheat, sunflower and citrus are covered. South Africa is an example of how farmers
can get the benefit of crop insurance through private companies even after withdrawal of
subsidies.
As in India, crop insurance in Canada was implemented through an area approach.
Research by Turvey and Islam pointed out that the area approach was not only unbalanced
but also ineffective. The empirical research from different farms confirmed the belief that
individual approach to crop insurance is better for reducing risk, but it also implies the use of
higher premiums. The area approach in Canada proved to be inequitable, as it did not ensure
a fair distribution of benefits among the farmers. Farmers with yields closest to the average
would be the ones to get the most benefits.
In Philippines, crop insurance programme is implemented through Philippines Crop
Insurance Corporation (PCIC) which was established in 1978. Major crops covered are rice
and corn. High value crops such as viz. tomato, potato, garlic, and other root 52
crops are also covered under interim insurance coverage. The coverage is limited to cost of
inputs plus an additional amount up to 20 per cent, thereof on an optional basis. Multi risks
cover providing comprehensive coverage. Coverage is available under (a) multi risk cover,
which is a comprehensive coverage against crop losses caused by natural disasters as well as
pests and diseases and (b) natural disasters cover, which is limited to coverage against crop
losses caused by natural disasters only. Premium rates are charged on actuarial basis. The
Government subsidy in premium goes up to 50 per cent. In case of borrowing farmers, lending
institutions will also share part of the premium.
In Sri Lanka the first experimental crop insurance scheme was established in 1958 as a
pilot project covering rice cultivation only. The experience during the first 15 years period
was quite favorable. The crop insurance board was established in 1973 under a
parliamentary act to operate a comprehensive agricultural insurance scheme, covering all
major crops and livestock. Incase of rice and other crops, insurance protection was provided
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against lack of water, drought, excessive water, floods, diseases, insect infestation, damage by
wild animals and losses due to non-adherence to approved methods of farming. A large
percentage (85%) of the total acreage insured is paddy and other crops that received
agricultural credit. Due to increased cost of inputs, more farmers are expected to seek
agricultural credit. A lending institution will not disburse any agricultural credit without
proper insurance coverage. The coverage of insurance scheme is based on the cost of
production. The scheme covers payment of indemnities of complete and partial losses as well
as losses at various stages of production.
In USA, the government supported crop insurance program is implemented by about
15 private insurers, besides Federal Crop Insurance Corporation (FCIC), a government
company. The program is administered by the Risk Management Agency (RMA), on behalf of
the US Department of Agriculture (USDA). Once a crop insurance program is approved by the
government, the RMA gets the premium rates calculated for different crops / states / counties
by utilizing the services of the National Crop Insurance Service (NCIS). Any approved insurer,
can sell these insurance products, at the rates certified by the RMA. All insurers implementing
