CHAPTER-I

INTRODUCTION

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AGRICULTURE is not only a business enterprise, but also largely a way of life. On the one
hand, it involves production, distribution and exchange of certain basic materials indispensible to
man: on the other hand, it is a method of sustenance, both physical and moral, for a very large
body of persons who are generically known as agriculturists. As a notable American agricultural
economist has observed, it is one of the ideals of the agricultural community “to stimulate in men
the desire to be of service to their fellow men by farming well and living in right relations with
their community (Taylor 1925).”
In all its aspects and relationships, agriculture is subject to a considerable element of uncertainty.
Agriculture as a system of production, distribution and exchange, it is susceptible to all the social
and economic uncertainties which any other similar enterprise, such as mining or industry, is
called upon to face. Again, as a mode of living, it has to reckon with all the personal uncertainties
arising from death or impairment of health of farmers through sickness and accident and also
from the inability of agricultural laborers to sell or effectively employ their labor power. On top
of all these, agriculture is especially susceptible to the physical uncertainties of nature since it
requires, as distinguished from most other major forms of business enterprises, extensive, direct
and continuous contact with the forces of nature. Indeed, one of the important features that
distinguishes a farm as a business unit from a manufacturing plant or a commercial enterprise is
that major operations on it have to be carried on in the open and the operator must be prepared to
deal with what are known as “Acts of God”, that is, various adverse elements like an earthquake,
storm, natural fire (e.g. Caused by lightning), flood, drought, frost and hail. All these
uncertainties can make agriculture a very risky enterprise.
Despite the risks and uncertainties associated, agriculture remains a source of livelihood for
almost half of humanity and is also a source of growth for national economies. However, its
economic returns are subjected to events beyond farmer’s control. For example, market
conditions – aggregate supply and demand for farm inputs and products – can change sharply,
leading to uncertainty of prices paid and prices received. The vagaries of rainfall, temperature,
other weather conditions, plant diseases

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and pest infestations can boost or drop yields. These uncertainties create large discrepancies in
world agricultural production across the nations.
Thus, Agriculture is composed of Risk and Uncertainty. Agricultural Production and ultimately
Farm Income are frequently affected by Natural disasters, Man-made disasters and out-break of
epidemics.
Risks to Agricultural Property

The term “risk” and “uncertainty”, often used interchangeably, have different technical
connotations. While uncertainty is subjective probability, risk is objective probability. The former
represents a probable state of mind, latter a state of things.
Risks in agriculture may broadly be classified as (i) property risks and (ii) personal risks,
according to the object of incidence of uncertainty. Risks to agricultural property may again be
divided into three major groups: (a) natural, (b) social, and (c) economic, depending on whether
the uncertainty involved is due to natural, social or economic factors.
Natural Risks

Natural Risks or Natural hazards may be classified into (1) Vagaries of weather (drought, excess
moisture/floods, frost/freeze, hail, tornados/ windstorm, natural fire/lightning) (2) plant diseases
(3) insects and other pests.
Natural risks may affect property in two ways: by having an adverse impact on crop yields, and
by causing losses to existing farming stock, animate and inanimate. The former may be called
production risks, and the latter maintenance risks.
Social Risks

While the farm enterprise is particularly subject to natural hazards, many of its uncertainties arise
also from different social and economic factors. The social factors include: (i) fire; (ii) burglary
or theft; (iii) embezzlement; (iv) strike; (v) war, civil, commotion, etc.; (vi) changes in the social
structure; and (vii) technological changes.
Economic Risks

The farm enterprise besides being subject to the risks of property and investment losses carries
numerous personal risks. A personal risk means the possibility of capital or income loss to the
farmer as farmer arising from the uncertainty of the human factor
Different ways of meeting agricultural risks
RISK MANAGEMENT STRATEGIES

Though risks can not be eliminated completely, risk mitigation or easing stratagies can be
adopted or taken-up. They are as follows.
Risk- reducing strategies (ex-ante) – Crop diversification, inter-cropping / mix cropping, or
cultivation of drought or flood resistant crops. Diversification of activities, engaging in nonfarm/
off-farm activities, getting into contractual arrangements, such as share cropping, labor hiring,
etc.
Risk- coping strategies – sale of assets and stored produce, receipt of transfers from relatives,
borrowals for consumption, increase labor participation and even migration for better
employment opportunities, crop storage/ buffer stocks, insurance farm and farmer, etc.
Need for combination – The farmer must decide if the benefits gained outweigh the cost of the
strategy based on their household and farm goals, their attitude towards risk and their unique
family, household and farm situations.
Agricultural insurance

Agricultural insurance is key in assisting farmers, herders, and governments lessen the negative
financial impact of these adverse natural events. Agricultural insurance is one method by which
farmers can stabilize farm income and investment from the disastrous effect of crop losses due to
natural hazards or low market prices. Crop insurance not only stabilizes the farm income but also
helps the farmer to initiate production activity after the bad agricultural year.
Table 1.1 Farm suicides annual averages in select states 1995-2009 &2010-2019

Farm Suicides annual Difference (second

average average- first
State
1995-2009 2010-2019
average)
Telangana 1590 2301 718
Assam 155 291 136
Karnataka 2259 2193 -136
Kerala 1992 1771 -221
Madhya Pradesh +
Chhattisgarh 2311 2829 525
Maharashtra 2515 3809 1994
Tamil Nadu 992 866 -196
Uttar Pradesh 640 531 -179
West Bengal 1426 990 -436
Source: NCRB Accidental Deaths & Suicides in India Reports 1995 -2019

Table 1.1 The table only includes states whose annual averages have raised or fallen by over 170
farm suicides between the two periods. It also treats Madhya Pradesh and Chhattisgarh as one
unit for data purposes.

Figure 1.1
Farmers
suicides in India
There has been a steady increase in the farmer suicides until 2016 and then it lowered by a few
numbers. This can partially be attributed to the crop insurance strategies, which rescued the
farmers from the debt trap. Hence, there is a need for more research in this arena and to take
experiences from the developed countries.
Agricultural Insurance in India

The present study deals with comparison of crop insurance in the two major economies of the
world, namely India , which stands as the third and second largest in the world in terms of
agricultural output.
In India, more than half of the farming is practiced as rain-fed agriculture and is at the mercy of
the weather. A number of crop insurance products are available to farmers in different
geographical areas and for different purposes. These include National Agricultural Insurance
Scheme, Weather Based Crop Insurance Scheme, Wheat Insurance (Weather & Biomass), Rabi
Weather Insurance, Potato Insurance, Poppy Insurance, Varsha Bima (Rainfall Insurance) for
seasonal and annual crops. Insurance products are also available for plantation crops in specific
geographical areas such as Uttarakhand Seb Bima Yojana (Apple Insurance), Grapes Insurance,
Rainfall Insurance Scheme for Coffee Growers (Coffee Insurance), Bio-Fuel Tree / Plant
Insurance, Pulpwood Tree Insurance, Coconut Insurance, Rubber Insurance and Mango
Insurance for plantation crops in specific geographic area.
In , the largest causes of crop failure are excess moisture and drought. Excess moisture can
severely damage a crop, significantly reduce quality and cause other problems like prevented
planting. Crop Hail Insurance and Multiple Peril Crop Insurance have contributed since 1880 to
protect the farmers. Agricultural insurance in is more than 170 years old covering both the yield
risk and price risk.
PROBLEM STATEMENT
The crop insurance industry has changed significantly since its early days. Policies, procedures,
and techniques have been modified over the years in both the countries. The industry is
constantly evaluating its insurance products in an ongoing effort to make sure that they are
relevant and affordable for the farmers. This study would bring the commonalities and
differences between both the countries with respect to operational framework, farmers’
perspective and the impact of risk minimization in crop insurance.
 OBJECTIVES OF INVESTIGATION
1. To study the growth of various agricultural insurance schemes in India over the
period.
2. To examine the operational framework of crop insurance implementing
mechanisms in India .
3. To assess the effect of crop insurance schemes on risk minimization at farm level
in selected study areas.
4. To study the constraints (operational and farm level) associated with the crop
insurance.
 SCOPE OF THE STUDY
The findings of the study will be useful in understanding the US scenario of the Agricultural
insurance and to adapt those informative resources which are suitable for the Indian agricultural
situations. It would also trigger the research based studies in the field of agricultural insurance in
both the countries. The study would be timely and of considerable economic value in providing
real facts and figures to the planners, policy makers and extension / insurance agents of the
regions for developing strategies in the field of agricultural insurance. This would also enable the
policy makers to analyze the two different scenarios of agricultural insurance and to understand
the commonalities existing.
 LIMITATIONS OF THE STUDY
A one man research is always confronted with various bottlenecks and the present study is not an
exception to these limitations. The present study is more of a descriptive in nature. The study was
carried out in two different nations in a limited time frame. The socio – economic and cultural
aspects are completely diverse in both the countries.
One of the most important limitations of the case study (Warangal district, Andhra Pradesh)
undertaken was that the study was confined to a particular agro-climatic and agro-economic
region and hence the conclusions drawn are applicable to that area and areas with similar
conditions only. Therefore, the extent of generalization has to be cautiously made. Secondly, the
data were collected through the survey method by interviewing farmers. Therefore, the objective
of the data is limited to the extent that the farmers are able to sum up from their memory, as they
do not maintain any records. However, all care has been taken to get reliable data from
informants. Due to fluctuation
in the prices of the selected crops, the average price during the study period has been taken for
the computation of the production, cultivation and input costs. Hence it could be considered as
one of the limitations of the study. The study is also confronted with the constraints of limitation
of time, sample size and resources at the disposal of the investigator.
 PRESENTATION OF THESIS
The study is presented in five chapters as follows.
I. Introduction : The importance of the study, objectives, scope and limitations of
the study are covered.
II. Review of Literature: The available and relevant literature pertaining to risk
management in agriculture and crop insurance is thoroughly reviewed.
III. Materials and Methods: The methodology adopted in sampling, data collection,
analytical tools used and methods of evaluation are explained.
IV. Results and Discussion: Encompasses analysis of the results of the study and
also the discussion evolved from the study.
V. Summary and Conclusions: The results are summarized and conclusions are
drawn to make necessary policy suggestions for adoption by the insurance agencies.
 CHAPTER II
REVIEW OF LITERATURE
A comprehensive review of literature is an integral part of the investigation, as the previous
studies pave the way for future research endeavors. It helps to identify the gaps in the research
findings, the documentation and the events relating to a particular aspect of the investigation.
Therefore, an attempt was made in this chapter to review the literature, which has meaningful
relation to the present investigation.
It was observed from the perl of literature that a little research studies were undertaken on crop
insurance in India . Hence, an effort was made to acquaint with available literature having direct
or indirect bearing on the present research study.
A brief account of the review available is presented below under the following headings.
Risk Management in India and abroad
Approaches to Crop Insurance in India and abroad
Development of Crop Insurance in India and abroad
Crop Insurance in India and abroad

