Weather Based Crop Insurance in India
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The weather index insurance market in
India is the world's largest, having transitioned from
small-scale and scattered pilots to a large-scale weather
based crop insurance program covering more than 9 million
farmers. This paper provides a critical overview of this
market, including a review of indices used for insurance
purposes and a description and analysis of common approaches
to design and ratemaking. Products should be designed based
on sound agronomic principles and further investments are
needed both in quantifying the level of basis risk in
existing products, and developing enhanced products with
lower basis risk. In addition to pure weather indexed
products, hybrid products that combine both area yield and
weather indices seem promising, with the potential to
combine the strengths of the individual indices. A portfolio
approach to pricing products, such as that offered by
Empirical Bayes Credibility Theory, can be significantly
more efficient than the standalone pricing approaches
typically employed in the Indian market. Legislation for
index insurance products, including consumer protection
legislation, should be further enhanced, for example by
requiring disclosure of claim payments that each product
would have made in the last ten years. The market structure
for weather based crop insurance products could better
reward long-term development of improved product designs
through product standardization, longer term contracts, or
separating the roles of product design and delivery.
Palabras clave
ADMINISTRATIVE EXPENSES, AGRICULTURAL INSURANCE, AGRICULTURAL INSURANCE SCHEME, AGRICULTURAL PRODUCTION, AMOUNT OF CAPITAL, AMOUNT OF RISK, APPLICATIONS, BANKS, BASIS RISK, CAPITAL MARKET, CAPS, CLAIM, CLAIM PAYMENT, CLAIM PAYMENTS, CLIMATE, CLIMATE CHANGE, CONSUMER PROTECTION, CONSUMER PROTECTION LEGISLATION, CONSUMERS, COST OF CAPITAL, COVERAGE, CREDIBILITY, CROP INSURANCE, CROP INSURANCE PRODUCT, CROP INSURANCE PROGRAM, CROP INSURANCE SCHEME, CROP LOSS, CROP LOSSES, DEPENDENT, DERIVATIVE MARKETS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT ECONOMICS, DISASTER, DISASTER REDUCTION, DISASTER RISK, DISASTER RISK FINANCING, DISTRIBUTION OF CLAIM, DIVERSIFIED PORTFOLIO, DIVERSIFIED PORTFOLIOS, EXCHANGE RATE, FARMER, FARMERS, FINANCIAL INSTITUTIONS, FINANCIAL SECTOR, FRAUD, GENERAL INSURANCE, GOVERNMENT SUBSIDY, HAILSTORM, INCOME, INFORMATION DISCLOSURE, INFORMED DECISIONS, INSURANCE COMPANIES, INSURANCE COMPANY, INSURANCE CONTRACT, INSURANCE CONTRACTS, INSURANCE FRAUD, INSURANCE MARKET, INSURANCE POLICIES, INSURANCE PORTFOLIO, INSURANCE PRODUCT, INSURANCE PRODUCTS, INSURANCE PROGRAMS, INSURANCE SCHEME, INSURANCE SECTOR, INSURER, INSURERS, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INTERPOLATION, JUDGE, JUDGMENT, LONG-TERM YIELD, LOSS RATIO, MANDATE, MARKET PRACTICE, MARKET STRUCTURE, MATURITY, MATURITY DATES, MICROINSURANCE, MORAL HAZARD, OUTBREAK, POLICYHOLDERS, PORTFOLIO, PORTFOLIO RISK, PREMIUMS, PRIVATE INSURANCE, PRIVATE INSURANCE COMPANIES, PROCUREMENT, PROGRAMS, RATES, REINSURANCE, RETURN, RISK ANALYSIS, RISK CAPITAL, RISK MANAGEMENT, RISK SHARING, SCENARIOS, SCHEDULE OF PAYMENTS, SETTLEMENT, SUPPLY SIDE, TOTAL COST, WEATHER DERIVATIVE, WEATHER DERIVATIVES, WEATHER EVENTS, WEATHER INSURANCE