School of Law, CHRIST

(Deemed to be University), Bengaluru

LAW OF INSURANCE

CIA-III

CROP INSURANCE IN INDIA: AN EXPLORATORY STUDY

Submitted to:

Dr. Chaitra V

Submitted by:

Aarav Srejan Prasad (1950401)

Gautam Pareek (1950419)

Ishika Jain (1950454)

 CROP INSURANCE IN INDIA

I. MEANING

Agriculturists are protected by crop insurance from financial losses caused by unanticipated
risks outside of their control that might result in crop failures or losses. Crop insurance
compensates for crop losses or damage brought on by various factors, including disease,
drought, frost, and hail. The protection is provided to the growers on an equivalent basis to
other insurance, for which they pay the price. The tiller is entitled to compensation when the
produce from an insured acreage is less than the insured coverage.

The productivity and risk-exposure of the same area's cultivated lands are taken into account
while determining coverage and premium rates. Three more insurance policies exist in
addition to all-risk crop insurance to cover the risk of fire, hail, and flood.

II. NATURE

Crop Insurance's Type Crop insurance compensates for crop losses or damage brought on by
a variety of factors, including disease, drought, frost, and hail. The growers pay a premium
and are protected in a similar way to other insurance policies. The tiller is entitled to
compensation when the produce from an insured acreage is less than the insured coverage.
The productivity and risk-exposure of the lands under cultivation in the same region is used
to determine coverage and premium rates.1 Three more primary types of insurance exist in
addition to an all-risk crop insurance to cover the risk of fire, hail, and flood.

III. IMPORTANCE

The following factors make it necessary to protect farmers against natural hazards:

1) Nature has never been imaginable in our nation. It exhibits unpredictable

generosity in one condition while being unsettlingly irritable in another area. The
agricultural industry is disrupted by the inconsistent weather patterns across the
nation, which cause one region to be abundant while the other goes hungry.
1
Crop Insurance Paper Ankit Moharana, Crop Insurance: Need, Advantages and Nature in India, AIASA,
August 2020, at 12-15.
 2) Our agriculture has always been severely harmed by droughts, floods, locusts,
plant diseases, and weeds since they ruin harvests and lower farmers' revenue.
3) The majority of holdings are small, resulting in marginal surpluses in good years
and significant deficits in poor ones for the farmers.
4) In comparison to other industries, farming is riskier. Success or failure often
depends entirely on the weather. As a result, many farmers, especially the smaller
ones, are reluctant to use new methods.

IV. CROP INSURANCE COMPANIES

The Seventh-Five-year Plan's Comprehensive Crop Insurance Scheme (CCIS) for main crops
was first implemented in 1985 at the same time, and it was later superseded by the National
Agricultural Insurance Scheme (NAIS) with effect from 1999-2000. 2 The Government of
India established the Agriculture Insurance Company of India Limited (AIC) to better meet
the needs of farmers and work toward an actuarial system that is sustainable. AIC has taken
over the NAIS implementation after General Insurance Corporation of India did so until
FY03.

The National Agricultural Insurance Scheme (NAIS) is a government-sponsored crop

insurance programme that has been in place in the nation since the Rabi 1999–2000 growing
season. Its goal is to support farmers financially in the event that their crops fail due to
natural disasters, pests, or illnesses. The Implementing Agency of the Scheme is the
Agriculture Insurance Company of India (AIC) Ltd. Regardless of the size of their holding,
the programme is open to all farmers, including those who have loans and those who do not.
All food crops (cereals, millets, and pulses), oilseeds, and annual commercial/horticultural
crops for which past production data are available for a sufficient number of years are all
intended to be covered3. A pilot weather-based crop insurance scheme (WBCIS) was
introduced in 20 States with the aim of enlisting more farmers in crop insurance (as
announced in the Union Budget 2007).

WBCIS intends to offer farmers insurance protection against weather events that are regarded
to have a negative impact on crop output, such as shortage and excess rainfall, hot or low
temperatures, humidity, etc. The benefit is that the claims can be resolved as quickly as

2
Mahajan, Shrikrishna. (2012). GROWTH OF NAIS: A STUDY OF CROP INSURANCE IN INDIA. BAUDDHIK. 03. 1-
15.
3
Jibran, Shahid & Mufti, Azra. (2018). Crop insurance: A Study on Its Awareness and Perceptions. 5. 672.
feasible. Although the WBCIS is based on actuarial premium rates, actual premium charges
from farmers are limited to be on level with NAIS in order to make the plan more appealing.
Private General Insurance Companies like ICICI-Lombard, IFFCO-TOKIO, HDFCERGO,
and Cholamandalam MS Ltd. have also been permitted for implementation of the plan in
addition to Agriculture Insurance Company of India Ltd. (AIC). Five additional private
insurance businesses have also been permitted as of the Current Kharif 2013 season. A total
of 450.31 lakh hectares have been insured since the Pilot's beginning in Kharif 2007 by
323.74 lakh farmers, for a total of Rs. 55813.40 crore. A total of Rs. 2764.35 crores in claims
have been receivable against the premium of Rs. 5113.25 crore, which will help around
181.26 lakh farmers (upto Kharif 2012 season).

