in Andhra Pradesh, only 5% of farmers stated that they would be willing to pay an insurance premium above 2% (Raju and Chand 2008).

**Fine-tuning the mNAIS product:** Despite the size and importance of the NAIS, WBCIS and mNAIS portfolios, there has been limited empirical analysis of the basis risk experienced by farmers. Insurers and government should engage with academic agronomists, statisticians and economists, to measure the degree of basis risk and develop ways to minimize it, both through improved product design and use of localized risk pooling to soak up idiosyncratic basis risk.

The early ‘on account’ payments to be payable under mNAIS are most valuable to farmers if they are both early and only paid when yields have indeed been unusually poor. Further research is needed into the level of correlation between yields and weather and satellite data.

**Institutional capacity building and supporting development of the crop insurance market:** Agricultural insurance is a highly specialized line of business that requires intensive institutional capacity building. The public insurer, AICI, and private insurers have increased their technical and operational capacity to enable them to offer mNAIS products, but further development is necessary. Now that states can decide the insurance provider of the mNAIS for each district, guidelines on the applicable procurement rules could be disseminated to clarify the rules/basis for making such decisions at the state level. In the medium term, the Government of India could also consider the overall agricultural risk market infrastructure and assess the merits of alternate models as well since comparative advantage of different types of insurers could vary and alternate structures could potentially lead to efficiency gains. For example, one model used in Mexico is of a public agricultural reinsurance company (Agroasemex) offering technical assistance and reinsurance capacity to the domestic insurance companies involved in agricultural insurance. In Spain, an agricultural coinsurance pool (Agroseguro), with a lead insurer is deployed.

**Monitoring and evaluation** : The Government of India is currently piloting two potential successors to NAIS, the WBCIS and the mNAIS (Table 1). It would be possible to use the pilot phase of mNAIS to learn about key policy questions such as how best to design and market the mNAIS product. For example, it would be possible to conduct an experiment to better understand the most cost effective way to increase voluntary insurance purchase, particularly from small and marginal farmers. Such an experiment would be relatively inexpensive to conduct but the results may significantly impact policy decisions when the pilot phase of the mNAIS is at an end.

# **6. Conclusion**

The shift from a social crop insurance program with ad-hoc funding from the Government of India to a market-based crop insurance program with actuarially sound premium rates and product design is a major step forward. The improved product and active involvement of private sector insurance markets is expected to lead to significant benefits for farmers, including faster claims settlement, a more equitable allocation of subsidies and lower basis risk, and political economy gains for government, including better fiscal management, improved agricultural policy signaling and lower adverse selection.

However, key challenges remain for policy makers, insurers and academics. Protecting crop cutting experiments from the threat of moral hazard requires a multipronged approach but is critical if the area yield index based product is to be insurable by private insurance markets. For the product to be pro-poor, small and marginal farmers must purchase the mNAIS product voluntarily, and insurers and government must experiment with cost-effective ways of increasing outreach. The mNAIS product, whilst substantially better than the NAIS product, could still benefit from further finetuning, for example to reduce basis risk or increase the value to farmers of the early ‘on account’ payments. Finally, there may be a role for a central government Technical Support Unit to be 18