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„Bg®ú ÈBg. XXXV ›BÈBåBØþBV - ›B_ÈBþ 2009 Vol. No. XXXV January - June, 2009

C O N T E N T SEDITORIAL 2

PROFILE OF SHRI SHARAD SHRIVASTVA 3

ADVERSE WEATHER INSURANCE FOR INDIAN CROPS & EVENTS- Shri Anabil Bhattacharya 4

AGRICULTURE- Shri K.C. Ponnappa 12

UNDERSTANDING THE ESSENCE OF NON-LIFE INSURANCE BUSINESS- Shri G. V. Rao 22

MICROINSURANCE - NITTY GRITTY AND KNOW HOW- Poonam Arora 27

CHALLENGES AND ISSUES IN MICRO-INSURANCE- Shri Shuvajit Chakraborty 33

ADVERTISING ON THE NET- Teena Makhija 38

LAPSATION OF A LIFE INSURANCE POLICY- Shri Jagendra Kumar 47

RISK ASSESSMENT - NEED FOR PREVIOUS INSURANCE HISTORY- Shri Srinivasa Rao Prabhala 51

RANDOM REFLECTIONS- Shri R. Swaminaathan 54

IRDA ANNUAL REPORT 2007-08 57

efnvoer ÒeefMe#eCe, efMe#eCe SJeb keÀe³ee&vJe³eve- je. mJeeceerveeLeve 76

FORM IV (RULE 8) 78

EXAMINATION TIME-TABLE - NOVEMBER 2009 79

PROGRAMME CALENDAR OF THE COLLEGE OF INSURANCEFOR THE PERIOD FROM 1-4-2009 TO 31-3-2010 80

NEW HEAD QUARTERS OF THEINSURANCE INSTITUTE OF INDIA AT

BANDRA-KURLA COMPLEX (MUMBAI)

2 THE JOURNAL

EDITORIALEDITORIALEDITORIALEDITORIALEDITORIALThe ultimate objective of de-tariffing, was the removal of the straitjacket of premium rating system and theprescribed mandatory policy wordings, to ensure meaningful customer service.

The premium rates are statutorily required to be directly related to the hazards involved and be fair, equitableand non discriminatory. File and use Guidelines permit insurers to formulate their own policy coverages subjectto the requisites of clarity of language, definition of common terminology, logical sequence of policy conditions,etc. for easier comprehension by the customer.

According to IRDA Annual Reports, life products were 55 and 168 and non-life products were 52and 123 in thefinancial years 2005-06 and 2007-08 respectively filed with IRDA for approval. The total number of products,if previous years' figures are added, is estimated to exceed 500.

The multiplicity of products poses a problem for selection of subjects and the formulation of syllabus therein to fitinto the examination framework of the Insurance Institute of India. At one point of time, the British insurancemarket comprised both Tariff and non-Tariff companies and the Chartered Insurance Institute study coursesdealt with the problem of multiple products in a generic fashion identifying common features and major variationsof coverages. In India, before nationalization of general insurance there were 100 plus companies with their ownpolicy forms in 30% of business remaining 70% being tariff had common wordings. Non-tariff coverages weredealt with in a generic fashion.

Creative and generic approach seems to be the mantra for the overall of the examination system. This columnmakes a few suggestions so that readers of the Journal may, in the various segments of insurance (both life andnon-life) make their contributions.

The Institute is seized of this marathon project which requires for its successful completion cooperation andtechnical support from IRDA, Life and General Insurance Councils, Brokers Association etc.

The first task in this exercise may be to reduce the approved policy forms to a common denominator in life, fire,marine and miscellaneous streams of study currently adopted for the examination. The multiple terminology oftitles of policies may be replaced by generic titles. Riders, add-on cover any special feature may be grouped to-gether under a generic title and included in the syllabus. This task may be given to specialists suggested by thetwo councils, preferably those who were involved in drafting the recommended policy wordings for IRDA approval.

It is possible that the number of subjects may increase and because of diverse interests of students, provision forchoice of elective subjects linked to credit points for passing, will motivate faster learning and study will be moremeaningful to the students, who will be able to opt for subjects based on their personal preference, demands oftype of current work in the office, etc. This innovation which is examined by the Institute will make theexamination for more flexible than the present system which provides for only compulsory subjects. No doubt, theconcept of compulsory subjects cannot be eliminated but the new system may reflect a judicious combination ofcompulsory and elective subjects.

The University Grants Commission has decided to introduce the system of elective subjects in higher educationin India. The Chartered Insurance Institute of London, has in place a credit points system.

The purpose of this column is to trigger a brainstorming exercise by all the stakeholders of the examinationsystem so that insightful ideas can emerge.

JANUARY - JUNE 2009 3

Secretary-General on deputation from 2nd May, 2009

Shri Sharad Shrivastva has joined the Insurance Institute of India on 2nd May, 2009 as Secretary-Generalon deputation from LIC of India.

Shri Shrivastva, born on 17th January, 1960, is a Graduate in Arts (B.A.). He is an Associate member of theInsurance Institute of India (A.I.I.I.).

Shri Shrivastva joined the Life Insurance Corporation of India in 1983 as a Direct recruit Officer and heldvarious positions in LIC of India. Before joining Insurance Institute of India, he was Principal, Zonal TrainingCentre, Agra. He is in the cadre of Zonal Manager (Selection Grade) in LIC of India.

He will be holding the post of Secretary-General of Insurance Institute of India concurrently with the currentSecretary-General of the Institute, Shri S.J. Gidwani who retires on (31.01.2010).

We extend a hearty welcome to Shri Shrivastva on his appointment as the Secretary-General of the InsuranceInstitute of India and wish him all success.

4 THE JOURNAL

INTRODUCTION:

The need for risk mitigation in agriculture has beenlong felt. Agriculture contributes 24% of the GDP andany change has a multiplier effect on the economyas a whole. The target of 7 - 8% economic growthdepends significantly on agricultural growth. Weatherinsurance is an indemnity for losses that may arisedue to abnormal weather conditions. These abnormalweather conditions can be events such as excess ofrainfal l , shortfal l in rainfal l or variat ions intemperature, wind speeds and humidity.

The benefits that weather insurance offers are:

1. It is transparent and thus leads to high level ofclient comfort.

2. It is easy to administer and thus leads to lowmanagement expenses.

3. It is scientifically developed and objective.

Weather insurance has multiplier effect on theeconomy as it enables access to factors of production.Adequate protection offered through the weatherinsurance product enhances the risk taking capacityof the farmers, banks, micro-finance lenders andagro-based industries. This in turn would result inboosting the entire rural economy in our country.Further, as the product is developed on the foundationof universally acceptable parameters it is easier totransfer the risk to international financial marketsthrough reinsurance. This allows for global poolingof risk and thereby more competitive "portfolioadjusted" pricing for the insurer and ultimately forthe farmers.

Comprehensive Crop Insurance Scheme (CCIS) hasbeen in operation in the country since Kharif 1985

ADVERSE WEATHER INSURANCE FOR INDIANCROPS & EVENTS

By:Shri Anabil Bhattacharya,

Manager, B.P.R. Cell,Head Office, National Insurance Co.Ltd.,

Kolkata.

as an instrument of risk management in agricultureand as a measure of providing relief to farmers whosecrops are damaged due to natural calamities. Thesum insured is equal to crop loan disbursed subjectto a maximum of Rs. 10,000 per farmer. The premiumis charged at the rate of 2 per cent for rice, wheatand millets and 1 per cent for pulses and oilseeds.

Since inception of the Scheme in 1985, about 6.45Crores farmers have been covered up to Rabi seasonduring 1997-98. The total amount of claims paid wasRs. 1623 Crores as against a premium collection ofabout Rs. 313 Crores up to Rabi, 1997-98 season.The Scheme is thus unviable. The Government ofIndia and the concerned state Governments in theratio 2:1 meet the losses incurred under the scheme.The main drawback of the scheme is seen in theclaims entertained for one single crop, namely,groundnut, because of which Gujarat state alonereceived Rs. 792 crores as claims compensation outof all India claims of Rs. 1623 crores. Thus one singlecrop (groundnut) in just one state (Gujarat) aloneclaimed 48.8 percent of total claims between 1985to Rabi session of 1997-98.

The Government of India introduced an ExperimentalCrop Insurance Scheme during Rabi 1997-98 seasoncovering non-loanee small and marginal farmersgrowing specified crops in selected districts. Thescheme could be implemented only in 14 districts of5 States. The premium was totally subsidized. Centraland State Governments shared premium and claimsboth, in the ratio of 4:1. About 4.78 lakh farmerswere covered for a sum insured of Rs. 172 Croresunder the scheme during the Rabi 1997-98 season.The total premium collected was Rs. 2.86 Crores andagainst that, the claims amounted to aroundRs. 39.78 Crores. The Scheme has since beendiscontinued from kharif 1998 season.

JANUARY - JUNE 2009 5

From all such experiences it was identified that thedominant factors in agriculture in India are -

• High dependence on weather;

• 40% of net sown area irrigated;

• 60% dependent on rains;

• Most irrigation from non-perennial sources;

• Adoption of improved crop production techniquesaffected by high risks & low margins;

• Dwindling ground water resources and thefarmers are at the mercy of rains.