STUDIES ON RISK MANAGEMENT IN INDIA AND ABROAD

Coble et al (2013) in his studies stated that the complexity of the risk management context also
challenges those who educate and advise crop producers on risk management decisions.
Gadgil et al (2009) argued that southern Indian farmers are able to quickly shift from 170 percent
of farm- labor activities to largely off-farm activities if the monsoon rains are expected to be
poor.
Barnett (1999) stated that, in countries around the world, political realities dictate continued
government involvement in assisting victims of natural disasters. Given performance objectives
of efficiency, consistency and equity, natural disaster assistance programmes based on insurance
principles should prove superior to grants or low- interest loans. Yet the financial performance of
government natural disaster insurance programmes, both in the US and around the world , has
been less than impressive.
Rosenzweig and Wolphin (1993) stated that measures like sale of assets such as land and
livestock or reallocation of labor resources to off-farm labor activities are practiced by the
farmers in case of risk.
Walker and Ryan (1990) studied the household of villages, surveyed by the ICRISAT and stated
that farmers generate income from at least two different sources, typically by crop income and
some livestock or dairy income; off-farm seasonal labor, trade and sale of handicrafts are also
common income sources.
Walker and Ryan (1990) discussed the negative impact of weather risk on rural households. One
of their recommendations is to introduce rainfall lotteries as an alternative to traditional crop
insurance schemes by dividing the monsoon season into discrete intervals and allowing the
farmer to bet against the accumulated rainfall at the local rainfall gauge for each interval at the
start of the season, the formal weather insurance case study described below essentially puts
these principles into action, though payoffs are adapted to the actual cropping pattern of the
monsoon season for the most prevalent crops in semi-arid India Groundnut and Castor.
Rosenzweig and Stark (1989) studied the importance of income source diversification as part of
risk management and emphasized that households with more farm profit volatility are more
likely to have a household member engaged in steady wage employment.
Rosenzweig and Stark (1989) studied some degree of risk sharing, insurance against weather,
none of the systems are so widespread that they cover all households, nor are they even close to
provide a fully efficient insurance mechanism. Most of the households are therefore still left with
no insurance against aggregate risks and the main source of this risk is weather.
APPROACHES TO CROP INSURANCE IN INDIA AND ABROAD
Babcock et al. (2011) conducted a study on actuarial fairness of crop insurance rate at constant
rate relativities. Increased availability and demand for low deductible crop insurance policies
have increased focus on crop insurance rating methods. Actuarial fairness cannot achieve if
constant multiplicative factors used to determine how premiums change at coverage level
increases. A comparison of premium rate generated by factors used by the two most popular crop
insurance products with those generated by a candid yield distribution shows that the popular
insurance products over
charged for low deductible policies in most countries suggested that this over pricing may
explain why large premium subsidies were required to induce farmers to move from low
deductible to high deductible policies beginning in 2001.
Keith et al. (1997) conducted studies on the expected indemnity approach to the measurement of
moral hazard in crop insurance. This study includes a definition of moral hazard if multiple peril
crop insurance that focuses on expected indemnities rather than input use. 5 years of production
and insurance data for a panel of Kansas wheat farms are used to empirically test this type of
moral hazard. Results suggest that moral hazard effects, multiple crop insurance indemnities in
poor production years, but that most significant moral hazards occurs in years when growing
conditions are favorable.
Kouadio (1983) analyzed the implications of the availability of the Federal Crop Insurance
Programme on the risk taking behavior and social welfare of the farmers in Arizona.
Analytically, a simple model of the allocation of land among two crops can be safe and the other
risky in yield was used along with the behavior hypothesis of expected utility maximization. A
subsidized programme will in general induce greater risk taking behavior. The impact of the
programme on crop mix was, however ambitious when the expected insurance indemnities fell
short of the premium paid. If insurance was available, under some reasonable assumptions about
farmers' risk preferences, a premium subsidy would tend to induce greater risk taking. However,
the results of the empirical study suggested that the Federal Crop Insurance Programme did not
have a significant on crop mix. Finally, using the Arrow Lind Criterion of Welfare assessment
under uncertainty the study casts doubt on the social desirability of the Federal Crop Insurance
Programme.
Walker and Jodha (1982) have highlighted a few implications of crop insurance. It was indicated
that the programme should be designed with a minimum of lacuna so that the integrity of the
farm risk management was preserved. It was concluded that heterogeneity of productive micro
environment may allow regional crop insurance programmes to pool risks more widely over
many areas and small farmers may also be able to diffuse risk through spatial diversification and
other mechanisms.
Halcrow (1978) was of the opinion that of all the types of crop insurance, i.e. the all-risk crop
insurance, area, yield, crop insurance and the weather crop insurance, it was the area, yield and
weather crop insurance, which were preferable and more reliable
than the all risk crop insurance specially in providing income protection for the individual
farmers against the risks of low crop yield.
DEVELOPMENT OF CROP INSURANCE IN INDIA AND ABROAD
Bakker (2011) opined that rainfall insurance is sometimes as an alternative to the better known
crop insurance as a means of reducing fluctuations in income for rural households in developing
countries. The results found that respondents generally considered rainfall to be a crucial
determinant of their income and hence supported the idea as insurance against it and found that
nonsystematic income difference income from crops or for households as a whole. He concluded
that rainfall insurance is unlikely to yield substantial benefits in terms of reduced income risk in
rural areas.
Bruce J Sherrick et al. (2011) assessed whether there are economically important differences that
arise from alternative parameterizations of crop yield distributions, by comparing the implied
distributional characteristics under alternative specification and by demonstrating the impact of
the distributional choice has a large impact on rating Crop Insurance products and on yield
assessment.
Gajanana et al. (2011) studied risk identified farmers risk adjustment mechanisms and analyzed
their relevance for policy alternatives for the development of farmers in the typical drought prone
district of Tumkur in Karnataka state. He suggested that the participation in Crop Insurance and
partial adoption of dry farming practices are some of the strategies adopted by the surveyed
farmers to insulate themselves against risk due to drought.
Sidharth Sinha (2011) reported that schemes in India cover only about 17% sown area and have
high claims to premium ratio. The paradox of low coverage and high claims to premium ratio is
easier to explain if one also considers the fact that a single state Gujarat accounts for over 40% of
the claims and the next five states account for another 48%. The crop Insurance program is likely
to suffer from problems of moral hazards because of inadequate monitoring and control. The
rural financial institutions, which deliver the policies and carry out initial processing of claims,
are also recipients of the claim amounts against their loans.
He suggested that the adverse problem can only be controlled with a transition to acturial rates
and upfront subsidy payments by the government will also enable timely
claim payments from the implementing agency will no longer have to rely on government
financing of claims.
Crop Insurance can be improved by increasing the accuracy and timeliness of crop estimation
methods, possibly through the use of new technologies. These changes would need to be
supplemented and operating procedures which enable the private sector to provide agriculture
insurance.
Shenoy Jr and Ravindran (2011) assessed that there are wide fluctuations in the production and
supply of the pepper world wide leading to price fluctuations. Frequent fluctuations results
variations in world production, carry over of stocks and shifts in import demand. They suggest
that Crop Insurance should be introduced and international pepper community should stabilize
prices and eliminate destructive competition.
Shibhasis Gangopadhyay (2011) proposed an alternative scheme of Crop Insurance for a small
farmer. He proposed that, the farmer is called upon to make a payment only after it has been
verified that the crop is good and the farmer has the ability to pay.
Nehru and Thomas (2009) reported the coverage and claim ration under the insurance package,
to make a comparative assessment of the Kerala Horticulture development programme (KHDP)
package with the general scheme of new India Assurance Company Ltd. For banana, the results
showed that more farmers take insurance coverage every year, which indicated that the package
could improve the confidence of the farmers to take up be replicated in all banana growing areas.
Dismukes and Vandeveer (2001) focused on premium subsidies, a prominent feature of the US
Crop Insurance programme. It shows that while increases in premium subsidy rates the addition
of premium discounts have reduced procedure costs and increased participation in insurance
programmes and they have also increased government expenditure.
Sud Surinder (1999) discussed about the history of Crop Insurance schemes in India and their
limitations. He described the new scheme, called Rashtriya Krishi Bima Yojana (National
Agricultural Insurance Scheme), launched in 1999. He describes the features of this scheme and
its applicability in a wider range. He opined that the scheme paid particular attention to the
financial viability aspect by resorting to determination of
premium rates on an actuarial basis taking the previous yield data into account. He significantly
intended that the new scheme extends to cover all agricultural ventures, rather than crops alone.
Vijayabhinandana and Suryamani (1999) conducted research in three villages which are under
putlur district cooperative bank. A sample of 190 respondents comprising 60 insured and 60 non
insured farmers were selected knowledge of the farmers regarding various aspects of Crop
Insurance was measured using an index. Based on the total score, respondents were grouped into
three categories (high, medium and low). The relationship between the knowledge scores and
selected personal, economic and social-psychological variables was tested. Results revealed a
significant difference between the mean scores of knowledge of insured and uninsured farmers.
Knowledge was found to be significantly and positively associated with education and mass
media exposure of insured and uninsured farmers.
Mishra (1998) suggested some board features of India’s agriculture and early attempts to
introduce agricultural insurance in India and also a profile of India’s comprehensive Crop
Insurance (CCIS). He analyzed its financial and economic performance over the period 1985-95
and also suggested some measures regarding improvement in the design of CCIS.
Coble et al (1997) suggested that the individual effects in the indemnity models sufficiently
account for risk heterogeneity among farms, moral hazards may be an important cause of poor
actuarial performance, which also increase the government cost of MPCI (Moral Hazard in Crop
Insurance) programme.
Mishra (1996) opined that “whether there is a case for Crop Insurance in developing countries
and whether the gains in terms of extra value added on account of a Crop Insurance scheme
justify the costs involved”. The finding of his study is based on the economic analysis of India’s
Comprehensive Crop Insurance scheme. He analyzed the risk and risk management in
agriculture. His study included agriculture and agricultural insurance in India, working of the
CCIS: coverage, viability and operational problems, farmers' perceptions of the CCIS on input,
output and income in Orissa and Tamil Nadu, benefit, cost, and design aspects of the CCIS, some
policy implications for future research.
Mosley and Krishnamurthy (1995) assessed the performance of the Indian Comprehensive Crop
Insurance scheme 1985-93 in relation to recent crucial literature
which argues that comprehensive agricultural insurance is subject to insurable moral- hazardous
obstacles. They assessed that Indian Scheme has made heavy financial losses on the benefit side.
They suggested that the scheme has brought about any improvement in loan repayment
performance, even though there was scheme explicit objective, by taking the data on Andhra
Pradesh. They concluded that “for proper working of the scheme, it requires an increase in
premiums and a reduction in the range of risks covered. They suggested a possible alternative
design in which individual farmers are insured directly against drought rather than against a
shortfall in yields. Individual choice of insurance options, backed by a safety-net which ensures
that it is possible for poor farmers to buy drought insurance, appears therefore be the option
which makes all elective advantages of insurance available to such farmers at lowest cost.
Mishra (1994) reported that low production and productivity are the core problems in Indian
Agriculture. He started the factors impeding the growth of crop yields in India are inadequate
irrigation facilities, poor manuring practices and obsolete methods of cultivation. The crop
insurance scheme introduced in 1980 has a long way to go to reap the desirable benefits. If
sustainable growth of agriculture and prosperity of agriculturists are real concerns, the use of self
grown and produced inputs has to be promoted and these inputs must replace the market bought
modern inputs. The governments have to play an active role in promoting research,
experimenting on state farms and encouraging organic farming in India.
Patil (1993) revealed that the coverage in terms of the number of farmers and area under rice was
meager during the last few years. The amount of insurance per farmer was very low and less
attractive in terms of compensation received. He suggested that a Crop Insurance scheme to be
made applicable to all the cultivators compulsory, as it provides protection by guaranteeing 80%-
90% yield in different tehsils according to the degree of risk, within the tehsil insurance scheme
can be uniform in terms of level of guarantees, premium and payment of indemnity.
Ramaswami (1993) reported the consequences of agricultural insurance for expected supply. He
also revealed that effect of insurance is shown to decompose into a “risk reduction” effect well as
the moral hazard effect and the magnitude of these effects depend on the parameters of the
insurance contract, producer’s risk preferences and the underlying technology. He suggested two
models: first model widely employed in the literature is a producer controls only one input. The
second one is to extend the results to the case where a producer controls multiple inputs.
Sahanse and Borude (1992) reported that the risk involved in the production of rice crops is low
and safeguard the interests of rice growers in the study region and opined that the present
guarantee level of yield in the comprehensive Crop Insurance scheme will have to be increased to
the 170% level.
Bakkaer (1990) opined that rainfall insurance is sometimes viewed as an alternative to better
known Crop Insurance as a means of reducing fluctuations in income of rural households in
developing countries. He assessed the effectiveness of such an institution within the semi-arid
tropics of India. Rainfall insurance would basically allow participants to protect themselves
against the hazards of drought. He found that respondents generally considered rainfall to be a
crucial determinant of their income and hence the idea of insurance against it. The impact of
rainfall on household income is calculated by means of linear regression models, for the villages
of Aurepalle in Andhra Pradesh, and kanzara and shirapur in Mharashthra. Results showed that
there are no systematic income differences in income from crops or for households as a whole.
He conducted that rainfall insurance is unlikely to yield substantial benefits in terms of reduced
income risk in rural areas.
Glenville Rawlins (1989) in his paper, “A model to measure the achievement levels of technical
efficiency of African Farmer” used the stochastic frontier production function to estimate
parameters for the efficient allocation of resources in agriculture. The study revealed that the use
of stochastic frontier production function permit a decomposition of the degree of technical
inefficiency from random errors and farmer participation in any agricultural development project
must be built for the project to be successful.
Seeth Prabhu (1988) reported that Crop Insurance is a very useful instrument which can lead to
increased agricultural production and welfare under specific circumstances. Its usefulness is
limited to areas characterized by yield risks of a random nature. However, because of its
conspicuousness, it is often hailed as a panacea for all the ills confronting agriculture and
adopted hastily by eager governments wanting to prove their concern for the farming community.
According to Rustagi (1988), the prerequisite to effective demand for Crop Insurance is the
farmers degree of consciousness varied depended on the type of farm, size of farm and
environmental condition of the farm.
Toyoji (1987) has suggested three approaches to Crop Insurance. The initial approach is the
study of demand of small-scale farmers for Crop Insurance in relation to their income and
possibility of exposure to natural hazards. This information would provide an important insight
into the formulation of a Crop Insurance scheme, which provide an important insight into the
formulation of a Crop Insurance scheme, which is sufficiently attractive, even to the small-scale
and low income farmers, The second approach is to consider a suitable administrative
organization that would oversee the implementation of the scheme at all levels. The third
consideration pertains to the technical procedure for Crop Insurance such as insurance unit
amount of coverage and premium rate.
Dandekar (1985) noted that crop insurance scheme is based on area approach and that taluk is
taken to be in the area. The indemnities payable to the farmers are assessed to be based on the
average yield of the area, the variations in the yield within the area are neglected. This method is
considered unsatisfactory.
Subramaniam (1984) suggested that premium rates have to be revised annually based on the
cultivation and the long-term average yield. In India, coverage is taken as a percentage of the
long term average alone. But it would be better to arrive at the coverage level based on cost of
cultivation and price per unit of output in addition to the long term average yield.
Reddy (1984) reported that inability to pay premiums due to high premium rates, absence of
approach by company agent, insurance inspectors, family financial troubles, lack of awareness
about whom to contact and the decline of faith on insurance companies due to non-settlement of
claims nor neighbors were major reasons for non- adoption of cattle insurance. He also observed
that majority of the insured group felt that policy condition, official procedures and getting
valuation-cum health certificate were easy. Most of the farmers expressed that the premium rates
were high, publicity was inadequate and the claim settlement was a time consuming. He further
stated that a government agency (veterinary doctor), the commercial extension agency (insurance
inspector, insurance agent, agricultural field officer and other bank staff) were found to be
important sources of information at various stages of adoption of cattle insurance.
Mishra (1980) suggested that “The government should help the GIC (General insurance
Company) to promote insurance by insuring large No. of farmers so that the share of loss per
person is minimized. The problems of moral hazards can be minimized
by entrusting certain liabilities upon the insured. The policy amount may be decided according to
the average yield per annum calculated or on the basis of the yield during the preceding five
years. The cost of sowing, irrigation, supervision, harvesting, threshing, transportation, marketing
and 20%of costs for profit may also be added to determine the policy amount and to settle the
claim when the crop is finally harvested and ready for sale.
Dandekar (1976) suggested that Crop Insurance should be linked with credit on a compulsory
basis. The study states that Crop Insurance scheme provided insurance against chance
occurrence. The chance phenomenon underlying the Crop Insurance scheme is the fluctuations
from the output of crop from one year to another year or from one crop season to another.
Nirmal Sundaratne (1969) reported that Crop Insurance should be considered a measure of
agricultural support and subsidization to ensure stability. Premium rates should reflect crop-loss
probability while indemnity coverage should reflect production costs and productivity levels. The
linking of credit to Crop Insurance could, on the one hand ensure no ready recovery of credit and
to Crop Insurance it can make the premium.
Narasimha murthy (1960) reported that “Crop Insurance programme was initiated in 1939 with
two objectives, i.e. to enhance the organizing ability of farmers for mutual help and to withstand
the impact if yield fluctuations. By studying the Japanese Crop Insurance, the country concludes
that Crop Insurance serves as a beacon light to many Asian countries which are engaged in
modernizing agriculture. Compulsion subsidization and the integration of Crop Insurance with
the rural credit, which characterize the Japanese Crop Insurance programme are features which
could be incorporated in a Crop Insurance system under Indian conditions.
Ray (1960) reported that Crop Insurance is an important link in the chain of programmes
required for the stabilization of the agricultural industry. Many countries are looking into it as a
tool to provide a minimum security to farmers at the production stage in order to ensure their
well-being and welfare against the risk of crop failure due to weather and other natural hazards,
thereby offering them an incentive for a continuing expansion in the production of essential food
and other crops.
 CROP INSURANCE IN INDIA AND ABROAD
Das (2013) suggested that there is much more to be done as far as the penetration of agricultural
insurance is concerned. Against the backdrop of, the significance of agriculture in our economy,
not only more acreage should be covered, but also more farmers should be brought under its fold.
For this purpose, insurance companies should take more seriously the movement of financial
inclusion. Efforts should be made to enhance the level of awareness among the farmers about
agriculture insurance. The role of financial literacy cannot but be over emphasized here. Through
financial literacy, the farmers should be made to realize that agriculture is not a ‘fatalistic’
enterprise, left to god, rather the risks can be mitigated. Speedy and near-full settlement of claims
in the case of eligible claimants would infuse confidence in the farmers.
Cooper et al. (2019) used a novel application of statistical tools for using farm and county level
yield data to generate farm level yield densities that explicitly incorporate within county yield
heterogeneity while accounting for systemic risk and other spatial or inter temporal correlations
among farms within the county. The empirical analysis showed that current approaches used by
the Risk Management Agency to individualize premiums for a farm result in substantial
mispricing of crop insurance premiums because they do not adequately capture farm yield
variability and yield correlations between farms. The new premium setting method is empirically
shown to substantially reduce government subsidies for crop insurance premiums.
Barrry et al. (2011) studied an empirical analysis of acreage effects of participation in the lateral
crop insurance programme. They considered multi- equation structural models of acreage
response, insurance participation, CRP enrollment and input ge. This analysis focuses on corn
and soya bean production in the corn belt and wheat and barley production in the upper great
plains, the results confirm that increased participation in insurance programmes provokes
statistically significant acreage responses in some cases, though the response is very modest in
every case. A number of policy simulations involving increases in premium subsidies are
considered.
Sherrick et al. (2011) conducted a study on the crop insurance valuation under alternative yield
distributions, the results of this study demonstrate that large differences in expected payouts from
popular crop insurance products can arise solely from the parameterization chooses to represent
yield distributions. The results suggest that the frequently unexamined yield distribution
specification may lead to economically
significant errors in crop insurance policy rating and assessment of expected payouts from
policies.
Paul Ellinger (2011) studied the “farmers’ decisions to purchase Crop Insurance and their choices
among alternative products are analyzed using a two- stage estimation procedure”. The
influences of risk perceptions, competing risk management options, as well as structural and
demographic differences are evaluated. The likelihood for crop insurance ge is found to be higher
for larger, older, less tenured, more highly leveraged farms, and by those with higher perceived
yield risks. The marginal effects of size, age, perceived yield risk, perceived importance of risk
management activities, and other structural and demographic variables are identified in terms of
their influences on choices among alternative crop insurance product.
Mishra and Goodwin (2010) examined the factors influencing the adoption of crop and revenue
insurance. They estimated a multinational logit model of the insurance choice faced by US
farmers and the results indicated that there are significant differences in the probabilities of
adoption of each insurance plan.
Bhende (2009) opined that, in India, more than two third of the land holdings are less than 2
hectares. The average size of holding is less than 1.55 hectares and more than half of the arable
area is rain-fed and output from agriculture is largely conditioned by the monsoon. A properly
designed and implemented crop insurance programme will protect the numerous vulnerable small
and marginal farmers from hardship, bring instability in the farm incomes and increase the farm
production
However, the existing model reduces the burden of debt repayment in the event of crop failures,
and it neither provides any help to meet the consumption needs nor augment income due to crop
loss. The present scheme helps sustain viability of the credit institutions rather than the farmer.
Nevertheless, crop insurance enhances the confidence of the farmers and encourages adoption of
improved technology and investment in agriculture.
Berg (2009) in his study results indicated that from the farmer's point of view, there is an
incentive to buy multiple peril crop insurance, since it significantly reduces the variability of
income. The risk reduction through insurance in turn leads to the specialization of the production
programme. In regions where the area yield is highly correlated with farm level yields, area yield
insurance schemes may be favorable alternatives to individual yield insurance because of low
transaction costs and less
susceptibility to adverse selection and moral hazards. The farm level benefit of crop insurance
strongly depends on the decision maker's degree of risk aversion. Furthermore, risk free parts of
the total income reduce the economic attractiveness of insurance.
Richards (2000) has studied crop insurance proposals concerned with reforms in the US federal
Multiple-Peril Crop Insurance Program for specialty crops. It has raised concerns that a higher
cost for catastrophic-level coverage would significantly reduce programme participation. The
demand estimates for three levels of insurance coverage (50%, 65%, 75%) based on aggregate
data from grape producers in 18 California counties for the period 1986-96 indicated that the
price-elasticity of demand for 50 per cent coverage was elastic, suggesting that premium
increases may indeed reduce participation significantly. Such increases may also cause a
significant reallocation of growers among coverage levels.
Kurnosov and Kamalyan (2000)in his study revealed that, risk factors involved in farming
include the instability of yields and farm incomes, the occurrence of natural disasters and their
effects on production and costs, and the need to make investments and allocate resources well
before actual yields and prices are known. In developed countries, governments often play an
active role in helping producers to manage risk successfully. Conditions in which government
intervention in the functioning of the agricultural market in the area of risk management is
justified are considered.
While instability in prices and yields may not represent serious problems in countries where
expenditure on food accounts for a relatively small proportion of household budgets, more
serious problems occur in countries such as Russia, where much of the population has low
incomes and it is more difficult for consumers to cope with high food prices. Government
policies that may be used to manage such risks are discussed, covering: "social" investment in
developing agricultural and food production, stabilization of prices, subsidized crop insurance
programmes, and alleviating the consequences of natural disasters. The possibility that political
intervention or political changes may in fact increase risk in the agricultural sector is also
considered. For example the reforms of agriculture carried out in Russia since the early 1990s
have been instrumental in creating an environment of uncertainty.
Wu (1999) has estimated the effect of crop insurance on crop mix and the resulting change in
chemical use in the Central Nebraska Basin. He has found that
providing maize insurance would shift land from hay and pasture to maize, which will increase
chemical use at the extensive margin. This extensive-margin effect dominates the effect of crop
insurance on the application rate leading to an increase in total chemical use.
Buschena and Ziegler (1999) in his study highlighted that, revenue insurance, introduced for
major crops in the , has captured a considerable share of the multiple-peril insurance market. He
evaluated the predictive reliability of using price distributions inferred from options markets to
rate revenue insurance products. They found, for periods early in the crop growing season that
price distribution inferred from options trades offer greater reliability than distributions based on
historical futures trades. Options-based price distributions should receive further
consideration in crop revenue insurance rating, but current administrative constraints must be
considered.
A study undertaken by Torkamani (1998) to analyze the effects of agricultural crop insurance on
productivity and risk attitude of farmers in Kavar district, Fars province, Iran, reveals that
technical efficiency of the insured group, on an average, was higher compared with non-insured
group. The mean levels of technical efficiencies were
73.80 per cent and 65.16 per cent for insured and non-insured groups, respectively.
 CHAPTER-III
MATERIALS AND METHODS
This chapter forms the background regarding the methodological aspects of addressing the
research problem under consideration with reference to sampling procedure for selection of
district, mandals, villages and sample farmers, data collection and statistical tools and techniques
employed for the analysis. The basic terms and concepts involved in the study are also dealt here,
as it facilitates to understand the concepts in a scientific manner. The chapter has been organized
as here under.
Description of study area.
Nature and sources of data.
Sampling design
Sampling procedure.
Collection of data
Tools and Analytical techniques employed.
Concepts and terms used

