The role of governments in scaling up agriculture insurance - Implementation lessons

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The role of governments in scaling up agriculture insurance - Implementation lessons

Presenter:Tara Steinmetz

BASIS/I4

Presenter:Vivek Lalan

HDFC Ergo General Insurance

Presenter:Mathieu Dubreuil

World Food Programme

Facilitator:Pranav Prashad

Impact Insurance Facility

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Governments are best suited to scale agriculture insurance by:- Creating a facilitative framework- Providing premium subsidies- Developing a platform for consumer education- Direct “purchase” of insurance for safety nets

or catastrophic covers

Audience poll 1

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Lessons from R4 implementation

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Mathieu Dubreuil

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The R4 model SenegalPartners: CNAAS, PlaNet Guarantee, saving groups associations, La Lumière, IRI… other rural development projects

2 index insurance products: satellite and ground based

Vulnerable & food insecure target population Insurance for Asset approach

In SenegalThe State subsidizes all ag. & livestock insurance premium by 50% + no taxesA rather strong risk management policy in rural areas, government has joined ARCAs stakeholders we interact with:

‒ CNAAS: a public-private agricultural insurance company‒ The Insurance Supervisor is very active and has a strong involvement

in the sector (CDPAI), and there is a microinsurance regulation (CIMA code)

‒ The Meteorological Department‒ Local government and some public agencies in coordination with

other initiatives and specifically on assets creation and targeting‒ Index design team, including CNAAS / Met Services

The R4 experience with governments

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In Senegal, some issues encounteredFinding the right institutional linkage: which ministry? (Agriculture for resilience? Environment for climate change?) ‒ First focused on local partnership, then informal advisor and

now focus on climate change

Until recently, there was only little inclusion of the insurance company by the Agriculture Ministry ‒ Putting CNAAS at the center should support scaling up

The R4 experience with governments

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The R4 model EthiopiaPartners: REST, ORDA, Nyala, Africa Insurance, IRI

1 index insurance product: satellite rainfall & vegetation index

R4 asset creation and insurance builds on PSNP

Vulnerable & food insecure target population Insurance for Asset approach

In EthiopiaThe Ethiopian government is very efficiently managing the PSNP, which gives a strong coordination of all DRR / conditional transfers activities The inclusion of the IFA in the social protection system is key for the sustainability of R4, which requires a very close coordination with the government and has not yet been achieved This takes time! ‒ Example of FFA 20 years ago, which were turned into the

PSNP

The R4 experience with governments

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Partnering with the government can take various ways, directly or indirectlyYour project should be included in the government’s policy and government should put in place the right framework to help you scale up (regulation, subsidies, linkage with the other financial tools, value chains…)Obvious: the more the government is convinced, the more it will be active and support measures to make the project / business sustainable

‒ This requires continuous training and awareness raising to many stakeholders‒ Need to prove evidence of the impact and the cost efficiency of the approach

Should not be undertaken alone, coordinate at sector level‒ Example of the CDPAI in Senegal

It does not mean you shall not advocate for improvements (coordination with ARC, subsidies, role of Met Dept, business models of public stakeholders…)

Key messages

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Where the government can play a key role for scaling up and ensuring sustainability

Provide and adapt legal & regulatory frameworkEnhancing data & information systemsEducation and capacity buildingResearch & development (products)Insurance distribution systems & financial transactions platformsPublic premium subsidiesCatastrophic risk sharing / Risk financing

Key messages

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Government as a facilitator for crop insurance in India

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Vivek Lalan

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Indian agricultural landscapeBiggest employment sector in the country

Contributes 14% to GDP and employ more than

50% workforce

Demographically broadest economic sector playing key role in socioeconomic fabric

70% small and marginal farmers using old and

manual production techniques

Less than 40% of land is irrigated leading to high dependency on weather

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Insurance processDe-risking rural credit- govt. support at each stage

Govt Notification and guidelines• Mandatory for

loanee farmers• Covers all rural

financial institution

Flow of Information banks• SLBC(State level

bankers Committee) send the guidelines to Nodal banks at district

Product sales• Conducting

bankers training to explain product features

• Banks debit premium against crop loan disbursement

Benefits• Hedging of banks portfolio and encourage agri loan

penetration• Freeing up blocked capital

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Crop insuranceA key inclusion objective of Government since 1972

1965-1972

• GIC launched 1st ever crop insurance scheme in 1972 in 5 states• Yield based cover

1972-1999

• Comprehensive crop insurance scheme launched in 1985 in 15 states• Yield based, with two third risk sharing by Government

1999 -2007

• Agriculture Insurance Company (AIC) was formed and National Agriculture Insurance Scheme(NAIS) launched

• Yield based and area approach• Claim liability beyond 100% shared by Govt

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Crop insuranceNational Crop Insurance Program emerges

2007-2009

• Pilot WBCIS(Weather Based Crop Insurance Scheme) launched• Area approach, premium subsidy and claim liability with insurance company• Private insurers allowed to participate

2009-2015

• WBCIS and MNAIS became full fledged scheme under (National Crop Insurance Program) NCIP in 2013

• Area approach, premium based subsidy and claim liability with insurance company

2016>

• Pradhan Mantri Fasal Bima Yojana (PMFBY)- the flagship agriculture inclusion scheme for the current Government launched• Improved amalgamation of existing crop insurance schemes• 16 implementing agencies allowed including 11 private players• One scheme for the entire country, marked improvements both for insured and insurers

