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Weather based crop insurance in India

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  • Clarke, Daniel J.
  • Mahul, Olivier
  • Rao, Kolli N.
  • Verma, Niraj

Abstract

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.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5985.

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Date of creation: 01 Mar 2012
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Handle: RePEc:wbk:wbrwps:5985

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Related research

Keywords: Climate Change Economics; Debt Markets; Insurance&Risk Mitigation; Bankruptcy and Resolution of Financial Distress; Hazard Risk Management;

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  1. Hill, Ruth Vargas & Robles, Miguel, 2011. "Flexible insurance for heterogeneous farmers: Results from a small-scale pilot in Ethiopia," IFPRI discussion papers 1092, International Food Policy Research Institute (IFPRI).
  2. Clarke, Daniel J. & Mahul, Olivier & Verma, Niraj, 2012. "Index based crop insurance product design and ratemaking : the case of modified NAIS in India," Policy Research Working Paper Series 5986, The World Bank.
  3. Xavier Giné & Robert Townsend & James Vickery, 2007. "Patterns of rainfall insurance participation in rural India," Staff Reports 302, Federal Reserve Bank of New York.
  4. Gine, Xavier & Menand, Lev & Townsend, Robert & Vickery, James, 2010. "Microinsurance : a case study of the Indian rainfall index insurance market," Policy Research Working Paper Series 5459, The World Bank.
  5. World Bank, 2011. "Enhancing Crop Insurance in India," World Bank Other Operational Studies 2748, The World Bank.
  6. Daniel J. Clarke, 2011. "A Theory of Rational Demand for Index Insurance," Economics Series Working Papers 572, University of Oxford, Department of Economics.
  7. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York.
  8. Mahul, Olivier & Verma, Niraj & Clarke, Daniel J., 2012. "Improving farmers'access to agricultural insurance in India," Policy Research Working Paper Series 5987, The World Bank.
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Cited by:
  1. Petia Topalova & Shawn Cole & Xavier Gene & Jeremy Tobacman & Robert Townsend & James Vickery, 2011. "Barriers to Household Risk Management: Evidence from India," Working Papers id:4293, eSocialSciences.
  2. Hill, Ruth Vargas & Robles, Miguel & Ceballos, Francisco, 2013. "Demand for weather hedges in India: An empirical exploration of theoretical predictions:," IFPRI discussion papers 1280, International Food Policy Research Institute (IFPRI).
  3. Cole, Shawn & Gine, Xavier & Vickery, James, 2013. "How does risk management influence production decisions? evidence from a field experiment," Policy Research Working Paper Series 6546, The World Bank.
  4. Mahul, Olivier & Verma, Niraj & Clarke, Daniel J., 2012. "Improving farmers'access to agricultural insurance in India," Policy Research Working Paper Series 5987, The World Bank.
  5. Clarke, Danielle & Das, Narayan C. & de Nicola, Francesca & Hill, Ruth Vargas & Kumar, Neha & Mehta, Parendi, 2012. "The value of customized insurance for farmers in rural Bangladesh:," IFPRI discussion papers 1202, International Food Policy Research Institute (IFPRI).
  6. Susannah Fisher & Swenja Surminski, 2012. "The roles of public and private actors in the governance of adaptation: the case of agricultural insurance in India," LSE Research Online Documents on Economics 46400, London School of Economics and Political Science, LSE Library.
  7. Susannah Fisher & Swenja Surminski, 2012. "The roles of public and private actors in the governance of adaptation: the case of agricultural insurance in India," Grantham Research Institute on Climate Change and the Environment Working Papers, Grantham Research Institute on Climate Change and the Environment 89, Grantham Research Institute on Climate Change and the Environment.

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