Weather insurance market in India growing by 25% annually

by Artemis on August 3, 2012

Helped by the growth of microinsurance and weather-index insurance, India’s weather insurance market has been experiencing rapid growth in recent years. Now with more farmers starting to use weather insurance as a way to mitigate against the risks posed by extreme weather and climate change impacts two of India’s biggest players in weather insurance have said that they are experiencing 25% growth annually.

According to this article in the Economic Times of India, state-owned Agricultural Insurance Corporation (AIC) have over 75% of the market share in the weather insurance category in India, providing cover in almost all districts. KN Rao, deputy general manager of AIC said; “The growth has been so spectacular over the past five years that as many as 12 million farmers, growing crops on over 15 million hectares of cropped area, might have been insured during the 2011-12 crop year.”

ICICI Lombard are the next biggest company in the weather insurance business in India, providing cover in 50 districts. Other companies involved in the sector include Iffco Tokio and Cholamandlam MS.

Farmers in India can now acquire cover for around 40 different crops for various weather extremes such as a lack of rainfall, excess rainfall, low and high temperatures, dry spells or droughts, humidity and high winds. All of these products are index-based insurance and utilise weather measurements taken at ratified weather stations around the country.

The majority of these weather insurance products are subsidised to some degree and there are premium caps in place to ensure cover can be afforded by even small holder farmers. This is the microinsurance aspect of the growing market.

Weather data availability is still an issue and the market would likely have grown much more rapidly had data been widespread and readily available. KN Rao of AIC said; “One of the key challenges in weather index insurance has been establishing an adequate network of weather stations to service weather insurance as a credible insurance programme. It is estimated that the country needs around 8,000 automatic weather stations and about 32,000 rain gauges to effectively service the index insurance compared to the current network of 5,000.”

The growth of weather insurance in India has been impressive. It has seen the fastest growth of any country we are aware of and there is already evidence of products which began life as microinsurance becoming adopted by larger food producers in the country. We expect this trend to continue and this will mean premium incomes from weather insurance will grow in India and reinsurance or risk transfer for these risks will be required. Many global reinsurers already have some involvement in microinsurance and weather-index insurance and they likely see this growing sector as a potential market for their reinsurance services in future.

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Arindom February 6, 2013 at 8:30 am

GoI has provided premium subsidy to WBCIS, due to which most of the farmers pays only 25% of the total premium. The gross loss ratio (% of Total Claims to Total Premium) post Kharif 2011 for the participating insurance companies was approximately 53%.In other words, for every Rs. 25 premium paid (invested), the average farmer gets back Rs. 53, more than 100% profit. No wonder WBCIS is growing so fast.

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