History and Growth of Crop Insurance in India

The Government of India (GoI) has historically emphasized crop insurance as a planned mechanism to mitigate the risks of natural perils on farm production. The first attempt in this direction was made by the Mysore State in 1915, when it proposed a rain insurance scheme for farmers using the “area approach” to protect against drought. Similar efforts were attempted in princely states such as Madras, Dewas, and Baroda, but they met with limited success.

• In independent India, crop insurance took formal shape in 1970, following the conceptual contributions of Prof. V. M. Dandekar, a noted economist, who strongly advocated for an area-based approach. The first official crop insurance scheme was launched in 1972. Since then, India has come a long way, covering nearly 30% of land holdings. The most significant reform was the launch of the Pradhan Mantri Fasal Bima Yojana (PMFBY) in 2016, which expanded coverage and streamlined the insurance system. The evolution of crop insurance in India can be traced through the following schemes.

First Crop Insurance Scheme

The First Crop Insurance Scheme (FCIS) was launched in 1972 on an individual approach basis. It was implemented for crops like cotton, groundnut, wheat, and potato in states such as Gujarat, Maharashtra, Tamil Nadu, Andhra Pradesh, Karnataka, and West Bengal. The scheme, however, had limited impact, covering only 3,110 farmers, with a premium collection of ₹4.54 lakh against claims of ₹37.88 lakh. This demonstrated that an individual farm approach was financially unviable and unsustainable.

Pilot Crop Insurance Scheme (1979–1985)

• Learning from the limitations of FCIS, the Pilot Crop Insurance Scheme (PCIS) was launched in 1979. It was linked to institutional credit (crop loans) and followed the area approach. Participation of states was voluntary, and the scheme covered cereals, millets, oilseeds, cotton, potato, gram, and barley. The General Insurance Corporation (GIC) and state governments shared risks in a 2:1 ratio, with premiums ranging from 5–10% of the sum insured. Covering 6.27 lakh farmers across 13 states, the scheme collected ₹1.97 crore in premiums and paid out ₹1.57 crore in claims, before being discontinued in 1985.

Comprehensive Crop Insurance Scheme

• The Comprehensive Crop Insurance Scheme (CCIS) was introduced in Kharif 1985 at the all-India level. It used a homogeneous area approach and made crop insurance compulsory for short-term crop credit. The scheme continued until 1999, spanning 15 states and two Union Territories.
• During its 15 years, the scheme covered 7.63 crore farmers over 12.76 crore hectares, insuring crops worth ₹24,949 crore against a collected premium of ₹403.56 crore. The claims paid totaled ₹2,303.45 crore, with Gujarat, Andhra Pradesh, Maharashtra, and Orissa being the major beneficiaries. Despite large coverage, the scheme faced criticism due to its high claim ratio of 1:5.71 and heavy financial burden on the exchequer.

National Agricultural Insurance Scheme

• To address the shortcomings of CCIS, the National Agricultural Insurance Scheme (NAIS) was launched in 1999. NAIS introduced an actuarial regime to make crop insurance more sustainable. It was based on a yield index approach, with coverage thresholds at 60%, 80%, and 90% of average yield.
• NAIS covered food crops, oilseeds, and commercial/horticultural crops. Premiums were partly subsidized by 50% for small and marginal farmers. Farmers could purchase additional coverage up to 150% of the threshold yield multiplied by price. Implemented in 23 states and UTs, NAIS became the largest crop insurance program in the world, covering 22.90 crore farmers and 33.97 crore hectares by 2015.

Weather-Based Crop Insurance Scheme

• The Weather-Based Crop Insurance Scheme (WBCIS) was piloted in 2007 by AIC in Karnataka and later adopted by private insurers such as ICICI Lombard and IFFCO Tokio. WBCIS relied on weather parameters rather than yield to determine claims, making settlements quicker and more objective.
• Premiums were actuarial, capped at 8–10% for food crops and oilseeds and 12% for commercial crops. The premium gap was shared equally by the Central and State Governments. Treated as an alternative to NAIS, WBCIS was not offered in areas where NAIS was active. The scheme was later replaced by the Restructured WBCIS (RWBCIS) in 2016.

Modified National Agricultural Insurance Scheme

• The Modified NAIS (MNAIS) was introduced in 2010–11 on a pilot basis. It featured actuarial premium rates with up to 70% subsidy by the government, shared equally by the Centre and States. The scheme allowed private sector participation for the first time, creating competition.
• A major innovation was immediate relief payments of up to 25% of estimated claims in case of calamities. It was compulsory for loanee farmers and voluntary for non-loanee farmers. Active participation came from states like Rajasthan, Andhra Pradesh, Bihar, West Bengal, Karnataka, and Uttar Pradesh.

National Crop Insurance Programme

• In 2013, the government launched the National Crop Insurance Programme (NCIP) or Rashtriya Fasal Bima Karyakram (RFBK). It merged MNAIS, WBCIS, and CPIS into a single umbrella scheme. NCIP emphasized village-level implementation and allowed selective private sector participation. It covered food crops, oilseeds, and annual commercial/horticultural crops.
• By 2015, however, the government announced a new and more comprehensive program, the Pradhan Mantri Fasal Bima Yojana (PMFBY), to expand coverage and affordability.

Livestock Insurance

Importance of Livestock in Agrarian Economy

Livestock plays a vital role in ensuring balanced growth of the agrarian economy. It serves as an alternative source of income and food, while also enhancing the fertility of land through by-products. Farming and livestock thus form a symbiotic relationship that sustains rural livelihoods.

Challenges in Livestock Insurance

• Despite its importance, livestock insurance has remained underdeveloped due to inherent problems such as adverse selection, moral hazard, and fraud. These factors increase the cost of insurance, discouraging farmers, while the high loss ratio discourages insurers from expanding coverage.

Coverage and Features

• Livestock insurance generally provides protection against death, injury, or loss of function caused by accidents, natural calamities, fire, lightning, acts of God, or actions of others (excluding the owner). Farmers may opt for additional coverage for veterinary expenses, transportation, and non-epidemic diseases. The sum insured is based on the market value of the animal and is reduced with age. Premiums range between 1.5 to 10 percent of the insured value depending on the animal type, age, location, and function. Deductibles vary from zero to ten percent. Animals are identified through ear tagging, while advanced methods like Radio Frequency Identification (RFID) and muzzle printing are emerging.

Exclusions and Innovations

• Traditionally, epizootic diseases have been excluded from coverage, although some companies now selectively insure them. Exclusions also include theft, accidents, and injuries during transportation. A notable innovation is Livestock Mortality Index Insurance, introduced in Mongolia, which insures against large-scale mortality events.

Farm Implement Insurance

Scope of Coverage

Farm implement insurance safeguards both large implements such as tractors, threshers, and farm vehicles and small implements like agricultural pump sets and animal-driven carts.

Tractor Insurance

• Tractor insurance covers losses from burglary, theft, accidental damage, and natural disasters including flood, storm, lightning, earthquake, and landslides. It also provides third-party liability cover for injury, death, or property damage, along with optional coverage for drivers and electrical accessories.

Pump Set Insurance

• Agricultural pump set insurance applies to centrifugal pump sets (electrical, diesel, or oil) and submersible pumps used in farming. It covers the pump, driving unit, and starter, protecting farmers from unexpected breakdowns and financial losses.