India has over 100 million households dependent on livestock as a source of livelihoods but with less than 7% of the cattle insured through formal markets; cattle owners have a substantial exposure to this risk. Considering the importance of issue; CIRM hosted a Round-Table on Livestock Risk Management. A range of participants from various sectors like dairy service providers (National Dairy Development Board (NDDB), AMUL Research and Development Association (ARDA) and Dairy Network Enterprise (DNE)), credit providers (National Bank for Agriculture and Rural Development (NABARD) and SKS), insurers (United India Insurance, TATA-AIG, IFFCO-Tokio General Insurance, ICICI Lombard and HDFC-ERGO), government representatives (District Rural Development Agency (DRDA), Vizianagaram in Govt of Andhra Pradesh), academia (International Livestock Research Institute (ILRI), Nairobi, Kenya) and multi-lateral agencies (International Labour Organisation (ILO), World Bank) were invited to discuss the challenges and possible way forward for livestock risk management.

After the preliminary introduction of the participants, the topics to be discussed were chosen by the facilitators.

Session 1: Supply Chain issues and related Challenges

It involved the 3 stakeholders: insurers, credit facilitators and dairy service providers – each forming a separate sub- group- to discuss the problems and challenges they face in providng quality services to low income households.

Insurers highlighted identification of animals as the biggest challenge which when coupled with poor infrastructure makes it difficult to scale insurance services. Commercial viability of the products like RFID was discussed in detail. The problem of limited infrastructure was also highlighted. Specific challenges related to issuance of health certificate during enrolments and during normal upkeep were discussed. Insurers expressed claim servicing challenges (post mortem reports and fraudulent claims), which though small in percentage, were instrumental in causing an overall time delay for  all claim settlements. They also raised the question of valuation of cattle and related moral hazard concerns.

The solutions offered were to explore models of greater community ownership and also discover ways of tapping governmental support more effectively.

For Credit Facilitators the major concern was reputation risk emanating from bad servicing of insurance claims. Also, operationally lack of proper identification for the customer inhibits their ability to offer insurance. The group suggested community organisations as distribution channels that employ self regulations to  ensure proper servicing to clients and control moral hazard and fraud related cases. The group conceded that risk reduction services are necessary and highlighted cases where MFIs offer health care facilities. Therefore, customer education is crucial for market expansion.

Another sector that could be used as a distribution channel is the postal service system. The participants also identified the need for a Mortality Fund in models where community ownership is increased. They suggested the use of technology with the possibility of improved branding.

The Dairy Service Providers focussed on overall productivity related challenges. Production problems are compounded by a lack of veterinary infrastructure in villages. Poor Health care system, economic viability of feed and fodder and lack of good Artificial Insemination (AI) facilities are some of the major problems for livestock sector. Poor hygiene and shelters in rough terrain consequently hinder health and well being of the animals. Daily Income fluctuations due to bad marketing channels for transferring this milk causes perishable product like milk to lose its monetary value and milk pourers have to bear all the losses without being compensated by anyone.

Dairy Service Providers agreed that MFIs and banks do come forward with credit availability for the farmer but the farmer is not always in a position  to avail this facility. At times the credit availability is linked to insurance and at other times to other services. To improve veterinary infrastructure use of para-vet system was discussed and identified the need of leveraging them, while encouraging them to operate as social entrepreneurs.

The facilitators asked for fool proof innovations such as the unique identification of the animals to enable them to operate without hindrance, complaint or fear of fraud. They also feel that community institutions such as Mahila Samakhyas, Milk Federations and Co-operatives can be linked to provide the infrastructural support that will be beneficial to and will actively involve the community.

Session 2- Bundling of services

Question posed was – Should insurance be provided as a standalone product or bundled with financial or non-financial services?

The participants were divided into three groups, but unlike the earlier discussion, they were randomly picked to be part of the sub- groups.

Most of the participants agreed that insurance should not be a ’stand-alone’ solution for comprehensive risk management and should be accompanies with other services.  Discussions centred on whether it should be bundled with financial products (credit and savings) or non financial products (risk reduction and extension services).

