|settlements|process CCEs and publically<br>fund claims on an ex-post basis|Early non-repayable ‘on account’ part-payment up<br>to a value of 25% of ‘likely claims’ to be made in<br>cases where weather indices and other local<br>information suggest that a large loss has been<br>incurred.|
|---|---|---|
|Risk<br>classification|Both premium rates and<br>threshold yields determined<br>based on simple formulae.<br>Wide variation in the actuarial<br>value of NAIS products within<br>a state.|Actuarial design and ratemaking based on a<br>statistically robust Experience-Based Approach.<br>Probable yields are based on 7 year moving<br>average of actual yield, with Bühlmann credibility<br>smoothing between nearby insurance units.<br>Indemnity levels and commercial premium rates<br>are determined at the district level for each crop<br>using ten years of actual yield data. Farmer<br>premium rates are increasing in the commercial<br>premium rate (Figure 5).|
|Data quality|A lack of standardization,<br>trained personnel, and<br>monitoring for CCEs exposes<br>the NAIS to significant delays,<br>basis risk and the risk of<br>manipulation.|Use of technology, standardization and<br>monitoring to improve the quality of CCEs. CCEs<br>to be video recorded with GPS-tagged footage.<br>Data to be provided to the insurer by SMS at the<br>time of the CCE to allow real time monitoring.<br>Remote sensing data to be used to target the<br>number of CCEs to be conducted at harvest in<br>insurance units, and to monitor CCE reports.|
|Involvement<br>of private<br>sector|No private sector involvement|Domestic insurance companies authorized to<br>compete with AICI to offer mNAIS. Private sector<br>reinsurance capacity. Possible use of private<br>sector in conducting or auditing CCEs.|
|Basis risk|Basis risk, whereby a claim<br>payment to an individual<br>farmer does not adequately<br>reflect yield experience.|Reduce the size of the insured unit from the level<br>of the administrative block to the individual<br>village Panchayat for major crops.<br>Expand coverage to include cover for prevention<br>of sowing, replanting, post-harvest losses and<br>localized risk, such as hail losses or landslide.|
|Adverse<br>selection|Adverse selection caused by<br>non-borrowing farmers being<br>able to purchase cover well<br>into the growing season when<br>pre-existing drought<br>conditions are known.|Uniform sales cut-off dates to be introduced in<br>advance of the sowing season for all farmers.|

The move away from unfunded ex-post government subsidy, combined with planned changes to crop cutting experiments, should allow claim settlement within 1 month of harvest, rather than the current 9-12 months. The addition of an early ‘on account’ payment based on weather indices can allow claim payments to farmers even before harvest, if the weather is sufficiently poor. This combines the strengths of area and weather based index insurance, providing farmers with both the speedy payment of weather-index insurance and the lower basis risk of area yield insurance. Central and state governments will also benefit from improved budget management, where the full cost of government support to mNAIS will be known at the start of each crop season.

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