The working group on risk management in
Agriculture Ministry’s Initiative
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- AIC Rated Method
- Lowest Rate Method
- Modified USA Model
| Agriculture Ministry’s Initiative: Department of Agriculture & Cooperation (DAC), Ministry of Agriculture during invited general insurance companies, both public and private, requesting them to submit proposals on rural insurance, particularly agricultural insurance. A few companies submitted proposals and when asked to make a presentation, only two companies turned up with proposals for rainfall, farmer’s package, and livestock insurance. The Joint Group explored three alternatives of Private Sector Participation in Crop Insurance, which are briefly summarized below. AIC Rated Method: The indicative premium rates worked out by AIC for the proposed scheme would be circulated to all private insurers, to enable individual insurers to quote premium rates for various crops and areas. Rates quoted by private insurers would be discussed with AIC, and the final lowest rate would be arrived for different crops and areas. Government can then allocate the areas and crops to insurers on the basis of the most competitive premium rate. Before allocating areas and crops to private insurers, the government should ensure that these insurers have adequate solvency and have signed a MoU, w.r.t. the terms of implementation of the program. Lowest Rate Method: In the second alternative, the government would finalize and circulate the scheme to all insurers, for expression of interest in implementing the scheme and quoting premium rates. Iinsurers are required to quote premium rates for each crop, at state level. The government shall allocate the states & crops to insurers on the basis of lowest and competitive premium rate. Modified USA Model: In USA, the government supported crop insurance program is implemented by about 15 private insurers, besides Federal Crop Insurance Corporation (FCIC), a government company. The program is administered by the Risk Management Agency (RMA), on behalf of the US Department of Agriculture (USDA. Once a crop insurance program is approved by the government, the RMA gets the premium rates calculated for different crops / states / counties by utilizing the services of the National Crop Insurance Service (NCIS). Any approved insurer, can sell these insurance products, at the rates certified by the RMA. All insurers implementing the program, are eligible for the same level of premium subsidy, and the administrative and operating expenses of the insurer towards implementing crop insurance program, are entirely reimbursed by the government. Since the insurance companies are implementing the crop insurance program at a premium rate set by RMA, the government also provides a reasonable level of reinsurance support. The reinsurance support would be highest for developmental lines (new and unstable crops) and lowest for commercial lines (established and stable crops). On the lines of USA model, the government through an exclusive technical agency, may get the premium rates worked out and offer the product to all insurers. Insurers can implement the product, enjoying the same level of support and subsidy. As a variation from the USA method, the government would not provide reinsurance support and reimbursement of administrative and operating expenses, as these costs would be loaded in the actuarial rates. The government can decide whether or not different insurers compete in the same area, or allocate specific crops and areas to a particular insurer. The Joint Group recommended Modified USA Model, as the other two models, viz. ‘AIC Rated Method and Lowest Rate Method are not workable, because the rating techniques and risk perceptions employed by each of the insurers, could be different. Further, except AIC, no other insurer has access to yield database of all crops and areas, the main component for rating. The Joint Group further recommended, the creation of an exclusive technical agency, or strengthening the Commission for Agricultural Costs & Prices (CACP), with actuarial experts to generate premium rates. To begin with, the private sector participation maybe limited to certain crops/areas, leaving major crops / states, with AIC. With experience and maturity in the market, the entire program will be thrown open to all players. Area Yield insurance, under the NAIS, or in its improved form, would still be based on a multiple-agency approach. Banks and State machinery, would have to continue their support in terms of delivery and yield estimation services, respectively. The multiple agency based approach, works fairly efficiently at present, because these agencies are dealing with a single insurance company, owned by the government. Problems would arise, if these agencies have to extend similar support to multiple insurance companies, both public and private. The Working Group highlights two different models of Crop Insurance Partnership, practiced in Spain and USA in Box, below: Download 0.68 Mb. Share with your friends:
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