The working group on risk management in

iii servicing and awareness levels (especially amongst non loanee farmers) and inadequate loss coverage. On the other hand, large insurance unit sizes, high premium to claims ratios, high costs of distribution and adverse selection (particularly amongst non loanee farmers, who constitute the majority of the farming community, are amongst the difficulty factors articulated by the insurers. The government also subsidizes both the premium and claims end of the scheme making the burden both large and difficult to budget A complex set of modifications are recommended to meet these challenges with possible additional financial implications for the government over and above the existing expenditure as detailed below:
Reduction of the Insurance Unit to the Gram Panchayat level to minimize the basis risk. The revised financial liability to government as a consequence, on account of major crops is estimated at 30%. Annual administrative expenditure estimated for conduct of additional crop cutting experiments is Rs. 165 crores.
A longer time yield series be used in fixing Guaranteed Yield for stable coverage,
involving an increase of 15% in government exposure, to this account
Increase in the indemnity level, involving a small increase of government expenditure of Coverage to prevented sowing/planting in adverse condition, be selectively extended, involving added government expenditure of Post harvest loss coverage be provided on an individual basis, incurring a nominal addition in government expenditure of Partial on account settlement of claims be implemented, without waiting for yield data in case of major disasters,
Individual assessment of losses in the case of localized risks, like hailstorm,
landslide etc be extended to all areas, involving a very nominal increase of in government expenditure
Uniform seasonality discipline (cutoff dates for buying insurance) be employed for participation for all farmers, both loanee and non loanee.

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Penetration amongst non loanee farmers be increased, through enhancement in service delivery and awareness building initiatives
A gradual shift from an administered price regime to an actuarial one, supported by upfront subsidy in premium
The adoption of transparent norms for premium subsidy, in an actuarial price regime to support risk transfer to international reinsurance and capital markets.
Premium sharing by banks be implemented, with lending banks bearing 25% of the premium payable by the farmer subject to a maximum of one percentage point of the premium Channelising at least apart of agricultural relief funds through crop insurance to increase penetration and to finance additional expenditure on the proposed improvements To target 40% crop insurance penetration by 2012
ü Coverage of perennial horticultural crops and vegetable crops to betaken upon pilot basis on an individual / weather insurance approach, incurring an added estimated cost of Rs. 100 crores
ü Reintroduce seed crop insurance either as exclusive insurance cover or additional component of NAIS
ü Launch government supported weather insurance pilot for selective crops and territories with annual financial expenditure of Rs. 50 crores.
ü Strengthening and automation of weather station network of the country by installing in the st phase automatic weather stations in all the Blocks of the country, which be further extended to gram panchayat level in the 2
nd phase Reintroduce government supported Farm Income Insurance with modifications covering a few pulses and oilseeds crops spread in a pilot over 40- 50 districts in the country with estimated annual expenditure of Rs. 100 crores.
ü Livestock related economic activities contribute 20% to the agricultural GDP. Some segments of the livestock economy are significantly larger than that of traditional agricultures, e.g., value of milk output is Rs 1,10,000 crores as compared to paddy which is Rs 78,200 crores or wheat, Rs 48, 450 croresHowever, penetration of livestock insurance is very low and stands barely at 6.58% of the insurable livestock

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population. Clearly the premium needs to be subsidized to the extent of 50% so that penetration can be raised to 30% or more during the XI five year plan There are assets such as agricultural implements, bullock carts, pump sets, health etc.
which seriously impact farmers ability to earn an adequate income. What is needed is a single insurance policy covering all assets of the farmer under one contract. The
Kissan Package Insurance Policy being sold by Public Sector Insurance companies at present cover 15 items of insurance. However, the Working Group, after considerable discussion concluded that the nature of crop-related risks are very different from those of other assets (e.g., Crop insurance covers much shorter period of time and are of a co-variate nature) so that it may not be efficient for an agency like AIC to provide such a comprehensive cover. However the AIC can always tie up with the other insurance companies and offer a one-stop shop for such insurance A large number of private insurance companies have been operating in the Indian
Insurance Market since October, 2000. 2 private companies have done pioneering work in agricultural insurance chiefly byway of introduction of weather insurance products. The issue of private sector involvement in agricultural insurance maybe addressed by means of the system of coinsurance in the order the AIC maybe a lead insurer with underwriting capabilities and contacts with multiple agencies and private insurance companies taking shares according to their capability The financial implications of the government for the XI Plan Period for the agriculture insurance (crop, livestock, pilots on farm income insurance, seed insurance & weather insurance) is estimated at Rs. 28,000 crores.

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