The Hindu Business Line : Global reinsurers support AICIL’s farm scheme

Home Page - Agriculture
Money & Banking - General Insurance
Agri-Biz & Commodities - Climate & Weather
Global reinsurers support AICIL’s farm scheme

Weather-based crop insurance scheme at pilot stage in 6 States

Cover chart
Globally, reinsurers have seldom supported farm insurance schemes.
Supporters include Munich Re, Swiss Re and Paris Re, London’s Lloyds.
AICIL’s weather scheme completely different from NAIS.

C. Shivkumar

Bangalore, Nov. 23 Global reinsurers have agreed to support the public sector Agriculture Insurance Company of India Ltd’s (AICIL) weather-based crop insurance scheme.

Speaking to Business Line, AICIL Chairman and Managing Director, Mr M. Parshad, said: “We have convinced the reinsurers to provide us reinsurance support.”

This is the first time that farm insurance in the country is obtaining international reinsurance support. Among the reinsurers that have supported the weather insurance scheme include Munich Re, Swiss Re and Paris Re. “Even Lloyds of London has agreed to provide support,” Mr Parshad said.

The scheme is now at the pilot stage in Uttar Pradesh, Rajasthan, Haryana, Punjab, Chhattisgarh, and Madhya Pradesh. Globally, reinsurers have seldom supported farm insurance schemes. Any support would be in the form of a proportionate basis, Mr Parshad said. However, sources said that any support at this stage for the weather-based cover was likely to be on a Facultative Reinsurance cover basis. Facultative Reinsurance, or Fac Re, implied reinsurance of individual risks by offer and acceptance where the reinsurer retained the right to accept or reject each risk offered.

NAIS features

AICIL’s weather scheme is completely different from the existing National Agriculture Insurance Scheme (NAIS). Under the NAIS, farmers are provided risk cover against shortfalls in crop yields. The premium collected is subsidised.

Premium under NAIS ranges between 1.5 per cent and 3 per cent of the crop value per season. This was well short of the actuarial premium of anywhere between 8 and 12 per cent.

Claims on the NAIS were entirely by the centre and the States together. However, under NAIS, only some categories of crops are entitled for premium subsidies. Some cash and horticulture crops are expected to pay up the actuarial premium. This implied that the insurer would have to meet the claims liabilities.

However, for the weather insurance scheme, the premium for food crops would remain around the same level as in the case NAIS.

The only difference was that the government would support the AICIL by meeting the deficit in actuarial premium.

The weather insurance would provide risk cover against shortfall or excess rainfall to farmers. This cover would be available to all farmers across all categories of produce, the officials said.

Catastrophe Pool

Based on the success of the scheme, Mr Parshad said, AICIL would set up a separate catastrophe pool.

He said that AICIL had not approached any of the public or private sector insurers for the purpose so far.

This was despite the fact that some of the private sector insurers like ICICI Lombard were also offering weather-based farm covers. “We will wait for the pilot project results and then create the pool,” he added.

But sources said that the government was pushing for setting up the pool.

This was in order to reduce the reliance on fiscal support for meeting the claims under the NAIS. This was despite the fact that globally farm insurance has always been supported by governments.

The sources said that the shift to the weather-based crop insurance would gradually help reduce the fiscal support, once a sizeable corpus for the pool was built up. Currently, claims are at least about 10 times the premiums collected from the farmers. Under the NAIS, the claims are paid out directly to the farmers by the Centre/States.

Collections

NAIS covers all farmers who have availed of crop loans from the banks. Net Premium collected by AICIL last year was Rs 558.76 crore and the total claims were Rs 550.75 crore.

Since large quantum of the claims under NAIS was paid out by the governments, NAIS was not affected adversely. This has ensured the solvency margin: the value of capital and assets in excess of two times the insured liabilities.

AICIL is promoted jointly by the national reinsurer General Insurance Corporation, NABARD, and the four public sector insurance companies.

More Stories on : Agriculture | General Insurance | Climate & Weather

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page