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Farmers increasingly using weather insurance to mitigate risks from climate change

More farmers are using weather insurance to mitigate risks from climate change.

, ET Bureau|
Updated: Jul 30, 2012, 02.59 AM IST

NEW DELHI: More farmers are using weather insurance to mitigate risks from climate change. Top two weather insurers -- Agricultural Insurance Corporation (AIC) and ICICI Lombard -- say business is growing at 25% annually and now covers more than 200 districts across 21 states.

"The growth has been so spectacular over the past five years that as many as 12 million farmers, growing crops on over 15 million hectares of cropped area, might have been insured during the 2011-12 crop year," said KN Rao, deputy general manager, AIC, which enjoys over 75% market share in this insurance category.

While the state-owned AIC covers almost all the designated districts, its nearest competitor ICICI Lombard is present in 11 states, covering over 50 districts. According to Union agriculture ministry, five insurance companies including AIC, ICICI Lombard, Iffco-Tokio and Cholamandlam MS offer insurance to farmers based on monsoon data.

"Uncertainty over monsoon and frequent climate changes have made it necessary for farmers to go for weather-based insurance. This provides them the much-needed cover and helps them withstand financial stress, which may happen due to crop loss," said RS Sharma, senior agri-scientist, Agricultural Policy Research Institute.

Weather insurance was formally introduced in 2003 as a pilot, and by 2007 the government adopted it as an alternative to the existing yield index insurance. Around 40 crops are insured under the category for various climatic phenomena like deficit rainfall, dry-spell, excess rainfall, low temperature, high temperature, high humidity, and high wind.

The premium rates are capped for the cultivator and the premium (rates) beyond the cap are shared by the Centre and concerned state government on 50:50 basis.

"The premium rates for farmers depend on various crops. For wheat, it is capped at 1.5% while for other food crops, it is 2.0%," said an AIC official.

With the rising popularity of weather-based insurance, the premium business as well as beneficiaries has also gone up over the past few years.

Farmers increasingly using weather insurance to mitigate risks from climate change

"In the 2010-11 crop year, premium collection was around Rs 1,300 crore while the claim was around Rs 635 crore, benefitting 43.29 lakh farmers. In 2011-12, the premium collection went up to around Rs 1,850 crore while the claims and beneficiaries increased to Rs 887 crore and 46 lakh farmers, respectively," said an AIC official.

However, weather insurance has its own challenges while catering to over 25-crore farmers in the country.

"One of the key challenges in weather index insurance has been establishing an adequate network of weather stations to service weather insurance as a credible insurance programme. It is estimated that the country needs around 8,000 automatic weather stations and about 32,000 rain gauges to effectively service the index insurance compared to the current network of 5,000," added Rao.

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