the program, are eligible for the same level of premium subsidy, and the administrative and
operating expenses of the insurer 53 towards implementing crop insurance program, are
entirely reimbursed by the government. Since the insurance companies are implementing the
crop insurance program at a premium rate set by RMA, the government also provides a
reasonable level of reinsurance support (Hazel, Peter et al., 1986) . The reinsurance support
would be highest for developmental lines (new and unstable crops) and lowest for commercial
lines (established and stable crops).
In Spain, the Government subsidy in premium ranges from 20 per cent to 50 per cent,
of which nearly 95 per cent comes from Central Government and the balance from the
autonomous regions. Crop Insurance in Spain is a well developed product with systematic
development of actuarial science and pricing and standard loss assessment procedures.
Insurance coverage is available for majority of the crops against most of the natural and nonpreventable risks.
Spain has a unique model of crop insurance in terms of both the program and the
organizational set-up. Spain has, what's known as the 'Combined Agricultural Insurance
System'. The system started in 1980, has recently celebrated its Silver Jubilee. The basic
feature of the system is that all insurable agricultural risks are covered by the private sector
and all types of policies are subsidized by the state. Most policies are of the multiple risks type.
The customers of the system are farmers who can take out agricultural insurance individually,
or obtain coverage through co-operatives and professional organizations.
Participation in the system is voluntary. It is a system in which 'AGROSEGURO'
operates, both in its own right and on behalf of the insurers, who make up the co-insurance
Sem. 6th
Page 36
pool. The system is based on an intricate partnership between the private and the public
sector. The key players of the system besides farmers, are ENESA (Entidad Estatal de Seguros
Agrarios), attached to the Ministry of Agriculture; AGROSEGURO (Agrupacion Espanola de
Entidades Aseguradoras de los Seguros Agrarios Combinados) a pool of forty private
insurance companies which participate in a system of co-insurance; CCS (Consorcio de
Compensacion de Seguros), a public enterprise with its own resources, operating re-insurer
(under the control of the Ministry of Economy), etc.
A key feature of the Spanish system is the participatory approach. All stakeholders are
represented in ENESA, which enables taking strategic decisions and fixing the framework for
the System (annual plans) in line with their needs. For any given year, ENESA takes the lead in
publishing the annual plan. On the basis of the framework set out in the plan, AGROSEGURO
fixes the detailed conditions for all insurance products, in particular the regionally
differentiated premium rates which vary according to risk exposure and also include
administrative and reinsurance costs. Subsidies from the State and the autonomous regions
are paid out by ENESA and channeled through AGROSEGURO to the insurance companies.
Based on experience from 1980 to 2005, of the total agricultural insurance income of
6.79 Billion US$, the contribution of farmers towards premium was 3.08 54 Billion US$ (45%)
and that of ENESA and Autonomous Regions was 3.71 Billion US$ (55%).
WORLD TRADE ORGANIZATION REGULATIONS : -
WTO allows subsidization of premium in agricultural insurance. This step is one