DESCRIPTION OF STUDY AREA

Location and Geographical Area
The study being a comparative analysis of India , for the clear understanding of the existing
policies and procedures, a period of four months was spent at Mississippi State University
(MSU), under the ANGRAU- MSU collaborative program to understand the agriculture
insurance in and collect some relevant secondary data pertaining to .
Mississippi State University is located in the Oktibbeha county, Starkville city. Oktibbeha
County is a county located in the U.S. state of Mississippi. As of the 2019 census, the population
was 47,671. Its county seat is Starkville. Oktibbeha is a Native American word meaning either
bloody water (because of a battle fought on the banks) or possibly icy creek. Indian artifacts over
2000 years old have been found near the Indian mounds adjacent to Indian Mound Campground,
just east of Starkville. The Starkville Micropolitan Statistical Area includes all of Oktibbeha
County, which is also part of the Golden Triangle region of the state. (Wikipedia)
Mississippi's location in the U.S. and

Location in the state of Mississippi

Figure 3.1 Maps showing Mississippi State and Starkville city

Source: wikipedia

Figure 3.2: Map showing Warangal district

Source: Maps of India
Table 3.1. Warangal District at a Glance

S.No. Particulars Unit Quantity

1 Geographical area Sq. Kilometers 19,846
2 No. of Mandals No. 51
3 No. of Villages No. 1,168
4 No. of Gram Panchayats No. 1714
5 No. of Major gram No. 26
Panchayats(Notified)
6 No. of Municipalities No. 2
7 No. of Assembly Constituencies No. 19

8 No. of ZPTCs No. 50

9 No. of MPTCs No. 669
17 Total Population In Lakh Nos (2001 32.46
Census)
18 Males ,, 16.45
19 Females ,, 16.01
13 Urban Population ,, 6.23
14 Rural Population ,, 26.23
15 S.Cs Population ,, 5.51
16 S.Ts Population ,, 4.57
17 Literates In Lakhs 15.95
18 Literacy rate Percentage 49.14
19 Normal Rainfall MMs. 1748.1
Source: www.warangal.nic.in

NATURE AND SOURCES OF DATA

Primary data for the case study of Warangal district, was collected from farmers through
questionnaire method and personal interaction regarding sources of credit, the risk minimization
strategies adopted, the premiums paid , and constraints involved in approval of claims and
compensation received. While the secondary data of past ten year was collected from records of
Indiastat, Agricultural Insurance Corporation of India (AIC). The published sources of the Risk
Management Agency (RMA) are the major secondary source of US data.
 SAMPLING DESIGN FOR THE CASE STUDY
A three stage sampling procedure, i.e., Mandal, the village and farmer level was followed for the
purpose of selection of primary sampling units. Three mandals were selected in Warangal district
for the present study. One village from each mandal is selected A sample of 30 loanee farmers
were selected from each village and finally a total sample of 90 loanee farmers constituting land
owners, semi- tenant farmers and tenant farmers.
Sampling Procedure
3.3.3.1 Selection of District

Warangal district is considered to assess the effect of crop insurance schemes on risk
minimization at farm level. This district is among one of the largest cotton growing farmers in
India. More the area under cultivation more is the risk taken by the farmers. Hence, there is a
need to mobilize the crop insurance in the district. The present performance of agricultural
insurance is evaluated in the district.
Selection of mandals and villages

Three mandals were selected in the Warangal district with random selection. One village in each
mandal is selected at random and the data is collected through personal interviews.
Selection of farmers

Random sampling procedure was followed for selecting land owners and semi- tenant farmers
and tenant farmers based on probability proportional to their size with a final sample of 30
farmers from each village, thus making the total sample respondents to 90.
 TELANAGANA STATE

Warangal
DISTRICT

Zaffargad
Hanamakonda Dharma sagar

MANDAL

Vanamala Kanaparti Madikonda Malakpally

30 30 30

V I

FARMERS

28

Figure 3.3. Sampling design regarding the selection of respondents

Table 3.2. Selection of sample farmers for the study area in Warangal district

S.No. Category of farmers Total

1 Land owners 30

2 Semi- tenant farmers 30

3 Tenant farmers 30

Grand Total 90

COLLECTION OF DATA

The data pertaining to the study were collected through survey method during 2014 and inquiries
were made with the help of pre-tested schedules. The present study was related to the agricultural
year 2013-14.
Primary data

The primary data were collected regarding family details, land holdings, land value, sources of
irrigation, sources of off farm income, cropping pattern, input-output prices, yield, the area
insured, the premiums collected, the compensation received etc., were collected through pre-
tested interview schedules from the selected farmers.
Secondary data

Secondary data were obtained from 2019 Census data, India stat, Risk Management Agency
(RMA) and the Agriculture Insurance Corporation (AIC)
The data regarding the crop insurance aspects of the study area were collected from various
sources viz., the Agricultural Insurance Corporation of India (2013-14) - Department of
Agriculture, Warangal district.
TOOLS OF ANALYSIS ANALYTICAL TECHNIQUE EMPLOYED
The data collected from primary and secondary sources were subjected to conventional (simple
tabulation) as well as functional analysis at multiple stages to arrive at valid conclusions. . The
data were subjected to statistical analysis through the following techniques.