The Pradhan Mantri Fasal Bima Yojana (PMFBY) strives to support agricultural production
that is sustainable by, among other things, giving farmers who have lost crops due to
unforeseeable circumstances financial help to enable them to continue farming 4. This offers
several insurance packages on various crops. Food crops (cereals, millets, and pulses),
oilseeds, yearly commercial or annual horticulture crops, etc. are all covered by various
policies.

Framers must initially register with the insurance provider business. To qualify for crop
insurance, the marketing surplus must be registered at the time of crop seeding. The suitable
coverage plan will subsequently be made available by the insurance provider. The coverage
strategy incorporates guaranteed minimum support prices or market prices from the past 5.
The farmers are required to cover the cost of any sort of price insurance. In the beginning, the
government will assist with paying the premiums.

If the market price declines: The insurance company will compensate the farmer if the market
price notifies during the harvest season falls below the guaranteed price. In the event of
damage, you must first obtain the yield information from the State/UT government within the
set deadlines. After that, IA will evaluate and resolve the claims 6. The claim checks and claim
information will subsequently be delivered to the specific Nodal Banks. Following that, the
bank will credit the individual farmers' accounts at the local level.

4
Bhatia, Sandeep & Raj, Hem & Singh, Harpreet & Chattu, Vijay Kumar. (2021). Crop Insurance Policies in India:
An Empirical Analysis of Pradhan Mantri Fasal Bima Yojana. Risks. 9. 1-26. 10.3390/risks9110191.
5
Ghosh, R.K., Gupta, S., Singh, V. and Ward, P.S. (2021), Demand for Crop Insurance in Developing Countries:
New Evidence from India. J Agric Econ, 72: 293-320. https://doi.org/10.1111/1477-9552.12403
6
Babcock B A (2015) Using cumulative prospect theory to explain anomalous crop insurance coverage choice
Am. J. Agric. Econ. 97 1371–84
The IA will come up with a method to calculate losses at the individual farmer level. For this
process, the DAC/State/UT shall be consulted in relation to the specific calamity, such as a
flood, cyclone, landslide, etc. To meet the various demands of farmers, agricultural insurance
products must be devised and designed using strong insurance concepts and scientific
foundations. Enhance the distribution and service of agricultural insurance to efficiently and
affordably include the most isolated and underprivileged farmers 7. To make crop insurance a
reliable pillar of the rural economy, raise knowledge about it as the primary risk mitigation
tool.

V. COMPARABLE JURISDICTION PRACTICES

To better analyse the current situation of crop insurance in India and to suggest possible
changes and reforms we need to study different practices in developed nations such as United
Kingdom and United States of America.

1. United Kingdom

In the United Kingdom, crop insurance covers all aspects of agricultural and crop production,
including fruit and hail. In actuality, they offer thorough insurance coverage for all different
types of farms with agricultural and crop activities. This covers the risk to all kinds of crops,
store-bought grains, and other agricultural products. Fruit and top crops are also covered for
hailstorm damage.8

A wide range of dangers, including flood, fire, storms, spontaneous combustion, as well as
coverage for produce in transit, are covered by insurance for agriculture and crops. The
majority of company operations are also eligible for business interruption coverage.9

2. United States of America

In the USA, the farmer seeking insurance must consent to cover all qualifying acres of a crop
grown in a certain county. County by county and crop by crop, this decision is taken. To

7
Tiwari, R., Chand, K., & Anjum, B. (2020). Crop Insurance in India: A Review of Pradhan Mantri Fasal Bima
Yojana (PMFBY). FIIB Business Review, 9(4), 249–255. https://doi.org/10.1177/2319714520966084
8
Agricultural Insurance in the UK - Market Research Report, IBIS World, (October 15, 2021),
https://www.ibisworld.com/united-kingdom/market-research-reports/agricultural-insurance-industry/.
9
Farming and agricultural insurance, (November 28, 2020),
https://www.marshcommercial.co.uk/for-business/farming.
lessen the chance of selection against the insurance provider, all qualifying acres must be
insured.10 Adverse selection typically occurs when the insured individual is more
knowledgeable than the insurance company about the relative riskiness of a certain
circumstance.

The insurance company commits to defend (i.e., indemnify) the covered farmer from losses
incurred throughout the crop year. The insurance often pays for yield loss that exceeds a
deductible. Losses must result from preventable risks that are beyond the farmer's control.
The insurance cycle is a schedule used by the insurance business in the USA. 11 The cycle
starts when RMA makes information on insurance products for the following crop year
available, and it ends when programme adjustments are made for the subsequent year.

VI. CHALLENGES AND REFORMS

VII. CONCLUSION

Crop insurance compensates for crop losses or damage brought on by a variety of factors,
including disease, drought, frost, and hail. The growers pay a premium and are protected in a
similar way to other insurance policies. The tiller is entitled to compensation when the
produce from an insured acreage is less than the insured coverage. The productivity and risk-
exposure of the lands under cultivation in the same region is used to determine coverage and
premium rates. Three more primary types of insurance exist in addition to an all-risk crop
insurance to cover the risk of fire, hail, and flood.

CONTRIBUTIONS
Aarav – Meaning, Nature, Importance, Comparable jurisdictions, Conclusion
Gautam –
Ishika -

10
United States Department of Agriculture, (March 31, 2022),
https://www.rma.usda.gov/en/About-RMA/History-of-RMA/How-the-Program-Works.
11
Id.