By Aditya Singh, Treaty Broker at New Dawn Risk
From April 1st 2020, India introduced a new version of its state-subsidised agricultural insurance programme. Most importantly, contracts changed from one-year renewals to every three years.
It will be interesting to see how the treaties have performed over the last year and if there will be any corrective measures taken by their treaty leaders at 1st April 2021.
The past two years have seen significant losses (floods, heavy rain), so insurers and reinsurers are feeling the pinch. Whilst they understand that the government scheme is designed to help the farmers, there needs to be a clear route to profit, even if modest, for the insurance industry. In the bigger picture, reinsurers are unhappy with the instability of the Indian agricultural scheme and would prefer to have the ability to view the business as a long-term strategy instead of seeing new rules introduced so frequently, wreaking havoc with their planning.
That said, we still anticipate new capacity coming into the market over the next few years. The large volume of the underlying business continues to attract some of the bigger reinsurance players, who are looking at expanding their specialty lines sectors.
In our view, upside remains. Given that market penetration is still very low, we continue to believe that the Indian crop market will sustain its growth of 2020, in spite of current rate challenges.
Reinsurers are no longer participating on a market-wide basis, and are choosing to only work with cedants that have a strong understanding of the local agriculture market and are serious players who have had a consistent strategy over the last three years.
The main challenge is consistency. The scheme has changed drastically in a very short space of time. However, the introduction of more scientific approaches and systems will definitely aid the scheme in the long-run, and we foresee crop performance data collection and loss analysis being facilitated through increased digital adoption. Overall, we believe 2021 will be a positive year for India’s crop scheme participants, in spite of enduring challenges.