Weather Insurance Scheme

Weather Insurance is designed to cover losses incurred due to aberrant weather

condition. Here claims payable is link to the performances of weather parameters like
Rainfall, Temperature, Humidity etc based on the measurements taken by specific
reference weather station mentioned in the policy. Detailed correlation analysis is carried
out to ascertain the way weather impacts on the loss to the property to arrive at
compensation levels. Weather indices could be deficit/excess rainfall, extreme
fluctuations of temperature, relative humidity and/or a combination of above. Different
sectors which have been benefited from weather insurance are agriculture, aviation,
energy, retail, tourism, transportation etc. Often, these weather index based insurance is
found to have strong correlation with occurrence of the insurable loss and can be seen
as a proxy to the loss. However, this proxy has certain advantages over the
measurement of the actual insurable loss as shown below.

Standard Insurance Cover Weather-index based insurance

• Subject to manipulation of claim • Surveyor is a weather station, which can
information and surveyor malpractice, be automated, and is not subject to
which cause large documentation malpractice. Therefore, little
requirements and surveying costs for documentation except for the weather
the insurance company statistics are required

• Lengthy individualised claims • Claims processing is automatic,

processing needed to check each claim dependent on whether the weather
due to the large documentation index has reached a predefined level,
requirements that increase the costs of upon which an automatic payout by the
claims processing insurance company occurs

• Moral hazard often exists since • Payout of claim is unrelated to the

insurance coverage can reduce the insurable loss, and only dependent on
incentive of the insured person to weather conditions out of human
prevent the insurable loss from control. Thus, incentives to prevent the
occurring insurable loss remain the same
• Actuarial process involved in creating
the product is highly dependent on the
insured organisation and its particular
risk situation, which increases
requirements for information sharing.
This information sharing is also highly
subject to adverse selection and moral
hazard
• Actuarial process is simpler since the
risks involved are not organisation-
specific, but are general weather-based
risks. Therefore, no specific
organisational information is required in
the calculation of risk, and is only
needed while deciding the exact scale
and structure of the policy

Perils to be covered underImpact of perils on the

Activity Weather Insurance activity
Deficit/Excess rainfall,
High/Low temperature, HighSeverly affects crop
relative humidity, high windpoduction , decrease crop
Crop velocity or combination ofyield and may lead to crop
Production above etc failure
Excess rainfall during drying
Salt stage damage salt in salt pan
production Excess rainfall and decrease salt productivity
Deficit rainfall decrease water
Hydro power storage which in turn affects
generation Deficit rainfall the electricity production units
Low temperature during
cover period decreases heat
unit /solar power generation
Solar power which in turn affects
generation Low temperature electricity production
Low wind speed reduces the
speed of rotaion of wind fans
in the wind mill which in turn
Wind Power affects the electricity
generation Low Wind speed production units
 Excess rainfall during drying
Brick stage damage bricks or other
production/ construction materials,
Construction increase non productive days
business Excess rainfall and increase operational cost

Weather Index Insurance in Agri activities

Weather Insurance in Agri activities is popularly known as Weather Based Crop

Insurance Scheme (WBCIS). Weather based crop insurance is an index-based
insurance product designed for crops covering the losses incurred by farmers due to
unfavorable weather parameters like rainfall, temperature etc. Weather insurance
provides security against unpredictable weather conditions faced by farmers. The policy
pays when the levels of rainfall and / or temperature increase or decrease around certain
predetermined levels as specified in the policy. Weather indices could be deficit/excess
rainfall, extreme fluctuations of temperature, relative humidity and/or a combination of
above. Weather insurance comes with multiple features – customization of insurance
product as per crop production and crop cycle stage/need of weather risk, financial
protection based on performance of specified index and detailed correlation analysis
between crop production risks and weather conditions.
Scope of cover

Any agricultural activities like production of cereal crops(Paddy, Wheat etc),

Pulses(Grams, pea etc), Oilseed crops(Soybean, Castor), Horticulture crops and
Plantation crops( Orange, Cotton etc).

Basis of sum insured

• Cost of input.

• Opportunity cost or loss of income due to deviation in weather parameter.

