Indian agriculture insurance set for further growth and innovation

Agriculture Insurance
Rapid expansion of the agriculture insurance sector in India has attracted new players to the market which are helping to increase transparency and profitability of the sector.

The Indian government launched a crop insurance scheme called PMFBY in 2016. Under the scheme, farmers were required to pay only 2% of the premium expenses, with the rest being borne in equal measure by the central and state governments.

Farming plots in India are relatively small. While the average farm size in India is 1.3 hectare, in Brazil it is 63 hectares, for example, according to the Agricultural Insurance Survey, 2018 by AXA XL. But driven by the programme and premium subsidies of $1.5 billion, agricultural premiums jumped to $3.3 billion in 2016/2017 from $850 million in 2015/2016. This compares for example to 1.1 billion agricultural premiums in Brazil in 2017.

Attracted by this rapid expansion, insurers and reinsurers from all over the world have set up operations in the country, helping to upgrade and streamline processes.

“There is quite a strong push for technology in the market which is making the claims process more efficient and reducing fraud,” says Tim Gregory, Agriculture Broker at Lockton Re.

There is quite a strong push for technology in the market which is making the claims process more efficient and reducing fraud".

Weather stations are being distributed across the country to measure rainfall and air moisture. Such data is distributed via satellites, helping to reduce claims fraud as well as uncertainty about harvest outcomes. At the same time, insurers are introducing drone and satellite image technology to help assess claims. Likewise, technology and automated, simpler products are helping to make the agriculture insurance market in India more attractive and profitable for insurers and reinsurers.

Farmers in India can already buy insurance policies and process any potential claims via a mobile phone. One potential next step in the tech evolution could be so-called smart contracts or parametric insurance products, which can be completely digital and trigger payouts automatically when certain conditions are met. The trigger might be a certain number of days of drought or a certain level of rain volume.

“The advantage of parametric insurance products is that they are very simple and therefore easy to understand,” Gregory explains.

Other partners in the value chain such as large producers or even customers may in the future contribute to the cost of insurance, further boosting the insurance penetration in the country.

While foreign insurers and reinsurers are helping to improve claims monitoring they are also building up and improving their claims databases. The insights gained can help insurance companies adjust their market strategy and portfolio.

As the market is developing fast it is not only attracting traditional reinsurers, but also players from the so-called alternative market, which has experienced exponential growth in the form of insurance-linked securities (ILS) in recent years.

“When players from the ILS market enter the agriculture insurance sector in India it will be an eye opener for everyone,” Gregory says. 

For further information please contact:
Tim Gregory
Agriculture Broker Lockton Re
Direct Tel: + 44 (0) 20 7933 2355

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