Catastrophe risk modelling specialist has launched a new multi-peril crop insurance risk model for India, which it believes will help underwriters better understand and estimate potential losses due to yield shortfalls.
The firm said that its Multiple Peril Crop Insurance (MPCI) Model for India will assist insurance and reinsurance firm sin making probabilistic assessments of potential losses caused by yield shortfalls for 11 major crops and across the two main crop-growing seasons in India.
Crop risk is an area of the market that a number of insurance-linked securities (ILS) funds participate in the reinsurance of, with a handful of ILS players also having some exposure to Indian agricultural exposures.
The availability of better risk models for crop exposures can only help in enabling more ILS capacity to flow to Indian agricultural risks, particularly on this crop peril basis.
AIR Worldwide’s MPCI Model for India is an event-based model, using a definition of an individual crop year as an event, made up of a kharif season (“summer” period from late spring into autumn) and the following rabi season (“winter” from autumn into the following spring).
“One of the many challenges in developing and testing an MPCI model for India crops is the collation and evaluation—quality assuring—of the available historical data on planted areas and yields of insured crops, which comes from various, sometimes contradictory sources,” explained Dr. Jeff Amthor, assistant vice president, AIR Worldwide. “Our team at AIR invested significant effort in gathering data and, just as important, in screening it for quality and consistency. As a result, we produced what may be the highest-quality single data set of India’s state and district crop production statistics currently available. We also carried out a significant effort to understand the causes and consequences of the sometimes significant differences among weather data sources.”
The model features a stochastic catalog of 10,000 simulated crop years, AIR said, each containing a kharif season and the following rabi season.
The company hopes that this describes the widest range of possible crop loss scenarios, both common and rare, across the two growing seasons.
There is also a historical catalog of losses based on a recast of the years 1979 through 2017.
In making damage estimations, AIR has accounted for the vulnerability of different crops to variations and extremes in environmental and weather conditions that occur at specific times of the year during both the kharif and rabi growing seasons.
In addition the model takes into account the current terms of the Pradhan Mantri Fasal Bima Yojana crop insurance program.
The new risk model brings together quality-assured historical yield events, as well as historic and stochastic all-India gridded weather data sets composed of daily values of minimum air temperature, maximum air temperature, rainfall amount, and maximum wind speed, to simulate a full range of crop insurance loss outcomes
“Despite the long and extensive history of agriculture in India, it is only recently that multiple-peril crop insurance has been widely available to farmers,” added Dr. Praveen Sandri, executive vice president and managing director, AIR Worldwide India. “One of the most valuable components of this model is that reinsurers in the India crop market can have their exposure data analyzed at the district level or aggregated to the cluster and/or state level for individual crops or all crops combined. Additionally, the model can provide guidance toward putting together a balanced book of business that considers geographic correlations in a complex agricultural market.”