For an agrarian economy like India, crop insurance has been practiced as an indispensable risk management tool with varying use of technology, efficiency, and resultant experience. Owing to India’s climate risk exposure, providing quick relief to farmers in times of crisis is critical.
To anticipate a crisis, emerging technology tools such as remote sensing and data analytics will aid in providing quick relief to farmers. The existing yield index products rely on crop yield estimations obtained from manual crop cutting experiments which are prone to sampling and non-sampling bias, affecting the accuracy of the estimate. Remote sensing and data analytics can aid in sourcing the exact amount of crop yield for crops across different agro-climatic zones.
Remote sensing technology in the Indian agro-sector
Satellite-derived bio-physical parameters are well-proven to detect vegetation/crop health status and the impact of various risks such as droughts, floods and pests. Most commonly used indices are Normalised Difference Vegetation Index, Land Surface Wetness Index, Synthetic Aperture Radar, Backscatter and Fraction of Photosynthetic Active Radiation.
Major strengths of data-centric technologies
Large data streams on crops are currently available from data-centric technologies such as satellites, weather stations and mobile applications. These datasets help investigate the associations, establish relationships and perform predictions on crop health and risk occurrence.
Digital crop area maps using satellite data during the season are vital inputs for crop management advisories and production estimations. It is possible to generate such maps with reasonably good accuracies. The combination of mobile-based crop surveillance, satellite indices and weather-based indices enables comprehensive crop health information products.
As an example, the Maha Agritech project of the department of agriculture, Government of Maharashtra, initiated in 2019 with Maharashtra State Remote Sensing Centre and National Remote Sensing Centre (NRSC), effectively to utilise satellite data for generating crop surveillance information products and services in near real-time mode throughout the crop seasons.
The project aims to ensure the best possible utilisation of digital technologies such as satellites, drones, mobiles and field instrumentation in the agriculture decision-making process. The project tracks the crop sowing situation and harvest patterns at fortnight intervals; maps major field crops, orchards and plantations.
It monitors crop health, gives indicative yields assessment, and assesses the impact of disasters and weather extremes. Such insights facilitate the state government in better decision making and future planning.
Developing a technology-based crop insurance system
Such developments in remote sensing, mobile and weather instrumentation technologies, and open-source data analysis platforms and tools offer enormous opportunities to produce data-driven, evidence-based, and objective crop risk assessments.
Index-based insurance facilitates pay-outs based on objectively measured indices reflecting the estimated crop losses. It overcomes many problems encountered with the pay-outs based on manual estimation of losses.
With the availability of large volumes of valuable data on crop health indicators, there exists enormous scope for blending different sub-indices into a composite index of crop performance, offering a new dimension to crop insurance.
Composite indicators are gaining popularity in recent years for agricultural assessments because of their multidimensionality, flexibility, transparency and simplicity in evaluation. These indices are increasingly used in agriculture, environment, economy, society, and technology development applications. The greatest strength of these indicators lies in their ability to summarise complex processes and provide a big picture that is easy to interpret and make decisions.
Parametric insurance
In 2021, Agriculture Insurance Company of India (AICI) and Gramcover tied up to enhance the penetration of rural insurance. This included the introduction of an index-based. Parametric products rely on the local data familiar to farmers. Coverages can be structured either on standalone basis or to supplement the existing government-sponsored crop insurance programmes. The parametric products are expected to bridge the protection gap in the agriculture sector and AICI is creating a conducive ecosystem for it. Creating a cover to mitigate utilisation risk for agricultural warehouses using parametric concept is one such examples of this.
A tech-based insurance solution
AICI and NRSC developed and implemented an innovative index-based insurance scheme linking pay-outs to the measured crop performance instead of crop yield estimates. First of its kind in the country, the scheme was successfully implemented in the 2020-21 crop season in the state of West Bengal.
In this transformative crop insurance solution, the conventional ‘area-yield approach’ was replaced by ‘area-crop performance/crop health approach’. A composite index called Crop Health Factor (CHF) represents crop performance by incorporating multiple physical and biophysical parameters related to crop health.
It is a quantitative measure of crop health and its overall performance measure during the entire season. CHF deviation from the past year’s average decides the crop loss and insurance pay-out in the current season. End-of-the-crop season risks like hailstorms, floods and cyclones are also accounted for in the crop performance.
Advantages of such technology-based crop insurance solutions include elimination of moral hazard, a substantial reduction in the cost of re/insurance, transparency and faster payment of claims. A dashboard showing all relevant granular data concerning progress of enrolment of farmers, farmers’ demography, acreage covered, other insurance parameters like sum insured, premium rates at each crop/insurance unit are shared with the state and district administration.
As soon as the CHF is ready, the same is also shared on the dashboard. In case of any localised calamity, the ground-truthing is intensified with geo-referenced crop surveillance reports using a well-tested mobile app, and specific protocols are devised to account for such losses.
To give confidence to the state about the financial part of this unique insurance proposition, BSB started with a tangible upfront discount in the premium rates. Additionally, the cumulative surplus generated from the operation of over a certain number of seasons is ploughed back into the system to fund higher farmers’ enrolment in subsequent seasons.
Universalisation of crop insurance
Another unique feature of the West Bengal scheme is making insurance accessible for the farmers, leading to near universalisation of crop insurance in the state with more than 85% of the farmers insured in 2020. Moreover, 96% of the farmers in the state belong to the small/marginal category. Attempts to universalise insurance help eliminate adverse selection, ensure good spread across geographies and crops, which is crucial for catastrophic covers like crop insurance and also reduces farmers’ grievances.
Reinsurance support
After reviewing the product structure in the first season, Swiss Re has been the lead reinsurer of the BSB scheme in the last three seasons. Apart from benefits like information symmetry and objectivity in the historical and current claim datasets, reserving for such products is easier. Moreover, due to universalisation, the spread of the risk is reasonable despite it having emanated from a single state.
Transformative crop insurance solutions by exploiting the earth data offer promising new business models of risk transfer in the agriculture sector. Reducing the dependence on manual, cumbersome, and subjective yield estimates is the most recognised requirement in crop yield index insurance market, and a technology-driven crop performance index can help us achieve this.
Further, assessing crop performance with multiple parameters covering the entire cropped area rather than going for sampled plots is more practical, objective, and transparent than assessing crop yield with manual and limited measurements.
Modern remote sensing technology and data analysis tools offer numerous opportunities for crop monitoring and bring a paradigm shift in reshaping the crop insurance system benefitting all the stakeholders. Besides enhancing crop insurance effectiveness, efficiency, and sustainability, these technologies also permit the development of more targeted insurance products. A
Mr Siddesh Ramasubramanian is general manager and chief risk officer at Agriculture Insurance Company of India, Dr C S Murthy is group director of agricultural sciences and applications group at the National Remote Sensing Centre and Mr Mangesh Patankar is head of agriculture reinsurance at Swiss Re, India.