Analysis of agricultural losses as compiled byGeneral Insurance Corporation of India's cropinsurance cell -

Cause Proportion of Loss

Drought / Low Rainfall 70%

Floods / Excess Rainfall 20%

Others - like Storms, Pest,Negligence, Earthquake 10%

Majority of the agricultural losses can be attributedto weather vagaries.

INNOVATIVE APPROACH IN AGRICULTURAL RISKMANAGEMENT:

Agriculture is still the biggest source of livelihood fora majority of the households in India. However, thereis a huge amount of risk involved in agriculture asmost farmers do not have assured sources ofirrigation and the activity is prone to weather riskslike inadequate rainfall. The traditional yield basedcrop insurance offered to farmers, which currentlycovers less than 20% of the farming community,suffers on the count of service levels and also itsfinancial sustainability. Alternative models to managecrop risks are now being explored to find a moresustainable approach to managing agricultural risks.Index based weather insurance is now emerging asa promising alternative, as it is actuarially priced andpromises timely claims payments to farmers as theclaim payout is determined on a particular weatherindex which is measured on a daily basis.

As most of i ts customers are dependent onagricultural activities, BASIX undertook several

research projects to provide cover for crop risks. Theseefforts culminated in col laboration with theCommodity Risk Management Group of the WorldBank and ICICI Lombard to launch the first indexbased weather insurance in 2003 in Mababubnagardistrict of India covering 230 farmers in first pilotprogram. In subsequent years the index basedweather insurance market in India was scaled upcovering more than 200,000 farmers. Today thereare more companies offering weather insurance inIndia, including the government owned AgriculturalInsurance Company.

There are also challenges to be overcome to takeweather insurance to a larger scale. One of them isto increase the network of weather stations in a bigway, so that rainfall measured in a particular weatherstation is better correlated to the actual rainfall in aparticular farm. While efforts are underway toimprove this infrastructure with the participation ofprivate players like NCMSL apart from IMD, the realscale for weather insurance would come when it istested as an alternative or to play a complementaryrole with the NAIS (National Agriculture InsuranceScheme) with support from the Government.

The current year has seen a tremendous movementin this direction with the announcement of a 100Crore budget for the weather index insurance in thecentral budget and the recent circular issued by theMinistry of Agriculture during October, 2007, advisinga good number of states to replace NAIS with indexbased crop insurance in some selected locationsduring the Rabi season of 2007-08. With all thesedevelopments, a unique model of AgricultureInsurance is now emerging in India with a brighterprospect of penetration in rural India in theimmediate future.

WHAT IS WEATHER INSURANCE?

An insurance product based on weather index,provides a financial protection based on theperformance of specified index in relation to aspecified trigger. Before underwriting, detailedcorrelation analysis is carried out to ascertain the wayweather impacts yields of crops to arrive atcompensation levels. Weather indices could be deficitor excess rainfall, extreme fluctuation of temperature,relative humidity and/or a combination of all theseperils.

6 THE JOURNAL

INDEX BASED PRODUCT STRUCTURE:

Peril Identification: Peril identification involvesappreciation of agronomic properties of the crops ornature of the economic activity. Detailed correlationanalysis is carried out to ascertain the way weatherimpacts yields of the crops/ output of other economicactivities.

Weighted index setting for each phase of the crop:In weather insurance, the claim is settled on the basisof a transparent index. The index is thus created byassigning weights to critical time periods of cropgrowth. The past weather data is mapped on to thisindex to arrive at a normal threshold index. The actualweather data is then mapped to the index to arriveat the actual index level. In case there is a materialdeviation between the normal index and the actualindex, compensation is paid out to the insured onthe basis of a pre-agreed formula.

Back testing for payouts: In order to ensure therobustness of the structure, the normal index isextensively tested based on historical data toascertain if the payouts made on the basis of thechosen indices have adequately indemnified the lossin the past or not.

Pricing: Pricing is determined based on componentsof expected loss, volatility of historical losses andmanagement expenses.

Monitoring: This entails collection of weather dataduring the policy period and concurrent assessmentof the ground conditions.

Claims Settlement: The claim settlement is a hassle-free process, as the beneficiary is not required to filea claim for loss to receive a payout. In India, atpresent ICICI Lombard compensate the beneficiaryat the end of the crop season for any deviations fromthe normal conditions on the basis of the datacollected from an independent source accessible toall, like a local weather station, thus removing theneed for carrying out field surveys.

The main advantages of index based weatherinsurance are:

- It is a long term sustainable solution;

- A market-based alternative to traditional cropinsurance, which overcomes challenges of -

a. High monitoring & administrative cost; and,

b. Moral hazard & adverse selection.

- More transparency - which replaces humansubjective assessment with objective weatherparameters;

- Scientific way of designing product;

- Simple terms of insurance delivery;

- Effective & speedy claim settlement process.

An example:

Applicable for Coriander - the peril identification & index setting as given below-

Time Period Mid Dec -Feb Mid Feb -Mid March

Stage Vegetative Growth Maturity

Risk Low temperature leading to frost injury Unseasonal rainfall having qualitativeimpact on crop

Weather Index Minimum temperature noted during Maximum rainfall on any single daythe crop growth phase during the crop growth phase

Applicable for Oranges - making crop specific structure

Time Period Mid June-July July- September

Stage Flowering initiation Fruit set and development

Risk Concentrated amount of rainfall within Prolonged absence of rainfall leading short period to dry spell.

Weather Index Rainfall events - 3 days consecutive Aggregate rainfall in sub periods of croprainfall. stage - 10 days periods in July, 15 days

periods in august and 30 days in September.

JANUARY - JUNE 2009 7

WEATHER INSURANCE SO FAR IN INDIA:

Oranges in Jhalawar, Rajasthan: Orange crop suffersyield losses in case adequate rainfall is not availablefor flowering or if there is a dry spell subsequent toflowering. 782 farmers (7% of all the Orangecultivators in the district) were provided a cover for613 acres for a sum insured of Rs. 18.3 million.

Various crops in Andhra Pradesh: Weather Insurancewas offered to the farmers of AP for groundnut, castorand cotton crops. A unique distribution modelthrough the Micro-finance institutions and Self HelpGroups was followed to reach out to the farmers inthe remote areas. The product provided cover againstlosses due to deficit rainfall. In this kharif seasonabout 800 farmers covering 1100 acres purchasedit. Sum Insured for these covers was Rs. 5.7 million.

Weather insurance for crop loan portfol io:Repayments of crop loans given to farmers is afunction of the revenue from agriculture. This revenueis in turn dependent on the rainfall in the area asgood rains give good yields. Keeping this correlationin view Weather Linked Loan Portfolio Insurance wasoffered to a NBFC lending agricultural loans. Theclaim payouts from this cover would compensate theloss of repayments. Sum Insured for this cover wasRs. 7.5 million.

As per the report received in Mumbai during themonth of February, 2008 as many as 10 lakhs farmerswere covered under the weather insurance plan byend of the current Rabi season.

During the current fiscal year the AgricultureInsurance Company (AIC) alone expects to cover over5 lakhs farmers and insure over 8 lakhs hectares ofcrop for a sum of Rs 1,500 crores in the Rabi season.The Finance Minister in the last Budget announcedthis pilot insurance plan. This will be the largestnumber of farmers covered under weather insurance,given that insurance companies have so far only beenable to cover a little over one lakh of farmers annuallyunder other commercial weather insurance products.

The Agriculture Insurance Company and a few privateinsurers together expect this year to cover around10 lakhs farmers under the weather insurance planby this rabi season as per the target of companies'officials.

The pilot, which is being run by Agriculture Insurance

Company (AIC) in Bihar, Chhattisgarh, MadhyaPradesh and Rajasthan, is a significant step as it offersfarmers a substitute to the National AgricultureInsurance Scheme (NAIS).

Claim payouts so far under the NAIS, the largestinsurance scheme in the world (in terms of numberof farmers at 1.7 crores), have seen long delays asthey are based on yield data. The premium underNAIS has been based on a flat rate system while inthe case of weather insurance it is derived on anactuarial basis. The premium under the weatherinsurance pilot is subsidized in the range of 30-75per cent, depending on the crop.

PRODUCT FEATURES OF WEATHER INSURANCE:

Mr. M. Parshad, Chairman and Managing Director,Agriculture Insurance Company, said that the mostimportant feature of the customized weatherinsurance product for the pilot project is that theproduct definition will be at block or the tehsil levelas compared to most of the products that are at thedistrict level.

Weather data will also be used at block level usingAutomatic Weather Stations (AWS). Using block leveldata would improve the scientific accuracy of theproduct. The product has been further validated andfine-tuned in consultation with the agriculturedepartment of the respective States. The company,AIC has already collected around Rs 125 Crores inpremium.

"The pilot covers 137 blocks in 22 districts and themajor crops that have been covered include wheat,barley, gram, mustard, potato, cumin, coriander,fenugreek and isabgol. Weather indices are designedusing weather parameters such as unseasonal rains,frost, heat and relative humidity," Mr. Parshad said.

Private companies such as ICICI Lombard and IffcoTokio General Insurance are covering farmers inMaharashtra, Tamil Nadu, Andhra Pradesh, WestBengal and Jharkhand under their different pilotprojects.

Since agriculture also provides livelihood support totwo thirds of the population, its effects become evenmore pronounced. Some of the current responses toadverse weather conditions include changes incropping patterns (shift to less remunerative moresturdy crops) and reduced input usage and lowtechnology adoption.

