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Towards Global Weather Markets

Towards Global Weather Markets. Weather Insurance: Indian Experience. Presentation for WRMA Conference Miami, 3rd June 2008. By Kolli N Rao Agriculture Insurance Company of India Ltd. New Delhi, India. Presentation Outline. - Agriculture Insurance Company. - Indian Agriculture.

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Towards Global Weather Markets

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  1. Towards Global Weather Markets Weather Insurance: Indian Experience Presentation for WRMA Conference Miami, 3rd June 2008 By Kolli N Rao Agriculture Insurance Company of India Ltd. New Delhi, India

  2. Presentation Outline - Agriculture Insurance Company - Indian Agriculture - Agriculture & Weather - Area Yield Insurance - Evolution of Weather Insurance & Roles Played - Government Supported Weather Insurance Pilot - Weather Insurance Learnings - Future of Weather Insurance

  3. Agriculture Insurance Company of India Ltd. (AIC)

  4. Agriculture Insurance Company of India Ltd.

  5. Indian Agriculture

  6. Indian Agriculture – Key Highlights

  7. Indian Agriculture – Strengths

  8. Landholdings & Area Operated (in terms of numbers)

  9. Indian Agriculture & Weather

  10. India & Rainfall • India has 18% of the World’s Population, but only 4% of its Water resources • Agriculture accounts for 81% of use; Industry 10%; Household use 5% and the balance Others

  11. Indian Summer Monsoon Vs Agriculture Growth

  12. Area Yield Insurance (National Agricultural Insurance Scheme)

  13. Area Yield Index Crop Insurance (NAIS)

  14. Area Yield Insurance Measures Short to Medium Term

  15. Weather Insurance Evolution

  16. India: Weather Insurance Evolution & Roles Played

  17. India: Weather Based Crop Insurance

  18. Area Yield Insurance Vs Weather Insurance

  19. Weather Insurance - Government Supported Pilot 2007-08

  20. Hon’ble Finance Minister in his Union Budget Speech for 2007-08 “Agriculture Insurance Corporation (AIC) has been running a pilot weather insurance scheme since Kharif 2004 and it appears to be a more promising risk mitigation scheme. Hence, Government will ask AIC to start a weather based crop insurance scheme on a pilot basis in two or three States, in consultation with the State Governments concerned, as an alternative to the NAIS. The Scheme will be operated on an actuarial basis with an element of subsidy. I intend to allocate Rs. 100 crore for this purpose in 2007-08”

  21. Kharif Season: Groundnut – Karnataka (Haveri) Deficient Rainfall Excess Rainfall

  22. WBCIS - Rabi 2007-08 Season Applications Crop Growth Simulation Model

  23. Weather based Crop Insurance Pilot: Rabi 2007-08 COVER 1: Heat or Rise in Mean Temperature Cover Objective: To cover anticipated yield loss due to rise in atmospheric temperature Cover Period: 16thJanuary to 31stMarch Note: Total payout under this cover shall be capped at INR 13,500 per hectare or INR 5,400 per Acre Continued in Next slide ….

  24. Weather based Crop Insurance Pilot: Rabi 2007-08 COVER 2: Un-seasonal / Excess Rainfall Cover Objective:To cover anticipated yield loss due to excess/ un-seasonal rainfall Cover period: 1stFebruary to 31st March Note: Total payout under this cover shall be capped at INR 6,750 per hectare or INR 2,700 per Acre

  25. Weather based Crop Insurance Pilot: Rabi 2007-08 COVER 3: Frost Cover Objective : To cover anticipated yield loss in the event of frost Cover period : 1st December to 31st January Event Definition : Temperature of 0°C or below consecutively for 4 or more number of days Frost Payout Table: Note: Total payout under this cover shall be capped at INR 2,250 per hectare or INR 900 per Acre

  26. Government Supported WBCIS 2007-08

  27. Weather Insurance - Learnings

  28. Weather Insurance Key Issues & Challenges

  29. Crop Good Crop Poor Crop No Payout No Payout laim during Good Crop during Poor Crop C season season Poor (1) (2) Claim Good Payout during Good Payout during Claim Poor Crop season Good Crop season (4) Good (3) Weather Insurance: Effect of Basis Risk & Poor Design of Product

  30. Weather Insurance Key Success Parameters

  31. Weather Insurance - Future

  32. Weather Insurance - Future • Not a substitute for Area Yield Insurance, but a complementary • Good crop husbandry practices & agro-meteorological adaptation could be the key for maximizing efficiency of Weather insurance contracts • Most suited: - (i) for crops with no historical yield data; - (iii) perennial crops (usually age-group wise yield estimates are unavailable) - (iv) for crops / areas facing problems of asymmetric information; - (ii) as an index to give an early payout under Area Yield Insurance; - (v) crops experiencing huge time trend in yields; - (vi) macro index to decide calamity relief

  33. Weather Insurance - Future (Contd..) • Government / Institutional Support is must for large scale up-take • Market for Macro Weather Insurance Contracts & Weather Derivatives would emerge • In the long-term Soil Moisture based Models would emerge over Precipitation based Models • Products likely to come under increasing scrutiny of the stakeholders • Weather equipment & data may come under scrutiny & pressure • Climate Change & Weather Cycles may cause Reinsurers & Insurers to price weather insurance higher • Pricing may become a deterrent • Other interest groups (agri-commodity traders, agri-input suppliers, lenders) may show interest

  34. Climate Change?

  35. Namaskar

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