29
 Tabular analysis
The data collected were presented in tabular form to facilitate easy comparison. This tabular
analysis was employed for estimating growth rate of the farmers insured, acres insured, premiums
collected, claims paid and farmers benefited. The data was summarized with the help of statistical
tools like averages and percentages to obtain meaningful results.
Analysis of Operational framework
A series of focused group discussions were conducted with the industry experts in India and also
the related information from the Risk Management Agency (RMA) and the Agriculture Insurance
Corporation (AIC) were collected.
Functional analysis
The data collected was tabulated and analyzed using appropriate statistical tools like CAGR and
valid conclusion was drawn from the results.
Estimation of Compound Annual Growth Rate (CAGR)

Keeping in view the objective of the study, growth rates were calculated by fitting exponential
function of the form
Y = ABt
(or)
Log Y= Log A + Log B
Where,
Y = Variable
T = Time in years (1, 2, 3…. …6) A = Constant and
B = Regression coefficient

The above equations can be fitted by using the least squares method of estimation. That equation
also enables to obtain the Compound Growth Rate (CGR in %) as follows
Compound Growth Rate = (Antilog of B-1) x 170
 Garrett ranking technique

The Garrett ranking technique was used to study the opinions of the respondents regarding the.
The per cent position of each rank was found out by following equation
170(Rij — 0.5)
Per cent position =

Nj

Where,
Rij = Rank given for the i th items by the jth individual and Nj = Number of items ranked by the j th
individual.
By using a score card prepared by Garrett, scores were allocated to the percentage values. The
score values of each percent position are added and then the mean of Garret scores was calculated
for each attribute. Attribute with highest mean score is considered as most influencing factor.
CONCEPTS AND TERMS USED
Actuarial

Describes the calculations made by an actuary. Essentially this is a branch of statistics, dealing
with the probabilities of an event occurring. Actuarial calculations, if they are to be at all
accurate, require basic data over a sufficient time period to permit likelihood of future events to
be predicted with a degree of certainty.
Adverse selection

The tendency of individuals with poorer-than-average risks to buy and maintain insurance.
Adverse selection arises when insureds select only those coverages which are most likely to result
in losses. In agricultural insurance, this can arise when:
 high-risk farmers or farmers using backward practices participate, while other
farmers, with more certain production expectations, do not;
 farmers apply for insurance only on their own high-risk crops or plots,
withholding other units.
Agricultural insurance

Insurance applied to agricultural enterprises. Types of business include crop insurance, livestock
insurance, aquacultural insurance and forestry, but normally excludes building and equipment
insurance although these may be insured by the same
insurer under a different policy (See aquacultural insurance, crop insurance, livestock insurance).
Area approach (area-yield basis)
An agriculturally homogeneous area that can be insured as one unit. This unit may comprise
several blocks of land farmed by the same farmer or different farms farmed by different farmers.
For loss adjustment in this approach, the actual average yield is assessed by sample survey
through crop cutting or other methods, and compared with the normal (insured) yield. The
average yield loss is applied to all land of all farmers within the defined area, disregarding
individual differences in actual damage and crop yield.
Base premium
A ceding company's premiums to which the premium rate for reinsurance is applied.
Base value
The value of the insured subject matter at the commencement of cover.

Catastrophe
A severe, sudden and unexpected disaster which results in heavy losses.

Catastrophe reinsurance
Reinsurance designed to protect an insurer against accumulation of losses which could arise from
occurrence of a catastrophic event such as an earthquake. Often applied to excess of loss
reinsurance.
Cede
To purchase reinsurance.

Ceding company
A direct insurer who places all or part of an original risk on a reinsurer.

Claim
The application for indemnity (payment) after an insured event has occurred.

Credit crop insurance (linked with agricultural credit system)

Coverage is decided based on the 'normal' yield and the cropped area of each insurance unit of a
farmer. It is irrespective of the value of the crop production loan.
Crop credit insurance
Coverage is decided based on the amount of the production loan of individual farmers. Each
farmer has a different amount according to the different value of his loan, regardless of his
cropped area.
Crop insurance
Provides protection against loss or damage to growing crops including perennial crops such as
tree crops against specified or multiple perils, e.g. hail, windstorm, fire, flood. Measurement of
loss could be by "yield" basis, production costs basis, agreed value basis or rehabilitation costs
basis. While most crop insurance is geared towards loss of physical production or yield, cover
may also be provided to loss of the productive asset such as tree crops..
Estimated premium
A provisional premium subject to final adjustment.

Fixed premium
A premium fixed at the outset and not subject to any adjustment during the course of insurance.
Gross premium
The premium paid by the insured, which is aggregate of components including risk premium plus
operating expenses, commissions, reserves and other expenses paid by the insured (see Premium).
Incurred loss ratio
Losses incurred as a percentage of the premiums earned.

Indemnity
The amount payable by the insurer to the insured, either in the form of cash, repair, replacement
or reinstatement in the event of an insured loss which amount is measured by the extent of the
insured's pecuniary loss, is termed the indemnity. It is set at a figure equal to but not more than
the actual value of the subject matter insured just before the loss, subject to the adequacy of the
sum insured. This means for many crops that an escalating indemnity is established, as the
growing season progresses.
Indemnity period
A period of time specified in the policy during which an insurer must indemnify the insured after
the occurrence of the insured peril for damage resulting from the insured peril. Typically found in
business interruption policies.
Insurable yield
A term used in crop insurance to represent the maximum yield that will be insured under a policy.
It is usually expressed as a percentage of the potential yield of a crop; the latter being established
by reviewing previous production in the area to be insured, assessing the potential of the land to
grow the crop and the management capabilities and by inspecting the actual growing crop to
assess its potential yield.
Insurance
A financial mechanism which aims at reducing the uncertainty of loss by pooling a large number
of uncertainties so that the burden of loss is distributed. Generally each policy holder pays a
contribution to a fund in the form of a premium assessed by the insurer, commensurate with the
risk he introduces, which is established and administered by the insurer and out of these funds are
paid the losses suffered by any of the insured.
Insurance agent
The person who solicits, negotiates or implements insurance contracts on behalf of the insurer.
Insurance broker
The person who represents the insured in finding an insurer or insurers for a risk and negotiating
the terms of the insurance contract. A broker may also act as an agent (i.e. for the insurer) for the
purposes of delivering a policy to the insured and collecting premium from the insured.
Insurance coverage
The scope of insurance provided by the insurance policy.

Insurance damage rate (IDR)

Indemnities paid

The IDR =
Total sum insured
Generally the insurance damage rate is expressed as a percentage and is applied for the sum total
of one type of an insurer's business in a given year. For example, the IDR for paddy rice in Japan
in 1976 was 8.3 percent. Another term of IDR is "damage rate" or "lost cost".
Insurance policy
A formal document including all clauses, riders, endorsements and papers attached thereto and
made a part thereof which expresses the terms, exceptions and conditions of the contract of
insurance between the insurer and insured. It is not the contract itself but evidence of the contract.
In compulsory schemes the individual insured may not hold a formal insurance policy document
directly related to the insurance contract but an insurance certificate which gives a brief outline of
the insurance terms and conditions.
Insurance unit in individual approach
A term used in crop insurance to represent the area of land to be covered by a policy. The area of
land may either be a single plot or the total of several plots of the same crop type farmed as one
unit by the insured. The spread of risk improves as the area to be insured increases.
Insured
The person or business entity covered by an insurance policy.

Insured peril
The cause of loss stated in the policy which on its occurrence entitles the insured to make a claim;
e.g. hail, frost, wind, drought, excessive rain, pests and diseases.
Insurer
The company which issues an insurance policy and is named in the policy as being responsible
for paying a claim should a loss event result in damage to the insured property.
Loss cost
Same as insurance damage rate i.e. claims expressed as a percentage of the total sum insured or
total liability.
Loss ratio
The proportion of claims paid (or payable) to premium earned. A loss ratio is usually calculated
for each class of business in which an insurer participates. Analysis of loss ratios can be useful in
assessing risks and designing appropriate insurance structures.
Moral hazard
The risk or danger to be looked for from human nature, both individual and collective. Moral
hazard depends mainly on the character of the society, the character of the insured, and on the
character of his employees and the manner in which they work and behave at work. Examples of
poor moral hazards are carelessness, fraudulent claims, crime or arson, irresponsibility, gross over
insurance, general moral climate due to period of depression and recession and unreasonable
demand of high amount of claims settlement.
Net premium
The premium necessary to cover any anticipated losses, before loading to cover commission and
other expenses. Also called "risk premium" or "pure premium".
Peril
A potential cause of loss or damage to the property. Perils can be insured or
uninsured, both are usually named on the insurance policy. It is therefore important that loss
adjustment procedures enable distinction to be made between damage caused by insured and
uninsured perils. The main natural perils covered in agricultural insurance include fire, flood,
freeze, hail, wind, excess rain, drought.
Period of insurance
The period of protection for which the policy is issued. Any losses taking place outside this
period are not indemnified. For annual crops this period of insurance normally commences at the
time of sowing, sprouting, blooming or transplanting and ends at the time of harvest. For
perennial crops, e.g. oil-palm, the period of insurance may be on an annual basis.
Premium
The monetary consideration payable by the insured to the insurers for the period (or term) of
insurance granted by the policy.
Premium rate
The price per unit of insurance. Normally expressed as a percent or per mille of the sum insured.
Premium (or gross premium)
Premium rate = Amount of insurance x 170

Reinsurance
When the total exposure of a risk or group of risks presents a hazard beyond the limit which is
prudent for an insurance company to carry, the insurance company may purchase reinsurance i.e.
insurance of the insurance. Reinsurance has many advantages including (i) levelling out the
results of the insurance company over a period of time;
(ii) limiting the exposure of individual risks and restricting losses paid out by the insurance
company; (iii)may increase an insurance company's solvency margin (percent of capital and
reserves to net premium income), hence the company's financial strength.
(iv) The reinsurer participates in the profits of the insurance company, but also
contributes to the losses, the net result being a more stable loss ratio over the period of insurance.
Risk
1) The subject matter of insurance; the insured property. 2) Uncertainty attached
to the outcome of an event. 3) The probability of a loss. 4) The insured peril. 5) Danger.

Risk management
Care of risk to maintain income and avoid/reduce loss or damage to a property resulting from
undesirable events. Risk management therefore involves identifying, analyzing and quantifying
risks and taking appropriate measures to prevent or minimise losses. Risk management may
involve physical treatment, such as spraying a crop against aphids or planting windbreaks and/or
financial treatment, e.g. hedging, insurance and self-insurance.
Uncertainty

Not knowing whether an event is going to occur and being unable to measure the likelihood of
occurrence of the event.
Yield

1) The production of the insured property per defined unit, for example in crop
insurance the number of tons/acre, or in a factory the output of product per day or per man.
2) Yield is also used to describe the rate of return on an investment

Zoning

Dividing the geographical limits of an insurance programme into zones for rating purposes. For
example, in crop insurance an area may be divided into zones according to climate, topography
and natural vegetation. The premium rates vary between the different zones depending upon the
frequency of occurrence of the perils to be insured.
 CHAPTER IV
DATA ANALYSIS
In this chapter an attempt has been made to present the results obtained from the present study.
For better exposition, this chapter has been divided into the following subheadings:
Evolution of Crop Insurance.
Crop Insurance in India and the growth of various agricultural insurance schemes.
Crop Insurance in and the growth of various agricultural insurance schemes.
The Operational Framework of crop insurance implementing mechanisms in India .
The case study of Warangal district.
The Constraints associated with the crop insurance.
EVOLUTION OF CROP INSURANCE – A HISTORICAL PERSPECTIVE
Crop insurance has more than two hundred year history. Benjamin Franklin is the first person to
have thought about Crop insurance after a severe storm on 24 th October 1788 in French
countryside which destroyed crops. The first crop insurance programme in the form of hail
insurance started in 1820’ in France and Germany for Grapes, while it started in the in 1883 for
tobacco crop. The earliest Multi-peril Crop Insurance (MPCI) started in the in 1939, with the
formation of the Federal Crop Insurance Corporation (FCIC).
Crop insurance as a concept of risk management in agriculture has emerged in India since the turn
of the twentieth century. From concept to implementation, it has evolved sporadically, but
continues through the century and is still evolving in terms of scope, methodologies and practices.
In India, although a few concrete ideas were documented between 1919 and 1920, the crop
insurance programme, albeit as a pilot become a reality only during 1972, but took three decades
to reach the farmers.
India is an agrarian country with a mixed economy, where the majority of the population depends
on agriculture for their livelihood. Yet, crop production in India is dependent largely on the
weather and is severely impacted by its vagaries and also by an attack of pests and diseases.
These unpredictable and uncontrollable extraneous perils
render Indian agriculture an extremely risky enterprise. It is here that crop insurance plays a
pivotal role in anchoring a stable growth of the sector.
The Agricultural economy of India, during Independence (1947) was characterized by a stagnant
economy with wide regional diversities, inadequate institutional support and acute poverty.
Historical perspective in India (Pre-Independence)
As far back as 1915 in the pre-independence era, Shri J.S. Chakravarthi of Mysore State had
proposed a rain insurance scheme for the farmers with a view to insuring them against drought.
His scheme was based on, what is referred to today as the area approach. He published a number
of papers in the Mysore Economic Journal enunciating the concept of Rainfall Insurance. In 1920
Shri Chakravarthi published a book titled “Agricultural Insurance: Practical Scheme suited to
Indian Conditions”.
Apart from this, certain princely states like Madras, Dewas, and Baroda, also made attempts to
introduce crop insurance relief in various forms, but with little success.
The period prior to independence was marked by the retrogression of agriculture sector and ended
by leaving the country with perhaps the world's most refractory land problem (Thorner and
Thorner 1958). In 1949 committee under the chairmanship of Kumarappa recommended abolition
of intermediaries and introduction of land reforms.
Land reforms were taken up as an immediate measure to remove the impediments to increase the
agricultural production, to eliminate all forms of social exploitation and social injustice within the
agrarian system. Land reforms were directed towards favoring the peasant cultivator through
tenancy reforms, abolition of intermediaries and reorganization of agriculture to facilitate equity
in access to land and other resources.
By the end of first five year plan, Zamindari system was abolished. 173 million acres land was
acquired from intermediaries, 2 crore tenants were brought under direct relationship with state.
Post-Independence
After the attainment of Independence in 1947, crop insurance gradually started to find mention
more often. The subject of Crop Insurance was discussed in the parliament (Central Legislature)
in 1947 and the then Minister of Food and Agriculture, Dr. Rajendra Prasad gave an assurance
that the government would examine the possibility
of crop and cattle insurance, and a special study was commissioned for this purpose in 1947-48.
Two pilot schemes on crop insurance, prepared by Mr. G.S. Priolkar, an officer on special duty,
were circulated to the states for adoption.
The first aspect regarding the modalities of crop insurance considered was whether the same
should be on an Individual approach or on Homogenous area approach. The former seeks to
indemnify the farmer to the full extent of the losses and the premium to be paid by him is
determined with reference to his own past yield and loss experience. The 'individual approach'
basis necessitates reliable and accurate data of crop yields of individual farmers for a sufficiently
long period, for fixation of premium on actuarially sound basis. The 'homogenous area' approach
envisages that in the absence of reliable data of individual farmers and in view of the moral
hazards involved in the 'individual approach', a homogenous area comprising villages that are
homogenous from the point of view of crop production and whose annual variability of crop
production would be similar, would form the basic unit, instead of an individual farmer.
The study reported in favour of a 'homogenous area' approach, as various agro- climatically
homogenous areas treated as a single unit and the individual farmers in such cases pay the same
rate of premium and receive the same benefits, irrespective of their individual fortunes. The
Ministry of Agriculture circulated the scheme, for adoption by the State governments.
However, none of the states agreed to implement the schemes, mainly due to paucity of funds.
Laws of inheritance and land fragmentation led to marginalization of agriculture. Indian
agriculture is characterized by small holdings and farmers operating less than one hectare of land
accounted for roughly 60 per cent of the more than 176 million farming families in 1990-91,
operating just 15 per cent of the total area. In addition to this, another 20 million families operate
between 1 to 2 hectares of land and they share roughly one fifth of the total holdings
(Government of India 2001).
The community Development (CD) Programme initiated in 1952 for the development of villages
by co-ordination of the activities related to agriculture, animal husbandry, infrastructure and
extension at block level helped creating rural
infrastructure across blocks. National Extension Service programme was also initiated along with
the CD programme.
Since 1960’s the emphasis was on increased agricultural production, with goals, to make India
self-sufficient in food grain so that its food security was assured and to ensure that farming
activity brought prosperity to the farmers and raised them above the level of subsistence to which
most of them were accustomed.
The sixties witnessed two important interventions in agricultural development. One, in the form
of Intensive Agricultural District Programme (IADP) of 1960-61 for selected districts in the
country and the other, as Intensive Agricultural Area Programme (IAAP) of 1964-65.
The interest in the subject of Crop Insurance was rekindled during the Third Five Year Plan
(1961-66). However, the Working Group on Agriculture was averse to include crop insurance in
the plan. At the same time the government of Punjab proposed the inclusion of crop insurance in
its state plan and sought financial assistance from the central government. The state government
could not introduce crop insurance as the powers to pass the legislation related to insurance were
vested with the central government.
Following these developments and increasing demand for crop insurance, in October 1965 the
Government of India decided to introduce a Crop Insurance Bill and a Model Scheme of Crop
Insurance in order to enable the States to introduce crop insurance if they so desired.
A Draft Bill and Model scheme were prepared and circulated to the states to elicit their views and
comments on the same. Further, incorporating the comments and views of the states, the
Government of India in March 1970 considered the Draft Bill and the Model Scheme. The Draft
Bill and the Model Scheme were then referred to the Expert Committee (under the Chairmanship
of Dr. Dharm Narain) in July 1970, for fuller examination of the economic, administrative,
financial and actuarial implications. The Committee reported that in the conditions obtaining in
the country, it was not advisable to introduce crop insurance in the near future on a pilot or an
experimental basis.
Thus for over two decades the issue of crop insurance continued to be debated and discussed. In
the following years, we witnessed the advent of green revolution. The HYV seed, fertilizer and
irrigation technology helped boost foodgrain production in the
country in the following years. The impact of technological change was felt throughout the
country but more vigorously in a few states and for a few crops.
From beginning of the seventy’s decade, different experiments on crop insurance were
undertaken on a limited, ad-hoc and scattered scale.
CROP INSURANCE IN INDIA AND THE GROWTH OF VARIOUS
AGRICULTURAL INSURANCE SCHEMES

