Table – 4: Premium subsidy model in Actuarial Regime
S. No Premium slab
Subsidy to farmers
1 Upto No Subsidy
>2
–
5%
30% subject to minimum net premium of 2.00%
3
>5
–
8%
40% subject to minimum net premium of 3.50%
4
>8
–
12%
50% subject to minimum net premium of
4.80%
5
>12% - 20%
60% subject to minimum net premium of
6.00%
(b) Government as Reinsurer of last resort:
Agriculture risks being co-variate in nature, the risk transfer mechanism gets costlier for transferring catastrophic risks to the private reinsurance market. The government, therefore,
acts as the reinsurer of last resort for catastrophic losses, inmost countries where crop insurance is largely supported by the government. Keeping in mind the above, as also considering that we have no historical experience with actuarial regime, the Working Group makes following recommendations. Premium component equivalent to 20% of gross premium with matching contribution from the Central government maybe set aside by AIC / insurance company as
‘catastrophic reserve, so as to have readily available funds to meet the contingency. Crops to be divided into two groups for the purpose of actuarial regime, say (i) viable lines (with matured loss history) and (ii) risky lines (with moderate to high loss history. While the insurance company would be responsible for all claims with reference to. viable lines, the government would provide stop loss arrangement for
‘risky lines, beyond a claims ratio of 200%.
3. The Box below discusses the reinsurance as a risk transfer mechanism, which could be utilized if and when the crop insurance is placed on actuarial regime.
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