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Weather Insurance – Managing yield risk

Weather Insurance – Managing yield risk. Alok Shukla Head – Agriculture Risk. Weather Index Insurance. An insurance product which covers losses in crop due to weather vagaries. Index based insurance cover Claims calculated on data recorded at reference station

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Weather Insurance – Managing yield risk

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  1. Weather Insurance – Managing yield risk Alok Shukla Head – Agriculture Risk

  2. Weather Index Insurance • An insurance product which covers losses in crop due to weather vagaries. • Index based insurance cover • Claims calculated on data recorded at reference station • Perils covered: Rainfall, Temperature, Humidity etc. • Merits • A very high % of crop losses are due to weather vagaries • Transparent and faster claim settlement process • Low administration cost • Demerits • Basis risk • Low payout frequency • High premium rates • Complicated product

  3. Key performance Indicators • Demand • Coverage ratio • Renewal ratio • Supply • Net income ratio = (Income from premium + Other income - Claims expenses)/Collected premium • Incurred expense ratio = Incurred expenses / Collected premium • Promptness of claims settlements

  4. What affects demand? • Insurance literacy • Credit • Trust • Marketing • Complexity How much impact these determinants have on take up and renewal? Do farmers renew the product after a normal/ non-payout year?

  5. Is weather insurance an optimum risk transfer solution for low income households?

  6. What can be done? • Comprehensive solution – Insurance products bundled with other financial and non-financial products • Area yield approach – Claim payment based on farmers yield • Long term insurance products

  7. Comprehensive solution • Can bundling of weather insurance with financial and non-financial products increase the renewal ratio? • Bundled solutions • Financial • Credit • Future/ Forward contract • Non-financial • Agro advisory • Weather forecast • Agro inputs: Seeds, pesticides and fertilizers

  8. Area yield approach • Merits • Low basis risk • Demerits/ Current bottlenecks • High administration cost • Claim settlement time • How can we use technology to address these bottlenecks • Satellite imagery • Meso level products – for regions like Vidarbha and Royalaseema – Where the client can be government itself

  9. Long term insurance products • Savings + Insurance – An insurance product which gives payout in bad years and also returns back certain % of premium in case of continuous non-payout years ( 3- 5 years ) • Trust level – Farmers do not feel cheated in case of continuous non-payout years • Regulatory issues ??

  10. Questions?

  11. Thank You alok.shukla@ifmr.ac.in

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