First ever Crop Insurance scheme - 1972

Despite the unfavourable report of the Dharam Narian committee, political compulsions forced
the government to introduce crop insurance in the country in 1972 on an experimental basis. This
experimental scheme was based on "Individual Approach". The General Insurance Department
(GID) of the Life Insurance Corpo- ration (LIC) introduced the first ever crop insurance scheme
in 1972 for H-4 cotton in Gujarat. The crop insurance programme was subsequently transferred to
the General Insurance Corporation (GIC) of India after the nationalization of Property & Casualty
insurance business in mid 1972. The scheme was extended to Andhra Pradesh, Karnataka,
Maharashtra, Tamil Nadu and West Bengal and covered cotton, wheat, groundnut and potato.
The scheme was in operation up to 1978-79 and covered only 3,180 farmers. The total premium
collected was Rs. 4.54 lakh against the claim of Rs. 37.88 lakhs. The claim premium ratio was
8.34 indicating that for every one rupee of premium collected, the scheme paid Rs. 8.34 in claims.
Among other things, the scheme selected progressive farmers having assured irrigation facilities
and ensured timely supply of crucial agricultural inputs such as HYV seeds, fertilizers, pesticides
and other inputs. However, the GIC of India found these schemes uneconomic and unsuitable for
implementation on a large scale due to very high claim premium ratio (Agarwal 1980; Tripathi
1987). It was realized that crop insurance programs based on the individual farm approach would
not be viable and sustainable in this country.
Pilot Crop Insurance Scheme (PCIS) - 1979
Commenting on the recommendations of the Expert Committee, Dandekar wrote, "… crop
insurance in the country has been given an expert burial. Moreover, this has been so expertly done
that no room is left for an introduction of crop insurance in the near future even on a pilot or an
experimental basis" (Dandekar 1976). He suggested an
alternative approach linking crop insurance with institutional credit, i.e., crop loan. The main
objectives of the scheme were: (I) to provide a measure of financial support to the farmers in the
event of crop failure as a result of drought, floods, etc., and (ii) to restore credit eligibility of the
farmers after a crop failure for the next crop season.
Professor V. M. Dandekar, often referred to as the “Father of Crop Insurance in India”, suggested
an alternate “Homogeneous Area approach” for crop insurance in the mid-seventies
Having gained experience from the experimental programme carried out earlier, Government of
India initiated a Pilot Crop Insurance Programme (PCIS) in 1979. The scheme was based on the
method suggested by Prof. Dandekar. There was a shift from individual farm-based insurance to
area yield based' insurance. Participation by the State Governments was voluntary. The scheme
covered cereals, millets, oilseeds, cotton, potato, gram and barley. The risk was shared by GIC
and the respective State Govt. in the ratio of 2:1. The insurance Premium ranged from 5 to 17 per
cent of the Sum Insured.
This PCIS ran till 1984-85 by which 13 States had participated. The scheme covered 6.27 lakh
farmers for a Premium of 1.97 crore against Claims of 1.57 crore.
The scheme was first introduced in three states viz., Gujarat, Tamil Nadu and West Bengal in
kharif 1979 on pilot basis. Later on, it was extended to nine more states
Salient Features of the Scheme (PCIS)
1. The basic unit of insurance was 'homogeneous area' rather than an individual.
Taluka / revenue circle was considered as area unit. The premium as well as the indemnity rate
for the notified crop was uniform for all the insured farmers irrespective of their actual yield.
Indemnities were paid to all insured farmers when the average output of the given area fell below
the 'normal' output of the area.
2. The insurance policies were issued in favour of the institutional credit agencies,
i.e., District Central Cooperative Bank or the Commercial Bank as the case might be.
3. Only a few major cereals, pulses and oil seeds crops were covered under the
scheme with a provision for inclusion of non-food crops with adequate crop cutting data.
4. The scheme was voluntary in nature. The GIC of India formulated separate
schemes for kharif and rabi seasons and implemented in select area in consultation with the state
government.
5. The crop insurance scheme was multi-peril insurance in nature as it covered almost
all the natural risks except war and nuclear risks.
6. The premiums were to be set in such a way that the premium collected for the area
over the long-run matched the indemnity payments over the same time horizon (i.e., it is
actuarially fair).
7. The premium and indemnity rates for individual crop were calculated for the
homogeneous area (taluka or revenue circle) based on the crop cutting data for 17 preceding
years.
8. The threshold yield for various crops ranged between 50 to 80 per cent of the
normal yield of the area during the specific season. The yield above the threshold was not
indemnifiable or in other words, the farmers had to bear the loss between normal and threshold
yield.
9. The premium and indemnity tables were prepared based on threshold yields. The
premium rates were fixed ranging from 5 per cent to 17 per cent of the sum insured.
10. The indemnity became payable only when assessed yield in the insured area was
less than the guaranteed (threshold) yield. The maximum indemnifiable limit was the difference
between threshold yield and the actual yield during the season.
11. The overall liability for crop insurance policies was limited to Rs. 19 crores per
annum for the whole country. This was shared by the GIC of India and the State Government
concerned in the ratio of 2:1
Comprehensive Crop Insurance Scheme (CCIS) - 1985

Based on the learnings from PCIS, the Comprehensive Crop Insurance Scheme (CCIS) was
introduced with effect from 1st April 1985 by the Government of India with the active
participation of State Governments. The Scheme was optional for the State Governments. The
CCIS was implemented on Homogeneous Area approach and was linked to short-term crop
credit, that is, all crop loans given for notified crops in notified areas were compulsorily covered
under the CCIS.
The salient features of the Scheme were:
1. It covered farmers availing crop loans from Financial Institutions for growing
food crops & oilseeds on compulsory basis. The coverage was restricted to 170% of crop loan
subject to a maximum of ` 17,000/- per farmer.
2. The Premium rates were 2% for Cereals and Millets and 1% for Pulses and Oil
seeds. 50% of the Premium payable by Small & Marginal farmers was subsidized by Central and
State Governments in equal proportion.
3. Premium & Claims were shared by Central & State Government in 2:1 ratio.

4. The Scheme was optional to State Governments.

5. The maximum Sum Insured was 170% of the crop loan, which was later increased
to 150%.
6. CCIS was a multi-agency scheme, involving Government of India, Departments
of State Governments, Banking Institutions and GIC.
15 States and 2 UTs had participated in the CCIS during its tenure from Kharif 1985 to Kharif
1999. These were Andhra Pradesh, Assam, Bihar, Goa, Gujarat, Himachal Pradesh, Karnataka,
Kerala, Madhya Pradesh, Maharashtra, Meghalaya, Orissa, Tamil Nadu, Tripura, West Bengal,
Andaman & Nicobar Islands and Pondicherry. The States of Rajasthan, Uttar Pradesh, Jammu &
Kashmir, Manipur and Delhi had initially joined the Scheme but opted out after few year
In this entire period, the Scheme covered 7.63 crore farmers under an area of 19.76 crore
hectares, for a Sum Insured of 24,949 crore at a premium of 410.56 crore.
Correspondingly, the total claims outgo was 2310.45 crore, thus having a Claim Ratio of 1:
5.71. About 59.78 lakh farmers were benefitted, and the majority of the claims were paid in the
States of Gujarat – (In rupees) 1786 crore (47%); Andhra Pradesh - 482 Crores (21%);
Maharashtra – 213 Crores (9%); & Orissa - 181 Crores
(8%).

CCIS was eventually discontinued after Kharif 1999, to be replaced by the improved and
expanded “National Agriculture Insurance Scheme” (NAIS), which is being continued till date.
 National Agricultural Insurance Scheme
Agriculture Insurance Company of India Limited (established by Government of India) is
implementing the National Agricultural Insurance Scheme (NAIS) in 24 States and 2 UTs of the
country. NAIS is a ‘area yield guarantee’ insurance scheme and the unit of insurance may be
district, block, nyaypanchayat, gram panchayat, village etc as notified by the State Government.
Salient features of the Scheme
i. All farmers including sharecroppers, tenant farmers growing the notified crops in the
notified areas are eligible for coverage
ii. Scheme is available for all farmers; compulsory for loanee farmers and voluntary for
non-loanee farmers
iii. Sum Insured for the loanee farmers to be at least equal to the amount of crop loan
advanced. For the non-loanee farmers, the Sum Insured may extend to the value of guaranteed
yield of the insured crop, at the option of the farmers
iv. The farmers (both loanee and non-loanee) may also insure their crops above the
value of guaranteed yield up to 150% of value of the average yield of the notified area
v. Insurance coverage available for cereals & millets (Paddy, Wheat, Mize, Jowar,
Bajra etc), Pulses (Green gram, Black gram, Red gram, Gram, Lentil etc), Oilseeds (Groundnut,
Soya bean, Mustard etc) and Annual Commercial & Horticultural Crops (Sugarcane, Potato,
Onion, Chilly, Ginger etc)
vi. The applicable premium rates for all the insured Food Crops & Oilseeds are highly
subsidized and fixed by the Government of India. The premium is further subsidized to the extent
of 17% for Small and Marginal farmers
vii. If the season’s average yield per hectare of the insured crops falls below the
guaranteed yield for the insurance unit, all the insured farmers growing that crop in the defined
areas are eligible for claims
viii. Settlement of claims based on yield data obtained through stipulated number of Crop
Cutting Experiments, furnished by the State Government
ix. Claim cheques to all eligible insured farmers are routed through the banks. The
insured farmers need not file for any claimThe loanee farmers availing loans for notified crops
are automatically insured under the Scheme by the banks, while the
non-loanee farmers are required to insure their crops through nearest service bank branch
Table 4.1. Progress made under the National Agricultural Insurance Scheme from 2009 -
2019

Farmers Area Sum Farmer GOI Premium Claims Claims Farmers

Year Insured Insured Insured Premium Share in Collected Payable Paid Benefited
(No.) (Hect.) Premium (No.)
2009-10 19165522 19570173 1896924 31938 2580 36397 201986 201986 5223563
2010-11 19392187 18824177 1816362 31670 1534 34739 184974 184974 3817394
2011-12 16218149 29616638 1694482 51758 1918 53480 189875 189875 3447522
2012-13 16722357 27749455 1859146 52918 1983 55477 141722 141722 3655253
2013-14 17919167 27312875 2130168 57224 1896 61717 229157 229157 4521941
2014-15 18442838 28141910 2447461 63838 2233 68310 172540 172453 3171171
2015-16 19201595 26492657 2681400 71597 4933 81464 388655 388013 6196286
2016-17 23900106 33636635 3849232 172100 6495 185090 515319 486159 9013142
2017-18 17581775 24119915 3439714 87534 6718 171669 221720 218195 3319236
2018-19 16742997 22964286 3399882 92920 6376 171141 163509 153817 1791901
CGR 4.8136 2.256477 15.13618 13.83211 20.72948 14.10682 8.120927 7.275426 -2.72882

Source: Indiastat
 Farmers Insured (Number) Area Insured (Hectares)
Farmers Benefited (Number)

40000000

35000000

30000000

25000000

20000000

15000000

10000000

5000000

Figure 4.2: The number of farmers insured and benefited for the past ten years
under NAIS Scheme
There has been a parallel trend observed for the factors farmers insured, area insured and farmers
benefited across the years.