among the Green Box of measures by which a government can support its farmerproducers. While this is a recent development, there has been an increase in demand by the
commercial insurance industry for information from governments on agricultural insurance.
These enquiries indicate that the commercial players are aware of these guidelines of the
WTO and are encouraged to enter this area.
Sem. 6th
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Chapter : 9
Risks in Indian Agriculture
Risks in Agriculture can be decomposed into yield risk and price risk. : -
Yield Risk : Rainfall is the major yield risk factor in Indian Agriculture. This is because the
irrigation system is inadequate and unreliable.
As of 1998-99 only about 40% of the gross crop area is irrigated (Appendix 2). This
has increased from about 34% in 1990-91. Both canal and tube-well irrigation is unreliable.
Given the poor condition of canal irrigation because of inadequate maintenance and
investment, farmers have placed increasing reliance on ground-water.
During the period 1990-99 the share of land under canal irrigation dropped from 37%
to 31% while the share irrigated by tube-wells increased from 30%-36%. Tube-well irrigation
is subject to the vagaries of erratic and poor quality of power supply by State Electricity
Boards. In the long run, the heavily subsidized agriculture power tariffs are unsustainable
and, in many parts of the country, with indiscriminate groundwater extraction, the water
table has dropped to unsustainable levels.
Sem. 6th
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There are several aspects of rainfall-uncertainty. Other than the variation in the total
rainfall during a given period of time, there are significant temporal and spatial variations.
While the annual all-India total rainfall has a coefficient of variation of about 11%, the
coefficient of variation of the annual southwest monsoon rainfall ranges from 44% to 10% for
each of the meteorological divisions. This implies that rainfall across geographical areas is
less than perfectly positively correlated. Therefore, rainfall variability has both a systematic
and an unsystematic component. The coefficient of variation is likely to be higher at further
levels of geographic disaggregation, with lower correlation across disaggregated geographic
areas.
The pattern of rainfall across time is also important since crops require appropriate
rainfall during critical periods in the crop cycle. The variability of rainfall over short time
horizons is significantly greater than over longer time horizons. For example, the coefficient
of variation of monthly rainfall ranges from 68% for December to 12% for July.
Weather also plays a significant role in the development of diseases and growth of
pests. However, the relationship between various aspects of the weather, such as rainfall,
temperature and humidity is complex and specific to the pest, crop, soil and management
practices.
According to the Economic Survey 2002-03, low rainfall years in the past have always
adversely affected kharif crop production. The magnitude of decline in production has varied
depending upon the severity of the drought. The current years fall of 19.1 percent in kharif
output compared to earlier poor rainfall years is the highest ever fall since 1972-73. This is
explained by the lowest ever rainfall received in July (19 percent fall), which is normally the
rainiest month of the season and most crucial month for kharif crops.
Price Risk : Information on price variability for agriculture commodities is provided in a study by
ICRIER.5 This study compares the variability of prices in the domestic and international
market and concludes that while inter-year variability is generally lower in the domestic
markets than the international markets, intra-year variability is as high in domestic markets
as in the international markets, if not higher.
Price risks are important when farmers are producing for the market. For small
farmers this would be especially relevant with specialization.
Prices are influenced by demand and supply factors. Food crops and vegetables are
generally subject to gradual and predictable changes in demand. On the other hand,
industrial crops are subject to business cycles and technological developments. While
Sem. 6th
Page 39
international trade will increase the range of demand side influences, it may also increase the
possibility of diversification across a larger set of factors. The impact of supply fluctuations on
prices will depend upon demand elasticity.
Government intervention plays a significant role in agricultural markets through
minimum support price operations, public distribution system releases and changes in
import/export policies.
The actual prices received by farmers are likely to be determined by local
infrastructure facilities and the integration of markets. According to the Committee on Long
Term Grain Policy although markets are now much better integrated than in the past, and
long-run integration is quite good, short-run integration is still fairly poor and prices often
move very differently in different locations. Market integration is better across urban
terminal markets than between urban and rural markets and is least integrated across rural
markets.
The Committee specifically points out that producer prices in many parts of Bihar,
Orissa, Uttar Pradesh and West Bengal are currently below full costs of production. The high
Minimum Support Prices (MSP) declared are not being defended effectively, and private trade
is paying prices which discount from the low prices at which public stocks are being offloaded.
In complete contrast to the above, farmers obtain assured price support in operations
organised by the FCI in Punjab and Haryana where market infrastructure is better and there
is co-operation from state agencies which do bulk of the physical purchase.
According to the Committee, the main structural features within Indias rural sector
which have historically impeded the development of an integrated national market and
realization of fair market prices by farmers are:Poor rural connectivity as a result of inadequate infrastructure, which
increases transport and transactions costs, limits flows of information, and acts as a
barrier to potential entrants in agricultural trade and processing. The pace of rural
infrastructure development has slowed in recent years because of deterioration in
State government finances, particularly in states with poor infrastructure.
Limited holding power of farmers because of their low incomes, which causes
large arrivals at harvest time and/or leads to dependence on credit from traders/
moneylenders who can thus manipulate the prices received. Co-operative credit and
marketing institutions, which were already weak, except in some regions and for
some crops, are increasingly unable to withstand competition because many of these
became too dependent on government financial support which is shrinking.
Sem. 6th
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Facilities provided by regulated markets have not increased in proportion to

