The Potential for Scale and Sustainability in Weather Index Insurance

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THE POTENTIAL FOR SCALE AND SUSTAINABILITY IN WEATHER INDEX INSURANCE FOR AGRICULTURE AND RURAL LIVELIHOODS Case Study 5 Private and public index insurance in India Context In India, more people earn their livelihood from the agriculture sector than from all other economic sectors combined. About 75 per cent of poor rural people are members of households dependent on agriculture, mostly for subsistence. Most are landless labourers, who depend on healthy crops to earn an income. While cultures are varied, the majority of farmers grow oilseeds or food crops such as cereals and pulses. Agriculture in India is vulnerable to excess and deficit rainfall, which is especially harmful to production during specific planting and growing phases, but can affect production across the entire crop cycle. The absence of irrigation and water management facilities compounds the problem, especially given that about 40 per cent of total arable land is not irrigated. However, irrigated land itself is not without risks. Sowing seasons are divided into the kharif and rabi seasons. Kharif yields are considered summer crops, sown just before the wet season from April to June, and harvested from October to December. Those sown in rabi are considered winter crops, planted from October to December immediately after the wet season, and harvested in April and May. India began debating the feasibility of crop insurance programmes in the 1940s, but it made the first concrete attempt in 1972. Since the late 1980s, farmers taking crop loans from government credit bodies were required to buy the government-subsidized National Agricultural Insurance Scheme (NAIS), which compensates farmers if the area yield for a region falls below a particular threshold. This insurance programme is the first recourse for farmers when there are crop losses due to weather; however, there have been widespread criticisms of the programme. The Government commissioned a review that found a number of weaknesses, particularly the lengthy loss-adjustment procedures (and thus delays in claims settlements) and inadequate coverage, with an extremely high coverage cost. All of these factors render the scheme unattractive to the reinsurance market. Only 15 per cent of farmers in the country buy NAIS, indicating that the majority do not have access to a credible crop insurance product. Farmers who take out loans do not have the option of choosing the best insurance programme for their crops. Moreover, long delays in claims settlements often force farmers to default on loan repayments owing to the unavailability of capital after extensive crop losses. This becomes a vicious circle: once farmers have defaulted on a loan, they become ineligible for future crop loans, and they are thus less likely to benefit from insurance initiatives. ANNEX 105
106 Figure 6: States in India home to initiatives in index insurance CASE STUDY 5 PRIVATE AND PUBLIC INDEX INSURANCE IN INDIA The designations employed and the presentation of the material in this map do not imply the expression of any opinion whatsoever on the part of IFAD concerning the delimitation of the frontiers or boundaries, or the authorities thereof. Map compiled by IFAD.
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The Potential for Scale and Sustainability in Weather Index Insurance

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