MR Microinsurance_2012_03_29.indd - International Labour ...

Insights from India’s microinsurance success
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With improved data correlations between crop yield and various weather
conditions, India has graduated from its pilot years of single-weather, one-crop
covers with comparatively weak crop-to-weather correlations. Now products
with multi-weather covers are common, which also allows for the development
of contracts with greater precision. In theory this lowers the basis risk for the
farmer. However, improved product design may not result in increased take-up
because the resulting complexity may place a burden on sales and distribution
channels (see Chapter 13). For example, the multi-peril weather-index insurance
product for rice developed by Weather Risk Management Services (WRMS) was
subsequently replaced by single peril covers (temperature and rainfall separately),
which made distribution and sales easier, even though it increased transaction
costs and limited the risk cover for the farmer.
The other concern with data is timing, where a delay in the receipt of certified
weather data by insurers leads to claim settlement delays. Some innovations have
tried an immediate interim payout approach based on available data to improve
turnaround time. An additional way to improve the process is to transfer data
automatically from weather stations to insurers.
Weather-index insurance has also evolved to include a broader range of crops,
such as coriander and grapes, and additional weather parameters, such as frost for
fruit orchards. Such innovations are also valuable for a limited range of non-agricultural
risks, as illustrated in Box 20.3.
Not all product evolution has been positive. For example, there has been a
change in claim payment periods, resulting in products with less client value. In
the pilot years, claims were settled after each crop phase, but now payouts often
come at the end of the season because of the limited financial infrastructure and
the high cost of reaching farmers. A key advantage of a weather-index contract
should be its ability to make immediate payouts to help farmers pay for alternate
remedial measures such as hiring water pumps to reduce actual crop losses.
Therefore, shorter payment periods should be retained, with payments made via
low-cost cash transfer mechanisms.