The Hindu Business Line : `Weather cover carries element of basis risk'

WEATHER insurance, for all its farmer-friendly features, has an element of "basis risk" involved in the risk management tool not always correlating to farm yield losses.

Speaking to Business Line, Mr Shashwat Sharma, who heads rural insurance at HDFC Chubb, said that weather insurance defines an objective index for claims settlement.

The "basis risk" is reflected in the insured recipient receiving a payment for greater or less than the actual occurred losses in case the farm yield does not exactly correlate to the defined index.

On how weather insurance differed from existing insurance products on offer, he said that traditional insurance covers only pure and particular risks with a linkage between the insurable interest and the indemnity. "There has to be an insured's interest in the subject matter of insurance and therefore a claim payment cannot exceed the extent of the interest."

Comparing it with crop insurance, Mr Sharma said that traditional crop insurance schemes offered by nationalised insurance companies based on area index have not been able to meet the expectations of all stakeholders.

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