1. Current Status and Challenges – “Agriculture Insurance Important for Sustainable and Inclusive Development” Insurance Perspective Anuj Tyagi HDFC ERGO General Insurance Co Ltd July 24, 2015

2. Agenda  Crop Insurance – Journey  Challenges in Agriculture  History of Crop Insurance  Overview of the Schemes and Penetration  Scheme Performance during Catastrophe  Challenges in Scheme  Going forward

3. Crop Insurance – Journey 1999-2014 AIC was formed and National Agriculture Insurance Scheme (NAIS) launched – Only PSU was allowed to implement Yield based and area approach Claim liability beyond 100% shared by Govt 2007-2014 Private Sector was allowed to implement Weather Based Crop Insurance Scheme (WBCIS) Index based area approach basis Reference Weather Stations Premium Subsidy (Rates capped basis crop type) No Claims subsidy 2010 -2014 Private Sector was allowed to implement Modified National Crop Insurance Scheme (MNAIS) Yield based and area approach at an lower ground level Premium Subsidy Claims Subsidy over 500%

4. Challenges in Agriculture …What’s hitting the farmers most?? Insurance provides comprehensive solution Consistent Aberrant Weather Localized Calamities Delay in claim payments Loss of revenue Delayed Sowing Sowing Failure Insect Infestation Inundated field Hailstorm Landslide Cloudburst Thunder Storm Financial Crunch for upcoming season

5.  Three schemes collectively insure around 40 mn hectare area  Far lesser than US and China- the evolved farm insurance markets  NAIS-27 mn Ha, WBCIS-11 mn Ha, MNAIS-2 mn Ha in 13 -14  Compulsory for loanee farmers and voluntary for non loanee  Low penetration level even amongst loanee farmers  Not all schemes are benefitting the farmers equally  Farmers benefitted in NAIS at ~ 35%, WBCIS and MNAIS at ~ 75%  NAIS is adminsitered by AICI, other two schemes have private insureres participation, too  NAIS is loss subsidy by government the other two schemes run on premium subsidy basis  Total subsidy of Rs 24,000 cr (loss subsidy) in NAIS and nearlly Rs ~`8500 Cr premium subsidy in WBCIS and MNAIS (till kharif 14) Agri insurance scenario in India

6. NAIS: Performance over the years Consistent Coverage in terms of Farmers Insured and Area Insured across the years * Data Source - DAC, MoA, GoI

7. NAIS: Performance over the years Unlimited claim liability lying with the Govt - Average Claim Ratio of 350% * Data Source - DAC, MoA, GoI

8. Weather insurance : is it more scientific? FactorTraditional Yield base InsuranceWeather Based Insurance Risks CoveredStanding Crop Yield LossesWeather deviations from Standard parameters Unit of InsuranceGram Panchayat, Hubli, Block Taluka Weather Station – within 10 km Aerial Radius or less Sharing of RiskLosses above 100% claim ratio are borne by State and Central Government in 50:50 ratio All liability remains with the implementing agency Levels of Indemnity 60%, 70% and 80%Scientifically determined payout linked with deviations in Ideal Weather conditions for the crop Claim Assessment Yield estimation by Crop Cutting experiments – Tehsil/Block – 16 Mandal/Phirka – 10 Gram Panchayat – 8 Automatic calculation basis data from Automated Weather Stations(AWS) Claim payment duration 8 months to 18 monthsWithin 45 days of season completion

9. WBCIS: Performance over the years Benefit shared under this Scheme are in sync with actual coverage * Data Source - DAC, MoA, GoI

10. WBCIS: Performance over the years Consistent Increase in Loss Ratio and Steady growth depicts acceptance across States * Data Source - DAC, MoA, GoI

11. Insurance schemes: a comparision

12.  Awareness of insurance concept poses the biggest challenge  Every low loss period poses a question mark on the credibility of schemes in the next year  Limited motivation for lending banks to promote schemes; non loanee has very low awareness about the product  Perceived expensive insurance schemes by farmers  Relatively low level of premium subsidy in WBCIS and MNAIS  US/China has ~80% premium subsidy products  Relevance of schemes becomes questionable sometimes  Does the Unit sum insured address farmer’s economic insecurity in the event of a loss??  Longer loss settlement cycle in NAIS, basis risk in WBCIS  Large unit areas posing a question on relevance of crop cutting  Reducing the crop cutting unit poses infrastructual challenges at this stage Agri insurance : challenges

13. Agri insurance : going forward  Promoting crop insurance should be a key deliverable for insurance companies  Enrollment % of loanee portfolio of banks should be one of the performance evaluation criterion  Non loanee portfolio development should be given higher weigtage in evaluating performance of insuarnce companies  Need to relook at higher subsidy levels for small and marginal farmers with no access to structured credit system  Hybrid weather/yield (WBCIS+MNAIS) provides wider coverage  One scheme across country- covers pre-sowing till post harvest losses, seamlessly  Add –ons for localised risks can be additionally structured by states depending on exposures  Increasing the level of subsidy will promote scheme  Successfuly implemeneted schemes across the world have high level of subsidies

14. Crop insurance : going forward  Promoting high usage of technology in yield estimations  High investment needed in use of remote sensing, UAVs and in setting up AWS to go to smaller units of crop cutting  Will bring in accuracy and credibility to data  A PPP model for the same is most viable  Allocation of implenting areas for a longer period to all stakeholders will bring in more committment Longer allocations will bring in costs down for all stakeholders over a period of time Governments and other stakeholders are working towards addressing all the above points to bring out a more farmer friendly relevant insurance scheme

15. Thank You

16. Odisha Cyclone Phailin analysis Financial Analysis of MNAIS and if only NAIS during Kharif 2013 in 4 districts of Odisha namely Bhadrak, Khudra, Jagatsinghpore and Balesore district) MNAISNAIS Farmer share of Premium14.415.4 Total Premium23.917.1 Total Premium Subsidy9.51.7 Total Claims232.880.8 Total Claim subsidy065.4 Additional Marketing expenditure of the scheme02.6 Net Liability on Govt9.569.6 Loss Ratio Assumption: Total premium of NAIS Calculated at 2.5% of sum insured(NAIS Premium rate of Paddy), Total premium subsidy under NAIS has been kept at 10%(for small and marginal farmers), Additional marketing expenditure under NAIS has been kept as 15% of total premium) On the basis of above mentioned analysis, it has been found that if NAIS has been implemented in those 4 districts in Odisha during Kharif 2013 instead of NAIS, Total liability on Govt would have been 60 crores more as compared to MNAIS and total claims would have been 152 crores less as compared to MNAIS. Fig in Rs crores

17. Analysis of Kharif 2009 Rajasthan Catastrophe – Drought Hit State – Rajasthan Scheme – NAIS Performance Schemes Performance in Catastrophic Years Analysis of Kharif 2013 Odisha Catastrophe – Cyclone Phailin Hit State – Odisha Scheme – MNAIS Performance Average Normal Rainfall up to Mid September 504 mm Actual Rainfall received during Kharif 2009 up to Mid September 367 mm Total Rainfall Deviation - 27 %

18. Kharif 2009 - Rajasthan Overall Loss Ratio – 1748.75% Total Farmer Benefitted – 81% Government Burden of Subsidy – 1,320 Cr

19. Kharif 2013 - Odisha Overall Cumulative Loss Ration of 561% - (1050% under MNAIS and 465% under NAIS)