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India: Multi-peril crop insurance model launched

Source: Asia Insurance Review | Dec 2019

Boston-headquartered catastrophe risk modelling firm AIR Worldwide (AIR) has released a Multiple Peril Crop Insurance (MPCI) Model for India to help support probabilistic assessments of potential losses caused by yield shortfalls for 11 major crops across the two main India crop-growing seasons. 
The MPCI Model for India is an event-based model, with an event defined as an individual crop year made up of a kharif season (the ‘summer’ period from late spring into autumn) and the following rabi season (the ‘winter’ period from autumn into the following spring).
AIR Worldwide assistant vice president Dr Jeff Amthor said, “Our team at AIR invested significant effort in gathering data and, just as important, in screening it for quality and consistency. As a result, we produced what may be the highest-quality single data set of India’s state and district crop production statistics currently available. We also carried out a significant effort to understand the causes and consequences of the sometimes significant differences among weather data sources.”
The model features a stochastic catalogue of 10,000 simulated crop years, each containing a kharif season and the following rabi season, which describes the wide range of possible crop loss scenarios, both common and rare, in the two seasons. It also features a historical catalogue of losses based on a recast of the years 1979 through 2017. Both the stochastic and historic recast yield and loss catalogues reflect current crop ‘technology’ levels (for example, current crop genetics, farmer skill, availability of chemical inputs), insurable exposure by district, Pradhan Mantri Fasal Bima Yojana (PMFBY) policy conditions as revised in late 2018.
A crop’s vulnerability to stressful environmental factors (such as local or regional heat waves, droughts, or floods) can differ with each crop’s developmental stage, and that is accounted for in the AIR MPCI Model for India. The model also accounts for the fact that irrigation lessens or eliminates negative effects of precipitation shortfall on crop yields.
The model uses a combination of quality-assured historical yield events and both historic and stochastic all-India gridded weather data sets composed of daily values of minimum air temperature, maximum air temperature, rainfall amount, and maximum wind speed to simulate a full range of crop insurance loss outcomes under the current terms of the PMFBY. Simulations of annual weather over the entire country reflect today’s climate. Probabilistic assessments of loss return periods for the 10,000 scenario years are provided for individual crops in each insuring district and provide complete loss profiles by return period. Those results can be integrated to any level of aggregation desired to support evaluation of risk at the portfolio level.
AIR Worldwide India executive vice president and managing director Dr Praveen Sandri said, “Reinsurers in the India crop market can have their exposure data analysed at the district level or aggregated to the cluster and/or state level for individual crops or all crops combined. Additionally, the model can provide guidance toward putting together a balanced book of business that considers geographic correlations in a complex agricultural market.” A 
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