Mutuals’ or Insurance
Livestock is an important source of household income for developing countries (including India). Approximately, 100 million households are dependent upon livestock as either the primary or secondary source of income in India alone. Any disease, accident, or theft of livestock leads to a substantial loss to the household. Apart from this, huge production risks associated with dairying activities render animal husbandry business a risky proposition for the low-income households. Production risks can be related either to scarcity of input e.g. dry and green fodder, water, etc. for the animals, or, to high morbidity in the case of individual animals or in case of an epidemic. The tropical climate and poor hygienic conditions present here are some of the factors that trigger or aggravate diseases such as Mastitis, Foot and Mouth Disease (FMD) and Hemorrhagic Septicemias (HS). Above all, the loss of assets is the biggest challenge for cattle owners as it leads to a precipitous fall in their income. Business risks in livestock rearing make it all the more important to regard insurance as an efficient measure to provide safety to low income households. The first imperative is to understand how customers and suppliers perceive the value of the potential product.
The Government of India effectively launched the first livestock insurance scheme in the 1970s for the purpose of asset building at the bottom of pyramid, and, thus pioneered the role of market maker. Yet, its coverage is not more than 7% of the cattle population. Various schemes were used to increase the spread of livestock insurance, with public insurers as risk carriers. Livestock insurance has been offered as a compulsory product with bank credit for dairying activities. The main problem is that offering sustainable livestock insurance is mostly hampered by unreliable data on livestock mortality and by low set premiums. It is seen that insurers go rural mainly because of social and rural obligations stipulated by regulation, and do not bother about competitive pricing. This, at times, leads to dumping of underpriced policies.
The cost-effectiveness and product delivery efficiency of different distribution channels is crucial to ensure the success of micro-insurance business. With new micro-insurance regulations in place, the insurers are hopeful about entering rural markets with lower transaction costs and about catering to a larger rural population. Challenges are also faced by insurers in the sense that the burden of all risks are passed on to the insurer as ex-ante risk mitigation strategies in the form of vaccination, de-worming, etc. are not well in place. Lack of veterinarians and physical infrastructure for animal husbandry adds to the woes of insurers.
Instances of high loss ratios are very difficult to control due to the remoteness of the villages. Insurers were highly aware of the lengthy process of claims settlement and showed keen interest to reduce the claim settlement process by use of technology. Insurers agreed that livestock insurance uptake would be a challenge unless a strong infrastructure is built and institutions are made more efficient. It is important to point out that in the presently distorted market scenario the demand also remains a big problem due to lack of awareness and unwillingness to pay the premium amount. The main challenges to livestock insurance can be summarized as: • Unorganized market and poor veterinary infrastructure • Absence of actuarial pricing due to lack of data and challenges due to moral hazard and adverse selection • Incentive system for risk reduction and challenges in valuation and identification • Absence of bundled comprehensive financial products
• Lack of proper incentive system for sales staff
• Lengthy claims settlement process
• Absence of concentrated marketing and product awareness
Solutions can be sought to improve the...
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