Weather insurance is an indemnity for losses that may arise due to abnormal weather conditions. These abnormal weather conditions can be events such as excess of rainfall, shortfall in rainfall or variations in temperature, wind speeds and humidity.
The benefits that weather insurance offers are:
- It is transparent and thus leads to high level of client comfort.
- It is easy to administer and thus leads to low management expenses.
- It is scientifically developed and objective.
- Premium rates subsidized by both central & state governments
- Indemnity amount will become payable, for prevented sowing/planting risks and for post harvest losses, due to cyclones;
- On account payment up to 25% of likely claim under MNAIS will be released as advance, for providing immediate relief to farmers;
- Uniform seasonality norms will be applicable for both loanee and non-loanee farmers;
- More proficient basis for calculation of threshold yield (average yield of last seven years excluding up to two years of declared natural calamity) is applicable
- Claims are settled on the basis of the results of the crop cutting experiments conducted by the state government.
Weather insurance has multiplier effect on the economy as it enables access to factors of production. Adequate protection offered through the weather insurance product enhances the risk taking capacity of the farmers, banks, micro-finance lenders and agro-based industries. This in turn would result in boosting the entire rural economy.
Further, as the product is developed on the foundation of universally acceptable parameters, it is easier to transfer the risk to international financial markets through reinsurance. This allows for global pooling of risk and thereby more competitive portfolio adjusted pricing for the insurer and ultimately for the farmers.