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					Livestock Insurance in India:
      A Sector Review

                      Dr. Anupama Sharma
  Center for Insurance and Risk Management, March 26, 2009
              Email id: anupama.sharma@ifmr.ac.in
Context
• Dependence on livestock for livelihood: 100 million rural households
• Cattle-
    – High value asset
    – Exposed to
        • Income fluctuation
        • Catastrophic risks
Risks to livestock dependent livelihood
 • Production risk:
    –   Cattle mortality
    –   High morbidity due to epidemic
    –   Natural calamities
    –   Non-availability of dry and green fodder for animals
    –   Stoppage of milk production due to disease like mastitis, FMD, etc.
 • Price Risk:
    – Fluctuations in costs of livestock and its products
    – Weak rural infrastructure
Livestock Management System
                                                  Risk Transfer:
                                                    Insurance




                                 Risk reduction Strategies: Vaccination,
                                        breeding and de-worming




                                             Milk and meat
                                              Production
      • AI – Breed development                                       •Cold-chain
      • De-worming                    • Identification of animals   •Quality measures
      • Vaccination                     (for sourcing)              •Assured market
      • Fodder Development            • Migration patterns
                                                                       Supply Chain for
                       Inputs                                           final products




10th Five year plan budget
Why cattle insurance?
• Risk reduction mechanisms are working poorly
    –   Poorly executed vaccination and other prophylactic measures
    –   Lack of good breeding and genetic improvement methods
    –   Improper feeding and sheltering facilities with the farmers
    –   Poor rural veterinary infrastructure- soft as well as hard
• Insurance products presently offered are limited to catastrophic death
  and disability covers
• Low penetration of livestock insurance with <10%cattle insured due to
    – Slim Covers
    – Problem with distribution channels
    – Literacy and awareness
                         Year              Livestock Penetration
                         Present                   6.58%
                         2007-08                  11.50%
                         2008-09                  16.50%
                         2009-10                  21.50%
                         2010-11                  26.50%
   Year          Implementing Agency/program                                                  Note
1971      “Cattle insurance scheme” by Small Farmer’s   Nationalized banks began to finance the purchase of cattle and agreed to
          development agency                            collect premium from beneficiaries. Cover was for one year and premium was
                                                        collected annually.

1983      “Cattle insurance policy” under Integrated    Livestock and asset insurance was extended to the poor along with the IRDP
          Rural Development Program                     subsidized loans (50% subsidy). Compulsory product. Devised by General
                                                        Insurance Company (GIC) and implemented through its four subsidiary
                                                        agencies of GIC 1983 onwards. Premium 2.25% (death) + 0.85% for PTD, no
                                                        age limit.

1983      Market agreement                              No subsidy and voluntary product. For non-scheme animals. Premium- 2.85-
                                                        4%. Age specified: milch cow- 2-8 years, buffalo- 3-12 yrs,

1999      IRDA                                          Inception of IRDA, liberalization of Indian insurance industry

2001      Private players registered                    ICICI Lombard, IFFCO-TOKYO, HDFC ERGO, Royal Sundaram
onwards
2005      Micro-insurance regulation, 2005              Micro-Finance Institutions (MFIs), Non-Government Organizations (NGOs)
                                                        and Self-Help Groups (SHGs) can act as an agent for insurance companies to
                                                        increase the penetration of insurance in the rural markets.

2005-06   “Livestock insurance scheme” implemented by Premium of the insurance is subsidized to the tune of 50%; Competition
          State Livestock Development Boards (SLDB      increased between public and private players- premium not to exceed 4.5% for
          and State Animal Husbandry Departments        annual policies and 12% for three year policies. Scheme is extended in 11th
                                                        Five Year Plan (2007-2012) to cover entire country.
Challenges
• Supply related challenges:
   – Process issues
      • High transaction cost:
            –   Identification of the animal
            –   Assessment of cattle value
            –   Claim settlement process (fraud) and
            –   Other administrative processes
       • Premium pricing
            – Absence of historical data
            – No actuarial fair pricing
   – Product issues
      • Limited risk covered
      • No innovations in extending coverage (e.g. for infertility)
• Demand related challenges
   – Ability and willingness to pay
   – Lack of awareness
   – Non-standardized risk reducing practices
Business
• 4 Public insurers and 16 private insurers
   – Public insurers
       •   New India
       •   United India
       •   Oriental insurance
       •   National Insurance
   – Private insurers
       • Royal Sundaram
       • ICICI Lombard

• Loss ratio: 40-80% (Various Insurance agencies)
• Premium rate: 2.5- 6% per annum
   Insurance Co.                          Pre.(1 yr)   Pre.(3 yrs)
   New India Assurance Co.                     5.95%       12.75%
   ICICI Lombard Insurance Co. (loan)          3.56%           7%
   ICICI Lombard Insurance Co. (retail)        3.80%        8.30%
Business
                                                           FOR EAR
                                                          PM & Claim
                                                           TAGGING
                                                          settlement
• Price of cattle: Rs 10,000
• Premium: Rs. 400
• Veterinary charges: Rs 50 + Rs 200
• For claims:

       INSURANCE COMPANY                            FARMER


    Send the person to identify that   Have to bear veterinarian
    animal died is same                 charges
    Pay-out ratio: 1:25 animals        If no claims are settled then
                                        thinks it a loss of Rs 400 (paid
                                        as premium)
Identification of animal
• Ear tagging
• Moral hazard problem
   – Fragile way of identification
      • Easily removed
      • Tagged into other animals ear
   – No proper national identification system (NIS) in place
       • More than two animals can have same ear tag number
Way-out
• Un-removable ear tag
• RFID- External and internal
• Double tagging
   – Both ears conventional ear tag
   – One ear conventional and other RFID
   – Un-removable ear tags at both ears
• DNA finger printing
• Retinal and cephalic index
• Muzzle identification
Innovations at CIRM
          Details                       Existing    Proposed                 Savings                          Note
          Premium                      4% of SI/pa 2.8% of SI pa             Rs.150      (For 90% SI of Rs.12,500/-)
                                                                                         Risk Layering done – 80% by Insurance
          Coverage                       90.00%           90.00%                        comp & 10% by KGFS
          Age Coverage                    2 to 8           2 to 8                        Productive Age
Product                                                                                   5% *discount on premium for Insuring every
        Incentivization                     No               Yes                        new bovine
 Level
          Transferability                   No               Yes                         Transferability along with insurance
                                                                                         Risk Layering done – 80% by Insurance comp &
          Risk Layering                     No               Yes                        10% by KGFS
          Monthly Payment                                                                Premium funded by KGFS & collected back in
          Option                            No               Yes                        installments

          Health Certificate             Required            Yes             -Rs. 50    Not required due to risk layering
          Photograph                       No                Yes             - Rs. 2    Digital Photograph, hence cost effective
                                                                      - (Rs. 30/6= Innovative technology for identification – Written
          RFID**                            No              Yes       Rs. 5)       off over 6 years
Process                                                                            Digital photograph will replace transporting ear
 Level Ear with ID tag                     Yes        Paid by insurer     Rs. 10   with tag and hence save money
          Death Certificate              Required      Not Required       Rs. 50   Not required due to risk layering
          Postmortem Report              Required     Paid by Insurer    Rs. 300   Not required due to risk layering

                               Total savings                               Rs. 490.25

     *Rough Estimate
     **Radio-frequency identification- Negotiations is on with providers
Thank You!

				
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