• Increased operational costs due to deviation in weather parameter

Comparison between Weather Based Crop Insurance Scheme and Crop Insurance
Scheme

PARAMETER YIELD INSURANCE WEATHER INSURANCE

Transparency Farmer is unsure aboutPayout is scientifically pre-
quantum of payout determined and conveyed to
farmer.
Claim Settlement Can take between 6 to 24Claims are settled within a
months before claims arefortnight to month’s period.
settled.
Ease of Administration Takes up significantRequires far fewer resources
administrative resourcesand is completely objective.
and then also retains the
human element.
Premium It is highly subsidized Would be much lower if same
subsidy is extended.
Adverse Selection Prone to adverseActuarial rate calculation
selection minimizes adverse selection.

Claim settlement

Claim amount calculated for deviation from the pre agreed tolerance or threshold level.
Calculation done on the basis of certified data collected form independent data source
like IMD (Indian Meteorological Department), NCMSL (National Collateral Management
Services Limited ) and other state Govt departments . Claim announcement is made with
in 6 days of receiving data. Claim settlement to be done with in 30 days of receiving
certified data.

States and Crops covered till date-

• States covered till date are Rajasthan, Punjab, Haryana, MP, Chattisgarh, AP,
Maharashtra, Karnataka, Gujarat, West Bengal, Jharkhand, Tamil Nadu, UP,
Himachal Pradesh, Orissa, Bihar and Kerala.
 • Crops covered till date are Paddy, Wheat, Maize, Gram, Soybean, Moong, Moth,
Bajra, Guar, Potato, Mustard, Isabgol, Cumin, Cotton, Orange, Ground nut,
Kinnu, Banana, Chilli, Amla, Coriander , Apple, Coffee and Coconut.

Average Premium rates:

For Cereal and Pulse crops like Paddy, Wheat, Gram-8% of Sum Insured
For Oilseed Crops like Soybean, Castor- 10% of Sum Insured

For Horticulture, Plantation and Commercial crops like Cotton, Sugar Cane, and Orange-
12% of Sum Insured

Note: Actual Premium rates depend on the location and the weather perils to be
covered and ranges between 6-12%

Table given below has indicative premium rate or some primary crops:

Total premium
Sum amount excl of
Crops insured(Rs/acre) ST(Rs/acre)
Wheat 3000 240
Mustard 5000 400
Potato 4000 480
Red gram 3000 240
Sun flower 3000 240
Paddy 2000 160
Other
horticulture
crops 6000 720
Weather Index Insurance in Non-Agri activities

Weather Index Based Insurance can also provided in non agriculture activities like salt
production, hydro/wind power generation, solar power production, airlines which are
affected by weather related perils like excess rainfall, deficit rainfall, low wind velocity,
low temperature, and fog insurance etc.

The policy pays when the levels of rainfall and / or temperature increase or decrease
around certain predetermined levels as specified in the policy. Weather indices could be
deficit/excess rainfall, extreme fluctuations of temperature, relative humidity and/or a
combination of above. Weather insurance comes with multiple features – customization
of insurance product as per business activity/need of weather risk, financial protection
based on performance of specified index and detailed correlation analysis between
business risk and weather conditions.

Scope of cover

 Any Non agricultural activities like salt production, hydro/wind/solar power

generation, Brick production which are affected by weather parameters like
deficit rainfall, excess rainfall, high wind speed etc can be covered

Basis of sum insured

 Loss of income due to deviation in weather parameter

 Increase in operational costs due to deviation in weather parameter

Claim settlement for weather insurance

Claim amount calculated for deviation from the pre agreed tolerance or threshold level.
Calculation done on the basis of certified data collected form independent data source
like IMD (Indian Meteorological Department), NCMSL (National Collateral Management
Services Limited). Claim settlement is done with in 30 days of receiving certified data.

• Once the policy is completed a data request will be sent to the concerned
reference weather stations. For example if the reference weather station for the
policy is IMD, Indore then request for data will be sent to IMD Indore.
• For Govt organization like IMD or any other state level organization, hard copy of
certified data will be received which has to be filled in excel format. For Private
organization soft copy of data will be received.
• Claims will be mathematically calculated on certified data received for the policy
period on the basis of policy terms and conditions.
• Claims amount payable (if any) per unit of policy will be calculated and
announced.
• Claims cheques will be released to customer after verifying documents
(Certificate of Insurance and other necessary details if required).
Average Premium rates:

Average premium rates vary from 8-12% of Sum Insured or Contact size.
Note: An actual Premium rate depends on the location and the weather perils to
be covered and ranges between 6-12%