The insurance coverage in the agriculture sector needs to be enhanced to protect the interest of farmers as well as banks lending to this sector, as per the Financial Stability Report released by the RBI recently.
Although the crop insurance business is inherently riskier and costlier compared to other insurance products, the report said, crop failures are not specific to one particular farmer, as weather related events affect entire areas and populations at the same time.
Farmers are often uninterested from buying an insurance products, as insurance companies calculate the loss for individual farmers by taking into account the average yield of the area (block) in the past three to five years.
Though linking crop insurance with bank credit availed by a farmer protects the bank from losses (which indirectly helps the farmers too), it makes the insurance product a ‘compulsory’ add on cost for a farmer, it said.
In order to have faster settlement of crop insurance claims, the IRDAI is actively considering the possible use of satellite remote sensing technology as an efficient and reliable mapping tool for yield estimation, risk assessment, and settlement of crop insurance losses.
