Crop Insurance Needs Innovation, Not Subsidy

The attempt to revamp crop insurance is welcome. It does make sense to get farmers to develop the habit of insuring their crops, for which insurance companies must offer realistic policies without obscure conditions that make successful insurance claims the exception rather than the rule. However it is open to question if an open-ended subsidy from the Centre on the insurance premium is the way to go about it. India’s farm sector is burdened with the malaise of far too much ill administered subsidy and far too little investment. An insurance scheme that deepens this disease is eminently avoidable The government should open up the futures and options market on farm commodities and seek innovative solutions from insurance companies.

The scheme, to be effective from the upcoming kharif season, should clearly prescribe the conditions under which claims can be made, and state how the losses would be assessed. Insurance companies will underwrite crop insurance only when they see an opportunity for a positive actuarial outcome over time. Insurers must quote realistic premiums to ensure the business is commercially viable Only then will reinsurance companies also be willing to absorb the risks from the books of general insurers. A valued policy -wherein the sum insured includes the input cost plus say , a profit of 10% -makes better economic sense for farmers. They should recover the insurance cost from consumers and through higher productivity .

Products must be made available to individual farmers, whether they own the land or not. Past schemes have assessed localities rather than individual farms for loss. The arrival of drones that carry sophisticated remote-sensing equipment can change this, and ensure speedy settlement of claims.

Source: Economic  Times

Date:15/01/2016

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