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Index based insurance
 schemes: Way ahead
 Mangesh Patankar, CIRM
Challenges in the current crop
        insurance schemes
• Area yield –
  – Lack of re-insurance
     • Unsustainable loss ratio
     • High administration costs
     • Settlement time (Manual claim estimation)
• Weather index –
  – Basis risk: Particularly for rainfall products
  – Limited scale up opportunities: (Weather
    infrastructure and data issues)

                      Need for subsidies
Composite
                                          products
                 Innovations
                                         Alternate
                                         measuring

          • Lower basis risk
Product   • Data constrained geography   Weather
          • Modular product              tickets!


                                         Bundling




            •Indirect sale
Process
            •Awareness
                                         Education
                                          modules
Composite products:
• Combine area yield with weather index
  – E.g Combine weather index with vegetation
    index from remote sensing data: NDVI
    (Normalized difference vegetative index)
• Portfolio insurance products
  – E.g. ILRI product in North Kenya
• Providing agro-advisory services with
  insurance
  – E.g. BASIX, WRMS
Products in data constrained
            geographies
• RFE products: Spatial rather than point based
  measurement




• Very high transparency of the data
• Low accuracy – thus high basis risk
• E.g. Ethiopian project involving WB, WFP and FAO for
  LEAP (Livelihoods – Early Assessment and Protection)
Modular products
• Weather tickets - Based on the self
  assessment of risks: IFPRI and Nyala
  Insurance Company
        Sowing                              Sowing
                                           Flowering
                                          Harvesting
       Flowering          Individual
                        Weather Tickets


       Harvesting
Comparative analysis
Area Yield
Costs incurred in administration




                                                                 Weather index
                                                                    Weather-NDVI
                                                                    composite
                                                                    NDVI

                                                                    RFE
                                   Transparency in settlements
Weather-NDVI
                                            composite
                             RFE                     NDVI
Speed of settlements



                                  Weather index




                                                            Area Yield


                       Accuracy
RFE


                                      Weather-NDVI
                                      composite

                                       NDVI
Scalability




                   Area Yield

                  Weather index

              Complexity of product
Process innovations
• Bundling weather insurance with
  – Agri–inputs: WRMS-ICICI Lombard product
    for Pioneer seeds
  – Contract farming processes: Pepsico
THANK YOU…
NDVI
NDVI – Our experience
• Pilot product for 2 districts: Surguja
  (Chhattisgarh) and Nizamabad (AP)
• Research on acceptability and accuracy of the
  composite index product
• Demand side findings:
  – Perception towards index
  – Client education
  – Expected accuracy
• Supply side findings:
  – Data availability and time required for ground truthing
  – Reinsurance
  Back

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Index based insurance schemes - Way ahead!

  • 1. Index based insurance schemes: Way ahead Mangesh Patankar, CIRM
  • 2. Challenges in the current crop insurance schemes • Area yield – – Lack of re-insurance • Unsustainable loss ratio • High administration costs • Settlement time (Manual claim estimation) • Weather index – – Basis risk: Particularly for rainfall products – Limited scale up opportunities: (Weather infrastructure and data issues) Need for subsidies
  • 3. Composite products Innovations Alternate measuring • Lower basis risk Product • Data constrained geography Weather • Modular product tickets! Bundling •Indirect sale Process •Awareness Education modules
  • 4. Composite products: • Combine area yield with weather index – E.g Combine weather index with vegetation index from remote sensing data: NDVI (Normalized difference vegetative index) • Portfolio insurance products – E.g. ILRI product in North Kenya • Providing agro-advisory services with insurance – E.g. BASIX, WRMS
  • 5. Products in data constrained geographies • RFE products: Spatial rather than point based measurement • Very high transparency of the data • Low accuracy – thus high basis risk • E.g. Ethiopian project involving WB, WFP and FAO for LEAP (Livelihoods – Early Assessment and Protection)
  • 6. Modular products • Weather tickets - Based on the self assessment of risks: IFPRI and Nyala Insurance Company Sowing Sowing Flowering Harvesting Flowering Individual Weather Tickets Harvesting
  • 8. Area Yield Costs incurred in administration Weather index Weather-NDVI composite NDVI RFE Transparency in settlements
  • 9. Weather-NDVI composite RFE NDVI Speed of settlements Weather index Area Yield Accuracy
  • 10. RFE Weather-NDVI composite NDVI Scalability Area Yield Weather index Complexity of product
  • 11. Process innovations • Bundling weather insurance with – Agri–inputs: WRMS-ICICI Lombard product for Pioneer seeds – Contract farming processes: Pepsico
  • 13. NDVI
  • 14. NDVI – Our experience • Pilot product for 2 districts: Surguja (Chhattisgarh) and Nizamabad (AP) • Research on acceptability and accuracy of the composite index product • Demand side findings: – Perception towards index – Client education – Expected accuracy • Supply side findings: – Data availability and time required for ground truthing – Reinsurance Back