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 Insurance Programmes – Private Weather insurance in India was first launched in 2003 as a private initiative. Two of the main private insurers offering index insurance are ICICI Lombard General Insurance Company and IFFCO Tokio General Insurance Company (ITGI). 36 These weather products have been distributed to farmers through multiple channels, such as direct selling through rural cooperative banks, or through input suppliers or contract farming companies. ICICI Lombard and BASIX ICICI Lombard, with support from the World Bank, International Finance Corporation (IFC) and BASIX, piloted a rainfall insurance product in the Mahabubnagar district of Andhra Pradesh in the kharif season 2003. During the pilot year, the insurance policy was linked to crop loans that BASIX had provided to 154 groundnut farmers and 76 castor farmers in the district. In subsequent years the programme was expanded to cover eight states for both kharif and rabi seasons, for a cumulative total of 34,186 farmers. Premium rates are 3-8 per cent of the sum insured. Table 10: BASIX index insurance programme Year 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 ANNEX States covered 1 1 6 7 7 8 Seasons covered kharif kharif kharif kharif kharif kharif & rabi Weather stations 1 5 36 50 45 40 No. of customers 230 402 6 689 11 716 4 545 10 604 Claims settled 154 319 864 2379 537 793 (due) Premium collected (Rs) a 88 685 824 681 1 703 098 1 430 171 1 539 175 2 098 638 Claim amount paid (Rs) a 41 860 471 485 950 000 2 063 160 298 922 470 671 Loss ratio 47% 57% 56% 144% 20% 22% a In March 2009, US$1 = 50.56 Indian rupees (Rs). Table 11: ITGI index insurance programme (2005-2009) Season Year Crop State Rabi 2005/06 Wheat and mustard Haryana 2006/07 Wheat and mustard Haryana, Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh 2007/08 Wheat, mustard, Andhra Pradesh, Chattisgarh, Gujarat, Haryana, Maharashtra, potato, paddy Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, West Bengal 2008/09 Wheat, mustard, Andhra Pradesh, Chattisgarh, Gujarat, Haryana, Maharashtra, potato, paddy, salt Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh, West Bengal Kharif 2006/07 Generic product for paddy, Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, groundnut, soybean, cotton Uttar Pradesh, Rajasthan 2007/08 Paddy, groundnut, cotton, Andhra Pradesh, Chattisgarh, Gujarat, Haryana, Maharashtra, maize, bajra Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, West Bengal 2008/09 Paddy, maize, bajra, Andhra Pradesh, Chattisgarh, Gujarat, Haryana, Maharashtra, groundnut, cotton Madhya Pradesh, Punjab, Rajasthan, Uttar Pradesh, West Bengal 36 This case study does not address the PepsiCo programme (see Case Study 2), however, some cumulative numbers for the private sector include PepsiCo’s contribution. 107
108 As of kharif 2008, the Government changed the policy to allow private insurance companies to take advantage of the same premium subsidy offered to the public sector (in certain regions). Thus BASIX has started selling subsidized insurance products in Rajasthan (with a premium subsidy of 40-50 per cent). Demographically, most of the BASIX farmers are smallholders for whom other formal credit channels are not easily accessible. Crops covered include maize, groundnut, cotton, soybean, paddy, wheat, sunflower, coriander, cumin and mustard. IFFCO Tokio General Insurance Company ITGI is a joint venture of the Indian Farmers Fertiliser Cooperative (IFFCO) and its associate Tokio Marine and Nichido Fire Group, the largest listed insurance group in Japan. ITGI has been offering index insurance since 2004. The company incorporated the product into IFFCO’s fertilizer programme and has used the programme’s rural network of fertilizer cooperatives for distribution. ITGI provides technical advice, product education, training and marketing skills to secretaries and staff of member cooperatives to enable them to sell insurance products. In each state, 1,000-1,500 farmer cooperatives became agents of ITGI and have sold 163,945 policies since the programme’s inception. Premium rates have been 3-8 per cent of the sum insured. Assessment CASE STUDY 5 PRIVATE AND PUBLIC INDEX INSURANCE IN INDIA Performance In the first five years since its entry into the weather insurance market in India, the private sector has cumulatively covered over 400,000 farmers. In coming years, private stakeholders plan to expand their programmes to additional states and to at least double the number of insured farmers. All index insurance programmes experienced a gradual growth until 2006/07. The number of farmers insured decreased during the crop season 2007/08. ITGI experienced a minor decline (about 3 per cent) from one year to the next, while ICICI Lombard incurred a 50 per cent loss in uptake in 2007. These losses are attributable to a variety of reasons. In 2006, a seed company offering a contract farming programme similar to that of PepsiCo and ITGI purchased index insurance coverage from ICICI and increased the total number of farmers insured for that year. However, the company discontinued coverage in the following year due to the lack of sufficient profit margins. The drop in the number of insured farmers may also be due to farmers’ optimistic perceptions of risk for the year and the increase in premium rates in 2007/08. Despite decreasing levels of uptake, the total sum and hectares insured more than doubled from 2006/07 to 2007/08. Of course, this might suggest that the companies under ICICI’s index insurance programme changed focus from smallholders to larger-scale farmers in order to decrease administrative costs during the latter year. For the 2008/09 crop season, Weather Risk Management Services (WRMS) estimates that uptake might have increased, but it does not have final figures yet. Other seed companies sought ICICI’s index insurance programme in 2008/09 to insure participant farmers in their contract farming programmes.
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Page 152 and 153: Contacts IFAD Francesco Rispoli f.r
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