8 THE JOURNAL

The government on its part conducts agriculturalextension programs and provides benefits to thefarmer community in the form of subsidies onfertilizers, power and lower interest rate on debt.Multi Peril Crop Insurance has been tried out invarious forms.

However, the effectiveness of these measures hasbeen below expectation. Crop insurance has provento be cumbersome to administer and prone to losses.The claims ratio has been around 500 per cent andsimilar trends have been witnessed in almost all othercountries in which this scheme is offered. Weatherinsurance seeks to address drawbacks of the existingmeasures.

Background and evolution: Weather insurance isprevalent in US, Canada, UK and other westerncountries. It has found application across diverseindustries like agriculture, food processing, energy,leisure and reinsurance. In India, ICICI Lombardpioneered weather insurance primarily as a weatherrisk mitigation tool with applications in agriculture,rural lending and energy. The product was developedkeeping in mind the drawbacks of the crop insurancescheme. The key objectives of this product are toprotect the farmers from the vagaries of weather andto promote sustainable resource allocation.

The importance of the latter becomes evident whenone considers the fact these vagaries of weathercause significant uncertainty to farmers cash flowsresulting in unavailability of organized credit andinabil i ty to invest in sustainable agriculturaltechniques. Developed in association with the WorldBank, this product was launched last year as a pilotscheme insuring groundnuts in Andhra Pradesh.Around 200 farmers were covered under this scheme.

The key characteristics of weather insurance productare i ts transparency, objectivi ty and ease ofadministration. The structure is communicatedthrough simple definition of parameters, and theirtransparent and impartial measurement. Objectivityis a measure of identification of the key riskparameters and development of structures tooptimally mitigate its effects. Ease of administrationis achieved by ensuring minimum subjectivity orphysical intervention in the claim assessment.

The Product Structure: The product seeks to insurethe farmer for his cost of inputs against an

uncontrollable weather related parameter thatsubstantially impacts his yield. For example, ifdeficient rainfall adversely affects yield, then thefarmer is insured against this peril. Based on historicaldata, the yield and rainfall are co-related to arriveat a rainfall index.

This index is an estimate of the farmer's loss in theevent of deficiency of rainfall. The index is adjustedto reflect different requirement for rainfall duringdifferent phases of the cropping cycle. The farmer ispresented with a simple matrix that denotes theamount due to him for every unit fall in rainfall belowthe benchmark index.

The structure is designed around historical data froma source weather station. Thus, the structure isapplicable to region around the station. The claim isassessed based on the measurements at that stationfor the period of insurance. The claims are paid outwithin a month of expiry of period of insurance.Phase-wise payouts are also possible, wherein theperiod of insurance is split into phases and payoutsare made immediately after the lapse of a phase toenable the farmer to take corrective action.

Other possible structures include portfolio hedge tobanks for their agriculture advances and loss ofhydrology for hydroelectric power companies.

WEATHER INSURANCE AS PRACTISED BY ICICILOMBARD:

ICICI Lombard has partnered with the governmentof Rajasthan to insure orange crop in Jhalawar. Theyhave insured groundnut, castor and cotton farmersin AP and groundnut farmers in Tamil Nadu. With apotential deficit rainfall scenario, this cover wouldbe a boon for farmers. The seamless assessment ofclaims and subsequent claim payouts means that thefarmer has money in his hands to explore alternatives.

The reduction in fluctuation of earnings makesorganized credit accessible to the farmer. This enablesthe farmer to acquire techniques and equipment thatenhance yield thereby boosting farm incomes.

Index-based weather insurance is also attracting thefarmers' interest. From a meager enrolment of a littleover 200 farmers in 2004, ICICI Lombard now hasenlisted 2.5 lakh farmers for this policy. This insurancepolicy has covered about three lakh hectares, Mr.Prashad of ICICI Lombard says.

JANUARY - JUNE 2009 9

Weather insurance ensures that farmers arecompensated through the policy in case weather playstruant with the crop or i ts output. Dif ferentparameters have been set up and the weather indexis drawn up district-wise through a tie-up withNational Collateral Management Services, an armof NCDEX. The index monitors rainfall during sowingand temperature during harvest.

In his annual Budget speech presented on July 8, theFinance Minister has highlighted risk mitigation as atool for rural development and welfare. In his speech,he has delved on weather insurance. Apart fromweather insurance crop insurance and incomeinsurance are possible tools of risk mitigation.Weather insurance in minister's own words "appearsto be more promising at least in design". He proposesto introduce the scheme on a trial basis throughAgricultural Insurance Corporation (AIC) in 20stations in the current crop season. This recognitionof the potential of weather insurance at such highlevels is a pointer to the effectiveness of this product.ICICI Lombard has a strong social orientation andweather insurance is a reiteration of our commitment.

Their partnership with internationally renownedexpert in the field of commodity risk managementnamely the World Bank in developing this productensures that the best of technical input is incorporatedin the product.

There is a dire need of automated weather stationsat Block levels. And the basic risk inherent in thisweather insurance is the inability of the insurers tomeasure weather data at precisely the customerlocation. ICICI Lombard is going for the tie-up withNational Collateral Management services Limited forinstalling automated weather station (AWS) at blocklevels covering more than 100 locations in 46 districtsof Rajasthan, Maharashtra, Tamil Nadu, AndhraPradesh. AWS provides real time daily data throughautomated calling process. This also supplementsIndia Meteorological department's district levelweather stations.

PITFALLS OF WEATHER INSURANCE:

Weather-based insurance for crop damage isobviously a good idea - if, in practice, the weather ismeasured near the fields.

The proverbially inaccurate weatherman, faced with

the Pandora's box of climate change, has been nomore precise in his forecast than the village elderwho bases his prediction on the flight of birds. Smallwonder then that the bulk of agricultural losses areattributed to weather. So, when insurance companiesoffer farmers coverage against the vagaries ofweather, they present themselves as goodSamaritans.

Too much rainfall, the farmer gets paid. Too littlerainfall, the farmer gets paid. The insurance companyis his bulwark against freak weather. At least, that'show it sounds on paper and in presentations in air-conditioned conference chambers.

Here's what actually happens in the field. The basisof weather insurance cover for the agricultural sector- offered by at least three insurance companies andlauded by the Planning Commission - is not actualshortfall in yield, but "objective weather parameters",which "replace human subjective assessment", toquote ICICI Lombard, the leader in weatherinsurance.

In effect, instruments replace people in deciding thevalidity of insurance claims. And therein lies the flaw:unless the measuring instruments are located closeto the areas that suffer freak weather, their recordswill be normal, even as there is widespread damageto the crops.

Farmers in Kota suffered extensive damage to theirsole cash crop, coriander, this year, due to torrentialrains and frost in early December 2007 and lateJanuary 2008. The extent of damage was 75% to80%, valued by local officials at around Rs. 15,000/- per bigha, but the farmers themselves quote ahigher figure. To quote one local official, "Normalyield in our area is three quintals per bigha. Thisyear, it was around 50 Kg." The crop loss is a matterof official record and cannot be disputed. Just twotehsils of Kota, Sangod and Ramganjmadi (India'slargest coriander market), suffered at least 50%damage to around 5,000 hectares under cultivation.

In 2006, the Government of Rajasthan had acceptedthe weather-based insurance scheme mooted byICICI Lombard for various crops, including coriander,kinnow, cumin and methi, for protection againstadverse weather. In the case of coriander, cover wasextended to Jhalawar, Kota, Baran and Bundi districtsand the Begun and Rawat Bhata tehsi ls of

10 THE JOURNAL

Chittorgarh. The State Government undertook toextend a subsidy to the farmers, amounting to one-third of the total premium.

Interestingly, according to the scheme, the insuranceamount is calculated on the basis of per degreevariation in temperature and per millimeter variationin rainfall, as recorded at the reference weatherstation (there are five such stations in Kota district).

As this was a government-approved scheme with abudgetary provision, farmers in the designateddistricts were persuaded to go in for insurance cover.A tough exercise, as the National AgriculturalInsurance Scheme is not popular among farmers (notbeing actuarial insurance). Its insurance cover isbased on crop cutting experiments and invariablyresults in delayed payments. As it is mandatory forfarmers seeking credit, in effect the scheme insuresbanks against default on loans rather than thetargeted beneficiary.

However, when the weather-affected farmers claimedcompensation, citing crop loss due to torrential rainsand frost, they were told that they were not entitledto any claim since the instruments installed to recordtemperatures and rainfal l did not show anyextraordinary weather conditions.

The farmers of Kota, Sangod and Ramganjmadi werefurther told that the weather data was not open toquestion. The fact that rainfall had decimated thecrop was of no effect, as the instruments (located inthe tehsils headquarters, up to 25 kms away fromthe fields) did not record rainfall in excess of thestipulated amount. Likewise, it was assumed thatsince the minimum recorded temperature did not dipbelow 4 degree Celsius, there was no possibility offrost having damaged the crops.

Mr. Jagadish Sharma, a farmer from Kesoli villagesays that crop damage was to the extent of 80% --he has the revenue records to prove it - but none ofthe 20 farmers in the village who had enrolled forthe insurance scheme have received any damages.His village is at least 10 kms away from the nearesttemperature-recording device. "When I signed up forthe scheme, I was told that I would be compensatedin case there was damage to my crop. The agent didnot say anything about measuring temperature orrainfall. It should have been explained to me," saysMr. Sharma.

