Will provide cover to insurance companies if global reinsurers refused to underwrite risks
Mumbai: Boosted by a sharp surge in demand for farm insurance, the general insurance industry is looking to create a buffer in the form of an agriculture insurance pool. Such an instrument will allow to retain the premium within the country, as well as provide cover to insurance companies if global reinsurers refused to underwrite risks. The government had set up two such insurance pools in India — the nuclear liability pool and terrorism pools — to retain business in India and provide capacity to the industry.
A report by Crisil said 77% of domestic crop insurance premiums were ceded to reinsurers in 2016-17. The premium income in the agriculture segment is expected to reach Rs 25,000 crore this fiscal year from Rs 21,000 crore last year, making it the fastest growing insurance business in the country. This, experts say, makes a case for having a local pool for farm insurance as well.
“Agriculture insurance in India needs a robust local reinsurance pool mechanism to cushion the Indian market from the volatile reinsurance situation,” said Sanjay Kedia, country head of insurance broker Marsh India. “Stable reinsurance capacity will help policy holders to have continuity and stability of agriculture insurance availability.”
Within two years of the launch of government’s crop insurance scheme, crop insurance has become the third largest segment for general insurers after motor and health. The agriculture segment contributed 16% to gross general insurance premium. In the budget, the government has increased the insurable crop coverage from 30% to 40% this year and will raise it to 50% next year, suggesting that the segment will continue to see strong growth.
Given the growth in the segment, reinsurance is expected to expand rapidly. But reinsurance support may not be available from global players due issues from absence of enough data to lack of proper spread of portfolio. In addition, there are questions around constant re-tendering on insurance business by states. Insurance companies can be part of crop insurance through competitive bidding.
In 2016-17, the sum assured has increased by 84% under the Pradhan Mantri Fasal Bima Yojana and weather-based insurance schemes. According to estimates by industry experts, shareholders deployed Rs 18 per Rs 100 of gross written premium in crop after taking into account reinsurance arrangements.
Meanwhile, the agriculture product segment is the fastest growth segment for state-run General Insurance Corporation, and is making profit for the only India-based reinsurer.
Date : 18/12/2017
Source : The Economic Times