The Potential for Scale and Sustainability in Weather Index Insurance

112
CASE STUDY 5
PRIVATE AND PUBLIC INDEX INSURANCE IN INDIA
AIC branched into index insurance in 2004 for a number of reasons: perceived
shortcomings of NAIS; demand for weather-specific coverage from farmers and private
agricultural companies; and a business desire to expand into new opportunities. By 2008,
AIC had offered nine different index products across diverse districts, including the Varsha
Bima, Rainfall Index, Coffee Rainfall Insurance and Wheat Weather Insurance products, an
overview of which is given in the following section.
The federal Government offered subsidies for farmers buying weather insurance
products for the first time in its 2007-2008 union budget. The subsidies are shared equally
by participating state governments.
AIC’s weather insurance products have been well supported by national and
international reinsurers, with an average of 50 per cent of the total coverage placed in the
international market. The reinsurance contracts are based on a quota share/proportional
treaty basis. In addition to the national reinsurer GIC Re, foreign reinsurers such as Paris
Re, SCOR Re, Endurance Re and Swiss Re participate in the programmes.
Principal stakeholders
In developing its portfolio of crop insurance products, AIC partnered with various public,
private, national and international stakeholders, receiving the benefit of expertise in weather
data, product design, financial support and reinsurance.
To support the development and operation of its products, AIC also partnered with
public and private weather data providers:
• India Meteorological Department (IMD) and its National Data Centre provided
historical weather data to interested researchers from all weather observatories/
hydrology centres. For its weather-based crop insurance programmes, AIC accessed
25-30 years of historical daily weather data for about 300 locations in the country. It also
uses data from the IMD weather observatories network to service its weather insurance
products in some locations.
• National Collateral Management Services Limited (NCMSL). A subsidiary of National
Commodity Derivates Exchange (NCDEX), NCMSL was launched in September 2004. It
is promoted by 10 public and private entities and provides services to the agriculture and
industry sectors. For agriculture, NCMSL provides quality testing and warehousing
services to farmers. As part of its crop and weather intelligence, it presently has a
network of over 400 automatic weather stations spread across 17 states, of which
nearly 250 are servicing AIC’s weather insurance products on a fee basis.
• Karnataka State Natural Disaster Monitoring Centre (KSNDMC). An autonomous
body affiliated with the Department of Science and Technology, Government of
Karnataka, KSNDMC has recently set up a telemetric rain gauge network. Nearly 150 out
of 600 rain gauges are servicing AIC’s rainfall-based insurance products on a fee basis.
• Risk Management Solutions India (RMSI). Working in geospatial and information
technology, RMSI develops innovative solutions that integrate geographical information
with niche business applications. RMSI’s success hinges on its unparalleled expertise,
specifically in natural-disaster and climate-change risk modelling, and in its unique
application of geospatial technologies. AIC has used RMSI services for weather data
cleaning and data simulation.