Farmers point out that weather variations are sosharp that a distance of 5 Kms can alter the reading."They do not take into account the difference betweentemperature in town and adjoining villages. Insteadof recording at the tehsils headquarters they shouldrecord the data at the field level," observes a localofficial. The affected farmers maintain they don't havethe resources to approach the courts, particularlyafter their crop was disclaimed. The consumer courtis their only option, as the government shows no signsof coming to their rescue. Government officials havetold them that having accepted the weather-basedpolicy, it is bound by the terms and conditions andcannot contest ICICI Lombard's refusal to compensatethe farmers for crop loss. Indeed, it would be hard tomake out a case for malafide, as the company did infact pay up in certain cases, where data recorded byweather stat ions fel l outside the st ipulatedparameters.

Is weather-based insurance a classic boardroom plan,divorced from ground realities? An ecosystem cannotbe described in terms of discrete components, norcan its elements be quantified. Scores of otherdeterminants must be factored in - humidity, windconditions, soil composition, light, and pollutants, toname a few - and even then, the answer may bewrong.

ICICI Lombard has reportedly recently launched anew product, in association with Weather RiskManagement Services. The "hybrid weather-cum-satellite imagery-based insurance product," for wheatgrowers in Patiala district of Punjab, uses satellite-based imagery to assess crop yields. Hopefully, thefarmers of Patiala will have a better experience thanthose of Kota.

EVENTS WEATHER INSURANCE:

Weather Insurance also may be affordable way toguarantee that your expected revenues of any eventwill not be reduced by adverse weather! Most eventorganizers can easily build the cost of weatherinsurance into their event. Weather Insurance maybe purchased by organizers of events (Outdoor andIndoor) to provide reimbursement for lost revenues(Gate Vendors, Food, Parking, etc.) caused by adverseweather (Rain, Snow, Wind, Temperature, Lightning,etc.), which negatively impacts attendance.

JANUARY - JUNE 2009 11

What is an adverse weather event?

Perhaps the most important aspect of WeatherInsurance is defining what constitutes an "adverseweather event". To a large degree, you have thediscretion of setting your own definition by choosingthe amount of rain, snow, etc. within the hourspreceding the event or during the event that willtrigger coverage.

Cost involved in an adverse weather event:

The costs of Weather Insurance is a function of thestatistical probability that the adverse weather eventwill be triggered at your exact location(s) (or selectedreporting station), date(s), and time(s) of day of thecovered event(s) (based on several years of historicalweather data) and the amount of revenue that youwould like to insure.

How do you decide how much insurance to buyin such situation?

The amount of coverage that you buy shouldreimburse you for some percentage of your expectedevent revenues up to 100%. Since the policy is basedon an "agreed amount" of coverage that you select,you never have to prove the amount of loss to yourinsurance company. It is recommended that youpurchase coverage for 100% of your expectedrevenues.

Events' weather insurance coverage:

If your show or shooting has every chance of beingcancelled due to a brewing storm or some otheradverse weather condition, weather insurance couldbe your single most important insurance coverage.

Weather insurance is not just for events and shootingsheld outdoors. This type of insurance coverage alsohelps stem the losses of indoor events. As any eventsorganizer would know, heavy rains or snow can affectspectator attendance.

For adequate coverage you need to just tell theinsurers:

(a) Date or dates of the event,

(b) Venue of the event,

(c) Face amount of the coverage, and

(d) The type of weather you want to be protectedfrom.

Whether you want to protect your investment fromtoo much or too little rainfall, snowfall or a drasticchange in temperature and the wind, this weatherevent insurance will provide you with the bestinsurance protection.

The premium rates vary depending on theinformation you provide for your cover. You canreduce the rate of your premium by reducing thecoverage hours, having an alternate date of theevent, or increasing the baseline amount of rain fallor snow fall to trigger the insurance protection. It isnot just the film production that needs insuranceprotection. Special events also need to be coveredbecause - like a film production - anything can alsohappen with an event.

Such Special Events Insurance programme may betaken on wider cover basis offering protection tovarious types of special events that last for 90 daysor less. These include holiday events, plays, concertsand shows, weddings, festivals, business meetings,and parties. It may also cover exhibitions andconventions, political events, fundraising events,lectures, and religious or spiritual events. There issome difference between large events with thousandsof attendees and small private gatherings fromunderwriting point of view. Such wider cover 'SpecialEvents Insurance' programme may also be protectedfrom:

• General liabilities

• Other liabilities related to (a) automobiles anddamage to property, (b) liquor liability and (c)third party property damage.

• Loss or destruct ion of rented or ownedequipment, sets, props, and wardrobe.

• Losses from paying for the medical coverage ofevent participants and spectators.

• Losses from event cancellation, for reasonsincluding adverse weather conditions.

• Workers' compensation expense.

12 THE JOURNAL

Growing crops without the use of Geneticallymodified seeds (GM) and chemical pesticides (CP) issomething modern agriculture cannot believe,especially when without their use and by organicfarming which automatically eradicates dreadedinsect pests & diseases and no fall in productivity -as in districts of Andhra Pradesh where this wasdemonstrated in area of 7 million hectares.

GM crops harm environment and play havoc withhuman, animal and plant health.

Technologies pioneered by green revolution havepoisoned the land, underground water, andcontaminated the environment to such unsustainablelevel that this evil trend cannot be reversed and theland made fertile and healthy. GM & CP will furtherpollute the environment and human body. Whenmajority of the countries are questioning the safetyof GM farming why does our government want torush in introducing these all over the country?

Indian scientists have distanced themselves from thefarming community. They have not gone to see thesuccess of sustainable agriculture and healthy livingin the districts of A.P. ecologically viable farmingsystems. Our scientists want to ape USA, never mindthe adverse consequences to the farmer and his land.They are interested in quick results, never mind thedeleterious effects on the soil etc. Non-pesticides(NPM) management is the answer. We can be a modelfor other countries in this and organic farming.

The green revolution made our farmer addicted tochemical fertilizers. Nearly 5 million tons of DAPfertilizers are required in India (Di-ammoniumphosphate-synthetic). Two millions are produced

AGRICULTUREBy:

Shri K.C. PonnappaFormerly Chairman-cum-Managing Director

ofThe New India Assurance Co. Ltd., Mumbai

andUnited India Insurance Co. Ltd., Chennai

domestically and 3 million have to be imported. Withrising oil prices imported ferti l izer is costingRs.60,000/- a ton while i t is sold at belowRs.10,000/- a ton. The gap of nearly 50,000/- ispaid by us taxpayers through government subsidy.The fertilizers are not reaching the farmers in timeresulting in frustration and suicides.

If only our government uses the other more sensibleand much cheaper alternative - viz - ecologicalagriculture and organic manuring, we will get bettercrops and higher output at very low costs.

Soil fertility is a gift of the soil, of the biomass thesoil produces and the millions of soil organisms thatbreakdown the biomass and organic matter into thevital nutrients that are necessary for the healthy andabundant growth of plants and food.

Humus - residue of oxidized vegetable and animalmatter together with fungi and bacteria, break downthese wastes. If the soil is deficient in humus, soilcannot breathe properly - there is insufficient organicmatter for the soil population - supply of oxygen,water, dissolved salts are reduced. Humus alsopromotes growth of soil fungi and soil nutrients.Millions of soil organisms are the source of soilfertility. Fungi help in biodegradion of dead plantsand animals and fix nitrogen. To switch to organicfarming takes about one year, most farmers cannotafford to suffer losses in that interim period. Manyconsumers want to buy organic rice, wheat andvegetables and that is an encouraging sign forgoading the farmers. Soils treated with farmyardmanure have much more earthworms. Earthwormscontribute to soil fertility by maintaining soil structure,

JANUARY - JUNE 2009 13

aeration and drainage - also breaks down organicmatter and absorbs it into the soil. The littleearthworm is actually a tractor, fertilizer factory anda dam together. Soils with plenty of earthwormscontain more nutritive materials containing carbon,nitrogen, calcium, sodium, magnesium, potassiumand phosphorous than the parent soil.

Whereas organic farming is pollution free chemicalfertilizers account for huge Green House Gasemissions. Chemical fertilizers emit nitrogen oxide,which is 300 times more potent than carbon dioxide.Organic manuring is natural and not dependent onimports.

Rice is the staple crop for more than 70% of Indians.Rice is grown in an area of 44 mn hectares with aproduction of 90 mn tons per year. After China, Indiais the second largest producer of paddy in the world.Unlike wheat, paddy is grown in all states fromKashmir to Kerala in different agro-climatic zones.

Small and marginal farmers who contribute 78% ofthe total food production cultivate paddy. Thesefarmers have evolved numerous paddy varieties thatsuit dry lands and water logged saline regions.

Ever since independence governments have neglectedpaddy cultivation. For example in Kerala, area undercultivation has shrunk from 8 lacs hectares, 2 lachectares in the last 30 years. Because of lowminimum support price (MSP) farmers have switchedover to cash crops and plantation crops like ginger,cocoanut, pepper etc. Another reason for this is thehigh cost of paddy cultivation and non-availabilityof agricultural labour. Farmers have resorted to useof tractors which also are in short supply. There ishardly any incentive to grow paddy while horticulturalcrops are given hefty subsidies - e.g. why should thefarmer grow paddy when he can get subsidy ofRs.20,000/- per acre to grow bananas.

