The weather index insurance market in India
In country where floods ravage more than 40 million hec tares of land mass and 68% of the total area is vulnerable to periodical droughts, the enormous dependency of crop production on rainfall hardly needs reiteration.
According to the crop loss data for the period 1985-2002, more than 70% of the crop loss is a result of drought and about 20% owing to excess rainfall.
The sheer size of the population involved in #agriculture and the fact that 60% of the crop production is under rain fed conditions highlight the need for income stabilization program for the farmer.
In 1999 the Government of India launched the National Agricultural Insurance Scheme (NAIS), the successor of the Comprehensive Crop Insurance Scheme (CCIS) which had been running since 1985.
The market for crop insurance in India fundamentally changed in 2007 with the launch of the Weather Based Crop Insurance Scheme (WBCIS), the pilot scheme weather indexed insurance scheme of the Indian government. Before 2007, states could either choose to opt in to NAIS, in which case insurance purchase would be compulsory for farmers that borrowed from financial institutions and voluntary for other farmers, or opt out.
The weather index insurance market in India is the world’s largest, having transitioned from small-scale and scattered pilots to a large-scale weather-based crop insurance program covering more than 9 million farmers.
Weather index insurance, where the claim payment to farmers is an explicit function of weather parameters such as rainfall, temperature and humidity as recorded at a local weather station. With claim payments based on objective, transparent, manipulation-resistant readings, weather indexed insurance offered lower moral hazard and adverse selection, as well as quicker claim settlement than yield-based schemes.
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