More than 60 per cent of crops in India remain uninsured though the Crop Insurance is now the third largest nonlife market segment in the country behind motor and  health, with premiums around USD 3.3 billion, according to a  report”Harvesting Opportunity – Exploring crop (re)insurance risk in India”prepared by the Lloyd’s of London, in partnership with RMS,released on Thursday.

No crops in India are safe from crop damage given the wide-range of weather events India is exposed to. Droughts cause most the widespread damage to crops, particularly as less than 50 per cent  of crops in India are irrigated.Property business contributes to around 9 pr cent of Indian non-life premiums (USD 1.9 bn), compared to 16% for crop,said the report.

The states with the highest potential Prime Minister Fasal Bima Yojana(PMFBY)loss costs per crop type are: (i) Kharif rice: Bihar; (ii) Kharif sugarcane: Andhra Pradesh, (iii) Kharif soybean: Maharashtra; (iv) Kharif cotton: Rajasthan; (v) Rabi rice: Maharashtra; (vi) Rabi wheat: Himachal Pradesh; and (vii) Rabi potato: Chattishgarh. Madhya Pradesh, Maharashtra, Odisha, Bihar and Uttar Pradesh contribute to around two-thirds of the national PMFBY annual average loss

Some of the  key facts highlighted the report are-

− During Kharif 2016, an average monsoon year, crop claims were just under USD 1 billion

– The Government aims to reduce the protection gap via the latest crop insurance scheme PMFBY. This will require the capacity and resources of the international (re)insurance market.

− Crop treaties cover an annual period, with renewal typically on 1 April, covering both

-PMFBY and RWBCIS schemes for both seasons. Due to PMFBY’s timelines and that insurance companies prefer reinsurance to be in place prior to the tendering process, exposures and rates at the time of treaty underwriting are relatively unknown.

India is the world’s second largest agricultural economy after China with an Agriculture Gross Domestic Product of USD 392 billion (about 17% of the country’s GDP) and has two main cropping seasons: Kharif (July-October) and Rabi (October-March).

Other key highlights from the report include:

Risk of a changing climate:

Owing to India’s dependency on monsoon rains, droughts have historically caused the most widespread damage to crops in India, particularly as less than half of crops are irrigated. During Kharif 2016, an average monsoon year, crop claims were just under USD 1 billion. Most severe droughts are associated with the impacts of El Nino

Modelling by Lloyd’s and RMS showed that for PMFBY, at a national level, annual average loss costs are likely to be the highest for Kharif soybean, cotton and rice; and lowest for Rabi wheat, and Kharif sugarcane

Based on the findings of the report, other recommendations by Lloyd’s include:

Increasing discipline in underwriting to reduce bidding by insurers below actuarial rates – especially as competition rises with more companies entering the market

Reviewing biding timelines for insurers to reduce uncertainty over underlying ratings, premium levels and risk exposures

Incorporating technology into PMFBY’s claims handling process to increase effectiveness

For central government premium subsidies to be paid more quickly to reduce the current payment delays to farmers

Increasing access to the (re)insurance market for foreign players and expertise to ensure long-term financial viability.

By understanding Indian (re)insurance crop risks better,insurers can improve their portfolio exposure management, set appropriate limits and gain the confidence to expand into this fast-growing market.