Agriculture plays a central role in the Indian economy, especially in rural areas. According to the report on the Assessment of the Situation and Land Possessions of Farming Households in Rural India (SAS, 2019) recently published by the National Statistics Office, 54% of rural households are agricultural and derive 37% of their income. income from agriculture.
However, this sector is also subject to a multitude of constraints – marginal land, lack of irrigation facilities, susceptibility to prices and climatic shocks, crop losses and poor harvests – making it difficult for farm households to practice sustainable agriculture.
In addition, they also face vulnerabilities such as climate change, irregular weather conditions, disease, damage from insects, pests or animals, and natural disasters like flooding, among others. Insurance therefore becomes a very important tool for agrarian families to manage and mitigate their risks.
This article draws on SAS, 2019 to highlight some of the existing marketing, service, claims settlement and coverage gaps in the crop insurance market in India.
Deep fault lines
Insurance subscription is still relatively low and the average share of agricultural households holding crop insurance stands at 10.5% for the July-December 2018 and January-June 2019 campaigns and all crops combined.
Also Read: Crop Insurance Claims For 2020-2021 Decreased By Over 60% From Previous Year
While these numbers are an improvement over the previous report released in 2014 (for the July 2012-June 2013 seasons), further analysis reveals a few deep fault lines. At the access stage, the report captures the reasons why farmers do not purchase insurance and 39 percent, on average, said they were unaware of crop insurance. Additionally, 14.2 percent of households were unaware of the availability of an insurance service, highlighting a significant gap in marketing and awareness.
In addition, of the 10.5 percent of households that reported having insurance, less than half of them (47 percent) received their insurance documents. Considering that it is mandatory to submit a copy of this insurance document when registering a claim, this is a worrying number that testifies to the poor service offered by insurers.
There are two types of crop insurance subscription: one is for households receiving agricultural loans who are mandated to insure their crops, while the other is for those who take out insurance on their own. . Data for farmers who have taken out insurance on their own shows that a fairly high percentage of these farmers report crop losses.
For example, during the July-December 2018 season, 99.1% of farmers self-insured for potatoes reported crop losses, and during the January-June 2019 season, 86.4% of self-insured corn farmers reported crop losses. The average percentage of self-insured households that reported crop losses for both seasons and for all crops is 54.2 percent.
As for the general population (including insured and uninsured farmers), the average percentage of households reporting crop losses was 43 percent.
The crop losses being so high, the data on the payment of claims are not reassuring either. According to the report, none of the households that were self-insured for potatoes and reported a crop loss received a claim, whether full or partial.
Overall, among farmers who were self-insured and reported crop losses, only about 8 percent on average received full compensation payment while 7.9 percent received a claim for compensation. partial compensation. In addition, the report attempts to capture the reason for the non-payment of the claim under the following three headings: “non-coverage cause”, “lost documents” and “other”.
Here, a striking 77.2 percent majority (100 percent in the case of potato growers who have experienced crop losses) say the reason is “other”. This indicates a blind spot in our understanding of whether applications are registered and, if they are, the reasons why they are perhaps rejected for most farmers.
It is however interesting to note that the Agricultural Insurance Company of India (AIC) reported an incurred claims rate of 92.25% for the 2018-19 financial year (IRDAI Annual Report 2018-19).
In addition, according to PMFBY, claims reported for fiscal year 2019-2020 amounted to 26,893 crore, of which 25,822 crore was paid in claims. These data from farmers on the one hand and insurance companies on the other paint a very mixed picture. There is therefore an urgent need to go beyond underwriting figures to make crop insurance beneficial for a larger part of farmers, and sustainable for insurance providers as well.
Make it a habit
Farming, like any business, is prone to risk, and crop insurance offers a reasonable way to mitigate losses. For farmers, this mitigation is only possible when they have access to and become accustomed to securing their harvest. For insurance companies that intend to reduce adverse selection and risk concentration, crop insurance must become widespread. Governments that offer premium subsidies aim for a well-functioning crop insurance market that provides appropriate coverage and support to farmers.
Obviously, crop insurance can only respond to the priorities of all these stakeholders when farmers of various geographies, growing various crops, are covered by a large pool of common risks and receive adequate, appropriate and detailed information. on the use of their fonts. In addition, to expand and strengthen crop insurance subscriptions, farmers should start benefiting from crop insurance. This requires concerted efforts by insurance companies and the government to strengthen the mechanism for servicing existing policies, educating farmers on how to use their insurance policies, and making the claims process simple and transparent.
In addition, crop insurance that is seen as a benefit to a small farmer can serve as a boost to other farmers. As the report itself finds, advice from a fellow farmer is the most accessible (22 percent of farm households) and the most readily adopted (92.1 percent). We therefore cannot ignore the positive (or negative) network effects on insurance uptake of the good (or bad) experience of peer farmers.
With 70.4 percent of rural farm households with land holdings of less than one hectare, this sector mainly comprises landless or marginal farmers and small farmers, resulting in low turnover and income generation. net. The loss of crops only exacerbates their financial vulnerability, affecting their immediate and long-term well-being. Good risk management supported by a robust crop insurance ecosystem will help the farming community to weather adverse events and act as a bulwark against adverse shocks.
Natasha D’cruze is Research Associate and Priyadarshini Ganesan is Senior Research Associate at Dvara Research’s Household Finance Research Initiative