the trade carried out or market charges collected; there is apprehension that
regulatory powers and exclusive rights granted to these markets for fostering more
open trading are now being used to defend privileged access and are proving to be a
barrier to further market development.
According to the Committee the above mean that agricultural producers often face prices
which are imperfectly correlated with national trends, are subject to greater variability, and
are often depressed due to the operation of local monopolies. Moreover, not only do farmers
receive prices which are lower and more uncertain than in urban markets, they sometimes
have to pay more for food items which they themselves do not produce, thus blunting the
power of the price mechanism to signal comparative advantages and also depressing overall
rural incomes.
The Committee provides the example of cereal production in Eastern India to illustrate
the role of market structure. The primary agricultural marketing network is extremely
underdeveloped in Eastern India, including eastern parts of Uttar Pradesh and Madhya
Pradesh. The operation of public agencies is limited to some levy procurement of rice, and
provides almost no direct price support to farmers. Nonetheless, because of its intrinsic
potential, this region had recorded high growth rates of cereals yields per hectare during the
1980s - about 4 per cent per annum, higher than national yield growth and much higher than
the regions population growth. However, this promising development could not be sustained
in the 1990s, and the rate of yield growth has since fallen below the national average and
below population growth. Although reduced public investment and setbacks in technology
extension are causes, the behavior of producer prices is also important. These were higher in
this region than in Punjab-Haryana in the early 1980s but fell below from the early 1990s as
surpluses appeared, and now show larger fluctuations. Price differentials with other locations
can be high because of poor infrastructure and high transport and transaction costs, and
there is no effective floor during local gluts. Unless this is addressed, there will be insufficient
incentive for the sustained yield increase which is required in this region for continued cereals
self-sufficiency at the national level.
Independent risks and time diversification : According to the expert committee, Crop losses, when they occur, are often so
widespread as to affect most farmers, in the region... Thus the principle that while many pay
the premium only a few claim indemnities does not strictly apply in the case of crop
insurance. According to this argument, agriculture risk has a significant systematic
component and cannot be diversified by pooling a necessary condition for insurability.
Dandekar argued that while this may be true for a single region, diversification would be
possible over a wider area, e.g., the entire country. However, Dandekar also states that the
Sem. 6th
Page 41
principal actuarial aspect of a crop insurance scheme is the year to year variation in crop
yields. Thus, in many years the amount of premia received will nearly balance the amount of
indemnities paid, though in some years the premia received will exceed the indemnities paid
out and vice-versa.
This is a reference to diversification over time as opposed to the diversification across
space or individuals at a point in time, referred to by the Expert Committee. However,
diversification over time cannot be a substitute for diversification over space or individuals.
Unlike diversification across individuals, which reduces or eliminates variability over time,
diversification across time cannot eliminate variability over time. Diversification across time
only ensures that over a sufficiently long period of time of several years the insurer breaks
even, but still has to withstand year to year fluctuations in profits.
Livestock Insurance : Apart from crop insurance livestock insurance, consisting mainly of cattle insurance, is
being implemented by the four public sector general insurance companies. Under the various
Livestock Insurance Policies, cover is provided for the sum insured or the market value of the
animal at the time of death, whichever is less. Animals are insured up to 100 per cent of their
market value normally. The table below provides information on these policies. The fall in
number of animals insured in the past few years is attributed to a reduction in the number of
low value animals, such as, sheep, calves and goats which at present constitute about 25 per
cent of animals covered.
Sharing of risk : Under the CCIS all premiums and claims were to be shared by the Central and State
governments in the ratio of 2:1.
The NAIS envisages a transition to actuarial rates in the case of food crops & oilseeds
over a five year period. During this period claims beyond 100% of premium will be borne by
the governments. Following the transition to actuarial rates, for the first three years claims
beyond 150% shall be paid out of a Corpus Fund. After the three year period claims beyond
200% will be met out of the Corpus Fund.
The Corpus Fund will be created with contributions from the Government of India and
State Govt/UT in 50:50 basis. A portion of Calamity Relief Fund (CRF) will be used for
contribution to the Corpus Fund.
Sem. 6th
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Chapter : 10
Conclusions and Policy Suggestions
Agricultural Insurance market is on the threshold of a spectacular growth. The
support measures proposed by the government in the horticulture sector; potential of organic
farming; growing clout of aromatic and medicinal plants; Bio-diesel plants; contract farming;
corporate farming and integrated insurance (supply chain and ware housing) etc are likely to
put agricultural insurance on high pedestal. The government underlined its priorities for
agriculture in 2004 by setting a target of doubling agricultural credit in next three years. A
large chunk of credit for agriculture would be supported by insurance collateral. Considering
consumers preference for branded agricultural products; big corporate houses too have
taken up corporate farming, increasing the demand for insurance. Agricultural insurance in
future though is likely to be largely demand driven, the efforts of the government to support
and finance insurance products and / or facilitate congenial environment as meaningful risk
management tool would further enhance the potential and credibility of agricultural
insurance.
CONCLUSIONS : Despite progress of irrigation and improvement in infrastructure and communication

