Girija Kumar, chairman and managing director, Agriculture Insurance Company, in an interview with Asia Insurance Post, explains how USD $ 4 billion Indian Crop Insurance market(FY 2022-23) will expand faster going ahead

How do you see Indian crop insurance market?

The Crop Insurance market in India is uniquely poised. With nearly 70% of the population being directly or indirectly dependent on Agriculture for their livelihood, Crop Insurance plays a dual role – one that of safeguarding the economic growth of the country, and the other that of fulfilling the social obligations of the Government.

The current market size of Indian crop Insurance market is around USD 4 billion(fy2022-23), which makes India the third largest crop Insurance market globally.

While the market size has hovered around this number for the last 4 years, there is immense room for growth, starting 2023-24 when most of the States will release next round of tenders for implementation of Prime Minister Fasal Bima Yojana (PMFBY) for the coming 3 years.

Being largely a Government-sponsored market, there has been a constant effort by both Central and State Governments to include additional crops and areas in the purview of Crop Insurance. Farmer interest in Crop Insurance has increased manifold over the last 6-7 years, which is reflected the share of voluntary enrolment in PMFBY, as well as the advent of non-PMFBY Crop Insurance products in the country.

With the introduction and successful implementation of PMFBY for over 6 years, the Indian crop insurance market has matured. Over the years though a few Insurers and states have quit PMFBY, still crop insurance market have seen a steady growth of about 7% year over year. It has been the endeavor of all the stake holders implementing PMFBY to encourage maximum number of enrolments.

Almost all field crops which have significant acreage are being covered under crop insurance scheme.

The Government is bringing new operational guidelines with various improvements to make the scheme more successful for maximum enrolment of farmers there by expecting the program to increase to size of $6Bn USD in next three years.

What role PMFBY has played in expanding the crop insurance market in recent years?

PMFBY has been pivotal in expanding the crop insurance market in the Country. Since the launch of PMFBY, the GWP has increased to nearly 7 times the pre-PMFBY era. While part of this expansion is due to hardening to market rates, the other major reason is the increase in Unit Sum Insured with this aspect is being of special significance.

Broadly, every hectare of cultivation leads to an average economic value added of around ₹1 lakh, out of which PMFBY insures nearly 50% as compared to earlier schemes that insured only half of what PMFBY does.

Because of a higher unit sum insured, farmers have started considering opting for PMFBY, as the Scheme now adequately compensates them for their crop loss.

Of course, the subsidy from Central and State Governments play a huge role as around 88% of the premium is subsidized. Hardening of premium rates has led to further increase of this share, which was only around 81% of gross premium when the Scheme was launched in 2016.

While Government subsidy would continue to be required, there is an urgent need to lower the premium rates, and making the Scheme fiscally sustainable. A slew of measures is being introduced in the next year to tackle this very issue.

What kind of growth is happening in non-PMFBY business in Indian market?

Crop insurance schemes, other than PMFBY, being implemented in India include RWBCIS & CPIS (also Govt. of India Schemes), BSBS ( Bangla Sasya Bima Scheme, a Govt. of West Bengal Scheme) and few commercial and retail products for crop insurance. RWBCIS & BSBS constitute about 5% each towards crop insurance premium.

Over7 million farmers in the state are covered under this product which has been envisioned and implemented by Agriculture Insurance Company (AIC).

The current penetration of all the Crop Insurance programme stands at around 25% in terms of area cultivated, and around 10% in terms of economic value.

The huge untapped market makes a solid case for non-PMFBY business.

Are more primary players and reinsurers entering the sector?

Few new general insurance companies have started entering the crop insurance sector. There are around 50 reinsurers  providing capacity for PMFBY. Few new markets (CBRs) have also participated in the past three years.

As per IRDAI Reinsurance regulation’s Order of preference clause, National Reinsurer (GIC Re) is to be given first preference for reinsurance placements followed by FRBs and CBRs. So, any reduction in participation by GIC Re  automatically increases the business opportunity for FRBs and CBRs.

Are you expecting crop premium in India to rise in near future?

There is no doubt that the crop insurance premium will rise in the near future. The rationalization of premium rates under PMFBY will play a huge role in encouraging States to increase coverage and expanding the market.

Parallelly, the expanding segment of non-PMFBY Crop Insurance products, especially for corporate clients, will soon start contributing a substantial share of crop insurance premiums in the country.

Would you say after few years of losses, Indian crop insurance has turned profitable?

The first few years posed some challenges in terms of both infrastructure and implementation due to which losses were high.

Now that the Scheme has started maturing, all stakeholders have warmed up to the idea of Actuarial Premium Rate driven insurance and the cyclical nature of this business. Companies and States can now plan better and together ensure that there is a win-win scenario for both.

The experience from the previous years is that increased use of Remote Sensing Technology, innovation of alternate risk management models, trained manpower in the field to continuously monitor losses and significant use of Analytics in claims management have led to a significant improvement in the results and we are consistently increasing our focus in these areas.

Are you getting enough reinsurance support from GIC Re  and FRBs or has to depend upon CBRs? Do you also participate in reinsurance arrangements of overseas countries

The reinsurance support so far has been good from GIC Re, FRBs and CBRs. The company does not see any dependency on any of the particular category of Reinsurers. AIC has recently started participating in Retrocession of Reinsurance of domestic and international Reinsurers. The company has successfully written around Rs. $18 Mn. with FRB and CBRs as Reinsurance Inward as on date.

Being primarily a monoline organization, geographical diversification plays an even bigger role for AIC and adding international markets to our portfolio makes a lot of sense.

What are the innovative products AIC is planning? Has time come for parametric products and insurance for protecting farmers’ income?

AIC has been developing and implementing, on pilot basis, innovative products since its inception. Based on these experiences, technology-based Bangla Shasya Bima Scheme has been successfully implemented with West Bengal State Government and National Remote Sensing Centre (NRSC-ISRO) as technology partner from 2020 onwards. The company is working on few innovative products like Sampoorna Fasal Kawach which is parametric, indemnity and Tech-based product. 

The company is also working on agri-allied products such as Saral Krishi Bima, Sampoorna Pasudhan Kawach, Aquaculture insurance, etc.

When you look at it, most of the agricultural activities are impacted by weather conditions in some way. Once this relation is established, we are able to offer adequate insurance coverage to our customers.

Remote sensing-based indices also play an important role in ascertaining the condition of the risk insured. Using a combination of both, parametric solutions provide a reasonable proxy, or sometimes even a better  one, as compared to the current indemnity-based solutions.

How technology friendly AIC has become internally as well as in dealing with customers? operations?

Technology is at the core of our growth plans. We are working very hard to become an “Agriculture InsurTech Company”.

How the whole phenomena of climate change is unfolding and being factored into Indian crop insurance market? Has it been modelled now?

Climate change is indeed the “elephant” in the room that everyone is dealing with in their own way. Truly speaking, the phenomena is still unfolding, which adds to the uncertainty of the entire industry. While the easiest way to factor in such uncertainty is to “load” premiums, we believe that is being unfair to our farming community which is already dealing with this problem.

AIC is actively working on modeling this uncertainty both in terms of temporal variability and geographically variability by analyzing as many datasets as possible and also utilizing remote-sensing based solutions