Reinventing agri-insurance: focussing on weather is key

The onset of the monsoon brings both hopes to the large farm community as also uncertainty. Despite sophisticated models being in place, weather predictions have more often than not gone awry.

The weather guides India’s crop cycle through all stages and any change in temperature, rainfall or humidity significantly affects the quantum and quality of crop, eventually disturbing the market dynamics of the fragile agrarian economy.

To mitigate the risk the farmer faces due to the vagaries of the weather, successive governments have been implementing various agri-insurance schemes.

This government’s Pradhan Mantri Fasal Bima Yojana (PMFSBY), launched last year with much fanfare, has had better coverage and possesses several positive features but faces the same limitations as its predecessor, National Agricultural Insurance Scheme (NAIS). The only criterion for determining loss and distress remains the crop yield.

Measurement of crop loss and loss in yield is time consuming, non-transparent and inaccurate. To overcome these shortcomings, the government has highlighted the use of remote-sensing technology, but professionals themselves are not sure on how remote sensing technology or other technologies can replace the physical and time consuming Crop-Cutting Experiments (CCE) to estimate crop size and yields. Currently the scheme depends critically on CCEs.

India has had some success with an alternate approach that uses weather as a proxy. The Weather-Based Crop Insurance Scheme (WBCIS) has been under implementation in some parts of the country since 2007. WBCIS provides insurance coverage to farmers in the event of failure of crops resulting from incidence of adverse conditions of weather parameters such as rainfall, temperature, wind speed, frost, humidity etc.

Unlike the PMFSBY, this is not yield-based insurance, but rather uses weather parameters as a ‘proxy’ for crop yields in compensating affected cultivators.

WBCIS also is not without issues; designing weather indices and correlating weather indices with yield losses is a big technical challenge.

The PMFBY does provide scope for tweaking guidelines to use weather data for validating crop data gathered from CCEs. This should be made mandatory. The weather data needs to be sourced from automatic weather stations, as these have proven to be relatively tamper proof and data can be obtained online.

However, the infrastructure to measure, record, and transmit weather information needs to be expanded so that the required density of stations is established. Simultaneously, there is a need to develop remote sensing technologies to ensure that more accurate crop estimates become available with reduced number of CCEs so that the time lag also gets reduced. Actively involving the private sector will help provide more accurate data and faster claim settlement.

A sound weather-based element in an agriculture insurance scheme in India will serve many purposes. Objectivity and transparency will be higher compared to yield-based insurance programmes.

The loss-assessment cost based on weather is only a one-time cost. Once the density of weather stations is improved, there is also a lower basis risk.

Thus, introduction of elements of the weather-based insurance scheme as well as use of remote sensing under the existing PMFSBY will help increase farmers’ profitability and farm incomes.

The writer is MD & CEO, National Collateral Management Services Ltd (NCML). Views are personal

COMMENT NOW