Crop insurance has emerged as the third-largest line of business for the insurance industry, after motor and health, contributing 16 per cent of its total general insurance premium of ₹1,28,000 crore in FY17. The Centre’s flagship crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), has played a significant role in this shift.

Indeed, the share of crop insurance may increase further, and very rapidly, as the Centre has increased the insurable crop coverage from 30 per cent to 40 per cent this year and is scheduled to increase it to 50 per cent in the next Budget.

The increase in coverage limit has a proportional impact on premium. “From ₹21,000 crore in FY17, crop insurance premium is expected to increase to ₹25,000-26,000 crore this year,” K Sanath Kumar, CMD of State-owned National Insurance Company, told BusinessLine .

However, while an increase in crop coverage and a subsequent rise in premium is music to the industry’s ears, assessing and settling claims is a highly complex and risky exercise.

Retail in nature

While the risks are fairly well defined and insurers have a relatively easy job in assessing the claims ratio for health and motor insurance, the rules of game are different in crop insurance, which is retail in nature, with the fate of the farmer’s crop linked to climatic and other regional risks.

In the days of climate change, scattered rainfall and pest attacks, such risks are wider than in, say, motor insurance.

Again, unlike other products, insurers are allowed entry into the PMFBY through competitive bidding. In other words, they cannot charge fancy prices for their products. One immediate fallout is that insurers are now taking high re-insurance cover, for approximately 60-70 per cent of the sum assured under the PMFBY. But re-insurance comes at a cost and to make it efficient, risk factors have to be assessed.

Tech to the rescue

The bottomline is that companies have to devise their own risk management practices; the better the risk management, the higher the chance of survival. Earlier, for instance, insurers depended on the archaic practice of sample harvesting to determine the yield of a region. Today, they are leaning more and more on modern technology. This has, for instance, led insurers to tie up with private weather agencies for region-or district-specific weather data.

On its part, HDFC ERGO has developed a mobile-based app, where geo-tagged images from the field are uploaded for an updated view of the crop situation. The company is also planning to deploy drones for assessment.

Drones to the fore

“We did a pilot to assess crop-loss from floods in Beed district of Maharashtra. The results are satisfactory,” Mukesh Kumar, Executive Director, HDFC ERGO, said.

ICICI Lombard is also experimenting with drones, said Sanjay Datta, Chief–Underwriting & Claims.

Drones with image-recognition software may prove efficient, said Joydeep K Roy, Partner & Leader, Insurance and Allied Businesses, PwC India.

To keep pace with the demand for improved crop-analysis technology from insurance companies, Karnataka has developed an app to provide updated information on the crop position, said ON Singh, Chairman, Universal Sompo General Insurance.

Singh expects other States to follow the Karnataka example and provide real-time data on crop position. Universal Sompo is tying up with technology providers for agri-data.

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