the risk in agriculture production has increased in the country. The risk is much higher for
farm income than production, as is evident from lower risk in area and higher risk in
production. State wise results show that only in the states where irrigation is very reliable, it
helped in reducing the risk. Those states where irrigation is not very dependable continue to
face high risk. In some states farmers face twin problem of very low productivity accompanied
by high risk of production. As, with the passage of time, neither technology nor any other
variable helped in reducing production risk, particularly in low productivity states, there is
strong need to devise and extend insurance products to agricultural production.
Despite various schemes launched from time to time in the country agriculture
insurance has served very limited purpose. The coverage in terms of area, number of farmers
and value of agricultural output is very small, payment of indemnity based on area approach
miss affected farmers outside the compensated area, and most of the schemes are not viable.
Expanding the coverage of crop insurance would therefore increase government costs
considerably. Unless the programme is restructured carefully to make it viable, the prospects
of its future expansion to include and impact more farmers is remote. This requires renewed
efforts by Government in terms of designing appropriate mechanisms and providing financial
support for agricultural insurance. Providing similar help to private sector insurers would
Sem. 6th
Page 43
help in increasing insurance coverage and in improving viability of the insurance schemes
over time. With the improved integration of rural countryside and communication network,
the Unit area of 56 insurance could be brought down to a village panchayat level. Insurance
products for the rural areas should be simple in design and presentation so that they are
easily understood. There is lot of interest in private sector to invest in general insurance
business. This opportunity can be used to allot some target to various general insurance
companies to cover agriculture. To begin with, this target could be equal to the share of
agriculture in national income. Good governance is as important for various developmental
programmes as for successful operation of an agriculture insurance scheme. Poor governance
adversely affects development activities. With the improvement in governance, it is feasible to
effectively operate and improve upon the performance of various programmes including
agriculture insurance.
POLICY SUGGESTIONS : Crop insurance program works as collateral security, therefore also benefit banks.
When claims are paid, banks first adjust the claim against their outstanding dues, and
balance if any is credited to the farmers. Therefore, the Crop Insurance Scheme also benefits
the banks. In Philippines, banks are made to share a part of the premium burden. For rice
where the premium is 10.81 per cent, borrowing farmer pays only 2.91 per cent, while the
government pays is 5.90 per cent and the lending institution, 2.00 per cent. A similar
arrangement can be recommended for participating banks in India. Such arrangement would
also bring non-loanee farmers into the fold of banking network, thus institutional lending of
crop loans.
Remote sensing is the emerging technology with potential to offer plenty of
supplementary, complimentary and value added functions for agricultural insurance. The
present technology available shall not only provide the insurers with tools like crop health
condition, area-sown confirmation, yield modeling which are very important, but also
strengthen the position of insurers vis--vis re-insurance market.
Some of the possible applications of for agricultural insurance could be as

