CROP INSURANCE
In any business arrangement, both sides of the transaction must expect to benefit. Crop
insurance transactions are no different. This defines the first boundary: crop insurance is sold
and bought in a market. The purchasers must perceive that the premiums and expected
benefits offer value; the sellers must see opportunity for a positive actuarial outcome, over time,
and profit.
Crop insurance is not the universal solution to the risk and uncertainties which are part
and parcel of farming. Rather insurance can address part of the losses resulting from some
perils. The second boundary then is, insurance has a limited role in risk management in farming.
Again, the implications of this will be explored below.
The third boundary is that any limitations to the scope for effective and economic crop
insurance, though real at any given moment, can change over time. Farming enterprises and
systems are dynamic. They change over time, and in so doing present different patterns of risk
and new ways by which farming technology, and farm management techniques, can cope with
production and other risks. The design of insurance solutions is an equally dynamic field of
research and development. New techniques of ascertaining that loss-causing perils have
occurred, together with more efficient and economical methods for measuring losses, mean that
new types of insurance products can be developed. When companies see a business
opportunity here, with an evident demand, then these products will be refined, funded and
marketed.
All over the world agriculture is synonymous with risk and uncertainty. Agriculture
contributes to 24% of the GDP and any change has a multiplier effect on the economy as a
whole. Economic growth and agricultural growth are inextricably linked to each other. Crop
insurance helps in stabilization of farm production and income of the farming community. It
helps in optimal allocation of resources in the production process.
History of Crop Insurance in India
The Crop Insurance in India was started with the introduction of the All-Risk
Comprehensive Crop Insurance Scheme (CCIS) that covered the major crops. This scheme
was introduced in 1985. In fact this period of introduction also coincided with the introduction of
the Seventh-Five-year plan. This initial scheme was of course later substituted and replaced by
the National Agricultural Insurance Scheme (NAIS). This substitution came into effect from
1999. These Schemes that have been introduced throughout the crop insurance history have
been preceded by years of preparation, studies, planning, experiments and trials on a pilot
basis. In the crop insurance history, the question of introducing a crop insurance scheme was
, taken up for examination soon after the Indian independence. The first aspect that was
examined related to the modalities of crop insurance. The issue under consideration was about
whether the crop insurance should be offered under an ‘individual approach’ or on
‘Homogenous area approach’.
The Individual approach of the scheme indemnifies the farmer to the full extent of the
losses. Also the premium that is to be paid by him is determined with reference to his own past
yield and loss experience. The Individual approach for these schemes 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 on the other hand was
aimed at envisaging a homogeneous area from the point of view of crop production and
similarity of annual variability of crop production. The homogenous area approach was found to
be more favorable. This is because it would facilitate the provision of a single unit treatment to
various agro-climatically homogenous areas and the individual farmers and allow them to pay
the same rate of premium and receive the same benefits, irrespective of their individual
fortunes.
First Individual Approach Scheme 1972-1978
Different forms of experiments on agricultural insurance on a limited, ad-hoc and
scattered scale started from 1972-73 when the General Insurance Corporation (GIC) of India
introduced a Crop Insurance Scheme on H-4 cotton. In the same year, general insurance
business was nationalized and, General Insurance Corporation of India was set up by an Act of
Parliament. The new corporation took over the experimental scheme in respect of H-4 cotton.
This scheme was based on “Individual Approach” and later included groundnut, wheat
and potato. The scheme was implemented in the states of Andhra Pradesh, Gujarat,
Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to 1978-79 and
covered only 3110 farmers for a premium of Rs.4.54 lakhs against claims of Rs.37.88 lakhs.
Pilot Crop Insurance Scheme (PCIS) 1979-1984
In the background and experience of the aforesaid experimental scheme, a study was
commissioned by the General Insurance Corporation of India and Prof. V.M. Dandekar was
entrusted to suggest a suitable approach to be followed in the scheme. The recommendations
of the study were accepted and a Pilot Crop Insurance Scheme was launched by the GIC
in 1979, which was based on Area Approach for providing insurance cover against a
decline in crop yield below the threshold level. The scheme covered cereals, millets,
oilseeds, cotton, potato and chickpea and it was confined to loanee farmers of
institutional sources on a voluntary basis. The premium paid was shared between the
In any business arrangement, both sides of the transaction must expect to benefit. Crop
insurance transactions are no different. This defines the first boundary: crop insurance is sold
and bought in a market. The purchasers must perceive that the premiums and expected
benefits offer value; the sellers must see opportunity for a positive actuarial outcome, over time,
and profit.
