Livestock Insurance in India: A Sector Review Dr. Anupama Sharma Center for Insurance and Risk Management, March 26, 2009 Email id: email@example.com 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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