Kathmandu. After 5 years of the introduction of seasonal index-based insurance policy in Nepal, the regulator Nepal Insurance Authority has issued the policy directive in this regard.
This insurance has been introduced in Nepal for the first time since May 2016 from Syaukheti Insurance in Jumla district of Karnali district. After this, apple crops of farmers of Jomsom and Mustang have also been insured under this policy.
Besides, in 2079 BS, an index-based crop insurance scheme was implemented in Kailali and Bardiya districts to compensate farmers along the Karnali River in Banke and Bardiya districts. This insurance policy was introduced to cover the risk of loss of rice crops on the basis of changes in the water level of the river.
According to a 2021 report by the Ministry of Forest and Environment, nearly 90 per cent of crop losses in Nepal are caused by weather events, such as temperature rise, erratic rainfall, droughts and floods. Therefore, this insurance policy can prove to be a boon for the farmers of Nepal.
Key Technical and Claim Provisions of Insurance Directive Based on Seasonal Index Issued by Nepal Insurance Authority:
Technical aspect
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This insurance is not based on a cumbersome process of assessing the extent of damage as traditional insurance. The main technical grounds are as follows:
Index: It determines certain weather indices such as minimum and maximum precipitation, temperature, relative humidity or wind speed from the time of planting to the time of intake.
Limit: The insurance policy has a limit. For example, if the temperature exceeds 40 degrees Celsius for five consecutive days or if there is less than 100 mm rainfall in the month of June, the insurance claim will be automatically applicable.
Data source: It uses non-controversial data. In the context of Nepal, the data of the stations of the Department of Hydrology and Meteorology is considered to be the basis of high quality satellite-based data recognized by the Authority.
Crop sensitivity: What conditions of the crop, such as flowering or seeding, affect the weather? Accordingly, different measurement indices and payment schedules are made.
Claim process
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One of the strengths of this insurance is its automated and fast claim payment process. The steps are as follows:
Monitoring: During the insurance period, the insurance company and the concerned body continuously monitor the weather data of the specified area.
Index violation: If the weather data exceeds the limit specified in the insurance policy, e.g. if there is less rainfall than prescribed due to drought, the claim process is automatically activated.
Notice and Verification: TAG_CLOSE_span_53 The farmer does not have to apply to get compensation under this insurance. The insurance company assesses and confirms the damage on the basis of the data sent by the weather informant. The insurance company determines the compensation amount on the basis of the technical report.
Automatic Calculation: calculates the percentage of payments to be paid according to a default schedule without a physical assessment of the damage. There is no dispute between the farmer and the insurance company.
Direct Payment: The calculated claim amount is sent directly to the farmer’s bank account or digital wallet. As per the target of the NRA, such payment should be completed within 72 hours to 7 days of the incident.
Facilities for farmers
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No proof required: Farmers do not have to worry about taking photos of their crop damage or calling a technician to file a complaint.
End of Moral Hazard: There is no dispute as to whether the damage is due to the weather or by the lack of care of the crop by the farmers. Because the payment is based on weather data.
Reinvestment opportunities: TAG_CLOSE_span_47 Farmers can use the money to irrigate or plant another crop, as the money is available in the event of a drought, such as before the crop is completely destroyed.
The challenge of insurers based on seasonal index
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Despite this being good, there are some challenges in implementing this insurance policy in Nepal. Occasionally, the weather station may see rain but the farmers’ fields are not damaged. Or there may be a problem of damage to crops in the farmer’s field at some point of time, but the equipment of the Meteorological Information Center does not collect such weather data. To reduce this, it is necessary to use the data and information obtained from the satellite. In addition, it can be difficult for farmers in rural areas to understand that money will come even if their crops are not saved, and it can be difficult to convince them of technology.
