The Potential for Scale and Sustainability in Weather Index Insurance

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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.