follows : 1. Estimating actual acreage sown at insurance unit level to check the
discrepancy of over-insurance (area insured being more than area
sown).
2. Monitoring crop health through the crop season, and investigation on
ground for advance intimation of yield reduction.
Sem. 6th
Page 44
3. To check adequacy and reliability of CCE data.

4. Developing satellite based crop productivity models for cereals and other
crops.
There is a need to promote private sector participation in agriculture insurance. First
license for the private sector, was issued in October 2000. As of today, there are ten private
sector insurers in the general insurance business: Reliance, Tata-AIG, Royal Sundaram, IFFCOTokio, Bajaj-Allianze, ICICI-Lombard, HDFC- Chubb, Cholamandalam, ECGC and Star Health.
The latter two, are limited to only a few lines of general insurance. The fact remains that these
insurers have not yet undertaken agricultural insurance to a significant extent. Only two
companies in the private sector have initiated crop insurance, albeit on a small scale. ICICILombard was the first company to experiment with rainfall insurance in 2003. The concept is
further extended 57 to weather insurance since 2004. IFFCO-Tokio General Insurance (ITGI),
the second company in private sector, started piloting rainfall insurance, since 2004.
The Insurance Regulatory and Development Authority (IRDA) has stipulated that
every new insurer undertaking general insurance business, has to underwrite business in the
rural sector to the extent of at least 2 per cent of the gross premium during the first financial
year, which is to be increased to 5 per cent during the third financial year of its operation.
Crop insurance is included in the rural sector insurance for this purpose. The business targets
stipulated in rural insurance apparently are very small. Those who do not meet even these
small targets, are getting away by paying penalties of nominal amounts. If private insurers
are to be spurred to enter the rural insurance market in a significant manner, the business
targets have to be raised substantially by IRDA.
The experience of government supported and subsidized crop insurance and the recent
entry of private insurers, raise questions about the co-existence of government and private
agriculture insurance. One view is that the private sector will be unable to compete with
government insurance, given the subsidies and access to the administrative machinery for
delivering insurance. An alternative view is that given only 15 per cent coverage by
government insurance, the private sector can carve out a reasonable market for itself based
on improved efficiency, better design and superior services. Here one can even think of publicprivate partnership in providing agriculture insurance as against public-private competition.
However, it is possible only when crop insurance can be run in a more professional manner
with clear objectives. Providing Government help to private sector insurers would help in
increasing insurance coverage and in improving viability of the insurance schemes over time.
There should also be insurance provided by seed companies so that farmers who paid high
prices for seeds such as GM crops did not suffer in case of crop failure.
Sem. 6th
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In order to promote public private participation in agriculture insurance GOI should

follow the USA model to work out premium rate through an exclusive technical agency, and
offer the product to all insurers. Insurers can implement the product, enjoying the same level
of support and subsidy. As a variation from the USA method, the government would not
provide reinsurance support and reimbursement of administrative and operating expenses, as
these costs would be loaded in the actuarial rates. The government can decide whether or not
different insurers compete in the same area, or allocate specific crops and areas to a
particular insurer (Planning Commission, 2007).
With increased commercialization of agriculture price fluctuations have become
highly significant in affecting farmers income. Accordingly, market risk is now quite
important in affecting farmers income. We feel that implementation of market insurance to
cover price risk is much easier than yield insurance. This can be done by requiring interested
farmers to register their marketable surplus with insurance agency or market committee at
the time of sowing of crop. The insurance agency should offer insurance cover to include price
guarantee which could be minimum support price in some cases or market based price from
the past. Farmers should pay premium for this kind of price insurance and initially
government should share some burden of the premium. During 58 harvest if price in the
notified market falls below the guaranteed price then insurance agency should pay indemnity.
Modalities to be worked out for implementation of this kind of model.
PROSPECTS OF AGRICULTURAL INSURANCE : The farming community in India consists of about 121 million farmers of which only
about 20 per cent avail crop loans from financial institutions and only three fourth of those
are insured. The remaining 80 per cent (96 millions) are either self-financing or depend upon
informal sources for their financial requirements. Most of the farmers are illiterate and do not
understand the procedural and other requirements of formal financial institutions and,
therefore, shy away from them. Therefore, while the institutional loanees are insured
compulsorily under the NAIS, only about 15 per cent of the non-loanee farmers avail
insurance cover voluntarily. This is quite indicative of the enormous insurance potential that
exists for addressing the needs of the farming community and enhancing the overall
efficiencies as also the competitiveness of the agriculture sector. This also signifies the
tremendous potential of agriculture insurance in the country as a concept, which can mitigate
the adverse impacts that such uncertainties would have on the individual farmers.
Sem. 6th
Page 46
Chapter : 11
-: Bibliography :A. Websites : 1. www.irda.com
2. www.indianagriculture.co.in
3. www.indiatimes.com
B. Books : 1. Risk Management Insurance.
C. Newspapers : 1. Economics Times.
2. Hindustan Times.
3. Business Express.
4. Times Of India.
5. Mumbai Mirror.
Sem. 6th
Page 47
Chapter : 12
-: Questionnaires :-
Q1:- What is Insurance?

Ans. : - Insurance is a tool to protect you against a small probability of a large
unexpected loss. It is a technique of providing people a means to transfer and
share risk where losses suffered by few are met from the funds accumulated
through small contributions made by many who are exposed to similar risks.
Insurance is not a tool to make money but a tool to help compensate an
individual or business for unexpected losses that might otherwise cause a
financial disaster.
Q2:-What is Crop Insurance?

