MR Microinsurance_2012_03_29.indd - International Labour ...

442 Insurers and microinsurance
to focus on mainstream insured crops. Some of the limitations of the WBCIS
may be overcome by the MNAIS (see Box 20.4).
Box 20.4 Modifi ed National Agricultural Insurance Scheme (MNAIS)
MNAIS is a hybrid yield and weather-index product, combining AIC’s NAIS
and WBCIS index schemes, pilot tested in in 34 districts in 12 states for the Rabi Rabi
(winter) (winter) season of 2010–11 to overcome overcome some of the challenges associated with with
NAIS. If it runs successfully, successfully, it may replace NAIS and provide small and mar- mar- marginal
ginal farmers with better risk cover.
MNAIS is using what is expected to be a more accurate basis for calculating
the threshold threshold yield for triggering triggering payouts: the average yield yield of the last seven years
excluding up to to two years of of declared natural natural calamity. It draws from both the the
area yield as well well as weather index contracts. contracts. Th e area yield yield for major major crops is
measured at at village village level, reducing spatial spatial basis risk substantially. One of of the key
advantages advantages of the the weather-index aspect of the the contract that MNAIS retains is is its
ability to pay claims during the cropping cropping season, providing immediate immediate relief,
allowing the farmer farmer to invest in alternate strategies to arrest crop loss for the
whole season.
Th e product covers “prevented sowing” for 25 per cent of the total sum
insured if the the monsoon is late late and the farmer decides to postpone sowing until
the rains arrive. Th e product also also covers “post-harvest” losses for up to two weeks
after harvest. Due to limited rural warehouse infrastructure, farmers “cut and
spread” the crop in the fi eld for drying drying after harvesting. A sudden bout of of rain
could spoil spoil the the harvested crop crop leading to substantial substantial loss.
In MNAIS, actuarial premiums will be paid for insuring the crop and hence
claims liability will be on the insurer, unlike NAIS NAIS where the State provided provided
claims claims subsidies. subsidies. Th is modifi cation cation could lead to improved price price transparency
(where the premium refl ects the true risk), risk), and stimulate the use use of informed informed
reinsurance reinsurance arrangements arrangements instead of the Government acting as a free reinsurer.
MNAIS could also lead to better management of the the programme, as the the actual
losses will have to be borne by the insurer. insurer. Premium subsidies will will continue to
make the product aff ordable.
Th is product could expand the outreach of weather-based contracts, catalyse
private investment in in weather infrastructure, ensure ensure better reinsurance pricing by
pooling risk risk from from diverse regions, and generate considerable guaranteed guaranteed demand
to encourage new insurers to off off er agriculture insurance. While stand-a-lone
agriculture insurance companies like like AIC are are critical, greater competition is
necessary necessary to to serve the huge huge untapped untapped market at at an aff ordable cost.
Source: Adapted from CIRM, 2011.