Challenges with Agricultural Insurance in India: Need for a Multi-Stakeholder Perspective
COVID-19 has hit all the sectors of the rural economy. A recent analysis by Credit Suisse reveals that rural incomes were partly boosted through government fiscal support by their COVID response schemes. However, there has been a larger off-set of cash inflows resulting from a sharp drop in agricultural credit, lower remittances from migrant workers and significant volumes of perishables output that are draining nearly Rs 10,000 crore a month from rural incomes.
At a time when rural incomes are declining, Minimum Support Prices and crop insurance, the most significant safety net for farmers — seems to be failing them. According to data released by the Ministry of Agriculture and Farmers Welfare, insurance companies owe farmers outstanding claims to the tune of Rs. 3,928 crore since the inception of the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) till Rabi 2018–19. Farmers’ compensation for crop damage is useful if it comes in time for the subsequent sowing season. If a farmer suffers a loss in the kharif season, the compensation should be paid in time for it to be used as working capital for sowing during the next season. However, very few farmers receive these claims on time. These delays also seem to be resulting in declining demand for crop insurance among farmers. PMFBY saw a decline in enrolment rates, from 40.5 million farmers in kharif 2016 to 34 million in 2018, a 16% drop within two years.
On the supply side, four key private insurers did not bid for insurance clusters in the kharif 2019 crop season, resulting in a 15% increase in the market share of public insurers (up from 50%) in the wake of these exits. Further, news reports and opinion pieces from industry experts indicate a plethora of problems — which has resulted in several insurers leaving the business. Primary reasons for these problems include: high costs of reinsurance due to erratic weather, a spike in claims and challenges and delays with crop loss estimation. The Central Government too is feeling the fiscal burden through premium subsidy payments and has capped its share at 30%.
Four years on, the momentum built around the PMFBY programme seems to have dissipated. The farmer is distressed because of inadequate protection against risks. At the same time the private insurers are pulling out, due to lack of viability in the model. State governments, who spend a significant amount of their agriculture budget on the scheme appear reluctant to pay their share of premium on time. These challenges on the demand and supply side reiterate the importance of exploring alternative approaches for distributing agricultural insurance, and the current scenario also offers an opportunity to test and validate new models. The focus of our research is to understand the potential of meso-level insurance in agriculture through a multi-stakeholder lens. Our study utilises a framework that defines four categories of actors or stakeholders in the insurance space. The research relies on primary interviews with each of these stakeholder categories:
A. Facilitators/ Influencers: These include private (domestic or multinational) donors and governments. These stakeholders support agricultural insurance markets through financial support, strategic guidance, technical support, and capacity building. Facilitators also include reinsurers who provide insurance to the insurer, taking on a portion of the risk it bears.
Key stakeholders identified for this study include, (1) General Insurance Corporation of India (GIC Re) which covers nearly 50% of the risk under the PMJDY,(2) Swiss Re, which has prior experience with meso-level insurance products in Bangladesh, and (3) Oxfam Bangladesh, engaged in providing technical support and capacity building for the meso-level experiments in Bangladesh, will also provide valuable insights on their experiences on the ground.
B. Regulators/ Controllers: these include insurance regulators and supervisors, as well as other relevant government bodies, such as financial sector regulators. These stakeholders stipulate requirements for products and for the roles of insurers, delivery channels and others in providing these products. Stakeholders that we will be interviewing in this category include the Insurance Regulatory and Development Authority (IRDA), which will help us understand the regulatory challenges around meso-level insurance products. In the context of meso-level insurance in agriculture in India, the key stakeholders include the Ministry of Agriculture and state agriculture departments.
C. Providers/ Implementers: These include formal (licensed) or informal insurance providers. Formal insurers can often take one of several institutional forms, including public or private companies, cooperatives, and mutual insurance in agriculture. A key stakeholder in this group is the Agricultural Insurance Company of India (AIC), the largest crop insurer globally, in terms of the number of farmers served. We will also interact with private sector insurers such as Bajaj Allianz General Insurance Co. Ltd, Cholamandalam MS General Insurance Co. Ltd. and ICICI Lombard General Insurance Co. Ltd.
D. Beneficiaries: These include aggregators at the meso-level such as NGOs, MFIs, Producer Organisations, Agri-Input companies and Agri-processors, who will be the direct beneficiaries of the insurance product. These stakeholders are often present in markets where delivery channels may not directly have the capacity or interest in actively participating in the operational aspects of insurance, but do wish to offer these products to their clients (individual farmers). Similarly, risk aggregators can play an important role in providing risk-taking capacity, when insurers may not be interested or capable of working directly with delivery channels that reach low-income markets. Key stakeholders for this study include financial intermediaries such as BASIX which purchased one of the first meso-level insurance policies in India and Manab Mukti Sangstha, and a local level NGO in Bangladesh that has purchased meso-level insurance. Farmer Producer Organizations(FPO) and co-operatives could also benefit from meso-level insurance, with farmers being the indirect beneficiaries of meso-level insurance.
As we move forward with the study, we will draw insights from these stakeholder interactions, with an emphasis on understanding the demand for meso-level insurance products, the attitudes and perceptions of various stakeholders on the scalability of such products and identifying effective distribution channels for these products.
 ICICI Lombard General Insurance Co. Ltd, Tata AIG General Insurance Co. Ltd, Cholamandalam MS General Insurance Co. Ltd, and Shriram General Insurance Co. Ltd  Originally created by GIZ, in 2014