A large number of small and marginal farmers still do not enjoy the insurance umbrella despite their premium being subsidised by the Centre and State governments.
Calamities demand a speedy response on two counts: rushing immediate relief and compensating the affected for loss of life and assets. The focus is more on the first, for which a Calamity Relief Fund (CRF) is in place. However, the losses suffered due to damaged houses and crops tend to be much more than what the government can provide through CRF and other mechanisms. The economic loss on account of a large-scale calamity such as the 2001 Bhuj earthquake or the Orissa sup ercyclone can exceed $2 billion or Rs 9,000 crore, whereas the Centre and States have committed to put aside Rs 21,333 crore between 2005 and 2010 for CRF, or about Rs 4,000 crore per year.
To compensate the affected adequately and in quick time, insurance will have to play a bigger role. India’s insurance density, or the ratio of premium underwritten in a year to the total population, was $38.4 in 2006, against $53.5 in the case of China and $292.2 for Malaysia. The life segment has grown faster than non-life after insurance was thrown open to private participation in 1999. Yet, according to a survey by Max New York Life and National Council for Applied Economic Research, only 19 per cent of rural households and 38 per cent of urban households have life insurance cover. Despite the recent advances, crop insurance covers just 10-15 per cent of all farmers. An economy that claims to be on the cusp of high growth should be in a better position to deal with large-scale economic and human loss.
However, promoting insurance products in rural India, crop insurance in particular, is not easy. The claims ratio tends to be high for two reasons: under-pricing of premium and over-estimation of crop values due to rising minimum support prices. Except for horticultural crops, the premium is pegged at less than 5 per cent of crop value. While crop and accident insurance schemes for rural areas depend on government support the world over the moot point is to ensure that the benefit gets to those who need it most. A large number of small and marginal farmers still do not enjoy the insurance umbrella, despite the fact that their premium is subsidised by the Centre and State governments. This is because of the poor outreach of the banking system, through which most rural insurance products are sold. Again, the pricing of premium in the case of food crops should reflect the realistic value of crops so that the insurance payouts are adequate and prompt. But the most crucial issue of all is that insurance companies are not adequately capitalised to meet large-scale contingencies.