Issues like bundling of Personal Accident cover with Livestock insurance, credit linked insurance products, provisions of mandatory risk reduction package with insurance to cattle owner and enforcement of compulsory products education by government were discussed in detail. Dairy service providers requested to make insurance attractive to the farmers and also urged to lower the premium amount. Insurers voiced for proper cattle identification to reduce frauds and asked intermediaries like dairy cooperatives and MFIs to install proper mechanisms to reduce the frauds. Credit agencies also raised their concern over ignorance of insurance and risk reduction measures amongst rural communities which puts their credit portfolio at risk. Benefits of bundling were felt by all the market players and there was enthusiasm to adopt better bundled products in future.

Session 3: Open discussion

The third session of the Technical Round-Table on Livestock Risk Management was an open discussion round. The panellists identified some important themes in the sector that needed special attention. The two critical issues that most panelists felt had to be discussed at greater length were the

• Identification problem focusing on present models and cost sharing
• Process innovations
  • Focusing on community involvement- to reduce moral hazard and adverse selection
  • Easy claims process and using para-vets as proxy to vets and related legality issues

Insurers started the discussion with reference to the identification problem. Mr. Kaimal and Dr. Purusothaman from UII emphasised on proper identification of the animal and its importance in removing frauds and speeding up the claims process. All the insurers emphasised that there should be something better than the tagging process that is currently in place.

There was an active discussion on various experiments related to RFID (Radio Frequency Identification Device) Technology; internal and external RFID tagging being the popular options in the market presently. Mr. Gopinath from IFFCO-Tokio General Insurance opined that these experiments are more relevant in areas where the loss ratio is high. However, most of insurers agreed that there are initial problems of convincing the society for new technologies. Dr. A V Patel from ARDA also shared his experience with RFID and operational problems like non-detection of chip, time consuming process, etc related to it.

While there was a general agreement on the value of  new technologies ; Mr. Pandey from NDDB stressed that if ear tagging was done properly, it is cost efficient and could ensure a fraud free process. He stressed; identification and related frauds are caused due to the inefficiency of tagging staff who doesn’t tag the cattle himself  and most  often distribute it to the insured farmer. Therefore, the farmer is able to claim for the death of any cattle that he owns,  in effect the insurer for teh premium of one, insurers all animals in the household!

Anupama Sharma presented her views on the use of new technology like Zigbee where cattle identification and temperature recording is done simultaneously. She stressed that some technology in the health space which can capture an animal’s heart rate, respiratory rate and other such data should be used. Also, this should be open data which can be used by all. It will also help to complete the loop of risk reduction and risk transfer. The crux of the discussion was – both the technology and process for identification need to complement each other along with capturing data for risk reduction for a complete risk management.

The next point that was discussed was with regard to sharing of costs. Dr. Shrikant from BAIF suggested that animals insurance registration day when camps can be organised for the same. This would reduce transaction costs and because registration would be done in front of the village population, cases of fraud would reduce.

The Velugu model used by DRDA, Vizianagaram was discussed at great length and Mr. Vasudevan the model’s success on process efficiency and financial layering. However, Mr. Vinod from SKS explained how the financial layering did not work for his organisation. However, insurers claimed that it is not possible for their staff to engage in detailed work and said that institutions like DNE come into the picture when they support by providing vaccines, technology and customised software. Mr. Avishek from DNE and Mr. Parameshwaran from HDFC-ERGO emphasised on the need for sustainability and how DNE and HDFC ERGO are functioning collectively to reduce some of the problems discussed above. Mr. Sanjay Sharma shared Pradan’s experience in providing risk reduction package to the cattle owners and success achieved in reducing the mortality of animals. Mr. Shubham from TATA-AIG and Ms. Neha Agarwal from ICICI Lombard also emphasised on poor infrastructure limiting the insurance coverage in rural areas.

Rupalee, summarised by identifying the importance of process modifications when  bundled with improved ID technologies, to address fraud related issues. The overall points agreed by the Livestock Risk Management Network were:

-the need for community involvement and insurance literacy along with the need for process innovation to bring about efficiency and sustainability in the system.

A detailed report on the Workshop will be made available on the website in the coming week.

Tags: Livestock Risk Management

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