Crop insurance is not the universal solution to the risk and uncertainties which are part
and parcel of farming. Rather insurance can address part of the losses resulting from some
perils. The second boundary then is, insurance has a limited role in risk management in farming.
Again, the implications of this will be explored below.
The third boundary is that any limitations to the scope for effective and economic crop
insurance, though real at any given moment, can change over time. Farming enterprises and
systems are dynamic. They change over time, and in so doing present different patterns of risk
and new ways by which farming technology, and farm management techniques, can cope with
production and other risks. The design of insurance solutions is an equally dynamic field of
research and development. New techniques of ascertaining that loss-causing perils have
occurred, together with more efficient and economical methods for measuring losses, mean that
new types of insurance products can be developed. When companies see a business
opportunity here, with an evident demand, then these products will be refined, funded and
marketed.
All over the world agriculture is synonymous with risk and uncertainty. Agriculture
contributes to 24% of the GDP and any change has a multiplier effect on the economy as a
whole. Economic growth and agricultural growth are inextricably linked to each other. Crop
insurance helps in stabilization of farm production and income of the farming community. It
helps in optimal allocation of resources in the production process.
History of Crop Insurance in India
The Crop Insurance in India was started with the introduction of the All-Risk
Comprehensive Crop Insurance Scheme (CCIS) that covered the major crops. This scheme
was introduced in 1985. In fact this period of introduction also coincided with the introduction of
the Seventh-Five-year plan. This initial scheme was of course later substituted and replaced by
the National Agricultural Insurance Scheme (NAIS). This substitution came into effect from
1999. These Schemes that have been introduced throughout the crop insurance history have
been preceded by years of preparation, studies, planning, experiments and trials on a pilot
basis. In the crop insurance history, the question of introducing a crop insurance scheme was
, taken up for examination soon after the Indian independence. The first aspect that was
examined related to the modalities of crop insurance. The issue under consideration was about
whether the crop insurance should be offered under an ‘individual approach’ or on
‘Homogenous area approach’.
The Individual approach of the scheme indemnifies the farmer to the full extent of the
losses. Also the premium that is to be paid by him is determined with reference to his own past
yield and loss experience. The Individual approach for these schemes 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 on the other hand was
aimed at envisaging a homogeneous area from the point of view of crop production and
similarity of annual variability of crop production. The homogenous area approach was found to
be more favorable. This is because it would facilitate the provision of a single unit treatment to
various agro-climatically homogenous areas and the individual farmers and allow them to pay
the same rate of premium and receive the same benefits, irrespective of their individual
fortunes.
First Individual Approach Scheme 1972-1978
Different forms of experiments on agricultural insurance on a limited, ad-hoc and
scattered scale started from 1972-73 when the General Insurance Corporation (GIC) of India
introduced a Crop Insurance Scheme on H-4 cotton. In the same year, general insurance
business was nationalized and, General Insurance Corporation of India was set up by an Act of
Parliament. The new corporation took over the experimental scheme in respect of H-4 cotton.
This scheme was based on “Individual Approach” and later included groundnut, wheat
and potato. The scheme was implemented in the states of Andhra Pradesh, Gujarat,
Karnataka, Maharashtra, Tamil Nadu and West Bengal. It continued up to 1978-79 and
covered only 3110 farmers for a premium of Rs.4.54 lakhs against claims of Rs.37.88 lakhs.
Pilot Crop Insurance Scheme (PCIS) 1979-1984
In the background and experience of the aforesaid experimental scheme, a study was
commissioned by the General Insurance Corporation of India and Prof. V.M. Dandekar was
entrusted to suggest a suitable approach to be followed in the scheme. The recommendations
of the study were accepted and a Pilot Crop Insurance Scheme was launched by the GIC
in 1979, which was based on Area Approach for providing insurance cover against a
decline in crop yield below the threshold level. The scheme covered cereals, millets,
oilseeds, cotton, potato and chickpea and it was confined to loanee farmers of
institutional sources on a voluntary basis. The premium paid was shared between the
