The Potential for Scale and Sustainability in Weather Index Insurance

118
CASE STUDY 5
PRIVATE AND PUBLIC INDEX INSURANCE IN INDIA
US$40-100 per month per station, which may prohibit the public sector from using this
infrastructure. There is also some controversy over data from private stations, since many
are set up close to residential areas (due to security reasons and the required telephone
line) and thus record slightly higher temperatures than the public stations. The Government
has suggested that insurers use public weather stations where they are available.
Public providers, IMD and the Indian Space Research Organization (ISRO) planned to
install 1,550 automatic weather stations and 1,350 automatic rain gauges by the end of 2009.
In addition, provincial governments have recently shown interest in installing more automatic
stations. The State of Karnataka has already set up about 650 telemetric rain gauges and the
State of Tamil Nadu is in the process of establishing about 225 automatic weather stations.
Until this additional infrastructure is installed, data gaps can be filled using WMO-prescribed
methodologies under the supervision of a qualified national meteorologist. Moreover, it is
important to incorporate accurate local historical weather data in the pricing models, as
weather parameters tend to vary spatially. Better data information systems can make the
product more affordable when product prices are based on a region’s specific weather risk.
Stakeholder trust and understanding
AIC recognized that weather insurance should present the right balance between technology
and simplicity in order to have a product that is easily accessed by the various stakeholders
involved. It found that even after four years of marketing its products, understanding was still
low among farmers, provincial governments and programme managers.
In some cases, farmers expected to receive a payout every time they experienced a
small loss, and they were reluctant to repurchase coverage for the coming seasons in the
absence of a payout. A consumer court recently upheld the plea of a complainant who
asked for a payout on the basis of a government-owned weather station, disregarding the
fact that it was not the reference weather station, which incidentally did not record a
condition requiring payout. Additionally, provincial governments wrongly accused insurers
of pocketing federal subsidies when payouts were not triggered, as any government
subsidies for index insurance are paid ex ante, instead of ex post as with NAIS. Thus some
provincial governments have not supported the premium subsidy for index insurance due
to their belief that the subsidy would actually benefit insurers.
Subsidies and government financial support
During the pilot year of AIC’s WBCIS in 2007/08, 200 locations were served to insure
670,957 farmers. This positive response could be attributed to the subsidized premium,
which averaged 65 per cent depending on the type of crop. At the same time, there is a
concern that these subsidies might undermine farmers’ willingness to pay the full cost of
coverage in the future.