Lecture 14 Crop Insurance
Lecture 14 Crop Insurance
Lecture 14 Crop Insurance
Insurance is a legal contract that transfers risk from a policy holder to an insurance
company in exchange for a premium. It is a technique where losses suffered by few are met from
funds accumulated through small contributions made by many who are exposed to similar risk.
Risk: The possibility of financial loss
Policyholder: The person who has purchased and owned an insurance policy.
Insurance Company: A company that provides the insurance coverage for its
policyholders
Premium: The cost of insurance
Crop insurance is a means to protect the cultivators against financial loss on account of
anticipated crop-loss arising out of practically a large number of uncertainties which affect the
crop yields such as natural fire, weather, floods, pests, diseases etc. As such it is a risk
management alternative where production risk is transferred to another party at a cost called
premium.
Crop insurance is given only for notifies crops. Farmers must register themselves with the
insurance provider company to begin with. It is necessary to register the marketing surplus at the
sowing of crop in order to get crop insurance. The insurance company will then offer the
appropriate coverage scheme. The premium for any type of price insurance must be paid by the
farmers. The govt will help in the premium payment in the initial stage and also provide
subsidies on the premium.
Why is Crop Insurance required?
• To help stabilize farm incomes, especially in the years that disaster hits.
• To provide farmers with financial support and insurance coverage in the event of natural
calamities, diseases and pests.
• To encourage farmers to implement progressive farming practices with better technology.
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) in 1999. These Schemes that have been
introduced throughout the crop insurance history have been preceded by years of preparation,
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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 issue under consideration was about whether the crop insurance
should be offered under an ‘individual approach’ or on ‘Homogenous area approach’.
The crop insurance was offered under two approaches- ‘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 crop yields and loss experiences. As such it necessitates reliable and
accurate data of crop yields of individual farmers for a sufficiently long period for fixation of
premium on actuarially sound basis.
In homogenous area approach, various agro-climatically homogenous areas were 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. Eg- Block/ Mandal/ Taluka /
Gram Panchayat/ Village, etc.,
The first experimental crop insurance scheme was introduced in 1972-73 by the 'General
Insurance Corporation of India (GIC) on H-4 cotton in Gujarat.
Later, the newly set up General Insurance Corporation of India took over the
experimental scheme and subsequently included Groundnut, Wheat and Potato and
implemented in the states of Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh,
Karnataka and West Bengal.
This scheme was based on “Individual Approach” and continued up to 1978-79
Covered only 3110 farmers for a premium of Rs.4.54 lakhs against claims of Rs.37.88
lakhs.
Later it was realized that crop insurance programs based on the individual farm approach
would not be viable and sustainable in this country.
2) Pilot Crop Insurance Scheme (PCIS) 1979-1984
A study was commissioned by the General Insurance Corporation of India under Prof.
V.M. Dandekar to suggest a suitable approach to be followed in the scheme.
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Dandekar suggested an alternate “Homogeneous Area approach” for crop insurance.
Based on this Area approach, GIC introduced a Pilot Crop Insurance Scheme (PCIS)
from 1979.
The scheme covered cereals, millets, oilseeds, cotton, potato, gram and barley for which
historical yield data was available for sufficiently long period of time.
PCIS was confined only to farmers who borrowed seasonal agricultural loan from
financial institutions and was optional.
The risk was shared by GIC and the respective State Govt. in the ratio of 2:1.
The insurance Premium ranged from 5 to 10 per cent of the Sum Insured.
Premium charges payable by small/marginal farmers were subsidized by 50 per cent
shared equally between the state and central governments.
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Burden of Premium and Claims was shared by Central and State Governments in a
2:1 ratio, and
The scheme was a multi-agency effort, involving GOI, State Governments, Banking
Institutions and GIC.
5) National Agricultural Insurance Scheme (NAIS) 1999/ Rashtriya Krishi Bima Yojana
The National Agricultural Insurance Scheme (NAIS) was introduced in the country from
the rabi season of 1999-2000.
Agricultural Insurance Company of India Ltd (AIC) which was incorporated in
December, 2002, and started operating from April, 2003, took over the implementation of
NAIS.
Available to all Farmers - compulsory for loanees borrowing and optional for non-
loanees farmers
It covers all food grains, oilseeds and annual horticultural / commercial crops for which
past yield data are available for an adequate number of years.
Among the annual commercial and horticultural crops, sugarcane, potato, cotton, ginger,
onion, turmeric, chillies, coriander, cumin, jute, tapioca, banana and pineapple, are
covered under the scheme.
State governments issue notifications containing names of crops, areas eligible for
insurance, rates of premium etc. at the beginning of each cropping season.
The scheme is operating on the basis of both area approach, for widespread calamities,
and individual approach, for localized calamities such as hailstorm, landslide, cyclone
and floods.
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6) Modified National Agricultural Insurance Scheme (MNAIS)
MNAIS is an improved version of NAIS to improve further and make the scheme easier
& farmer friendly.
Based on the recommendations of the Joint Group and views/comments of various
stakeholders, Modified NAIS was approved for implementation on pilot basis in 50
districts from Rabi 2010-11.
The Scheme covers all food, oilseeds and annual commercial /horticultural crops for
which historical yield data is available
Available to all Farmers - compulsory for borrowing and optional for non borrowing
farmers
New provisions on claims:
MNAIS provides for additional features in terms of coverage of
‘Prevented sowing’,
Post-harvest losses,
Individual farm level assessment in case of localized calamities
On-Account settlement of claims in case of serious crop losses/major
disasters as immediate relief.
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8) Coconut Palm Insurance Scheme (CPIS)
Coconut Palm Insurance Scheme (CPIS) was implemented on pilot basis from the year
2009-10 in the coconut growing areas of Andhra Pradesh, Goa, Karnataka, Kerala,
Maharashtra, Orissa, Tamil Nadu and West Bengal.
Any palm grower having at least five healthy nut bearing palms in a contiguous area is
eligible to insure.
50% of premium is contributed by Coconut Development Board; 25% by the concerned
State Govt. and the remaining 25% by the farmer.
The CPIS is implemented by AIC & administered by the Coconut Development Board
(CDB).
The Scheme is now being implemented as component of NCIP w.e.f. Rabi 2013-14.
Pradhan Mantri Fasal Bima Yojana was launched in January 2016. This scheme replaced
the existing two crop insurance schemes viz. National Agricultural Insurance Scheme (NAIS)
and Modified NAIS and is being implemented since Kharif season of 2016 (June 2016). The
new Crop Insurance Scheme is in line with One Nation – One Scheme theme.
The new scheme is different from earlier schemes on the account of following:
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It is open to all farmers but NOT mandatory to anyone. It is optional for loanee as well as non-
loanee farmers.
It has so far lowest premium. The existing premium rates vary between 2.5% and 3.5% for
kharif crops and 1.5% for rabi crops—but the coverage was capped, meaning farmers could, at
best, recover a fraction of their losses. The farmers’ premium has been kept at a maximum of 2
per cent for food grains and up to 5 per cent for annual commercial horticulture crops. For rabi
crops, it is 1.5%. The balance premium will be paid by the government to provide full insured
amount to the farmers. Since there is no upper cap on government subsidy, even if the balance
premium is 90 percent, the government will bear it
This scheme provides full coverage of insurance. While NAIS had full coverage, it was capped
in the modified-NAIS scheme.
It also covers the localized risks such as hailstorm, landslide, inundation etc. Earlier schemes
did not cover inundation.
It provides post-harvest coverage. The NAIS did not cover while the modified NAIS covered
only coastal regions.