Ans. : - Crop insurance is a means of protecting the agriculturist against
financial losses due to uncertainties that may arise from crop failures/losses
arising from named or all unforeseen perils beyond their control.
Sem. 6th
Page 48
Q3:- What is Weather based Crop Insurance?

Ans. : - Weather Based Crop Insurance aims to mitigate the hardship of the
insured farmers against the likelihood of financial loss on account of anticipated
crop loss resulting from incidence of adverse conditions of weather parameters
like rainfall, temperature, frost, humidity etc.
Q4:- Where has Weather Insurance been tried before?

Ans. : - Weather Insurance has been piloted in the country since Kharif 2003
season. Some of the States where its piloted are Andhra Pradesh, Chhattisgarh,
Sem. 6th
Page 49
Gujarat, Haryana, Karnataka, Madhya Pradesh, Maharashtra, Punjab,

Rajasthan etc.
Q5:- Who can buy Weather Based Crop Insurance Scheme (WBCIS)?
Ans. : - All Cultivators (including sharecroppers and tenant cultivators) growing
the crop (insurable under the scheme) in any RUA in the Pilot areas shall be
eligible for coverage. However, the Scheme is mandatory for all Loanee
Cultivators of Lending Banks / Financial Institutions who have Sanctioned
Credit Limit for the particular crops and optional for Others.
Q6:- How do I make a claim for Weather Based Crop Insurance Scheme
(WBCIS)?
Ans. : - Payout / Claim settlement is an automatic process based on weather
readings recorded at the RWS. Insured cultivators are not required to 'make a
claim'.
Q7:- What are the different Crops covered under Weather Based Crop
Insurance Scheme (WBCIS)?
Ans. : - Weather Based Crop Insurance Scheme (WBCIS) pilot during Rabi 2007
season is available in specified locations and for specified crops in the states of
Bihar, Chhattisgarh, Haryana, Madhya Pradesh, Punjab, Rajasthan and Uttar
Pradesh.
Sem. 6th
Page 50
Sem. 6th
Page 51

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TYB.M.S.

Bachelor Of Management Studies

SHREE CHINAI COLLEGE OF COMMERCE AND

ACADEMIC YEAR : 2014-2015.

T.Y.B.M.S. (Bachelor Of Management Studies)

TYB.M.S. Bachelor Of Management Studies

SHREE CHINAI COLLEGE OF COMMERCE

ACADEMIS YEAR : - 2014-2015

PROJECT AGRICULTURAL INSURANCE IN INDIA

TYB.M.S. Bachelor Of Management Studies

I Solanki Jagdish Kiranbhai student of T.Y. B.M.S

TYB.M.S. Bachelor Of Management Studies

I Prof. Shyamoli Narvekar, herby Certify that JAGDISH SOLANKI Of

Signature of Project Guide

Signature Of External Examiner

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

Overview Of The Insurance

Review Of Agricultural Insurance

Method and Data

Risk in Agricultural Production

Various Agricultural Insurance Schemes

Issues Related to Agricultural Insurance

Global Picture of Agricultural Insurance

Risks in Indian Agriculture

Conclusions and Policy Suggestions

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

or indirectly. But, agricultural insurance is considered an important mechanism to effectively

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

-: History :Early Methods : -

(Lloyd's Coffee House was the first marine insurance company.)

TYB.M.S. Bachelor Of Management Studies

(Leaflet promoting the National Insurance Act 1911.)

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

In 1914, the Government of India started publishing returns of Insurance Companies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

We analyzed the impact of a credit-linked Comprehensive Crop Insurance Scheme

TYB.M.S. Bachelor Of Management Studies

Instability index = Standard deviation of natural logarithm (Yt+1/Yt).

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

Agriculture in India is subject to variety of risks arising from rainfall aberrations,

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

TYB.M.S. Bachelor Of Management Studies

2. Livestock Insurance : Livestock insurance is provided by public sector insurance companies

TYB.M.S. Bachelor Of Management Studies

Lombard General Insurance Company. This move was followed by IFFCO-Tokio

TYB.M.S. Bachelor Of Management Studies