Insight to the livestock insurance business, its benefits and shortcomings

Scope of Livestock Insurance

8/9/201511Livestock Insurance in India110 million people and 300 million cattleFour Public Insurers while 12 private insurance offer Livestock Insurance Policy (Aka Cattle Insurance Policy).The word `Cattle refers to :Milch Cows &BuffaloesCalves/HeifersStud BullsBullocks Insurance products presently offered are limited to catastrophic death and disability covers

8/9/20152Cattle is covered at maximum market valueAge Group:For Cow : 2 years to 10 yearsFor Buffalo : 3 years to 12 yearsCoverage provided:DeathPermanent Disability covers also availableNo theft coverNo health coverPremium charged:4%-7% of Sum insured1% extra for PTD coverCattle Insurance ProductExclusions:No tag No claimIllness contracted before policy commencementAir Travel and Sea TravelAccident by nuclear weapons and warlike situationTheftUse of animal for the purpose other than specified in policy8/9/201533How Cattle Insurance is sold1) Bancassurance Model8/9/20154Bancassurance ModelBenefitsCustomer reached directly by an insurerClaim settlement is done through a bankDrawbacksBorrower becomes apathetic towards cattle if not able to pay off the loan amount.Slow claim intimation by a bank

8/9/20155How Cattle Insurance is sold2) Co-Operative Society Model

8/9/20156Prevalent in rich agricultural states such as Gujarat, Punjab.50% subsidy is provided by government through State Livestock Development board.Benefits:Marketing is easy and cost is minimum. Insurer can get all the customers at single point.Drawbacks:Policy is issued for large number of cattle hence chances of errors in underwriting is possible.Examining each and every cattle is tedious task.Co-operative Society Model8/9/20157Insurer must be informed within 12 hours of the death of cattleNo claim no tagPost-mortem of carcass is conducted within 24 hours of deathEar-tag and natural birth mark, along with earlier photos are confirmed for identification Death certificate is issued by veterinarian In event of accident, customer also needs to provide an FIR to insurer

Claim Settlement8/9/20158No Photo identification used by Public InsurersHigher claim ratio for public insurersNo awareness regarding livestock insurance in the marketNo focus on TV ads and radio adsCost of hiring veterinary is highHigher administrative chargesChances of moral hazard of market value of cattle drops below the sum insuredNo proper record of the customers and subsidy providedAdverse selectionProblems faced by Insurer8/9/20159No proper health care for cattle by customer after insuring itLesser number of non-subsidized customersNo basis for charging premium and the charged premium is lower than necessaryAgents avoid livestock segment due to lesser commissionNo penalty for underinsuranceNo proper infrastructure for cattleNo measures for risk reductionHigher cost of making entry into livestock insurance marketSoaring claim ratio during epidemic disease High administrative charges as no insurance offices in rural areasProblems faced by Insurer8/9/201510Livestock Insurance from Customers Perspective8/9/201511Livestock Insurance from Customers Perspective8/9/201512Livestock Insurance from Customers Perspective8/9/201513Problems faced by CustomersLack of theft-cover leaves a lot to be desiredCustomer has no choice of choosing insurerEar-tags provided are fragileCustomer suffers loss in event of a death of cattle if market value at that time is higher than the insured value

8/9/201514SuggestionsInnovation and extension of productOffer a theft cover with the help of globally Radio-frequency identification by charging higher premium to the customer at his willDevising marketing strategy and focusing on TV/Radio ad and newspaper adsPrepare actuarial data separately for each state based on last 3-4 years of claim dataTie-ups with village headsMandate regular health checkups for cattleMaintenance of subsidy dataMake comprehensive policy covering agricultural insurance and livestock insuranceCharge premium on risk basisProvide no claim bonus

8/9/201515Thank YouBy:Aejazhussain Master141637PGDM 2014-168/9/201516