600000

500000
Farmer Premium
400000 GOI Share in Premium

300000 Premium Collected

Claims Payable

200000 Claims Paid

100000

Figure 4.3. The premuims paid, Government share in premiums and the claims paid over
the past ten years under NAIS scheme
It can be clearly observed that the claims payable and claims paid are in the same
ratio.

Experimental Crop Insurance Scheme (ECIS) - 1997

While the CCIS was being implemented, attempts were made to modify the existing CCIS from
time to time as demanded by the States. During the Rabi 1997-98 season, a new scheme, viz.
Experimental Crop Insurance Scheme (ECIS) was introduced in 14 districts of 5 States. The
Scheme was similar to CCIS, except that it was meant only for all small / marginal farmers with
170% subsidy on Premium. The Premium subsidy and Claims were shared by the Central and
respective State Governments in the ratio of 4 : 1. The Scheme was discontinued after one season
due to its many administrative and financial difficulties.
During its one season, the ECIS covered 4,54,555 farmers for a Sum Insured of
168.18 crore at a Premium of 2.84 crore against which the Claims paid were
37.80 crore.

Pilot Scheme on Seed Crop Insurance (PSSCI) - 2000

A Pilot Scheme on Seed Crop Insurance (PSSCI) was introduced in Kharif 2000 season in 18
States to provide financial security & income stability to the Seed Growers in the event of failure
of seed crop.
It was also the objective to provide stability to the infrastructure established by the State owned
Seed Corporations and State Farms, and to give a boost to the modern seed industry by bringing it
under scientific principles.
All seed-producing organizations, under Govt. or private control, producing certain classes of
seed for identified Crops/States/Areas were eligible. All farmers growing the Foundation &
Certified seed crops in the identified States /Areas, who had offered the seed crop for certification
and had got registered with the concerned Certification Agency were eligible for coverage.
Farm Income Insurance Scheme (FIIS) - 2010
NAIS protects the farmers only against the yield fluctuations. The price fluctuations are outside
the purview of this scheme. Farmers’ income is a cumulative function of yield and market prices.
In other words, a bumper harvest tends to bring down the market prices of grains and vice versa.
Therefore, despite normal production, farmers often fail to maintain their income level due to
fluctuations in market prices. To take care of variability in both the yield and market price, the
government introduced a pilot project, viz. Farm Income Insurance Scheme (FIIS) during Rabi
2010-11 season.
The objective of the scheme was to protect not only the income of the farmer, but also to reduce
the government expenditure on procurement at Minimum Support Price (MSP).
FIIS was implemented on the basis of ‘homogeneous area’ approach in respect of rice and wheat
crops only. The scheme was compulsory for loanee farmers and voluntary for non-loanee farme`
The premium rates were actuarial, determined for each State at the District level, to be subsidised
by the Govt. of India.
Claims would arise if the actual income (current yield X current market price) was lower than the
guaranteed income (7 years’ average yield X level of indemnity [80% or 90%] X MSP).
The Scheme was implemented during 2 seasons only, viz. Rabi 2010-11 season in 18 Districts of
18 States for wheat/rice, and Kharif 2011 season in 19 Districts of 4 States for rice alone. In all,
the scheme covered 4.15 lakh farmers for an area of 4.09 lakh hectares for a Sum Insured (i.e.

guaranteed income) of 420 crore, collecting a premium of 28.5 crore and paid claims of
28.75 crore.
Weather Based Crop Insurance Scheme (WBCIS) Pilot
Salient features

i. Parametric insurance product designed to provide insurance protection against

losses in crop yield resulting from adverse weather incidences, providing payouts against adverse
rainfall incidence (both deficit & excess) during Kharif and adverse incidence in weather
parameters like frost, heat, relative humidity, un- seasonal rainfall etc. during Rabi Seasons
ii. All cultivators including sharecroppers, tenant farmers growing the notified crops
in any RUA in the pilot areas are eligible for coverage
iii. Compulsory for loanee farmers and voluntary for non-loanee farmers

iv. Sum Insured is pre-declared per unit area (broadly the cost of inputs for raising the
crop)
v. Premium rates payable by farmers for Annual Commercial & Horticulture Crops
vary according to the applicable premium slabs and the balance premium is subsidized and shared
by the Central and State Government on 50:50 basis. The maximum premium rate chargeable by
the Company has also been capped at 8% for FCOS crops and 19 percent for ACAH crops
vi. The insured cultivators become eligible for payout if the ‘Actual Weather’ recorded
at a RWS during the specified time period shows deviation as compared to the specified ‘Trigger
Weather’
vii. Payouts normally within 45 days from the end of the insurance/risk period

Table 4.2. Progress made under the Weather Based Crop Insurance Scheme (WBCIS) Pilot

Farmers Area GOI Farmers

Insured Insured Sum Farmer Share in Premium Claims Claims Benefitted
Season (No.) (Hect.) Insured Premium Premium Collected Payable Paid (No.)
2014-15 664125 1741581 175153.1 4436.82 5121.4728 14539.76 17596.639 17596.639 223893

2015-16 375198 482180.2 88738.8 2153.623 3100.176 8169.19 4947.16 4947.16 229779

2016-17 2362580 3421874.3 497369.27 18716.88 16265.74 44763.45 34499.54 34419.64 1509951

2017-18 9295627 13148960 1433396.7 34477.14 45670.64 193099.6 63467.47 62418.6 4319226

2018-19 18616378 15643347 2160909.5 53848.49 65014.01 185142.77 185516.81 95790.598 5988532

Total 24313768 33737872 4284860 176556 135095 375644.7 229097.5 215172.6 19264381

Pilot modified national agricultural insurance scheme (MNAIS)

To provide comprehensive insurance cover to farmers’ crops, Government of India has decided to
implement MNAIS in 50 selected districts during Rabi 2019-18 season. This scheme is being
implemented by Agriculture Insurance Company of India Ltd.
Main features

i. In case farmer of an area is prevented from sowing / planting due to deficit rainfall
or adverse seasonal conditions, such insured farmer shall be eligible for indemnity. The indemnity
payable would be a maximum of 25% of the sum- insured.
ii. In case of localized risks, viz. hailstorm and landslide, the claims will be assessed on
individual basis. For other calamities the assessment will be on the basis of ‘area approach’.
iii. In case of adverse seasonal conditions during crop season, claim amount up to 25
percent of likely claims would be released in advance in case losses are likely to be more than
50%.
iv. At the end of the season, claims shall be assessed on the basis of yield data submitted
by the State Govt based on requisite number of Crop Cutting Experiments (CCEs).
v. Post-harvest coverage is available for those crops, which are allowed to dry in the
field up to 14 days after harvesting due to cyclone in coastal areas, resulting in damage to
harvested crop.
Crops covered: All food crops (cereals, millets, Pulses), oilseeds and annual commercial
horticultural crops.
Farmers eligible: All farmers including sharecroppers, tenant farmers growing the notified crops
in the notified areas are eligible for coverage.
All farmers availing Seasonal Agricultural Operations (SAO) loans from Financial Institutions
(i.e. loanee farmers) would be covered compulsorily. The Scheme is optional for non-loanee
farmers.
Sum Insured: In case of Loanee farmers, the Sum Insured would be at least equal to the amount
of crop loan sanctioned. For Non loanee farmers the sum insured would be the value of threshold
yield. Farmers, at their option, can get their crops insured beyond value of threshold yield up to
150% value of average yield; however, subsidy would not be available on this additional
coverage.
Claim payment: The farmers shall have to intimate losses to be assessed on individual basis,
however the losses on area approach shall be automated and farmers need not file any claim for
claims on area approach basis.
How to get insurance: The loanee farmers shall be covered compulsorily by the concerned bank
branch / PACS(Primary Agricultural Cooperative Societies). The non loanee farmers can get
insurance by filling in a simple proposal form and submitting the same in the bank branch / PACS
where he has an account.
Table 4.3. Progress made under the MNAIS

Farmers Area Sum Farmer GOI Premium Claims Claims Farmers

Season Insured Insured Insured Premium Share in Collected Payable Paid Benefitted
(No.) (Hect.) Premium (No.)
2017-18 358421 323735 69364 2376 1876 4732 1615 1615 46879
2018-19 1880012 1333272 317209 18309 7757 27561 9615 8759 99137
Total 1538426 1657014 386566 13678 8934 32293 18930 17374 146016

CROP INSURANCE IN U.S.A AND THE GROWTH OF VARIOUS

AGRICULTURAL INSURANCE SCHEMES
Crop insurance originated a century back in the United States of America. The first attempt of
providing multiple-peril crop insurance was made in 1899 by a private company, Realty Guaranty
Company of Minneapolis. However, the company discontinued the programme after a year
(Hoffman 1925). Similar attempts were made during 1917 by three private companies in North
Dakota, South Dakota and Montana and suffered heavy losses because of drought (Valgren
1922). Many other companies entered into the field of crop insurance and vanished over time.
Finally, Federal Crop Insurance Act was passed in 1938 and Federal Crop Insurance Corporation
(FCIC), an agency within the U.S. Department of Agriculture, was established to implement the
crop insurance programme in . Wheat was the first crop that got insurance cover in 1939 under
the federal multi-peril crop insurance policy. Since 1939, although, the participation rates have
increased steadily, the overall performance of the federal crop insurance programme proved to be
disappointing. Loss ratios for the entire programme has been found to be substantially higher than
1.0, indicating serious problems with the scheme.
Federal crop insurance programme was actually terminated for a short period of time in early
1940s and then reemerged in mid 1940s with limited coverage available for only a few crops in a
limited number of counties. The U.S. Congress passed an amendment in 1947 and the programme
expanded gradually into new counties and new crops. Now, the federal crop insurance is available
for over fifty different crops in 3,000 counties across the United States. It covers, all natural risks,
including losses from droughts, excessive rain and storm damage (Miranda 1991). Further, the
Federal Crop Insurance Act (FCIA) of 1980 has made significant changes in the scope and
objectives of U.S. crop insurance pro-grammes. This Act was aimed at creating an insurance
programme that would replace USDA's disaster assistance programmes while operating on
actuarially sound basis with limited government financial assistance. Under the
provisions of the 1980 Act, the private companies market crop insurance. Premiums are
subsidized and participating private insurance companies can get reimburse-ment for their
administrative expenditure and for a part of their underwriting losses. The farmer has an option
either to go for crop yield insurance or revenue insurance. The former takes care of shortfall in
crop yields whereas the latter combine both yields as well as price risk. Under this Act, a farmer
can purchase individualized coverage for 50 per cent, 65 per cent or 75 per cent of the normal
yield and choose one of the three elected price levels. If producer's actual yield falls below the
elected yield coverage level, he receives, per insured acre, an indemnity equal to the yield short-
fall times the elected price level. At the 50 and 60 per cent yield coverage levels, the subsidy is
equal to 30 per cent of premiums and at the 75 per cent coverage level, the subsidy is about 19 per
cent of the premium. Since 1980, a rough estimate of the average subsidy level for the entire
programme would be about 25 per cent (Skees 1987).
In spite of the changes brought about by the 1980 Act, the rate of participation in the Federal
Crop Insurance Program averaged 27 per cent of insurable acres for all crops in the U.S. during
1985-1990. Low participation rate indicates that the programme is not fulfilling the objective for
which it was designed under the Federal Crop Insurance Act of 1980. Concerns have been raised
regarding the actuarial soundness and limited participation of the programmes (Goodwin 1993;
Miranda 1991, Vandeveer and Loehman 1994). From 1980 to 1990, U.S. farmers received, on an
average, $ 1.88 in indemnities for each dollar they paid in premiums. The government outlays for
the federal crop insurance program during 1980-90 exceeded $6.1 billions, accounting for over 80
per cent of the total indemnities paid to the producers. The 1990 Farm Bill proposed for repealing
of the Federal Crop Insurance Programme and replacing it with several disaster assistance
programmes owing to limited participation rate in Federal Crop Insurance Programme. However,
these proposals were not adopted in the final legislation and multiple peril crop insurance was
retained as a safety-net programme in U.S.A.
A third one enacted in 1992 gave farmers the option of claiming disaster losses on a farm-by-farm
basis for any year between 1990 and 1992. An extremely wet and cool growing season in 1993
caused more losses, and Congress passed yet another ad hoc disaster bill. However,
dissatisfaction with the annual ad hoc disaster bills that were competing with the crop insurance
program led to enactment of the Federal Crop Insurance Reform Act of 1994.
The 1994 Act made participation in the crop insurance program mandatory for farmers to be
eligible for deficiency payments under price support programs, certain loans, and other benefits.
Because participation was mandatory, catastrophic (CAT) coverage was created. CAT coverage
compensated farmers for losses exceeding 50 percent of an average yield paid at 60 percent of the
price established for the crop for that year. The premium for CAT coverage was completely
subsidized. Participants paid
$50 per crop per county subject to maximum amounts for multiple crops and counties insured by
the same individual. Subsidies for higher coverage levels were increased.
In 1996, Congress repealed the mandatory participation requirement. However, farmers who
accepted other benefits were required to purchase crop insurance or otherwise waive their
eligibility for any disaster benefits that might be made available for the crop year. These
provisions are still in effect.
In the same year, the Risk Management Agency (RMA) was created to administer FCIC
programs and other non-insurance-related risk management and education programs that help
support U.S. agriculture.
Participation in the crop insurance program increased significantly following enactment of the
1994 Act. For example, in 1998, more than 180 million acres of farmland were insured under the
program. This is more than three times the acreage insured in 1988, and more than twice the
acreage insured in 1993. According to estimates by the USDA National Agricultural Statistics
Service, in 1998, about two- thirds of the country's total planted acreage of field crops (except for
hay) was insured under the program. The liability (or value of the insurance in force) in 1998 was
$28 billion, the largest amount since the inception of the program. The total premium, which
includes subsidy, and the premium paid by insured persons (nearly $950 million) were also record
figures.
In 2000, Congress enacted legislation that expanded the role of the private sector allowing entities
to participate in conducting research and development of new insurance products and features.
With the expansion of the contracting and partnering authority, RMA can enter into contracts or
create partnerships for research and development of new and innovative insurance products.
Private entities may also submit unsolicited proposals for insurance products to the Board for
approval. If approved by the Board, these unsolicited insurance products could receive
reimbursement for research, development and operating costs, in addition to any approved
premium
subsidies and reinsurance. After three years, the private entity may elect to retain ownership of
the insurance product and charge a fee, as approved by the Board, to other insurance providers
who sell the product or elect to transfer ownership of the product to RMA.
Restrictions on the development of insurance products for livestock were removed.
Authority was added to allow the Board of Directors to create an expert review panel to provide
assistance to the Board in evaluating new insurance products for feasibility and actuarial
soundness.
Premium subsidies were increased to encourage producers to purchase higher insurance coverage
levels and to make the insurance program more attractive to prospective producers.

