Optimising crop insurance

World Bank-aided pilot idea uses GPS,cellphones and remote-sensing data to try and overcome problems of existing insurance schemes

Written by Vivek Deshpande | Nagpur | Published: March 30, 2012 1:38 am

Rural suicides are often seen as reflection of the risky nature of farming in India,prompting suggestions about viable livelihood alternatives and allied occupations for farmers. The one area of risk mitigation,whose full potential has either remained untapped or has been dogged by many problems,is agriculture insurance,despite the fact that India’s crop insurance programme is the world’s largest with more than 25 million farmers insured annually. Several schemes tried for decades have not been able to generate confidence among the farmers about insurance as a big support in crisis situations.

A promising new government scheme,being piloted in Ahmednagar district of Maharashtra and Jalore district of Rajasthan with World Bank support,combines the best of area-based and weather-based insurance approaches using latest technology.

The Problems

Area-based schemes such as the National Agriculture Insurance Scheme (NAIS) and mNAIS decide compensation on the basis of loss calculated with average yield of the area. For this,‘crop-cutting experiments’ (CCEs),or monitored harvesting,are undertaken across the country. Shortfalls in average yield relative to historical averages determine the insurance payouts. Two key problems,however,currently prevent the full benefits of this scheme from being realised.

* This ‘area-approach’,while necessary given India’s millions of small farmholdings,introduces ‘basis risk’ (mismatch between farmer and average area yield) as local events and losses don’t get captured,thereby denying payouts to farmers who may have suffered losses and have legitimate claims. For example,poor rainfall will affect large areas,whereas a localised hailstorm may cause damage to only a few farms within the insurance area. This has been one of the big downsides of the insurance scheme from a farmer’s perspective.

In NAIS,the area surveyed is the Block. Under mNAIS,in order to reduce basis risk,the Government of India has brought down the basic area unit to the Gram Panchayat,thus reducing inaccuracies. This is a commendable farmer-friendly measure,but it increases data collection requirements (through CCEs) fivefold,presenting huge implementation problems.

* Crop yield measurements are very time-consuming. Delayed data means claim settlements also get delayed. As a result,farmers facing crop losses are not only unable to repay debt,but are also unable to access formal sector finance. They are forced to go to informal sector moneylenders to borrow at high rates. Also,the data is of poor quality and prone to manipulation,forcing the insurance companies to factor that in and raise their premium amounts. Thus,both the farmer and the government end up paying more.

The Solution

The Agriculture Insurance Corporation of India (AICI),together with the state governments and with World Bank technical assistance,is currently piloting two initiatives in Rajasthan and Maharashtra to meet the twin problems — the implementation challenge posed by the increased number of CCEs required under mNAIS and data quality and data speed issues.

Remote Sensing

To address the implementation challenge posed by a large number of CCEs,use of remote sensing technology to help classify yield areas into “good,bad and ugly” is also under way. “The idea is to develop a methodology to conduct more CCEs in areas that are more likely to have low yields and where farmers are more likely to deserve payments. That is,by lowering the number of CCEs needed for areas that are not likely to need a payout and focusing CCEs on areas that are more likely to need payouts,remote sensing images can help optimise the number of CCEs as well as,hopefully,lower the number of CCEs needed to be implemented under mNAIS,” explains Niraj Verma,Senior Financial Sector Specialist at the World Bank.

Cellphone-aided CCEs

In order to ensure that the data collected is not just reliable but also quick,GPS and video-enabled cellphones are being used to record the entire collection process and transmit data on near-real time basis to insurers and other users.

“The use of simple and cost-effective mobile technology provides several benefits — it provides the insurers with transparent and reliable CCE data; reduces the possibility of data manipulation and; allows for faster claim settlement to the insured farmers,” says WB Senior Financial Sector Specialist Niraj Verma. “An app for data recording and transfer allows data from the farmers’ fields to reach the servers in almost real time. The data is then uploaded on a website for consolidation and analysis which hastens the processing and settlement of claims. While a farmer would normally wait for several months for his claim to be settled can now potentially get the money in a few days,” he adds.

The GPS records the coordinates of the place where yield verification is done (called geo-tagging),ensuring it was conducted where it was needed. It also automatically records the time,ensuring data was collected when it should have been collected.

“Both these activities/ideas are yet at the pilot stage — while mobile phone technology has been tested in one season and can be adapted and applied fairly easily,remote sensing technology for sampling optimisation is still work in progress. Hopefully,this collaboration with the government and AICI will result in a feasible solution,” says Verma.

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