Directional shift from claim subsidy mechanism to insurance solution

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An effort to make scheme more beneficial as well as sustainableScheme based on core contours of yield based crop insurance scheme with some additional covers

‒ NAIS and MNAIS redrafted to bring in improvements from farmers as well as insurers perspective

Only crop insurance scheme to be implemented in the country, thereby expanding the universe of crop insurance

‒ All existing schemes folded under PMFBY, save for weather based niche schemes

Focus on making the scheme more affordable to the farmers‒ Enhancement of level of premium subsidy up to 90%

Focus on making the scheme a sustainable insurance solution‒ Complete shift from loss subsidy plan to an actuarially designed insurance scheme

Use of technology for crop yield estimations, minimising discrepancies in yield estimations

‒ Involvement of insurance companies in yield estimations‒ Use of Mobile phones for capturing crop cutting data‒ Usage of remote sensing & drone based imagery for claim settlements

PMFBYA new dimension to agriculture insurance

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With the launch of PMFBY, the crop insurance has almost become the third largest product line in the non life insurance Within one year of its launch the market potential has increased from ~ $ 810 million to over $ 2830 million

Crop insurance market post PMFBYEmergence of crop insurance as a big product line

Year 2015-16NAIS 323

WBCIS 277MNAIS 208Total 808

Year 2016-17NAIS -

WBCIS 230PMFBY 2600Total 2830

Increase in average premium rates by almost 4 times due to shift to an actuarial based pricing regimeIncrease in average sum insured due to increased insured area and enhanced scale of finance for the cropsIncreased penetration of crop insurance from current ~ 20% to 35% due to nationwide efforts by Government of India and State Governments and “one scheme for the country”

( $ million)

Increase in market size is

primarily due to:

( $ million)

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Increased government and insurance company’s efforts to promote the schemeTotal administration of government down to village level is engaged in motivating farmers to insure themselvesManifolds increase in marketing & promotion of scheme by insurance companies and governmentsNationwide workshops held by insurance companies and local administration jointly to educate farmers regarding concept of insuranceUse of social media introduced for first time to promote agriculture insurance schemesImprovement in the infrastructure related to crop insurance – Introduction of agriculture help lines by insurance companies and governmentImprovement in Automated Weather Stations Network (AWS) in country from 550 in 2006 to over 3000 in 2014 to more than 7500 in 2016More transparency – Launch of farmer portalTargeted penetration at 50% in next two years

Crop insurance market post-PMFBYIncrease in promotion efforts

What is the best use of “smart” subsidies by the Government?- Subsidize premium- Providing reinsurance covers- Creating an infrastructure for data collection

and dissemination- Providing consumer outreach

Audience poll 2

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Opportunities for government to encourage a sustainable market for

insurance and to maximize development impact

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Tara Steinmetz

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Development objectives for investments in agricultural insurance can typically be considered in two categories:

Dual objectives

AFTER THE DISASTER

BEFORE THE DISASTER• After a major shock, farmers in

developing countries adopt costly coping strategies, often selling their remaining assets or drastically reducing their consumption

• These costly strategies can contribute to the intergenerational transfer of poverty

• To mitigate their exposure to risk, farmers often avoid risky, but potentially profitable investments

• Effective insurance can transfer some risk away from the farmer, enabling them to make productive investments. In this way, supporting insurance can support inclusive agricultural growth

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1. Ensure that the insurance products are of adequate quality‒ People must actually get protection from the insurance

(probability of payout in case of event)‒ Behavior won’t change (increased investments) unless people

are actually receiving adequate protection

2. During initial phase, government can use subsidies to encourage learning about the new product‒ Subsidies can help to stimulate demand during the “learning

phase”‒ But how you apply these subsidies matters

Government can play a role in working toward these objectives

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Insurance is a technology with hidden attributes; consumers can’t assess the quality of the insurance until after a disaster occursWhen disasters occur every 5-10 years, that leaves a long gap of uncertainty before the quality is revealedGovernment can help to overcome these problems by certifying if the product meets certain minimum quality standards (as some governments do with seeds or other technologies)Government certification can help give farmers confidence that the product has a certain minimum level of safety and quality

Safe minimum standards for insurance

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If government funds are going to be spent, the contract should be of sufficient quality and adequately targeted to have significant development impactOne way to think of index-based agricultural insurance is like any new technology (such as new seeds)

‒ Farmers are unfamiliar with the technology and how it works‒ Subsidies or coupons allow farmers to “test” the new technology and

at lower personal risk

Short-term subsidies that encourage experimentation with the product can create a market that remains even after subsidies end

Smart subsidies

What is the most effective way for governments to promote creation of a sustainable market for insurance?- Bundling (credit with compulsory insurance)- Integration into social safety nets - Short-term learning subsidies - Regulation and consumer protection- None of the above

Audience poll 3

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To have the government support your project/business, it is essential to provide evidence that your product/system brings added value to target population and country. Training and involvement are a keyPossible roles for government to play are becoming increasingly clear, but more work remains to determine how to best create a sustainable market for insurance and maximize impactCase for a separate body to regulate agriculture insurance schemes. In addition to being the driving force, governments should become active facilitators in educating and assisting farmers, planning and execution of schemes

Concluding thoughts

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The role of governments in scaling up agriculture insurance – Implementation lessons

Presenter:Tara Steinmetz

BASIS/I4

Presenter:Vivek Lalan

HDFC Ergo General Insurance

Presenter:Mathieu Dubreuil

World Food Programme

Facilitator:Pranav Prashad

Impact Insurance Facility

29

Q&A