Need for Major Innovations in
Agriculture Insurance
• Agriculture is the backbone of Pakistan’s
economy
• Most crops are highly vulnerable to the
vagaries of weather
• This vulnerability is likely to increase due to
weather variability and Climate Change
• Despite this no worthwhile effort has been
made in Pakistan to launch innovative Crop
insurance schemes
Need for Major Innovations in
Agriculture Insurance
• The CLIS in the country protects the loan
portfolio of the banks to a certain extent and
has many shortcomings
• The Insurance Industry has a low risk appetite
and does not want to venture into new areas
• Most countries have moved on from
conventional crop insurance to innovative
crop insurance schemes
• There is no need for us to re-invent the wheel
• All that we need to do is review the success
stories of other countries and customize them
as per our local requirements
Why not conventional crop
insurance?
• Half hearted attempts have been made in
Pakistan to experiment with Conventional
crop insurance which were bound to fail
• Conventional Crop insurance has been
declared a global failure by international
experts like Skees, Murdoch etc
• It can not be successful in developing
countries due to bulging populations,
budgetary constraints, huge farmlands and
political pressures
• It is a bottomless pit because the claims
subsidy is open-ended. It cannot be budgeted
by the governments
Why not conventional crop
insurance?
• There is a high level of moral hazard
• The claims settlement is delayed for months
hence defeating the very purpose of insurance
• It is difficult to remove the political pressure
Major Advantages of weather
Insurance
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Negligible moral hazard
Outside political pressure
Low administration cost
Transparent structure
It is faster
It can be budgeted
It has proved to be more sustainable and
scalable than conventional crop insurance
The Indian Experience
Indian Experience
• Three crop insurance schemes are running
side by side in India. All of them are
compulsory and are bundled with loans:
Conventional Crop Insurance (NAIS)
Weather Insurance (WBCIS)
Modified Crop Insurance (MNAIS)
Indian Experience
• Total premium underwritten in 2014:
 Weather insurance- Rs 27 billion
 Modified Insurance- Rs 12 billion
Conventional Insurance- Rs 7.8 billion
Indian Experience
• The Year on year growth rate of last 5 years:
Weather Insurance : 24%
Modified Insurance :14%
Conventional Insurance :--5%(Negative
Growth)
Indian Experience
• The cumulative 5 years loss ratio of:
 Weather Insurance: 73%
Modified Insurance : 81%
Conventional Insurance : 330%
Indian Experience
• The average claim settlement time in these
three schemes:
Weather Insurance : 30 to 45 days
Modified Insurance : 6 to 12 months
Conventional Insurance : 6 to 12 months
Future of Crop Insurance In India
• Conventional Insurance is expected to be
gradually phased out
• Weather Insurance is likely to replace other
schemes especially for Horticulture crops
because they are highly vulnerable to extreme
weather conditions
• For Agriculture crops, Weather insurance will
continue to be implemented side by side with
Modified Insurance
Future of Crop Insurance In India
• Modified Insurance schemes are being
successfully implemented in many other
countries like US, China and Brazil.
• Such innovative models have been able to
overcome the major shortcoming of the other
two schemes by combining the advantages of
Conventional and Weather Insurance schemes
Future of Crop Insurance In India
• All crop insurance products will continue to be
highly dependent on subsidies as the actuarial
premium rates are much higher and cannot
be afforded by farmers
• Premium subsidies up to 75% are being
offered under Weather & Modified schemes.
• For Conventional Insurance premium rates are
capped at 1.5%-3.5% & claim subsidy is
provided if the claim is more than 100%
Way Forward for Pakistan
• Food Security will become a bigger challenge
due to the bulging population and negative
Impact of Climate Change
• Agriculture Insurance cannot survive without
government subsidies
• The State Bank should make weather
insurance & Modified Insurance also
compulsory with the agriculture loans
Way Forward for Pakistan
• Weather & conventional products complement
each other and can run side by side because they
target different segments of the risk.
• Its time for the Insurance Industry to venture into
new areas where the numbers are huge and the
profitability is good.
• The insurance sector needs to change their mind
set and view weather insurance as a viable
commercial proposition
The Future
The future lies with those companies
who see the poor as their customers
C.K.Prahalad