Weather Based Crop Insurance in India

Weather Based Crop Insurance in India

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 cri...

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Bibliographic Details
Main Authors:	Clarke, Daniel J., Mahul, Olivier, Rao, Kolli N., Verma, Niraj
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	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
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20120305105832 http://hdl.handle.net/10986/3270

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Summary:	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.