Both the government and private insurers are recognising the potential of index-based insurance. Collaborative efforts and technology startups specialising in agri-tech are leading the way in fine-tuning and promoting these innovative insurance solutions. In an era of digitisation, technology is pivotal in refining index-based insurance. Satellite data aids accurate monitoring of weather patterns, while AI algorithms can help predict and set appropriate indices. Let’s explore how tech-driven crop insurance and the leveraging of AI in insurance payouts is poised to disrupt the crop insurance landscape in India.
India, like many other countries, faces challenges such as weather fluctuations, pest attacks, erratic rainfall, and humidity, affecting agricultural produce. These factors lead to lower yields and income for farmers each year. Between 2015 and 2021, India lost 33.9 million hectares of cropped area due to floods and excess rains and 35 million hectares due to drought. To address this, the government of India is increasingly considering “parametric” insurance or weather-based index insurance, which relies on predefined parameters to trigger a payout. This helps overcome the shortcomings of indemnity-based insurance by directly linking the compensation to specific parameters rather than farmers’ actual loss. The results are reduced transaction costs, greater transparency, and a faster processing time. Weather-based index insurance can rely on remotely sensed weather data to determine a threshold level of weather variables. Both the government and private insurers are recognising the potential of index-based insurance. Collaborative efforts and technology startups specialising in agri-tech are leading the way in fine-tuning and promoting these innovative insurance solutions. In an era of digitisation, technology is pivotal in refining index-based insurance. Satellite data aids accurate monitoring of weather patterns, while AI algorithms can help predict and set appropriate indices. Let’s explore how tech-driven crop insurance and the leveraging of AI in insurance payouts is poised to disrupt the crop insurance landscape in India.
Currently, the Pradhan Mantri Fasal Bima Yojana (PMFBY) is in force as the flagship crop insurance scheme in India. Operated under the ambit of the Ministry of Agriculture & Farmers Welfare, it has gained high momentum and acceptability, providing constant financial protection to farmers in the event of crop failure or damage due to unforeseen climatic changes. The PMFBY serves as a safety net to the farmers supporting them on production risks, which vary from pre-sowing to post-harvest stages and is the biggest risk mitigation tool to support farmers in India in the event of loss of crops due to natural calamities or climate changes. The scheme has undergone many modifications for better implementation and since its inception in 2016, PMFBY has served as the best risk protection financial tool for farmers.
The PMFBY has gained momentum by earning the trust and confidence of farmers across the nation and is implemented in all 27 States/UTs in one or other season. Currently, PMFBY is the largest crop insurance scheme in the world in terms of farmer enrolments with an average of 3.15 crore farmers/year having covered nearly 57 crore farmer applications for a sum insured of over Rs 15.99 lakh crore since 2016 kharif onwards.
Farmer enrolment is estimated to increase by 23 per cent in 2023-24 against 2022-23 and shall reach 3.75 – 4 crore with more than 13 crore farmer applications for the year. Down the line, PMFBY has become 3rd largest scheme in the world, in terms of insurance premiums and the graph is going up every year, earning the trust and acceptability of the scheme by farmers and other stakeholders through various farmer friendly modifications and technological innovations and interventions.
In the past eight years of implementation of PMFBY, 56.80 crore farmer applications have been enrolled and over 23.22 crore farmer applicants received claims. During this period, nearly Rs 31,139 crore were paid by farmers as their share of premium against which claims of over Rs 1,55,977 crore have been paid to them. Thus, for every Rs 100 of premium paid by farmers, they have received about Rs 500 as claims.
PMFBY is a demand driven scheme and is voluntary for the states as well as farmers. The number of farmer applications has grown 33.4 per cent and 41 per cent year-on-year during 2021-22 and 2022-23, respectively. Furthermore, during the year 2023-24, there is an increase of 27 per cent in terms of farmers enrolled under the scheme. Also 42 per cent of total farmers insured under the scheme in FY 2023-24 are non-loanee farmers.
Leveraging Technologies
The PMFBY recognises the need for technological interventions in crop insurance to make the insurance mechanism more efficient, transparent and farmer-friendly. Considering the complexities associated with Indian agriculture such as small and scattered land holdings, very high eco-geographical variability, yield variability and weather aberrations, it is imperative that technologies are effectively used to increase the efficacy and effectiveness of the insurance sector. For effective implementation of the PMFBY several technological options have been proposed by the NITI Aayog after it deliberated on the subject “Use of Technology for Agriculture Insurance” with almost 100 leading experts in 2016. The Task Force proposed the use of remote sensing technologies (satellite and Unmanned Aerial Vehicles − UAVs), smart-phones, digital photography, new statistical techniques and modelling approaches, and IT/ICTs.
To enhance farmers’ access to crop insurance under the PMFBY, the Ministry of Agriculture & Farmers Welfare (MoAFW), Government of India has been working with the United Nations Development Programme (UNDP) since 2018. The goal of the partnership project is to build a sustainable and climate resilient agriculture sector with increased incomes, secured livelihoods, and a better quality of life, particularly for small, marginal and women farmers. Building on the learning and success of phase I (2018-2022), the partnership was renewed for the duration of 2023-2026, with an expanded mandate of access to agricultural credit and insurance.
The MoAFW and the UNDP have signed a Memorandum of Understanding (MoU) in May 2022 to enhance the implementation of PMFBY and Kisan Credit Card – Modified Interest Subvention Scheme. Under the MoU, UNDP will leverage its expertise in systems and global know-how for supporting the government for the implementation of combined agriculture credit and crop insurance.
In July 2023, the UNDP India signed another MoU with Absolute Foods, a leading bioscience company specialising in agri-tech, to enhance the implementation of the PMFBY and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) by building technical capabilities of the scheme and digitising service delivery of crop insurance and agricultural credit processes to increase reach and uptake of the schemes. It will also promote credit profiling of farmers, agri-entrepreneurs, and Farmer Producers Organisations (FPOs), for accurate crop loss assessment and risk evaluation to mobilise agriculture financing.
In July 2023, the MoAFW launched new initiatives under PMFBY and RWBCIS, such as Yield Estimation System, based on Technology (YES-TECH) Manual, a technology-driven yield estimation system, offering methodologies, best practices, and integration insights for accurate yield assessments at the Gram Panchayat level, Weather Information Network Data Systems (WINDS) portal, a centralised platform that hosts, manages, and processes hyper-local weather data collected by Automatic Weather Stations and Rain Gauges at Taluk/Block and Gram Panchayat levels and door to door enrollment app AIDE/Sahayak, aims to revolutionise the enrolment process, bringing it directly to the doorstep of farmers, marking a turning point in India’s crop insurance landscape.
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