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India: Call for better crop data to attract reinsurers

Source: Asia Insurance Review | Jun 2018

India Agriculture Reinsurance People Technology

The largest opportunity to attract (re)insurance business and foster growth in crop insurance in India is to provide more standardised, granular and centralised data, particularly on historical crop yields and insured losses, says Lloyd’s of London, in partnership with RMS.
   In a report, ‘Harvesting opportunity – Exploring crop (re)insurance risk in India’, the two parties highlighted the following:
  • India’s crop insurance industry is expanding rapidly following the introduction of the Pradhan Mantri Fasal Bima Yojana (PMFBY) insurance scheme in 2016. Lloyd’s forecasts that around 60% of India’s crops remain uninsured.
  • Owing to India’s dependency on monsoon rains, droughts have historically caused the most widespread damage to crops in India, particularly as less than half of crops are irrigated. During Kharif 2016, an average monsoon year, crop claims were just under $1bn. 
  • Modelling by Lloyd’s and RMS showed that for PMFBY, at a national level, annual average loss costs are likely to be highest for kharif (monsoon season) soybean, cotton, and rice; and lowest for rabi (winter season) wheat, and kharif sugarcane.
  • The states with the highest potential PMFBY loss costs per crop type are: 
Rice: Bihar Rice: Maharashtra
Sugarcane: Andhra-Pradesh Wheat: Himachal-Pradesh
Soybean: Maharashtra Potato: Chhattisgarh
Cotton: Rajasthan  
  • Madhya-Pradesh, Maharashtra, Odisha, Bihar and Uttar-Pradesh contribute to around two-thirds of the national PMFBY annual average loss.
Based on the findings of the report, recommendations by Lloyd’s include:
  • Increasing discipline in underwriting to reduce bidding by insurers below actuarial rates - especially as competition rises with more companies entering the market
  • Reviewing bidding timelines for insurers to reduce uncertainty over underlying ratings, premium levels and risk exposures
  • Incorporating technology into PMFBY’s claims handling process to increase effectiveness
  • For central government premium subsidies to be paid more quickly to reduce the current payment delays to farmers
  • Increasing access to the (re)insurance market for foreign players and expertise to ensure long-term financial viability. A 
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