The Financial Stability Report of the Reserve Bank of India says that Agricultural insurance needs to expand. Crop insurance is inherently riskier and costlier than other segments, as incidence of failure is not randomly or independently distributed. Weather-related events affect an entire area and population at the same time.
The report says only 4% of farmers reported having crop insurance and only 19 per cent ever used any. Report also says “Coverage in terms of value of agri output is also small. With limited coverage and a relatively high premium, insurance schemes, unless carefully designed, are prone to become unviable.”
The Insurance Regulatory and Development Authority of India is allowing micro insurance agents to work with Agriculture Insurance Company of India, formed by the four government-owned general insurance companies) for distribution of schemes. And, has imposed obligations on insurers for cover to the rural and poorer sections of society.
It also said that compulsory linking crop insurance with bank credit availed by a farmer makes the insurance product a 'compulsory' add-on cost for a farmer. The report said that since the threshold yield of the area (block) in the past three or five years is used as the basis for assessing the extent of crop loss for individual farmers, farmers are further discouraged from buying such an insurance product.