Case1-May-2012
Disaster is a sudden and unexpected or extraordinary misfortune, causing damage to the community and community infrastructures. The disaster can happen to an Individual, a family, small group, a community or a region, a nation or the entire world.
Disaster is an event concentrated in time and space, in which a society or a community undergoes severe damage and occurs such losses to its members and physical appurtenances that the social structure is disrupted and the fulfillment of all or some of the essential factors of the social is prevented.
Drought is one of the natural disasters that occur frequently, in India which leads to crop loss. Sometimes floods also heavily affect the crops and other infrastructure. The frequency of the damages due to drought and flood are increasing year by year. This may be due to the climate change.
In India, 16% and 67 % of the country’s total area and 67% of the total crop sown area is drought prone and about 50 million people get affected due drought situation every year
Problems encountered by all living beings including human during the drought are very high. The country’s economy is agrarian and hence the livelihoods of people who depend on them are at stake when the drought occurs. The government also makes attempt to mitigate the drought, but the red tapism and bureaucratic delays limit the relief delivery to the affected masses. Therefore, DHAN Foundation decided to take up establishing coping mechanism to mitigate the drought among the community through their own people organisations and panchayats. Various drought mitigation activities such as farm pond construction, irrigation tank renovation including the supply channel desiltation, land leveling and tank silt application to the agricultural fields have been taken up through the community based organizations promoted by DHAN Foundation mainly to save the crop and livestock. Mutual insurances for Crop and Livestock are an innovative idea, promoted and are being implemented in the working areas of DHAN Foundation, India.
DHAN Foundation works in 13 states of India with 10 lakh poor families mostly with marginalized farming families. The farmers are motivated, trained and supported to take up various kinds of site specific activities in their agricultural lands to increase their family income. The broad activities are in the areas of agricultural land development, soil health enhancement, crop production enhancement, livestock development and activities for supplementary income to the farmers etc., Different kinds of risk reduction as ex ante measures have been identified in consultation with farming communities and implemented in the field. Life insurance, health insurance, crop insurance and livestock insurance are being taken up for managing farmers’ risks.
Life insurance for farmers through group insurance schemes of LIC and other private sector companies Birla Sunlife Insurance Company and SBI-Life etc is facilitated by DHAN. Few of the people federations also have their own mutual life insurance schemes. Health insurance is being run through the government schemes and also mutually. It is to be noted that the people federations promoted by DHAN Foundation runs hospitals and ensure better health services to the member families.
Crop insurance is being done both through insurance companies and through the Farmers’ Federations on the principle of mutuality. As far as the livestock insurance is concern, initially it was done through various insurance companies such as Royal Sundaram Alliance and United India Insurance Companies. After facing problems in ensuring the payout to the affected farmers, now livestock insurance is done only on mutual basis in the farmers’ federations.
Mutual insurance is properly designed and done in the people federations with the facilitation of People Mutuals, a social security initiative of DHAN Foundation. People Mutuals is also a people institution created to facilitate the insurance activities for the poor communities with whom DHAN Foundation works. Customized insurance products are developed in consultation with the communities and implemented with the Mutual Insurance Committee (MIC) of the people federations.
There is a growing attention on weather insurance with a number of experiments being undertaken all over the world. The existing information on such products focus more on the perspectives of the promoters that include national and international development organizations, insurers etc.
DHAN Foundation started piloting index-based weather insurance in the year 2004. It was piloted Deficit Rainfall Insurance, a type of index based weather insurance in two locations namely Nattarampalli in Vellore and Tirumangalam in Madurai districts of Tamil Nadu. In both the locations drought in various degrees is a recurring phenomenon and farmers perceived deficit rainfall as the major weather risk than any other weather phenomena. ICICI Lombard, a commercial insurance company evinced interest and developed a suitable weather insurance product for these rainfed farmers. Two years of piloting Deficit Rainfall Insurance for groundnut, cotton and black gram indicated that there is a limit to which the effectiveness of the product done through insurance company can be improved.
