Index Based Crop Insurance Product Design and Ratemaking: The Case of Modified Nais in India

Abstract

Designing and rating insurance products requires both science and judgment. In developing and emerging economies, actuarial procedures must be robust and implementable, as well as offering a sufficient degree of transparency and flexibility so as to allow expert judgment to be incorporated. This paper outlines an approach to designing and rating a portfolio of index insurance products that uses both temporal and spatial aspects of the data to increase the efficiency of statistical estimates. The approach has formed the basis for the design and ratemaking methodology implemented by the Agriculture Insurance Company of India for the modified National Agricultural Insurance Scheme, which was initiated by the Government of India in late 2010.

Keywords: Bankruptcy and Resolution of Financial Distress, Hazard Risk Management, Insurance & Risk Mitigation, Debt Markets, Emerging Markets