Hearty Welcome to Hon’ble Agriculture Minister and other Dignitaries

1. Hearty Welcome to Hon’ble Agriculture Minister and other Dignitaries by Agriculture Insurance Company of India Limited New Delhi.

2. “ Encouraging Pulses Growers through Innovative Crop Insurance Products” at National Food Security Mission Meeting on 5th December 2012 New Delhi.

3. AIC’s Profile Date of Incorporation : 20th December, 2002 Commencement of Business: 1st April, 2003 Premium during 2003-04: Rs. 369 crore Premium for the year 2011-12: Rs. 2577 crore Growth during the 9 years period: 7 times Share Holders GIC Re - 35 % NABARD - 30 % National, New India, Oriental, United India Insurance - 8.75 % each

4. Performance of AIC: 2011-12

5. Pulses Insurance PENETRATION (3 YEARS)

6. Insurance, by nature, involves spatial and temporal spread of risk, wherein losses paid to farmers in an area are made good by farmers of other areas, and also losses paid during bad years are made good by normal years. Typically, in crop insurance, the participation of cultivators availing insurance on voluntary basis has thrown-up an important problem challenging the very nature and foundation of insurance concept. Participation Behavior OF FARMERS

7. A few studies conducted have confirmed that cultivators are less enthusiastic to avail crop insurance if there is no pay-out during the previous crop season. In other words, every ‘claim-free season’ throws-up a challenge of participation in the next season. Problem gets compounded if the cultivator doesn’t receive a pay-out in the initial two or three years. AIC proposes to run a pilot as part of NFSM in a few States for a few pulse crops to incentivize crop insurance through ‘loyalty discount’. Participation Behavior OF FARMERS

8. Pulses Insurance with Loyalty Bonus – Financials

9. Assume the SI for redgram (arhar) is Rs. 10,000 / ha, and premium rate is 10% (as perWBCIS), the gross premium works out to Rs. 1,000 / ha, of which the farmer pays Rs. 250 (@2.5% of SI, balance Rs. 750/- is equally shared by the GoI and the State. AIC by way of minimizing the administrative expenses and commitment, shall keep aside 5% of the gross premium, i.e. Rs. 50/- out of Rs. 1,000/- as ‘loyalty bonus’. The insurance cover costing Rs. 1,000 is made available for non-loanee farmers at Rs. 950/-, and the balance Rs. 50/- collected shall be treated as ‘loyalty bonus’, and is kept aside on behalf of the farmer. Loyalty Bonus Linked Insurance: Modalities

10. NFSM shall provide ‘double’ the amount as contribution to the ‘Loyalty Bonus’, meaning for every Rs. 50/- premium from the farmer, NFSM contributes Rs. 100/- Assuming a farmer can avail insurance under the pilot for a maximum of 2 ha, and paid a premium of Rs. 500/-, shall have Rs. 300/- kept aside each year by AIC on his behalf Assuming the farmer participates for five years continuously insuring 2 ha every year, an amount of Rs. 1,500/- is kept aside in lieu of ‘loyalty bonus’, + the investment income generated Loyalty Bonus Linked Crop Insurance: Modalities

11. Going by the current market rates, it may be approx. Rs. 2250/-. The farmer gets this amount at the end of 5th year, in addition to the claims as may be payable depending on the weather deviations, provided he avails crop insurance continuously for 5 years. AIC shall submit MIS to the NFSM the details of participation and amount of loyalty bonus for each of the insured farmer. AIC shall also submit a report on the investment income earned on the ‘loyalty bonus’, at the end of each year. Loyalty Bonus Linked Crop Insurance: Modalities.

12. The pilot areas shall be chosen in consultation with the NFSM for carrying out the pilot for five years, and availability of good density of weather stations / rain gauges shall also be kept in mind while selecting the pilot area(s). A customized weather insurance product can also be developed by AIC in consultation with NFSM for the purpose. To further incentivize a few key value-added services like (i) personal accident insurance of Rs.50,000/- (ii) and a village-specific weather forecast, can also be provided, the costs of which can be paid by NFSM. Loyalty Bonus Linked Crop Insurance: Modalities

13. Example Assume a farmer participates in the scheme continuously for 5 yrs insuring his crop under either Kharif/Rabi or both the seasons every year, as follows. 5% of the total premium inclusive of Govt Subsidy will be kept aside as loyalty discount as below. (Amt in Rs) * Investment returns considered at 8 % approx.(Real experience may differ as per market trend) As per above example the farmers who pays Rs.2524/- as premium shall get around Rs.700/- as loyalty discount in addition to regular eligible claims. In other words farmer pays around 1824 as premium to insure his crops for a period of 5 years.

14. Loyalty Bonus Linked Crop Insurance: Financials

15. Why India Needed Index Based Crop Insurance? Non availability of past record of Yields, Land surveys, Ownership and Tenancy Large number of Farm-holdings (nearly 120 million) Small size of farm-holdings (Average size of 1.2 hectare) Remoteness & inaccessibility of Farm-holdings Low value per unit Large variety of crops, varied agro-climatic conditions and package of practices Difficulty in collection of small amount of premium from large number of farmers Simultaneous harvesting of crops all over the country Prohibitive cost of Manpower and Infrastructure

16. Introduced in 1999 and presently in operation countrywide Homogenous Area approach and Area-Yield Guarantee Available to all Farmers - compulsory for borrowing & optional for non-borrowing Covers Food crops, Oilseeds & Annual Commercial / Horticultural Crops Indemnity levels vary from 60% to 90% of past average yield Sum Insured - Loan amount to 150% of value of Yield Premium rates Food crops & Oilseeds – ranges from 1.5% to 3.5% Annual Commercial / Horticultural Crops – Actuarial Indemnities exceeding Premium for food crops & oilseeds are borne by the Government Being Implemented in 25 States & 2 Union Territories Covers more than 35 different crops each during Kharif and Rabi National Agricultural Insurance Scheme [NAIS](Government’s flagship Yield index Crop Insurance Program)

17. Government providing support since 2007 Indemnifies farmers against deemed crop losses due to adverse weather incidence Crops covered include perennial & horticulture crops like mango, apple, cashew, grapes & orange Risk based Premium rates with upfront premium subsidy from government Payouts based on pre-defined triggers on specified weather parameters Weather Parameters Rainfall: Deficit rainfall, Excess rainfall, Consecutive Dry/ Wet Days , Number of rainy days Temperature: Maximum Temperature (heat), Minimum Temperature (frost), Mean temperature, daily chilling units Relative Humidity Wind : Speed Disease proxy: Combination of rainfall, temperature & humidity Weather Index Crop Insurance

18. Premium rates actuarial, supported by up-front subsidy in premium & Insurer responsible for the claim liabilities Insurance unit for major crops is ‘village panchayat’ or any other equivalent unit In case of prevented / failed sowing, claims upto 25% of the sum insured is payable, and insurance cover ceases thereafter Post harvest losses caused by cyclonic rains are assessed at farm level for the crop harvested and left in ‘cut & spread’ condition Individual farm level assessment of losses to be done in case of localized calamities, like hailstorm and landslide On-account payment up to 25% of likely claim will be released as advance, for providing immediate relief to farmers in case of severe calamities Threshold yield will be based on average yield of past seven years, excluding upto two years of declared natural calamities Coverage levels are 70%, 80% & 90% corresponding to high risk, medium risk & low risk crops / areas Pilot on Modified NAIS

19. Thank you 18