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Will rural people be insured, insulated from the 'risks' that make their life vulnerable?

By RR Prasad* 

There have been several major transitions in our thinking about the way Indian villages can be made vibrant laboratories for innovations, entrepreneurship and social and economic change. Historically, policies in relation to rural development in India have been sectorally based. The emphasis has been on the development of a particular sector of the economy, rather than on the development of a particular area.
However, the changed socio-political scenario in the country has now led to the emergence of a new approach – a spatial approach which focuses strides n a particular geographical area, and which seeks integrated development of that area.
The programmes like Saansad Adarsh Gram Yojana (SAGY), Pradhan Mantri Adarsh Gram Yojana (PMAGY), Smart Villages, Five Star Villages Scheme, Lakhpati villages (Jharkhand) etc. are testimonies to this trend. And now the Insurance Regulatory and Development Authority of India (IRDAI) has planned for setting up model insured villages across the country to increase insurance penetration in rural areas with a special focus on agriculture and allied activities.
In its discussion paper on the concept of setting up model insured villages, the IRDAI has suggested to implement the concept in a minimum of 500 villages in different districts of the country in the first year and increase to a minimum of 1,000 villages in subsequent two years.
Emphasis has been laid on careful selection of the villages considering various relevant aspects and parameters in order to implement the concept successfully for a period of three to five years.
The draft proposal of the IRDAI envisages that insurance for rural people should cover the entire population in villages and their property, farms/crops, farm machinery, vehicles, different village-level services, manufacturing enterprises and other specific insurance needs of the particular village through targeted efforts in a few selected villages.
Thus the challenge lies in selection of the villages where this ambitious and a pioneering programme of promise can be begun to create model insured villages with sustainable outcomes.
How is a village metamorphosed into a model village and what are salient features of a model village? If one takes the literal meaning of a model – it is a design of activity or situation which is considered as an excellent example for replication.
It helps in determining the positive aspects of any given situation, which can be considered for its replication to show an impact at a wider scale. This means that there is no one universal model of a model village. Each village may have its own unique model which will be different from other model villages.
Majority of people, who are living in rural areas, are poor and agriculture is the main source of their income. The main risk for rural farmers in this country is crop failure due to unexpected variations in weather condition. Weather risk, in particular, is pervasive in agriculture. High propensity to natural disasters such as floods, droughts, torrential rains and cyclones pushes agricultural sector into vulnerable position.
Various research studies have highlighted that traditional risk management mechanisms like conventional micro-insurance, crop insurance, and other formal methods such as savings, loans, or informal measures like donations, gifts, mutual insurance networks with neighbors, safety nets, and covariant weather shocks are less effective in covering farmers' losses.
Weather shocks can trap farmers and households in poverty. Accordingly, it is often debated that Weather index-based insurance (WII) for development can be used as a tool to promote agricultural and rural development and can help households, financial service institutions (FSIs) and input suppliers manage low-to-medium frequency risks such as drought or excess rainfall.
The triple dividend of resilience framework seeks to improve the business case for investing in disaster risk management (DRM), suggesting that such investments could yield significant and tangible benefits, even in the absence of a disaster. It highlights three types of benefits (or dividends):
(i) avoiding losses when disasters strike;
(ii) stimulating economic activity by reducing disaster risk; and
(iii) social, environmental and economic benefits associated with specific DRM investments.
The use of the triple dividend framework also helps to pinpoint the added value of insurance schemes by highlighting the nature of the costs and benefits. One of the most direct benefits of well-functioning insurance mechanisms is to compensate policy holders for economic losses determined through physical assessment or according to a predefined index trigger.
Insurance is all about making good the financial loss that occurs due to the death/destruction of an income-generating asset on account of natural or accidental factors. In the context of the rural areas, the income-generating assets may include the rural people and their farm and farm products, agricultural produce, tools and implements like tractors, pump sets and other equipment, livestock and cattle.
In selection of villages for making them insured villages, priority must be given to villages with higher risks and vulnerabilities
The rural people in their villages need to be insured and insulated from all such risks and eventualities which make their life vulnerable in the absence of assured coping strategies. Insurance operates best where it forms part of an integrated approach to risk management, where constraints such as lack of access to finance, improved seed, inputs and markets can be addressed.
In selection of villages for making them insured villages, priority must be given to such villages where the risks and vulnerabilities index profile is highest and then gradually move to the other villages as per the risk profile index. It is also necessary that the outcome indicators of the model insured villages are well developed and monitored so that the processes leading to metamorphosis of the villages into the model insured villages are visible, sustainable, replicable and scalable.
It would be desirable that the proposed model insured village programme (MIV) aligns its objectives with the ongoing similar programmes like SAGY, PMAGY, Smart Villages, Lakhpati Villages (Jharkhand) etc. so that already available institutional and financial support get extended to MIV also in a natural way.
It has also to be ensured that in the selected villages, all ongoing schemes like Atal Pension Yojana, Ayushman Bharat Yojana, Prime Minister Jeevan Jyoti Bima Yojana. Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Suraksha Bima etc. get converged and implemented in conjunction with the MIV programme so that villagers derive optimum benefits.
The Covid-19 pandemic has undoubtedly strained public budgets in states and cities across the country. The pandemic is putting added emphasis on accelerating the need for institutional capital to become a part of reviving our economy in a more equitable and sustainable manner.
We have to innovate new ways to unlock untapped private capital through sound national policy. The impact investing community can play crucial role in identifying opportunities that will meaningfully transform marginalized groups. Insurance companies are uniquely suited to engage in investing that addresses social and environmental goals.
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*Formerly with the National Institute of Rural Development & Panchayati Raj, Hyderabad

Comments

DR.A.Venkata Rayudu said…
It's a well thought out Article, wherein a Model Insured Village (MIV)is proposed to be aligned with the existing Schemes like SAGY,PMAGY,SMART villages etc.,
As per the central theme of the Article,priority may be given to the villages located in the specified areas of Integrated Tribal Development Projects/Agencies (ITDPs/ITDAs)to satisfy both Area approach as well as Vulnerability index approach.
DR. A.Venkata Rayudu,Ph.D.,LLB.
Formerly faculty member, Andhra University, Visakhapatnam, AP & Joint Director(Retd),Tribal Welfare Dept, Govt of AP.
Pravin Sharan said…
This lucidly written article made an interesting reading for an insurance professional that I was for 35 years. Penetration of insurance in India, including life insurance, which is better known, is still less than 4% despite opening of the sector some 25 years ago. Hence talking about a village where everyone and everything is insured is a far cry. Therefore, any discussion which promotes deeper penetration of insurance in villages needs to be welcomed by all particularly IRDAI. I remember underwriting animal driven vehicle and agricultural pump set insurance policies in the late eighties. Cattle insurance flourished when Indira Gandhi as PM launched integrated rural development programme (IRDP) and banks were freely advancing cattle loans. Health insurance policies for the less privileged were launched by PSU insurers as early as in 2003 @ Rs 25/- only. Although these products, with the exception of cattle insurance, were never popular. IRDAI must first commission studies to evaluate our past experience with products targeted at rural areas to be able to guide better products and marketing efforts in future. Some of these old products are still available. However IRDAI does not publish company wise data on rural & social sector insurance for public consumption, though it regulates minimum percentage of business to be done in these sectors by companies. Schemes like PMFBY and Ayushman Bharat have given much needed boost to rural insurance, yet as the article points out, much remains to be done.
Pravin Bihari Sharan, former insurance professional and independent researcher. pravinsharan@gmail.com, Bengaluru

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