Assessment of community-based crop micro insurance for climate-related risks offered to smallholder farmers and marginalised communities in India

3ie evidence programme:  Agricultural Insurance Evidence Programme
Author(s): Atanu Majumdar, Arpita Chakraborty, Vaibhav Sharma, Sachin Hans, Nihar Jangle, Sonal Dhingra, Chandan Kumar, Sandeep Pant, Swapna Jambhekar, David M Dror
Institutional affiliation(s): International Initiative for Impact Evaluation (3ie)
Grant-holding institution: 3ie
Main implementing agency: TechnoServe India
Sex disaggregation: No
Gender analysis: No
Equity focus: No
Study type: Process evaluation

Context

Agricultural insurance in India has come a long way since 1972, the year when the first insurance was offered to individual cotton-growing farms. The first insurance scheme providing cover for cereals, millets, pulses and oilseeds was piloted in 1979 and replicated nationwide in 1985 as the Comprehensive Crop Insurance Scheme (CCIS). Over the years, the country has witnessed the launch of several schemes. In January 2016, Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched. Even though every modified scheme entailed more benefits and larger subsidies to premiums than its predecessor, the number of farmers that joined voluntarily was consistently low, contrary to expectations (Aurora and Rachuri 2016; CSE 2017). These schemes were thus relevant for those farmers who took bank loans for agricultural production and were required to secure the loans by buying crop-related credit insurance. This practice meant that even though India floated the largest crop insurance scheme in the world in terms of volume, government-sponsored crop insurance scheme reached only a small percentage of Indian farmers (Mahul, Verma and Clarke 2012).

Intervention design

The overall objective of the Climate Resilience through Risk Transfer (RES-RISK) project was to improve the resilience of vulnerable communities in selected regions (of two states in India) to climate-related risks, by introducing and supporting pro-poor microinsurance solutions providing financial protection against three classes of risks that are exacerbated by climate change: human health, crop and livestock. The crop insurance component of CBMAS (CIC) started from the Kharif season of 2015. It was weather-based index (parametric) cover underwritten by an external insurer (IFFCO-Tokyo General Insurance), with intensive technical assistance from MIA on the pricing, the term-sheets and simplifying the paperwork, and with setting up weather stations in the covered areas, with financial assistance from the RES-RISK project.

This novel experiment with CIC had several important components such as:

1. Voluntary uptake (rather than mandated linkage to agricultural input loans), contributory (without reliance on premium subsidies);
2. Demand-driven (involving farmers in package design);
3. Enhancing gender-equity (by enable the real cultivator – increasingly women – to become involved in decisions and governance that enabled them to overcome many hurdles to access commercial agri insurance);
4. Offering a holistic insurance solution (combining health, livestock, and crop insurance, with term-sheets reflecting local climate data for weather index insurance, with operations of all risks handled by a single ‘one-stop-shop local scheme);
5. Contextual anchoring of insurance (in the settings of social, cultural, economic, ethnic, climatic and risk contexts) through which grassroots groups manage their lives.

Evaluation design and methodology

The research involves mixed methodologies, including both quantitative and qualitative components, with emphasis on the quantitative analysis.  The quantitative analysis draws data from a cross-sectional survey with three treatment arms:

1. offered and joined CIC (OJ)
2. offered and not joined CIC (ONJ)
3. not offered to join CIC (NO)

To generate comparable treatment and control groups, it has been necessary to apply propensity score matching (PSM) techniques, using socio-economic and demographic characteristics of the households. The qualitative part consists of analysing information obtained through focus group discussions (FGDs), in-depth interviews (IDIs) and key informants’ interviews (KIIs) with farmers groups, CBMAS scheme activists, farmers that were insured, uninsured, and those that dropped-out, as well as agricultural extension service providers.

Primary evaluation questions

This study focuses on the following three key research questions:

1. What factors affect voluntary uptake (demand) for agriculture insurance offered to smallholder farmers by community-based mutual-aid schemes (CBMAS, aka microinsurance)?
2. Is there a business case for crop insurance component of the CBMAS (CIC) in terms of financial sustainability, scaling and stakeholders’ interests?
3. How effective is CIC in providing financial protection to insured farmers (timely and adequate payouts in case of losses)?

Primary findings

1. The analysis of factors affecting enrollment has revealed that households classified as scheduled caste/scheduled tribe (i.e. considered as marginally backward social groups) were more likely to enroll in the CIC of CBMAS compared to other segments of the population while religion and household economic status were not associated. Farmers that use some modern farming techniques (to perform functions such as leveling the land, weeding, thrashing, etc.) are less likely to enroll in crop insurance.  However, those who cultivate a high proportion of their landholdings are more likely to enroll in CIC of CBMAS. The positive role of conducting iterative discussions at community level – an established practice of CBMAS – is also instrumental for uptake.
2. The premiums and claims data of CBMAS show that there is a clear business case in the CIC.
3. Households receiving CIC had higher monthly income than control households.

Implications

This study demonstrated that the business case of CBMAS could allow it to reach scale and sustainability, provided that the good intentions of the government will enable the CBMAS to grow their activities, combining insurance education, capacity development at local level and customised solutions for crop insurance as an extension to other community-based mutual aid activities. In the short term, these activities can produce a positive impact on the financial protection of the insured, which would encourage more farmers to join. In the longer term, it could reduce the burden of premium subsidy and enable the government to raise more resources for agriculture than ever before.