The rainfed farmers’ associations promoted by DHAN Foundation for implementing rainfed farming development activities were very much useful for designing and implementing the weather based insurance. In general, no farmers voluntarily go for insuring their crops. Only when they go for crop loan to the nationalized banks or from the primary agricultural co-operative banks, insurance premium is deducted from the loan amount and paid to the agricultura insurance company. Farmers are not informed about the sum assured and other details such as claim administration and payment details etc.,
However, it was able to educate the farmers on importance of crop insurance in the primary groups called Uzhavar kuzhus and farmers’ association meetings. When it was talked about the weather insurance farmers were interested to ask several questions to understand it as it was new to them. Farmers’ workshops were conducted for the need assessment. It was started to talk on weather parameters such as rainfall, temperature and wind etc., which affects the crop production. As far as the rainfed farming in our context, semi-arid tropics is concerned, rainfall is the single most weather parameter which decides germination, growth and yield of any rainfed crops. Deficit rainfall is more common during the cropping season. Late onset of rainfall, long dry spell during the cropping season and early withdrawal of monsoon are the issues faced by the farmers more frequently. Crop damage due to excess rainfall is also faced by the farmers, in few years. DHAN Foundation works only with small and marginal farmers poor farmers. Farmers’ affordability to pay the premium is one of the major factors to design any insurance product. In view of keeping the premium at lower level, it was decided to respond only to the deficit rainfall.
Normal date of sowing, crop duration and water requirement at each stages of the crop was discussed with the farmers in detail. The rainfall requirement at each crop stage was discussed in the local unites and converted into the standard unit of mm. Farmers have given the rainfall requirement as per the soil type. In the black cotton soil areas, farmers requested lesser quantity of rainfall compared to the red sandy soil areas.
Total rainfall requirement of different crops were arrived and based on that single phase insurance products were developed. Premium was collected from the farmers and implemented the deficit rainfall insurance. The sum assured was finalized to meet the cost of cultivation alone to keep the premium at lower level. As the farmers expressed that the premium amount was high to have the gross return as sum assured, the insurance product was finalized to cost of cultivation alone even less. As far as the rainfed crops are concerned, more than the total quantity of the rainfall, rainfall distribution matters much for the crop growth and development. Hence, as per the needs of the farmers, multiple phase policies were offered. However, both single phase policy and multiple phase policies are available and famers can choose.
It was observed that the date of sowing the date of seed germination varies in some years. One month difference was reported in between these two dates. Basically this problem was faced by the farmers who have the practice of taking pre monsoon/ dry sowing. Famers wanted to have the insurance products reflecting the ground reality. Meaning is that if there is yield loss, the loss must be reflected in the insurance product and the loss must be compensated to the farmers, as per the policy agreement. Hence we have gone for dynamic startup date.
Here, the probable date of dry sowing is determined. Three to four insurance products are developed at weekly intervals close to the date of sowing. The premium amount varies across the sowing dates. For the maize crop, the premium was worked out as Rs.524, Rs.367 and Rs.210 respectively for the sowing dates of August 23rd, August 30th and September 13th of 2008 for the assured sum of Rs. 2000. Among the five premiums for different dates of sowing, for one closer date, the premium is collected and kept in the insurance account of farmers’ federation. Then based on the rainfall received, the germination date is finalized. The premium is then adjusted to the actual date of germination.
In response to farmers’ feedback, various steps were taken to match the insurance product with the ground reality. The IMD (Indian Meteorological Department) rain gauge’s rainfall reading was alone considered by the ICICI Lombard insurance company for working out the payout. For the working villages of Tirumangalam taluk, the IMD station is at the Madurai airport which is situated around 25 – 30 kilometers away. When the payout arriving stage farmers defended that more quantity of rainfall was recorded in the IMD rain gauges than the rainfall of the insured villages.
Then it was decided to establish automated rain gauges to record the rainfall at village level. But the insurance companies were not able to use the local rain gauge’s rainfall for calculating the payout. Hence DHAN Foundation has gone for the mutual deficit rainfall insurance.
Automated rain gauges are installed in the top of the building of one the group member’s house or in the top of the village common buildings such as Panchayath building, the building of the SHGs, bus stop shelter and etc,. Our group leader of the particular village is taking care of the rain gauges. DHAN Foundation has installed around 158 automated rain gauges in the working villages and does the rainfall insurance.
