Publication: India - Crop Insurance Non-Lending Technical Assistance : Summary of Policy Suggestions

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World Bank
At the request of Government of India (GOI), the World Bank has provided technical assistance to the public insurance company, Agriculture Insurance Company of India (AICI) to develop an actuarially sound rating methodology and improve the contract design of the area-yield based National Agriculture Insurance Scheme (NAIS) to reduce delays in claim settlement; to design and ratemaking of new weather index insurance products under the weather based crop insurance scheme; and to perform a risk assessment of AICI's insurance portfolio and to suggest cost-effective risk financing solutions (including reinsurance). Crop insurance can contribute to increasing access to rural finance and is required to ensure a more viable agriculture credit business. An improved crop insurance program supports and complements other critical agriculture sector related measures, including the reform of rural credit cooperatives, agriculture marketing reforms and efforts to improve agriculture extension and productivity. A better understanding of risks entailed in particular crops in particular areas which can be ascertained through assessing the actuarially sound insurance premium rates for the crop can also be a significant input to agriculture policy at sub-national and national levels. Similarly, crop insurance is vital for creditors, such as banks and rural cooperatives, which otherwise face significant risks in agriculture lending that are otherwise difficult to price given political economy factors and the underlying fragile economics of agriculture. The inherent risks in agriculture in India with its high degree of dependence on rain-fed cultivation, a well developed and widely used agriculture insurance program is critical from a farmer perspective. Without this, farmers run the risk of crop failures, which in turn, lead to inability to service their debts. Since crop cycles often follow seamlessly from one season to the next, delinquency on account of one crop could mean being ruled out of the formal banking system for the next crop cycle.
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World Bank. 2011. India - Crop Insurance Non-Lending Technical Assistance : Summary of Policy Suggestions. © World Bank. License: CC BY 3.0 IGO.
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