The paddy farmers all over are incurring heavy lossesand they are switching over to cash crops. Ironicallythe governments are penalising paddy farmers whoare feeding the country with its staple food-rice, infavour of switching over to cash crops! As alreadysaid, another reason is increasing input costs, poorMSP - causing stagnation in paddy production andyield.

We have a Cabinet Minister in charge of agriculturewho is more interested in cricket. He is not interestedin our farmers and does not appreciate the role theyplay in feeding the country, he is not interested inorganic farming, weaning away dependency onchemical fertilizers, making India self-sufficient infood, so that we do not import grains at high prices.Our storage technique is poor and we suffer largelosses in deterioration, rodents and weevils etc. Ourpoliticians' only want village votes, after electionvillages are forgotten.

Presently, the fertilizers available are combinationsof nitrogen, phosphorous and potassium which canbe dangerous for soil, plant and micro-organism thathelp the soil and plant growth. Lure of quick profitsdrive farmers to want to use chemical fertilizers whichare heavily subsidized by the government. Thesefertilizers-distribution-has led to corruption and blackmarketing.

At present, India depends on import of certainmaterials which are already available in its naturalform in India.

Rock phosphorous-or Shila Ranjaka is an alternativeto phosphate. Kanoli Nite found in rock form is thealternative for potassium. Kanoli N can be groundfirst and mixed with Shila R to get desired results.

Both these rocks are freely available and the mixtureis suitable for many types of soil - does not damagethe micro-organisms and is soil friendly. Thegovernment's agriculture dept can supply both ShilaRanjaka and Kanoli Nite to the needy farmers.

Thus import is avoided, subsidizing chemical fertilizeris avoided, the soil and its organisms are protectedand preserved.

India imports nearly 2.2. mn barrels of oil every day-this means 2.2.mnx365=800 mn @ $130/- perbarrel=$ 104000mn!

If we adopt rock fertilizers, organic farming, give upG.M. and CP methods, we'll save a large amount ofdollars since we'll not import fertilizers and our importof crude oil will be considerably less ( In 1978-US$2and now $140 per barrel 2008). At the time ofpublishing this article the price will be much less dueto global recession.

14 THE JOURNAL

We had 17 million bullock carts in 1973 - This numberhas come down to 13 mn in 2006. Even with thisnumber these carts save India annually 6 mn tons offuel costing $7 bn (30,000/- crores of Rs.) annually.Our 14 (mn) bullock carts (fourteen million) werecarrying much more of India's annual freight thanour railways which carried 200 mn tons p.a. Eachton of freight carried by railways requires aninvestment of Rs.100,000/- yet bullock cart can carrythe same amount with an investment of Rs.10,000/-.The cost of carrying one ton of freight by bullock cartis less than Rs.60/- whereas trucks and tractorsrequire 150/- for hauling the same amount of freight.

Today figures have changed. Cost of a bullock carthas changed from 10,000/- to 20,000/-. Todayrailways carry 600 mn tons - costing them 250 mnbarrels of diesel costing $25/- bn or nearly half ofIndia's annual purchase of $58 bn crude. Ourimproved design carts carry the same tonnage asrailways without diesel.

Bullock cart is not competing with mechanizedvehicles like trucks, tractors - because carts arecomplementary to these and railways.

Today it costs Rs.20,000/- to build an improvedbullock cart and a pair of bullocks Rs.20,000/-.

Even after 60 years of freedom only 50% of villageshave average roads, which trucks can use to reachthese villages. But carts can go in any type of road.Bullocks eat only village grown fodder and give dung- the precious manure much more valuable than thefodder they eat.

Bullocks can also be used to plow the field. Cartscan be used more in the place of trucks and tractors.They provide employment to 20 million people in thevillages.

Modern carts with steel axle and rubber tyres willcost more, but such carts can carry more load andmove faster. Scientifically modified yoke to spreadout the load evenly for the bullock, a single bullockcan carry more load than the conventional one andone animal is sufficient to pull this modernizedbullock carts with steel axle, rubber tyres and speciallydesigned yoke. Banks and co-operative societiesshould freely give loans to farmers to buy modernbullock carts.

In Africa e.g.Congo Basin covering 200 mn hectares- about 1/5 of the world's remaining closed Canopyforest - second largest after the Amazon-S. America- is a very significant carbon store with a vital role inregulating the regional climate. The diversity theyharbour is of global importance. The forests of Congobasin provide food, shelter and livelihood for over50 mn people. Further danger is the Sahara desertis expanding North and Kalahari desert is expandingto the S.W. Today increased logging, changingpatterns of agriculture, population growth, havoccaused by mining and oil industries are threateningthe very existence of this basin. Reversingdeforestation is the need. We in India have also beendoing this and wiping out our green forests. One ofthe West India islands has two countries - Haiti andDominican Republic. Deforestation of Haiti and lossof soil made the country vulnerable to hurricanescausing great destruction followed by poverty andmisery. Dominican republic which preserved its trees,vegetation and forests escaped the wrath of hurricaneand climate change.

Like in Africa our villages and tribals should beeducated on environment, and preserving forestsbecause the important role they play in the ecosystem. We must not only preserve but engage inmassive forestation efforts. This way there will beno shortage of water and reliable rainfall foragriculture. This will preserve freely flowing rivers,waterfalls, rapids which will help generate hydroelectric power.

Senegal in N.W. Africa is creating a Great Green wallfrom Dakar to Djibouti in an effort to stop theadvancing Sahara desert. The project consists ofplanting trees over a distance of 7000 kms toconstitute a 5 km wide green strip across the desertto stop the progress of the desert.

We in India should also do this in desert areas.

In India, like U.S.A. Ethanol and other bio fuels aremade from corn, wheat, soya, molasses. Consumerprices of these produce have sharply gone up creatingmore misery to the poor. Demand for oil and gaswill go up from poor and developing countries asrural folk using cow dung, wood and forest produce,move to use oil, gas and electricity when theirpurchasing power goes up.

JANUARY - JUNE 2009 15

It is amazing that governments, neither centre norstates have thought of women farmers. Accordingto 2001 census 1/3 of cultivators in India are womenand this percentage will rise when men from ruralfamilies migrate to towns and cities in search of jobs.Women cultivate food crops for self-consumption andhave been pioneers of organic farming. They areexperts in waste cycling and other methods of soilconservation.

Women manage well small farms of one to twohectares. These farms and small women cultivatorscan be the backbone of states' food securityparticularly for the less privileged and the village folk.These women farmers with small plots of land shouldbe enabled to produce basic food crops but learnfrom Amul dairy experience, collection, distributionand sale of their meager produce. Their vegetables,collection of medicinal herbs can be marketed by co-operative units.

The voice of rural women folk should be brought into improve our agricultural growth. Our Minister foragriculture is more interested in cricket, not that heis an expert in that game, but like in agriculture hehas achieved negative growth, in cricket he hasearned, the media say, billions - to hell with India.

To conclude women form the predominantpercentage of agricultural workers and producers.They are the backbone of every rural family in India.High time the central and state governmentsrecognize this. We have over 6 lac villages and theysolely depend on agriculture. Indian agriculture hastransformed gradually during the post independenceperiod, particularly after the green revolution of themid 60s.

Thousands of farmers have committed suicide unableto repay loans taken when their crops failed. Wehave to stabilize the farm sector, to sustain foodsecurity in India and evolve location specific correctivestrategy.

There is a paradigm shift from low cost, local inputbased, environment friendly farming, to, costintensive, external input based commercial farmculture.

In this change traditionally evolved crops and cropvarieties followed by farmers for ages, have been

neglected and the modern high yielding hybridvarieties (HYV) have emerged. The farmers arecaught in a cross-fire between the need for increasingproduction per unit of land by adopting HYVs andother improved varieties on the one hand, and lackof timely and adequate supply of required inputs,appropriate technology and remunerative prices onthe other.

Result is that in the nine (9) years - 1997 - 2005about 1.5 lac, i.e. 17000 p.a., 1400 p.month and 46per day and about 2 persons every hour have killedthemselves. What a loss of productive humanresource and the psychological effect on all farmersand families. Giving Rs.2 lacs to the widow may becounter productive and an incentive to commitsuicide.

The farmers must have technical capacity to growhigh value crops profitably. The crop specifictechnology and package of practices required tocultivate high yielding hybrid varieties (HYV) of cropsin different agro-climatic zones should be madeavailable to the farmers at the village level. Alsoestablish a supply chain of seeds, fertilizers andpesticides with advance information to the farmersabout where and when they can collect these inputs.Farmers should at the same time be encouraged toregenerate organic manure at household level so thatinput costs are reduced and this automaticallyreduces burden of debt on them.

Despite government claims about easy availabilityof farm credit from banks, cooperative societies etc.,more than 70% of credit needs are met by privatemoney-lenders and other private agencies. Thetimely and easy availability of institutional finance istherefore crucial to pull the farmers out of the clutchesof private money lenders and protect them fromperpetual debt trap. With corruption in banks andcooperative societies, the farmer is not only harassedand not given the full loan but he is forced to givekick backs to the blood thirsty touts and employeesof these institutions. This is also one reason that withall the dangers inherent in borrowing from privatemoneylenders, they are still preferred.

