India has a warm and moist
climate – ideal conditions for thunderstorms and hail. India’s
hailstorms frequently cause property damage and injuries to people and
livestock. The most damaging storm hit India on April 30, 1988, resulting in deaths to approximately 250
people and 1,500 livestock. A hailstorm of that intensity has not happened
in India since, but hail remains a common occurrence there.
For example, in March 2014,
ten thousand villagers of the Madhya Pradesh were adversely affected by a
severe hailstorm and suffered heavy loss to the Rabi crop (wheat, cereals,
millets, pulses and oilseeds). The 2014 storm was noteworthy because two-thirds of India’s population is dependent on agriculture for their livelihood. After
the March 2014 hail storm, Agriculture Insurance Company of India (AICI), a
carrier part of the National Agricultural Insurance Scheme (NAIS), denied
liability.
Insurance issued through AICI
is compulsory for all farmers who access seasonal crop production credit from
the lending institutions and is voluntary for non-loanee farmers. NAIS has three overall
objectives: (1) provide a measure of financial support to farmers in the event
of crop failure as a result of an insured peril; (2) to restore the credit
eligibility of farmers after a crop failure for the next season; and (3) to
support and stimulate the production of cereals, pulses and oilseeds.
AICI insures against yield
loss due to non-preventable risks, including damage caused by hailstorms. AICI
developed a complex weather index program which has subsequently attracted
government premium subsidies. Government financial support for the NAIS is
split between the federal government and the state and union territory governments.
Since AICI is heavily subsidized by the government, banks market and administer
the NAIS scheme on behalf of AICI. The banks’ charges comprise 5% of AICI’s premium
while operating costs amount to another 2% of premium. Because the AICI operates
at a low overall cost structure, the company maintains low premiums for farmers.
Litigation resulting from
AICI’s denial of claims resulting from the March 2014 hail storm was later
considered by the Madhya Pradesh High Court. The bench of justices SK Gangele
and Sheel Nagu ordered the company to process all the farmers’ claims under the
scheme and compensate for the losses. This marked the first time that insurance
claims for crop loss due to hailstorm were ordered to be paid by AICI.
Despite the ultimate outcome
of the 2014 hailstorm litigation, it seems that Indian farmers are still skeptical of crop insurance programs. Only
42.82 million hectares (or 22 percent) of crops were covered by crop insurance
in 2014. Furthermore, the average sum insured (maximum amount that insurance
would pay in the event of crop damage) is far below the gross value of output
for most crops. The combination of these two factors likely deters many farmers
from investing in crop protection. However, in 2016, the Narendra Modi
government implemented a new crop insurance scheme with lower premiums.
Because India’s agriculture
industry remains critical to its economy, and weather conditions are favorable
to hailstorms, crop insurance for hail damage should play an important role in the
future of India’s insurance market, and other jurisdictions experiencing
similar damage to crops from hail may look to India for guidance in addressing
such claims.
Posted by Jennifer Gibbs and Victoria Vish
