Farmers need proper crop insurance to mitigate actual risk

Inappropriate and unusual rainfall has damaged the Rabi crop across the country for which farmer seeking compensation from the government. Not solely this year, however year after year farming for Indian cultivators is turning into a gamble. Farmers across the nation commit suicides because of losses incurred due to ruthless weather. Despite such miserable condition, crop insurance sector has not yet geared up. They don’t have even suitable products to mitigate actual damage/loss of farmers. It is, of course, a matter of national concern because an enormous Indian population depends on agriculture and related activities.

According to a Worldwatch Institute report, the agricultural population of India grew by a whopping 50% during the period 1980 – 2011, the highest for any country during the period. China stands second in the list with 33% growth rate, while that of the United States dropped by 37% during the same period.

A proper crop insurance policy is required to play an even bigger role in mitigating such risks. India cannot be a financially healthy nation if its agriculture remains neglected, not having political will power. On the other hand, Indian agriculture has large hidden unemployment due to high population growth and not enough job opportunities. A low-productivity sink of underemployment and poverty that is completely dependent of weather.

Cultivation must become a profitable profession, commercially viable activity, in which the pooling of risk across space and time is recognized as a cost as legitimate as the cost of fertilizer, but will not burden the consumer because of high levels of productivity overall.

Also, the premiums for crop insurance covers should be based on actuarial costs, and products must be made available to individual farmers. Insurers sell crop insurance policies only when they see opportunity for a positive actuarial outcome, overtime and profit. Political interference must end and insurers allowed running their business on commercial lines. Farmers, as buyers, must recover the insurance cost from consumers through higher productivity.

However, there have been several crop insurance schemes tried so far, but all of them have run up against the problem of identifying the actual loss for individual farmers, and thus failed in mitigating the losses to the farmers. As of now, areas were assessed rather than identifying individual farms. Now, with the advent of drones, capable of doing sophisticated remote sensing equipment opens up new possibilities in monitoring and assessment of specific, localized losses/ damage of crop. This would allow farmers to opt for commercial crop insurance cover and higher productivity.

Harjot Singh Narula

Harjot Narula is founder and CEO of ComparePolicy.com, an IRDAI approved insurance web aggregator focussed on selling online insurance for companies. Harjot has more than a decade of experience in software development and has also spent 5 years in US working for the mortgage and risk management industry.

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