Professor Dandekar’s masterstroke of linking crop loans with crop insurance magically resolved the roadblocks on the coverage (income) side of crop insurance. But the other side remained, the Claims (expense) side or the service side. The most important side from the point of view of the insured farmer. The side which underlines the very existence of crop insurance.
The Claims question has two parts – to calculate and to pay. Payment must be done at the individual level, into the bank account of each farmer. Since every loanee farmer has his own individual crop loan account, this activity is manageable. But what about the first part – to calculate the quantum of claims payout for each individual farmer? This was the next major stumbling block in the design of a mass based crop insurance scheme.
Under most of the indemnity insurance policies, claims would imply the extent of damage to, or loss of the object of insurance, whose full value had already been fixed at the onset of coverage, termed the “Sum Insured”. Damage or injury can be monetised by the repairing bill or the hospital bill.
But in case of crop insurance, though there is a notional “Sum Insured” for every policy, the actual dynamics of crop loss assessment works in the reverse manner. There is no existence of full-value crop at the beginning of the insurance cover, which would diminish with the occurrence of a natural calamity. Therefore there is no question of surveying the full-value crop and assessing the damage thereto.
Claim under crop insurance is assessed as a shortfall against expected yields. The expected, and therefore the guaranteed yield,implies the average yield which that crop has been experiencing in that particular area for the past several years. This average yield figure, moderated for certain statistical parameters, is technically called the Threshold yield. TY Is for a particular crop in a particular area for a particular season and year.
The current year’s Actual yield has to be matched against the Threshold yield to arrive at the shortfall in expected yield. This shortfall is taken as the loss suffered from the natural perils and is to be monetised as Claims.
Now here’s the practical problem:
If the Claims have to be paid to every individual farmer, then apparently the Actual yield of the current season has to be calculated in respect of each of them. In other words, yield assessment has to be done for every crop in every plot, across the village, across the Panchayat, across the Tehsil or Taluka, across the District, across the State, and ultimately across the country …… all of it, two seasons a year, and that too, within the small harvesting window every season!
Think of the gigantic task it involves! For each crop, the harvesting window would be of 10 to 15 days, and there would be 30 odd crops every season all across the country, in millions of fragmented plots of land. Think of the lakhs and lakhs of people to be engaged for this hyperintense activity packed into a fortnight of time, and then to render them jobless for the next six months. Think of the extremely remote location of farmlands in many parts of the country, where there are no roads and no minimum facilities. Think of the expenses to be incurred to send a man to the remotest plot, allott him time to conduct his crop cutting experiments (CCE), allow him buffer time for unforeseen interruptions like the farmer being absent, or the land being unapproachable, and finally to come back to the town to report to the result. In fact, the cost of this CCE, to be paid to the yield assessor, would far exceed the Claims money to be paid to the farmer!!
These were not the only impeding factors. There was also the conceptual stalemate of propriety. Crop Insurance is a contract between the farmer and the insurance company; therefore both are interested parties in this contract. How then can the insurance company get the yield assessed and foist it’s own findings onto the farmer as his fait accompli? There would doubtless be a lot of finger-pointing, allegations of bias and litigation flowing therefrom.
So how to devise a fool-proof methodology to assess crop yield, and from that to compute claims, which would ultimately be farmer-specific, economically viable, and above finger-pointing? What would be Professor Dandekar’s solution? More in the next discourse.