Farmers are unable to understand price fluctuationsto realize optimum returns on investment. While theyare lured by some of the high profit potential crops

16 THE JOURNAL

like hybrid cotton, the prices will crash by harvesttime. Since there are no storage facilities, particularlyfor perishable fruits and vegetables, farmers haveno option but to resort to distress sales, not beingable to recover production costs.

The solution is to have growers Associations forvarious commodities. The Association should startsmall scale food processing units in rural areas.Women should be trained in food processing andgovernment should provide tools. Location specificsustainable strategies as stated above are the answer.Corporatisation of agriculture is not a new economicmantra. Ever since 1991, successive governmentshave been pushing for corporate control overagriculture. W.T.O. F.T.A (free trade agreement) areall aimed at opening up the Indian farm sector -turning it into virtually a dumping yard for cheap andmost important, subsidized agricultural imports. Ourpublic sector research in infrastructure is now directlyunder control of U.S. universities and multinationalcorporations.

U.S.A. has less than 1% of the population left infarming, future trading is very prevalent. Every farmerin U.S. is linked to the commodity exchange.

Despite biggest commodity exchange (Chicago-USA),biggest super market for rural products (Wal-Mart)-U.S. farmers can only survive with federal support.

U.S. government provides US$ 75 billion to farmsubsidies including direct income support to farmersevery year.

U.S. farmers have been cultivating G.M. crops forseveral years and crop yields have not gone up…insoya bean it has dropped.

How can U.S. expertise for Indian conditions work?Our average land holding size of 1.3 hectares; noAmerican varsity or research institute has producedany technology for our small size conditions.

Our government policy of blindly following U.S. willforce our farmers out of agriculture. Also S.E.Z. andother schemes to take over fertile agricultural landand cheap agricultural imports will be exit policy tofarmers. We have to think of the effects variousprojects to harness river water - dams - have on ruralpopulation. Everyone knows the havoc caused byNarmada Valley project and the Tehri project. The

proposed India Sagar - Polawaram Dam project inA.P. to cost 13000/- crore, will submerge over onelac acres of agricultural land, affecting 300 villagesand 2 lac people mostly scheduled tribes andscheduled castes.

In Orissa, thickly forested hills, rich in diverse speciesof wild life and sacred to tribes are being handedover to mining. In Tamil Nadu Mudumalai forests -with tiger habitat a scientific project will come up todenude the area. In the thickly forested areas ofN.E. seven sisters huge dams are slated to effectivelysubmerge pristine forests, decimate all wild life anddisturb the delicately poised seismical (earth quake)equation.

The chronic illnesses of farm sector are absence ofirrigation, lack of power for pumps, shortage offertilizers, pesticides etc and delay in delivering thesein time for sowing and/or harvesting, unremunerativeprices, lack of crop insurance against vagaries of theweather and storage facilities for perishable crops,inefficient transport facilities to and from the farm totowns and cities etc.

Almost 75% of the agrarian suicides in India were bycotton growing farmers. To get cheaper cotton fortextile mills, our government banned export of cotton.Further absence of a higher support price for ourfarmers, reduction of import duty on cotton andwithdrawal of duty drawbacks for exporters havehelped the textile industry - because depression indomestic prices of cotton will reduce incomes of ourown cotton farmers. Textile industry could haveinsisted on higher minimum support price to cottonfarmers (Instead government depressed by 20%domestic cotton prices) to shield them from pricevolatility. The Textile industry could have also ensuredthat cotton farmers produce was procured bygovernment agencies and their payments made ontime. Instead it did nothing. Throughout the textileindustry, managed to persuade the government tokeep cotton prices low for decades and poor cottonfarmers were made to pay a very heavy price.

Now the textile industry which the cotton farmersubsidized at his own distress, is in doldrums. Manytextile mills have closed down and more than amil l ion workers have lost their jobs. Toughcompetition from Japan, China, Vietnam, Pakistan,

JANUARY - JUNE 2009 17

Bangladesh and rising cotton prices in India havehurt our textile industry.

Natural farming - a concept by an agricultural expertSubhash Palekar, also known as 'Krishi-Ka-Rishi' -envisages going back to indigenous methods offarming. Production of inter-crops to compensatecost of main crop production is called zero-budgetnatural farming. There is no need to use any inputs-including farmyard manure, chemical or organicfert i l izers, micronutrients, hybrid seeds, andagricultural implements etc. One desi cow is sufficientto cultivate 30 acres of land. Compared to chemicalfarming, natural faming requires just 10% water and10% electricity. Government will save billions insubsidies. Organic farming is as bad as chemicalfarming since it also involves high cost technologyand is equally polluting. Natural farming is ancientIndian technology while organic practice destroys theeco system. 30 lac farmers, all over India arepracticing zero budget natural farming over one crorehectares. This method can be adopted for all cropsfrom Jammu to Kerala. For example Palekar owns34-acre dry land and he cultivates cotton, tur dhaland moong dhal. Zero budget natural farming canincrease the yield in the very first year. As stated,more important is to use only desi cows and theiravailability is a must.

In 2050, Indian population will double and we haveonly 33 crore acre cultivated land and even this willshrink thanks to SEZ and other encroachments.

Because of high oil prices, there is intensified oildrilling, return to nuclear power, pressures upondeforestation, favoring of corn based ethanolencouraging genetic farming, agriculturalprotectionism etc. For example France and Japanwant to be self sufficient in food and have high tariffpolicies coupled with heavy subsidies to farmers. Thepoorest countries, e.g. in Africa who grow fruit, olives,cereals, wines and other farm produce have no hopeof establishing a global agricultural free trade.

What about polit ical and social turmoil as aconsequence of costlier fuel and pricier food? Andno hope for a better, cleaner and gentle planet!

We have lot to learn from nature. We have seenhow a forest grows from an immense initial profusionof diverse flowers and plants into mature stands ofdominant tree species, then to over maturity, rot and

insect infestation and often catastrophic fires thatdevastate the forest but release seeds to produce arenewed explosion of diversity.

We have seen millions migrating from villages totowns and create slums, shantytowns in search of abetter life - cities thus become unhealthy andunbearable. We can learn from nature andreintroduce nature in towns and cities throughfarmers' markets, urban gardens and orchards, moreplay grounds, mass transit, non - motorised transportlike cycles and tongas, more inviting public places,walkable neighbourhoods and planting more andmore trees.

If underdeveloped and developing nations are forcedto import from western countries - USA - Japan etc.machines, textiles, electronic gadgets, cement etc. butthe same exporting countries do not offer quid-proquo and refuse to import raw materials, food itemsetc., how can developing countries survive, leavealone becoming prosperous - worse still is theposition of under developed countries.

Earlier it has been mentioned that Haiti in West Indies- where French is spoken shares an island withDominican Republic - where Spanish is spoken, bydeforestation is being targeted by wind storms -hurricanes while Dominican Republic is protectedbecause it has vegetation.

In Haiti, domestic agriculture is a disaster. Theslashing and burning of forests for farming andcharcoal (fire wood) has degraded the soil andchronic under-investment has rendered ruralinfrastructure - non-existent. Haiti lifted tariffs andisland was flooded with cheap import of rice,vegetables etc. Domestic farmers went bankrupt.Now with high fuel prices and high food prices,belatedly Haiti is trying to get back to farming - aHerculean task given scant resources, degraded soiland land ownership disputes. This story is similar toour own agriculture. In a huge country like Indiawhere we have to feed a population of over 1000million - with this number steadily surging upward,the governments both Central and State havecontinuously paid scant attention to villages, andfarmers.

Central Government is never tired of announcing newschemes, opening foundation stones of projects that

18 THE JOURNAL

rarely come up. There is a story of how an Americanremote-sensing expert, took an aerial survey of India.After survey, his first reaction was that how ourcountry with 80% Hindus and only 2.5% Christianshad so many thousands of tomb stones all over Indiasince Hindus cremate the dead and not burry them.Then some clever fellow pointed out that what hesaw was not tomb stones but foundation stones laidby successive governments since independence in1947 - most of the projects remained at thefoundation stage - a gimmick to impress and foolthe people.

The UPA government's flagship project - the NationalRural Employment Guarantee Act is over 2 years oldand hailed as the most important poverty alleviationprogramme. This ensures a minimum 100 days workfor a member of a rural household for one year.However in reality, serious problems are seen in itsactual implementation. Common complaints relateto corruption, lack of efficient machinery forimplementation and monitoring short payment ofwages, undertaking of non-productive work andabsence of awareness among beneficiaries abouttheir rights under the scheme. Most villages do nothave effect ive gram panchayat scheme andmiddlemen who are crooks take over the scheme andintended beneficiaries are cheated of their rightfulentitlements. Records are manipulated and workshown as done, where it is not done. Quality of workwhere done is bad. Much money is invested toprovide livelihood to millions of rural poor. Most workpertains to conservation and storage of water, socialforestry and construction of roads. These are vital tovillage development. One solution to ensure effectiveimplementation, strict monitoring by D.C. and socialauditing, surprise checks etc.

Many villages - farmers depend on proper irrigation,which in turn means dependence on pump sets -which in turn means reliable electric power and atsubsidized rates. Our politicians only make promisesand the farmers are literally left high and dry. Water,seeds, fodder manure and at harvest t imeremunerative prices are vital to sustain ruraleconomy. The problem is a real one and also withglobal ramifications taking into account the role ofspeculation (both on land prices and commoditymarket variations), and increasing price of land where

by 2050 production has to double in order feed theever-increasing number of hungry mouths.