Figure 4.4. Liability and Net Acres insured in U.S.A under various crop insurance policies
THE OPERATIONAL FRAMEWORK OF CROP INSURANCE
IMPLEMENTING MECHANISMS IN INDIA

Role and Responsibilities of Financial institutions in India

Various Ministries and government organizations are involved in the design and delivery of Crop
Insurance. Product design is carried out at the national level by the Agriculture Insurance
Corporation of India in consultation with the Ministry of Agriculture, Government of India. The
scheme is operating at the Taluk level. The Central and State Ministries for Agriculture make the
decisions on crop notification, channeling of the premium subsidy, and contribution to the corpus
fund. Similarly, the Central and State Ministries of Finance determine the funding for Crop
Insurance each year and are directly involved in mobilizing resources, particularly when claims
exceed premium revenue. The State Revenue Department issues certificates that provide
information on land holdings, crops sown, and crop yield. These certificates become the basis for
insurance coverage. The state Directorate of Economics and Statistics (DES) carries out the crop-
cutting experiments to ensure production yields.
The Agriculture Insurance Corporation of India (AICI) is the Crop Insurance implementing
Agency in the country. Insurance related cash flows such as premiums, claims, and subsidies are
maintained by AICI. Claim settlements are based on instruction from AICI. The apex banks, state
and district cooperative banks, and primary agricultural cooperative societies and banks are the
main credit institutions. They also collect premiums and settle claims.
Claim-settlement process
In the case of National Agricultural Insurance Scheme, the claim settlement process depends on
the crop cutting experiments that determine the actual area yield for different unit areas. Once the
yield data is received from the state government (by the cutoff dates prescribed for the various
crop seasons), the claims are worked out from declarations received from participating financial
institutions for each notified area, and approval is obtained. The funds needed to pay claims
beyond the risk-sharing limits of the AICI are provided by both the central and state governments
under the corpus fund. The claim checks along with claim particulars are released to the financial
institutions like banks, involved, which in turn credits the accounts of the individual farmers.
Claims for all crops have to be approved by the AICI.
 How the Program Works in

The Crop Insurance Contract in - A crop insurance contract is a commitment between insured
farmers and their insurance providers. Either party has the right to cancel or terminate the contract
at the end of each crop year. Unless the contract is canceled, it is normally automatically renewed
the next year.
Under the contract, the insured farmer agrees to insure all the eligible acreage of a crop planted in
a particular county. This choice is made county by county and crop by crop. All eligible acreage
must be insured to reduce the potential for adverse selection against the insurance provider.
Adverse selection generally exists whenever the insured person has better knowledge of the
relative riskiness of a particular situation than the insurance provider does.
The insurance provider agrees to indemnify (that is, to protect) the insured farmer against losses
that occur during the crop year. In most cases, the insurance covers loss of yield exceeding a
deductible amount. Losses must be due to unavoidable perils beyond the farmer's control.
Over the last few years, products that combine yield and price coverage have been introduced.
These products cover loss in value due to a change in market price during the insurance period, in
addition to the perils covered by the standard loss of yield coverage.
Crop insurance policies also typically indemnify the insured person for other adverse events, such
as the inability to plant or excessive loss of quality due to adverse weather. The nature and scope
of this "helper" coverage vary depending on the crop. This is because of the differences in crops
individual natures.
Publication of Policies

Crop insurance contracts developed by FCIC are published in the Code of Federal Regulations
(CFR). Policies may also be developed by commercial, private sector insurance providers. If
approved by FCIC, privately developed policies may replace or supplement the policies
developed by FCIC. However, these policies are not published as regulations. Instead, a notice of
availability is published in the CFR.
 Government and Private Sector Roles

FCIC's mission is to encourage the sale of crop insurance -- through licensed private agents and
brokers -- to the maximum extent possible. FCIC also provides reinsurance (subsidy) to approved
commercial insurers, which insure agricultural commodities using FCIC-approved acceptable
plans. Since 1998, the private insurance companies reinsured by FCIC have sold and serviced all
Multiple Peril Crop Insurance authorized under the Federal Crop Insurance Act.
Since there is both public and private sector involvement in the crop insurance program, these
relationships result:
A contract of insurance exists between insured farmers and their commercial insurance providers.
Premium rates and insurance terms and conditions are established by FCIC for the products it
develops, or established with FCIC approval for products developed by insurance providers.
Reinsurance agreements (cooperative financial assistance arrangements) exist between FCIC and
the commercial insurance providers.
In India, Insurance products are linked with a loan. To all loany farmers insurance is must and
non-loany farmers it is not necessary.
Delivery mechanism or claim settlement procedure is different, in India as mentioned earlier in
the case of NAIS – Crop cutting experiments and then fix the compensation level and release
amount. Only in case of indexed products, like Weather based crop insurance there is no crop
cutting experiments.
Relevance of U.S Experience in the Indian Context (Table 4.4)

Indian Crop Insurance US Crop Insurance

Type of economies Mixed economy (Socialistic Capitalistic

and Capitalistic)
Minimum Farms Size Up to 1Acre 434 acres

Private players in the 40-50% More than 90%

entire process
Transaction Costs 4% of Net premium collected A&O expenses are totally
per insurance paid by the government
Premium Subsidy Capped and variable. Varies depending on the
Ranging from 15-35% coverage levels. 35-67%
Private Banks Very less (1%) Insurance Agencies

Public Bank Major (99%) Insurance Agencies

Agricultural zones in India 15 Political borders only

No.of crops taken 50 188

Drought prevalence /Rain Nearly 2/3rd of the cropped Temperate climate

shadow areas area is rain-fed, and almost
20% of India’s total land area
is perennially drought prone.
Effect of weather on crop *Sowing failure or late Drought, Excess moisture,
Insurance sowing if monsoon will not Flood are the major weather
enter within the time. parameters. And in most
*Severe pests and diseasespolicies revenue
attack if Relative Humidityinsurance is done.
and Temperature are more.
*If Wind speed is more,
then flower drop and lodging
will occur and it causes
severe reduction in
yield levels.
*Heavy rains and floods
will damage the crop yields.
* In India particularly S-
W Monsoon in Kharif
season will play key role in
Indian Agriculture.
 Indian Crop Insurance US Crop Insurance

Effect of commodity prices Directly proportional Directly proportional

on crop insurance
(national & international)
Government policies Total (larger impact) Less impact in recent years

Input subsidies Government will provide There are no input subsidies

Price support Government will provide and Income support is provided

directly has an impact over to the farmers through
the crop insurance. revenue insurance.
Government support Premium subsidy and Claims Premium subsidy, A&O
share (previously in NAIS) reimbursement, Reinsurance.

Inclusion of different other SHG (Self Help Groups) No Inclusion of any other
groups in to the system RYTUMITHRA GROUPS groups in the system.
NGO’ s
Agencies Both public and private Private

Under writing *Acceptance of premium BMP’s, Acreage reports

with in the date subject to spot Inspections.
*Verification of proposals
*Finalisation of business
before risk starts
Indemnity levels 70,80,90 50-85% in 5% increments

Mode of payment of Through online/ Cheque Through the agents

compensation
Farmers suicides On an Increasing note. Not Applicable
 THE CASE STUDY OF WARANGAL DISTRICT
Profile of farmers selected for the study
The sample studied consists of only Insured farmers making a sample of 90 for the present study.
The study sample consists of 30 farmers each of 3 villages of 3 mandals, randomly selected in the
Warnagal district of Andhra Pradesh.
A brief profile of the farmers or respondents selected is presented in Table. It is observed from the
table that the educational levels of the majority of farmers is until primary school level and most
of the farmers are in the age of 30 – 50 years.
The major occupation is agriculture. The subsidiary occupations like dairy, poultry, mulberry
plantations also exist among very few farmers. In the Zaffargad mandal and Dharmasagar
mandal, from the sample collected the farmers cultivating land area upto 5 acres (small farmers)
is high. In comparison, Hanamakonda mandal has more number of farmers cultivating land area
upto 17 acres.
Table 4.5: Profile of farmers selected for the study

S.No. Particulars ZAFFARGAD DHARMA- HANAMA-

SAGAR KONDA
1 Sample size 30 30 30
2 Education
a. Illiterate 8(26.67) 19(40) 6(20)
b. Primary school level 19(40.00) 17(56.67) 15(50)
c. Secondary school level 8(26.67) 1(3.33) 6(20)
d. College 2(6.67) 0.00 3(17)
3 Age of the farmers
a. Below 30 years 4(13.33) 1(3.33) 2(6.67)
b. Below 50 years 17(56.67) 20(66.67) 18(60.00)
c. Above 50 years 9(30) 9(30.00)
4 Occupation
a. Agriculture alone 30(170) 28(93.33) 25(83.33)
b. Agriculture and with 0 2(6.67) 5(16.67)
subsidiary
5 Farm size
a. Up to 5 ha 21(70) 16(53.33) 5(16.67)
b. Up to 5-17 ha 6(20) 4(13.33) 18(60.00)
c. Above 17 ha 3(17) 17(33.33) 7(23.33)
 Source of income
Income from agriculture is uncertain due to vagaries of nature and market imperfections.
Specialization in farming may earn farm household higher income, but increases risk. Farmers
take up various allied activities to earn the additional income. The major source of income is
agriculture among the sample. Only 5% of the sample carry out subsidiary operations such as
mulberry plantations and vegetable cultivation.
Cropping Pattern
The cropping pattern followed for the different seasons in the selected mandals is tabulated as
follows.
Table 4.6 : Cropping Pattern in the study area

S.No. Particulars ZAFFARGAD DHARMASAGAR HANAMAKONDA

1 Kharif Paddy, Cotton, Paddy, Cotton, Chilli, Paddy, Cotton, Chilli,

Chilli, Maize Maize Maize
2 Rabi Maize Maize Maize

Source of credit
The different sources of credit for the farmers were institutional credit and non- institutional
credit. Institutional credit is the formal credit taken mainly from the nodal agencies like banks,
Primary Agricultural cooperatives. The sample of farmers availed credit from Bank of Baroda
located at the Kazipet.
Most of the farmers are aware of the crop insurance, but are unaware of the premium amount paid
for the crops grown. It was known through the discussions, that the farmers were not explained
about the procedures to be followed to avail crop insurance by the bankers.
The crop insurance status in the selected areas for the various schemes
In the selected study areas the performance of crop insurance has been relatively poor. As the
coverage of farmers itself is low. The Band of Baroda which acts as the nodal bank in the
sanction of credit to the farmers for the three mandals has not been
proactive in popularizing the crop insurance among farmers. From the AIC sources, it has been
revealed that 2013 premiums were sent back to the banks, and to farmers, as the submission of the
premiums was not done within the cut off dates.
And for the years 2018 and 2019 not many of them have taken up crop insurance. But, for those
who have taken, they were benefited. This drawback can be attributed to the lack of awareness
among the vast sections of the farming community.
In fact, the awareness programmes have to be conducted at the village level, rather than at the
district level. There is an immediate need for the increase of personnel in this arena.
Table 4.7: Weather based crop insurance in the selected mandals

No.of
Farmers Area Farmers
(Loanee + (Ha) Benefited
Season Crop Mandals Premium Claims
Non
Loanee)
Kharif Cotton Dharmasagar 888+17 983.57 1445847 2951417 898
2018 Hanamakonda 217+5 258.87 381283 846512 222
Zaffargadh 899+2 1801.52 1619234 1652280 901
Kharif Cotton Dharmasagar 1927+7 1617.18 2377160 0 0
2019 Hanamakonda 139+18 175.12 257328 700913 157
Zaffargadh 976+18 1774.15 1578897 1774150 994
Kharif Cotton Dharmasagar 896+0 980.48 1441312 Yet to decide
2013 Hanamakonda 263+0 286.53 421639
Zaffargadh 167+0 178.72 262718

Table 4.8 : National agricultural insurance scheme in the selected mandals

No.of Farmers Farmers

Season Crop Mandals (Loanee + Non Area (Ha) Premium Claims Benefited
Loanee)
Kharif Paddy Dharmasagar 83+0 172.01 170195
2013 Hanamakonda 47+0 37.1 52822
Zaffargadh 49+0 80.46 81375 Yet to Decide

Kharif Paddy Dharmasagar 18+1 16.93 15437 172019 19

2019 Hanamakonda 6+1 8.12 6214 6015 7
Zaffargadh 0 0 0 0
Table 4.9. Modified National agricultural insurance scheme in the selected mandals

No.of
Season Crop Mandals Farmers Area Premium Claims Farmers
(Loanee +(Ha) Benefited
Non Loanee)
Rabi 2019-13 Paddy Dharmasagar 75+1 137.97 77000 0 0
Hanamakonda 20+0 42.55 26165 0 0
Zaffargadh 44+0 50.142 37740 27719 30
Rabi 2013-14 Paddy Dharmasagar 83+0 185.49 244218 YET TO DECIDE
Hanamakonda 19+0 15.279 41642
Zaffargadh 44+0 41.69 183432

