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C. Shivkumar

BANGALORE, Aug. 19

THE proposed Agricultural Insurance Corporation is expected to bring plantation crops within its purview. None of the plantation crops fall within the purview of crop insurance now.

But sources said one of the proposals currently before the General Insurance Corporation (GIC), which currently administers crop insurance, was to bring in plantation crops.

Currently, plantation crop risks are covered only by general insurance companies. Among the plantation crops proposed to be brought within the ambit of the proposed new insurance company include, crops such as tea, coffee and spices. Cash crops insurance is also expected to be brought within the ambit of agriculture insurance. This will be in addition to all the rural insurance business being done by the four insurance companies and will cover crop insurance and agricultural equipment insurance.

A major factor behind this proposal is that some of the cash crops including horticultural crops have no insurance cover. Consequently in some of these sectors, where banks fund the farmers, losses due to natural calamities, lead to an escalation in the debt burden of the farmers along with a possibility of increasing the risk of non-performing assets on the banks books.

The sources, however, said the new insurance company would not be providing any form of price risk coverage for farmers. In fact, this coverage was sought by some of the coffee planters and endorsed by the Coffee Board.

But all the four public sector insurance companies have completely rejected the proposal. The rejection was on the grounds that the scope of insurance coverage included on property or liability-related risks. Price risks did not fall in either of these categories.

For coverage against price risks, the sources said agriculturists themselves would have to work out hedging mechanisms, from what is currently available either in the form of futures and options, the sources added. Due to this, insurance coverage will be only against crop damage and losses incurred by the farmers. But even here there would some modifications made to the insurance coverage. This was necessary, the sources said, in order to ensure that claims ratios in the plantation sector were under control and also the viability of the insurer.

Besides, the sources said, tight monitoring would also be required. This was in order to ensure that price downturns did not result in high insurance claims in any of the plantation and cash crops, the sources said.

For such insurance risk coverage, actuarial valuation would be prescribed.

The sources also said premiums would also be fixed on the basis of risk assessments in these crops. In crops where the risk of losses due to natural calamities are high, as measured by the probable maximum loss (PML) ratio, the premiums would also be kept high.

The sources said some critical issues still needed to be resolved before the new insurance company is finally kicked off. This corporation had still not been finalised though it was proposed in the budget for the current financial year. These include, the premium and claims. Currently, in crop insurance, the premium payments are shared equally by the Union and the State Governments.

Similarly the claims are also shared by both the parties. The sources said currently the decision was to shift the burden of premium payment entirely to the farm sector. As a result, the claims-related risks would also have to be assumed the company, they added.

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