The exploitation of natural resources for the solepurpose of achieving financial profitability is hardlyfavorable to the kind of production that preservesthe soil's natural mineral and organic reserves andprevents such practices as burning and deforestation.It does not allow for correct use of fertilizers andpesticides which otherwise could provoke pollution.It does not encourage the co-existence of crop andgrazing lands, nor crop rotation that would be neededto restore the soils biological and nutritionalproperties that are absorbed by plants naturally.

Our forests used to be moist and deciduous - themain constituent, the upper canopy of tall trees andcrowns densely closed in. With mindless burning andcutting and felling of trees, forests are becoming drydeciduous with less top canopy and rainfall.Deforestation has direct influence on atmosphere,exchange of energy (radiation) and affects theecosystem of the land. It will also reduce fodderavailability for all herbivorous grazing animals in theforest. With less rainfall the water table goes down,flora and fauna changes, birds migrate. Vegetationof forest and streams within and without affects thecondition of soil. So retaining earths green cover is amust.

In conclusion it is obvious that unless corruption atall levels is removed, we have no hope. Recently anofficer was found guilty with lots of cash, assets andproperty totally disproportionate to his known sourceof income. This was the third time the Lokyukta raidedhis home and the previous two raids and consequentunexplained wealth were ignored by the government.Since Lokyukta has no power of prosecution, not evensuspending the officer, the competent authority topunish being the government, the bribe takinggovernment officials are not punished, even theillegal loot they have amassed is not confiscated. Thepeople who suffer at the hands of these corruptgovernment servants are the poor, the village folkwho are short charged at every step.

Our governments have done nothing to encouragecottage industries, dairy farming, rearing chicken,ducks, geese, goat, lamb, cows, buffaloes, rabbitsetc. to supplement the farmers income during leanperiods.

JANUARY - JUNE 2009 19

Though India's economy is agricultural there is hardlyany increase in growth rate. GDP is growing becauseof more industries, income of government servants,the 30 billionaires and a million millionaires. Thevillagers remain wretchedly poor. Our government'spromotion of high value agricultural crops at theexpense of course grains, for export has finished ourself-reliance on agriculture. There has been declinein rate of growth of production, productivity and areaof irrigated land for major crops.

Government wants to establish 500 SEZ (SpecialEconomic Zone) and this will mean acquisition of150,000 hectares of predominantly agricultural landand displacement of 120,000 farming-households,and 82,000, additional farm workers will bedisplaced. Thus over a million people dependingprimarily on agriculture for their livelihood faceeviction. You can see how angry and frustrated thefarmers in Bengal were with the Tata Nano projector the futile M.O.U. signed by Jharkhand governmentwith industrialists.

India should be saved from the Western countries'race to invest in farmlands. Some banks in U.S.A.and Europe are eyeing a take over of China's livestockindustry - Thank God, as the Royal Commission onagriculture put it nearly 100 years ago, "Indian cattlelack in every thing except numbers". We worship thecow once a year, but starve it, if it stops giving milkand sell it to the butcher secretly. Agriculture is beingcorporatised. Out sourcing food production-buyingland in other countries for growing food will ensurefood security for investing country to leave behind atrail of hunger, starvation and food scarcity for thenative population.

So the time has come to reverse the existing modelof lab-to-land. We should develop a new model offarm growth that is indigenous, and based on locallyavailable and natural resources. Our scientists shouldlearn from our farmers and use the input forappropriate technological improvements - Land toLab. Don't let countries like USA dictate to usregarding our farming methods - what to grow - Howto grow etc. USA is much bigger in area with a muchsmaller population, with enormous farms - allmechanized. On top of it their output is heavilysubsidized. Genetically modified (GM) seeds fromUSA have destroyed indigenous varieties of fruits and

vegetables in countries like Philippines, Peru, Mexicoand our egg plant is being targeted. So let us believein our age - old methods. Our rural system of dividingthe farm between sons - creates sub-division andfragmentation. In western countries, the eldestinherits the land and other children get monetarycompensation. Thus over a few generations the farmplot in India becomes so small that it is uneconomicto grow any produce on it. A law should be enactedto prevent it.

Rainwater harvesting, solar energy, wind energy etc.are practiced in advanced countries and now in Chinaand Japan our efforts are only on paper.

Schemes like guaranteed employment for thosebelow poverty line, loan waiver, easy credit are allpromises. Not totally or effectively implemented. Asstated in my earlier article, village children areforgotten where good schooling is required. It isridiculous to think of rural insurance, crop insuranceetc unless the government pays the premium. Whenfarmers are thinking of food, shelter andemployment, where do they have money to pay thepremium!

It is easy for our ministers to call Maoists andNaxalites - "bandits". If the poor peasants had notbeen exploited by government, by landlords, by richgoondas, these two movements would not haveerupted and now are gathering strength and support.Apart from Central and State government officials,even the police, immigration and customs andexercise authorities, Income tax commercial taxdepartments, the armed forces have all seencorruption. No wonder there are billions of dollarsof illicit and black money in secret Swiss Bankaccounts which could have been used to better thepoor mans life in India. As some media put it, only atotal revolution targeting all corrupt politicians andofficials can save our country. Until then the poorwill get poorer, the rich richer and there will be noreal progress in any field in India.

Fish Farming we should learn from the S.W. countryin Africa - Malawi - the dusty scrub lands of Zambawest. Rainy season ends in April. The water is murky,almost stagnant but a haven for 'chambo' - a localdelicacy - fresh water fish. There are 700 fish farmers- small-scale aqua culture to ensure families inMalawi have enough food and income to buy maize

20 THE JOURNAL

etc - This is developed by world fish center - a memberof the consultative group of International AgriculturalResearch. The fish thrive on human and dairy farmbirds and animal waste - these help plankton to thrive- fish eat plankton - in 6 months fish-full size areharvested. Why can't we in India follow this?

Deforestation

By continuing to fell our residual forest patches, werisk inviting two potential disasters - the want of fuelin future and water scarcity. By protecting our forests,we prevent waste of soil, we save streams which feedrivers and we protect the climate and greenery.

Increased human activity on river banks has damagedthe health of our river systems. We forget India's riversystem immensely contributes to the growth ofagriculture, industry and tourism sectors of India.

But deforestation of the embankment area of rivers,over damming and increased human activities onriverbanks have seriously damaged the health of ourriver systems - this has increased the intensity offloods causing irreparable damage to lives andlivelihood of millions of people e.g. Bihar, Assam,Punjab and Orissa.

In Orissa, 3 million people in 18 districts affected.U.P. floods affected 20 lac people caused loss ofhundreds of crores. Punjab - 2 lac people 1000villages loss 1000 cr. Assam - 2 million peopleaffected - crores lost. Our country's geographical areais 330 mn hectares, 40 mn hectares prone to floodand this is increasing due to deforestation etc.

Therefore saving nations rivers health should be ourfirst priority.

In Bangladesh and India, four million tones of riceare lost each year to flooding. Water intensive cropl ike r ice cannot endure even four days ofsubmergence. This is because when the plant iscovered with water, its oxygen and carbon dioxidesupplies are reduced which interferes withphotosynthesis and respiration and inhibits its growth.

Pamela Ronald, a plant pathologist from theUniversity of California has helped create a strain offlood resistant rice all set to be introduced in Indiaand Bangladesh. A gene called Subla has beenidentified which makes rice not only tolerant of beingsubmerged in water but also produce high yields and

retain other beneficial qualities. There would be nochange in cost to the farmer or the consumer. Notablythe farmers have reported obtaining a two-to fivefoldincrease in yield with this type under conditions offlooding. This Subha-Swarna variety has a taste andyield favoured by consumers and is subject only tostandard seed certification.

Mangroves -The unique phenomenon of mangrovesare that they can act as controllers against theassaults of the sea on the land and nature. Not onlythey prevent soil erosion but act as moderator oftemperature, humidity, wind and giant waves. Theycan withstand salinity, waves, and can grow even inthe poorest soils. India accounts for 70% of the totalmangrove forest in the world. Our Sunder bans has80% of India's mangrove forests. It provideslivelihood by way of Honey, wood products, aquaticcreatives - fish and has the most feared Bengal Tiger.Andaman and Nicobar islands, coasts of Karnataka- Kerala and Maharashtra comprise balance 20%.Where we had mangroves, the Tsunami could notwreak havoc - it pulverized barren coastal areas.

Bio-fuel-India imports fossil fuel (petrol) and if wewant to develop Bio-fuel-green energy like ethanolfrom sugarcane - Brazil's 40% fuel needs are metthus - we have to remember that we should be selfsufficient in food. Poor should be protected withproper seeds, irrigation so that poor and smallfarmers grow food crops, leaving the task of switchingover to bio-fuel crops to rich and large-scale farmers.Only wastelands and dry lands should be used forgrowing bio-fuel crops, never by cutting forest-treesnearly creating negative environmental effects.

Farm lands

The farmers love their land of their forefathers anddo not wish to sell it. We saw recently how Tata hadto abandon their Nano-small car project. InJharkhand despite the existence of companies likeTisco-Telco-Usha Martin, HEC, CCL, CMPDI - peoplehave not found any benefit of industrialization to therural poor. About 60 industrial houses like Mittalsteel, Jindal steel, Essar steel, Hindalco (Birla) etc.have signed M.O.Us but nothing is moving becauseof the reluctance of farmers to give up their lands.This shows that farmers are afraid of exploitation byindustrialists and government.