4.5.5 MNAIS-Rabi 2018-19 Individual claims in Warangal district

A pilot program has been launched for the first time at individual basis.Under MNAIS for Rabi
2018-19 season, based on crop yield data were approved for an amount of Rs.7.825 crores in
respect of Prakasam, Nellore, E. Godavari and Warangal districts and the claims are released to
the concerned nodal banks and for Non-Loanee farmers to the branches where they have savings
bank accounts.
The claims payable for the losses occurred due to the Hailstorm damage in Warangal district, a
committee has been constituted at mandal level to assess the crop loss due to such localized
calamities. The details are tabulated.
Table 4.17. Summary of claims of individual based Pilot Modified National agricultural
insurance scheme in Warangal district

S. No. Mandal Village Hailstorm Total amount of

farmers Claim (In Rs.)
1. Jangaon Wadlakonda 6 73325
2. Jangaon Venkiryal 5 38466
3. Jangaon Peddapahad 36 218960
4. Jangaon Ganugapahad 18 67014
5. Narmetta Veldanda 8 48458
6. Parkal Rayaparthi 1 7219
7. Parkal Vellampalli 1 7219
68 452947
From the information cited, it can be clearly understood that, the crop insurance has been
beneficial only in the selected villages and mandals. Here the problem of adverse selection may
arise. Hence, more interventions has to be taken up by the AIC as well as the banking personnel,
to introduce the crop insurance at individual farmer level. The pilot programme taken up has to be
extended to other villages and mandals in the district. The farmers in the U.S.A have been
protected with income insurance, which is the coverage of both the yield and price risks. Such a
model has to be built with the policies suitable to the Indian agrarian scenario.
Sources of information on Crop Insurance
Through the survey, it is found that the main sources of information about the crop insurance in
the district has been through banks. The banking system in India is highly established and plays a
crucial role in popularizing and strengthening the crop insurance concept. Framers’ groups and
association have also got a good role to play, as the communal interest is the welfare of the Indian
farmer. The print media has contributed to a great extent. The remaining factors/ attributes are
tabulated accordingly.
Table 4.18. Sources of information on Crop Insurance

Mean GARETT'S
Attributes percentages Rank
Banks 72.775 1

Relatives and friends 38.325 7

Others 21.4 9

Framers' meetings 49.725 6

Radio/Television 54.145 5

Agricultural officers 54.325 4

Local newspapers 58.925 3

Community bulletin boards 33.9 8

Group or Association 67.15 2

 Group or Association 67.15
Com unity bulletin
Local newspapers 33.9

m 58.925
Agric ltural officers 54.325
Radio/Television 54.145
u
Framers' meetings 49.725
others 21.4
Relatives and friends 38.325
Banks 72.775

F igure 4.4: ources of information on Crop Insurance

CONSTRAINTS ASSOCIATED WITH THE CROP INSURANCE

1. Lack of data in case of indexed products.
2. Political realities dictating the government involvement in assisting the victims of
natural disasters pose a threat of moral hazard in both India and U.SA
3. Lack of personnel for the popularizing the crop insurance products in India.
4. More small/marginal farmers, wide variety of crops and climatic zones are some of
the major constraints involved, in the framing of policies in India.
5. Lack of awareness among farmers about the crop insurance in India.
6. Non-availability information sources at village level in India.
7. Non-access to information about current policies and various market prices in
both the countries.
8. Delay in the collection and administrative procedures of premiums at bank level in
India.
9. Delay in sanctions of claims in India.
10. Non -availability of finance through banks for the marginal farmers in India.
11. The reluctance of farmers to take up crop insurance, as a result of previous
experiences in India .
12. The burden on the Federal government to pump in more funds under the crop
insurance, but ac ually benefiting the private insurance agents than the ground level farmer.
 CHAPTER- V
FINDING, SUGGESTIONS AND
CONCLUSIONS
FINDINGS
Agriculture is subjected to the vagaries of nature, such as flood, drought, damages due to pest
infestations, hail storms, etc. to protect the farmers from these risks and uncertainties, various
schemes are being implemented by the government of India and state governments. Some of them
are Minimum support price, subsidized credit and crop insurance etc.
The Crop insurance scheme is recognized as the basic instrument aimed at mitigating the losses
and helps in stabilizing the income at the farm level through the promotion of the technology and
thereby increasing the investment in agriculture. Crop Insurance Scheme provides self-reliance to
the farmers through claim settlement in case of losses (Chandrakant 1976) and it absorbs the crop
loss by assuring the farmers’ production against the natural hazards.
The main concept of crop insurance is to protect the farmers from the vagaries of the climate. The
basic principle underlying the crop insurance is that the loss occurred by one farmer is shared by
many. An indemnity or sum insured is paid to the farmers in case of losses incurred in the crop
cultivation due to the hazards of nature, as long as he pays the premium.
An effective crop insurance system is the critical element of a strategy to cushion income losses
for farmers, finance inputs for agricultural production in the next planning season and deepen the
penetration of agricultural credit for investment to boost agricultural productivity.
Crop Insurance has been changed significantly since its early days. Policies, procedures, and
techniques have been modified over the years in both the countries. Evaluating the insurance
products in an ongoing effort to make sure that they are relevant and affordable for the farmers is
necessary. In view of above factors the present study was taken up with the following factors:-
 To study the growth of various agricultural insurance schemes in India over the
period.
 To examine the operational framework of crop insurance implementing
mechanisms in India .
 To assess the effect of crop insurance schemes on risk minimization at farm level in
selected study areas.
 To study the constraints (operational and farm level) associated with the crop
insurance.
Role of Insurance agencies in India

In India, the crop insurance scheme is operational at the taluk level. The Central and State
Ministries for Agriculture make the decision on crop notification, channeling of the premium
subsidy, and contribution to the corpus fund. Similarly the Central and State Ministries for
Finance determine the funding for crop insurance each year and are directly involved in
mobilizing resources, particularly when claims exceed premium revenue. The State Revenue
Department issues certificates that provide information on land holding, crops sown, and crop
yield. These certificates become the basis for insurance coverage. The state Directorate of
Economics and Statistics (DES) carries out the crop cutting experiments to ensure production
yields in the case of NAIS.
The agriculture Insurance Corporation of India (AICI) is the implementing agency of NAIS.
Insurance-related cash flows such as premium, claims and subsidies are maintained by AICI.
Claim settlements are based on instruction from AICI. The apex banks, state and district
cooperative banks and primary agricultural cooperative societies and banks are the main credit
institutions. They also collect premiums and settle claims.
In , crop insurance is clearly identified as risk management option. The Noninsured Crop Disaster
Assistance Program (NAP), managed by USDA’s Farm Service Agency, provides financial
assistance to producers of noninsurable crops when low yields, loss of inventory occurs due to
natural disasters. Multiple Peril Crop Insurance (MPCI) policies are available for most insured
crops. Other policies are being tested on a pilot scale. Some of the plans are:
1) Yield risk plan – indemnity is paid based on the difference between yield insured
and actual harvest.
2) Group risk plan – A county index is used as the basis for determining the loss.
When the county yield for the insured crop falls below the trigger level chosen by the farmer, an
indemnity is paid.
3) Dollar plan – Sum insured is based on cost of growing a crop in a specific area. A
loss occurs when the annual value of the crop is less than the amount of insurance.
Progress of Crop Insurance in the Warangal district

There are a maximum number of farmers in the district in some mandals who availed Crop
Insurance, on contradictory there also mandals where the crop insurance schemes functioning is
less that 2%. The farmers benefited from the claims reveal that crop insurance gives maximum
support to the farmers. Out of all the districts in Andhra Pradesh Anantapur, Kadapa, West
Godavari, Mahabobnagar, districts’ farmers benefited a large number from the total claim
settlement. The individual farmer based approach, has been implemented for the first time in
Warangal district. For a wide coverage of the crop insurance programme, the promotional
activities have to be taken up more vigorously at the village level.
SUGGESTIONS
i. Now it is time for Govt of India to introduce farmers income insurance to deal with
not only yield risks due to calamities, but also price risks due to market fluctuations.
ii. Creating awareness to the departments, including Crop Insurance in all
Government programs.
iii. Encourage the coverage of Non-Loanee farmers.
iv. Encouragement of NGO’s, Farm clinics and Agriclinics to involve in Crop
Insurance Programs.
v. Wide publicity of Different Crop Insurance schemes among the farmers through
Agriculture department and AIC.
vi. Opening of Bank Accounts and Coordination with banks for quick settlement of
claims.
vii. The present crop insurance claims are based on homogenous area approach in most
schemes other than the indexed based products. Though the village as an insurance unit has been
considered in few schemes, further individual approach would reflect crop losses on a reality
basis.
viii. Crop insurance should be covered for all the crops grown.
ix. The minimum indemnity limit should be limited to 80 per cent.
x. Reduction in the premium rates.
xi. To expedite the settlement of claims and to ensure that at least part of payment
likely claims is paid to the insured farmers, before the end of the season.
xii. Direct approach by the insurance agency without waiting for the Government
Proposals for settlement of claims.
xiii. Awareness campaign should be conducted for enlightening the farmers to avail
crop insurance and to increase the Publicity and Penetration level
xiv. Better services and marketing arrangements for coverage of non-loanee farmers.
xv. Separate insurance scheme for perennial horticultural crops and vegetables
should be covered.
xvi. Extending risk coverage to prevented sowing/planting, coverage for localized
calamities, adverse seasonal conditions and post-harvest losses. Reduction of Insurance unit area
xvii. Streamlining the Crop Cutting System and efficient reporting
xviii. On account payment of Claims, shifting of liability from Post losses to pre
losses financing
xix. Product designing under Weather Insurance – correlation of Payout with losses
xx. Increasing the Density of Weather stations for WBCIS
xxi. Use of Remote sensing Technology and use of NDVI for selected crops
xxii. Standardization of methodology for Loss assessment
CONCLUSIONS
The following conclusions have been drawn from the results of the present study:

i. The Indian Government has been concerned about the risk and uncertainty
prevalent in agriculture. Crop-yield insurance includes yield loss due to various natural
calamities, pests, and insects in a designated area will be covered under this scheme. All crop
insurance schemes in India are under this category.
ii. Crop-revenue insurance covers both yield risk and price risk. Based on farmer's
revenues, crop-revenue insurance is based on deviation from the mean revenue. In the United
States, the program is called Crop Revenue Coverage. Crop-revenue insurance covers the decline
in price that occurs during the crop's growing season. Farmers’ in India have demanded for the
crop Income Insurance Scheme rather than yield insurance since long time.
iii. The Crop insurance has provided financial support to the farmers in the event of
crop failure and is set to the needs of large farmers to a great extent, small farmers even though
they were aware of crop insurance, they are not willing to pay a premium of crop insurance on a
voluntary basis.
iv. Crop Insurance encouraged farmers to adopt progressive farming practices and
latest technology only in a few areas. There is a need for even spread of the program across the
country in India.
v. Enhanced flow of agricultural credit over the years, but still as crop insurance is
linked to crop loans, many small and marginal farmers could not participate in the crop insurance
scheme because of the majority of these farms have poor access to institutional credit.
vi. It Provides significant benefits to insured farmers, production levels and rural
employment
vii. Streamline loss assessment procedures and helps in building up an accurate
statistical base for crop production
viii. Many of the farmers who were educated are taking credit from the formal
institutional agencies like banks and availing crop insurance.
ix. The constraints like delay in the collection of premiums by the banks, delayed
settlement of claims and lack of individual approach reveal that, these are the major problems in
the effective operation of the crop insurance.
Main Policy suggestions from these conclusions.
CROP INSURANCE

No: Date:
1. General information
i. Name :
ii. Age :
iii. Village: Mandal:
iv. Main occupation: Subsidiary occupation:
v. Total land area owned: 1.Dry land
2. Irrigated

vi. Family size: 1.Adults 2.Childen:

vii. Educational status:
viii. Family annual income by source:
a. Agriculture:
b. Horticulture:
c. Livestock :
d. Any other sources:
e. Total income:

2. Land Holdings

Owned land Leased in Leased outNet land

Sl. (acres) land (acres) Land (acres) (acres ) Value/acre Lease
Type of land
No. (Rs.) Amt./acre
1 Dry land
2 Irrigated Tank

Well
Canal
3 Total
3. Cropping pattern

Year Crops grown Area (acres) Yield Market price

/acre (Rs/kg)
2018-19
(Kharif+Rabi)

2019-13
(Kharif+Rabi)

2013-14
(Kharif+Rabi)

4. Cost of cultivation per acre(Rs): (2013-2014 ) Crop: Area:

I. Material inputs

Inputs Quantity Value(Rs)

1.Seed
2.Manure
3.Fertilizer
4.Plant protection chemicals

5.irrigation

II. Labour

1.Land preparation

2.Inter cultivation

3.Manuresand fertilizers

4.Irrigation

5. Harvesting

6.Processing/Transportion
III. Machinery cost

1.Bullock cart
2.Tractor
3.Any others

IV. Returns

1.Area under insured crop during 2013-2014

2.Grains/quintal per acre

3.Price recovered(Rs/quintal)

5. How much crop loan did you take?

Name of the Bank / Branch

Amount Year
6. Have you taken any loan for production of Crop during 2013-14? Yes /No. If yes

Source Amount (Rs) Interest (%) Total (Rs)

Money lender
Neighbor
Any other

7. Are you aware of Crop insurance? Yes /No.

8. Have you taken the crop insurance? Yes /No.

9. Do you get subsidy on premium for crop insurance? If so what is amount per
acre you receive?
10. How many times have you lost the crop during the past 5 years and to what
extent the income risk was covered?

Year Area lost Crop Production Production Compensation

losses Value Received
1
2
3
4
5

11. What are the constraints/problems faced by you in obtaining the crop
insurance?

12. Do you obtain information on Crop Insurance? Yes/No

If yes, list important sources of information

S.No Source of information Rank Remarks

1 Relatives friends and neighbors
2 Community bulletin board
3 Local news papers
4 Radio/ T.V
5 Group or association
6 Government agents/ NGO’S
7 Farmer service centers
8 Commission agent/Trader
9 Agriculture Officers
17 Seed company
18 Banks
19 Insurance Agents
13 Other (regulated markets)
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 Websites
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http://www.aijsh.org http://www.ashoknagar.nic.in/gloriousfacts.htm
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http://www.nabard.org/development&promotional/kisancreditcardmore.asp
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