We are thankful for the Agricultural Insurance Company (AIC) for encouraging our models by the way of joint implementation of the rainfall insurance. The insurance products are designed in consultation with the farmers. The Community Based organizations called Farmers Federations collect the premium from the farmers and pay the premium to the AIC. For the villages which received the deficit rainfall than the requirement/ agreement, the payout is being given by the AIC to the farmers through the people federations. The rainfall received in the respective village’s automated raingauges is being taken for calculating the payout the respective village farmers.
Mutual insurance is an insurance mechanism implemented by the farmers themselves through a Mutual Crop Insurance Committee (MIC) comprised of farmers and federation staff. They decide on the issue to be covered by insurance, design of the product and implementation mechanism, with facilitation from DHAN Foundation. MDRI is an insurance product which uses rainfall data during different stages of the crop period as a proxy for assessing the rainfed crop yield loss.
After gaining experience of mutual deficit rainfall insurance in our rainfed farming federations it was extend to other programmes of DHAN Foundation also. Farmers are happy in using the local rain gauge rainfall data for working out the pay out. Then it was stared to install the automated rain gauges in more number of villages for expanding the DRFI to the farmers. Totally, 158 automated rain gauges were installed in the working villages of DHAN Foundation
As of now different kinds of insurance products such as mutual pest insurance, mutual crop income insurance are available with DHAN Foundation and are implemented through mutual insurance committees of the people institutions.
Community organization of farmers forms the platform on which mutual deficit rainfall insurance is placed. So well functioning CO of farmers is a prerequisite for taking up MDRI. DHAN Foundation believes that poverty reduction and grassroots democracy go hand in hand and are necessary for sustained development. So it starts with promoting member owned people institutions of farmers. These COs are seen as demand stream for the State. The CO model of rainfed farming development programme is given in the figure 1. Each CO has a general body, executive body and staff(s) and the executive body is rotated every 2-3 years. They have meeting on a regular basis. There is intense face to face interaction between office bearers and staffs with individual members, as part of implementation of farming activities. All COs have a full-fledged accounting system and focus on cost coverage from the beginning. Mutual deficit rainfall insurance is taken up as one of the activities of such promoted farmers’ organizations.
A Mutual insurance committee (MIC) is formed at the federation level (Figure 1). The number of members in MIC is around 15 to 30. The generic roles of this committee is,
The specific roles will vary depending on the product. The capacity of selected MIC are enhanced by exposing to similar initiatives in other places, training on the basics of mutual insurance and ensuring their intense participation in all the steps starting from design of the product, enrollment of members to claim payment.
Reinsurance: Reinsurance support is essential to make Mutual Deficit Rainfall Insurance (MDRI) effective. Eureko Re, The Netherlands based insurance company came forward to offer reinsurance and technical support to MDRI pilots of DHAN Foundation. The structure of the reinsurance agreement between People Mutuals and Eureko Re is a stop loss contract.
The People Federations run the Mutual Livestock Insurance with the active support Mutual Livestock Insurance Committee promoted for implementing the same. The premium collected from the livestock farmers is 4%. The Farmers Federation pays 3.5% premium to the People Mutuals, a registered apex level people institution facilitating the insurance activities of DAHAN Foundation, after retaining 0.5% premium to meet out its administrative expenses. The Mutual Insurance Committee takes the responsibilities of ensuring the payout within 10 days to the affected livestock farmer. As the Mutual Insurance committee is taking the responsibility ensuring the genuineness in all the aspects, veterinary doctor is not engaged in this mutual livestock insurance activity.
In general, the administrative cost for the conventional insurance is high. In India, crop insurance data says that more than four times of premium collected has been given as compensation against the crop loss. At the same time, farmers are not at all happy about the conventional insurance and hence the crop insurance penetration is very poor. Moral hazard is very high in the conventional insurance. To overcome all these issues, mutual deficit rainfall insurance is the way for which the government can support for the people institutions promotion, mutual insurance committee development, insurance education, infrastructure development like automated rain gauge installation and maintenance and for back up guarantee support etc.