JANUARY - JUNE 2009 21

Vegetarianism. Thank God most of the Indians arevegetarian, partly because of soaring prices e.g.mutton Rs.240/- per kg, Chicken Rs.80/- per kg.which poor cannot afford. In U.S.A. over 70% of thefood grains produced is consumed by cows and pigs -to make beef, Ham, Sausages etc. A cow takes 16kgs of food grains to produce 1 kg of beef. An averageAmerican eats 125 kg of meat each year and anaverage Chinese eats 70 kgs of meat every yearmostly beef and pork. In the world, number ofanimals raised for meat production is 50,000 - million8 times our human population - not enough roamon earth to roam and graze. An animal generates100 times more waste than human and it will be aproblem to get rid of the waste.

Our population which was 350 million in 1947 isnow over 1100 million - 3 times. This has resultedin malnutrition, hunger, unemployment, shortage offood and essential commodities-our governmentfamily planning efforts are only on paper. China'sone child per family has created terrible problemsthere are 36 million males more than female andwith modern medical scanning technology, femalefoetishes are terminated in the womb. All these havenot reduced the population growth in China - whererural areas are poor and under developed.

Algae is the shiny stuff that clouds our homeaquarium and gets tangled in our feet in a pond or alake. It grows anywhere where there is water andsunlight and under right conditions it can double involume within hours. Algae is lazy, it eats carbondioxide and produces oxygen. Has no roots, leavesand shoots. It can grow in fresh water, seawater orfarm run off water. It can purify sewage by feedingon nitrogen and phosphates in human waste. Itconsumes carbon dioxide discharged by vehicles,power plants and heavy industries. It is rich in oil -30% to 70% can be extracted as bio-fuel. Farmingalgae does not require much space or good croplandand farmers should be encouraged towards this.

Animal husbandry

Where there is dry agricultural land dairy animalfarming is a good option NGOs like BSRDS & NAIDidentified in each case, six villages and gave onefemale goat each to six villages and gave one femalegoat each to six women - 3 groups comprising 18members (6x3) within one year these 6 women had8 kids from each goat. In the second year, these 6

women gave one kid each to another 6 women ofthe second group and this second group gave onekid to each to the six women of the third group.

Just 3 years into this scheme life of these women andtheir families changed for the better. When goatsgave birth to more than 6 kids, the excess was sold.Unlike sheep, goats eat leaves, vegetables etc. Today,the women of the six villages are prosperous, fromdaily wage earners, their children go to good schools,they live in better houses, eat good food and areable to buy cycles, bullock carts, cows, buffalos,chicken, duck etc. This method should be introducedall over India.

Potato - Potatoes are seen as a way to ensure foodsecurity in India. We have always depended on grainslike maize, rice, wheat, ragi etc. We should learnfrom China, Peru and Malawi etc. where they haveconsiderably increased growth of potatoes to comeout of poverty. Governments promoted potato eatingin towns and cities. Schools, hospitals, army canteensand prisons started serving potato made into bread.Potato can serve India as a vital food security cropand a substitute for costly grain imports. Potatoesare a good source of protein, starch, vitamins andnutrients. As a crop they require less energy andwater to grow than grains. Potato can be mixed withatta to make rotis, one can prepare tasty currys, stew,palya, subji etc. from potatoes only.

Hydro Power - This is a technique where plants aregrown in water containers or in low cost naturalsubstrates like sand, rice - husk pumice etc. There isno soil pollution or soil borne disease effect, noweeds, water is recycled - avoids ground waterpollution. Poor farmers can grow lettuce, tomato,carrots, beans, brinjol, radish, strawberries,gooseberries, mulberries, melons etc.- total outputgreater and more nutritional value than conventionalvegetable farming.

Plantation Crops - I have not dealt with these - cropslike tea, coffee, cocoa, vanilla, cardamom, pepper,ginger etc. This area is basically controlled bycorporates like Tatas, Birlas, Hindusthan Lever, etc.groups. Of course, there are hundreds of smallplanters - individually owned. But compared to thepoor farmers in over 6 lac villages they lead a muchbetter life. Govt. priority should be on how to improvethe plight of our rural farmers in over 6 lac - villagesfor which I have given various suggestions.

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HOW DO INSURERS MAKE THEIR ‘LIVING’?

An Australian Novelist, Morris West, in one of hisnovels, has written: “ Insurers make their living outof a prospect of disaster for others”. It is by breedinginsecurity in the minds of their potential customers,feeding them with visions of their likely financialmiseries, should undesirable and unexpected eventshappen to them, and by stressing on the utmostnecessity of having insurance that insurers thrive asa professional lot. Risks, however, are getting allpervasive in this universe, and the variety of riskexposures and its f inancial impact is rapidlyexpanding with globalization. Enterprise riskmanagement has now become the buzzword in thecorporate world; driving insurance buying, as a risktransfer mechanism, as a desperate necessity for thefinancial survival of an enterprise.

WHAT REALLY IS INSURANCE?

But what really is the role of insurance for anentrepreneur? Insurance is akin to a safety net inuse for a performing trapeze artist; not that thetrapeze artist cannot perform without it, but it isavailable to give him a feeling of absolute securityagainst physical harm, so that he can be natural andentrepreneurial in what he does best. Weresomething untoward happen, in course of hisprofessional performance, the safety net wouldprotect him from a potential physical disaster.Insurance, like-wise, works on a system that makesit possible for the entrepreneurs to be more risk-taking in their enterprise, without the fear of gettingfinancially bankrupt, should an accident were tocause any of them serious losses.

Insurance has many roles to perform in the nationaleconomy as well. One role is like the trapeze artist,many entrepreneurs are encouraged to take businessrisk to provide jobs to the citizens and to createnational wealth; and encourage savings for furtherinvestments. Insurance, such as marine insurance,encourages domestic and international trade andcommerce to flourish, as the marine policy acts acollateral for enabling issuance of letters of credit,against loss or damage to the property in transit.Thirdly, insurers use their risk management learningbriefs to advise entrepreneurs on how to preventaccidents and minimize their loss potentials. Fourthly,life insurance is an instrument of social security tothose insured, lessening the burden on the Govt. onthe social security mechanism. Fifthly, the premiumscollected and other funds with the insurers areinvested in the national economy to help build theeconomic growth of the nation.

But let us understand how life and non-life insuranceproducts differ in fulfilling the disparate consumerneeds. A lot of misconceptions are prevalent, asconsumers believe they are two ends of the samestick. But they are really two different sticks of thesame branch of insurance.

Non-life insurance principally caters to the financialprotection of property, lives, interests and earningsof an insured. But the purpose of life insurance,however, is essentially to cover the life of theparticular insured only. It is a single insurance productof longer duration; every life policy has eventually topay out a claim; the sum insured is fixed and thereare no negotiations to be made on the quantum of

UNDERSTANDING THE ESSENCE OFNON-LIFE INSURANCE BUSINESS

By :Shri G. V. Rao

Chairman,GVR Risk Management Associates,

Hyderabad.

JANUARY - JUNE 2009 23

claim payable. Life premiums cover risk, savings andinvestment elements: whereas non-life premiums arebased on the coverage of pure-risk element only.

About only 7% of the insured are likely to put in claimsin non-life insurance. Every policy insured is for ayear and has to be re-earned each year by an insurer.Consumer satisfaction has to be earned each year.Application of the principle of indemnity, thecondition of average and the specificity of the lossevent - all complicate mutual dealings in non-lifeinsurance.

UNDERSTANDING NON-LIFE INSURANCEBUSINESS

The purpose of any enterprise is to make money forits investors, while fulfilling the consumer needs moreefficiently than the others, as its core purpose.Insurers, who are now operating, had the tariffs ofrates on insurance covers available to them, till 2007- on about 70% of the premium producing portfolios.Their sole objective was of improving premiumvolumes, at the rates given to them. They really werenot that seriously concerned, as much as they arenow, on how to manage the business procured tomake money for their investors. The tariff ratesprovided the operating margins for them for a fairlylonger period. But liberalization had to lead to ratingfreedom in the interests of the consumers.

The insurers, therefore, are now required not only toprocure business but to determine the extent ofmargins they would wish to aim for. From runningtheir professional careers hitherto as mere marketersof pre-packaged and pre-priced insurance covers,the insurers are now called upon to show theirmanagement competencies and skills in pricing risksand marketing their wares on risk managementprinciples. That is seen as a long shot beyond themto play unless they change.

RECENT GLOBAL EVENTS

The global insurance markets also form an integralpart of the international financial sector. These haverecently suffered huge credibility dents, in theirintrinsic status of their financial health, and in the

loss of public confidence in them. The uglyhappenings in the AIG, the largest insurer in theworld, have given a tainted name to many sectionsof the global insurance markets. The sale of theinsurance units of the ‘Fortis’ Group in Europe, alongwith its banking assets, is another instance that hasadded to the poor image of the current financialsector.

Global Insurers are exposed to two kinds of businessrisks: one that relates to the invested funds and theasset appreciation or depreciation. The other, themore unpredictable hazard, is the f inancialconsequence of natural perils like floods, storms,hurricanes and earthq