Livestock Insurance – As a Tool For Mitigation of Risk & Uncertainty in Animal Husbandry

March 9, 2020November 19, 2018 by Project Manager

Introduction

Livestock is the largest sub-sector of the agriculture business; it plays a pivotal role in India’s economy, mainly in the rural socio-economic system. The majority of farmers in India are landless small livestock holders. In emergencies, such as drought and other natural calamities, the livestock rescue populations living in rural areas. The risk environment for farmers is constantly changing; e.g., production costs are increasing while financial compensation from the government is non-existent. Livestock Insurance is necessary for the protection of Cattle. You can protect them against the loss of valuable cattle by purchasing livestock insurance scheme.

Meaning of insurance

Insurance is necessary for the protection of the economic value of assets. Every asset has a value. The asset would have been created through the efforts of the owner in the expectation that either through the income generated therefrom or some other output, some of his needs would be met. However, if the asset is lost earlier to its life span, being destroyed or made non-functional, through an accident, or another unfortunate event, the owner and those deriving benefits therefrom suffer. Insurance is a mechanism that helps to reduce such adverse consequences.

Why insurance?

Every asset has an expected life cycle during which time it is expected to perform its assigned role. So, a prudent person can manage his affairs so that by the end of that life cycle, a substitute is in place to ensure continued benefit/comfort. However, if due to an accident or other unfortunate event, the asset gets destroyed or made non-functional earlier, the person deriving benefits therefrom suffers. Insurance is the mechanism that helps to soften the impact of such adverse consequences by providing for some monetary substitution to face such unforeseen circumstances. However, it has to be remembered that what is being talked about is only a probability of a loss. The protection of insurance is against a contingency that may or may not happen.

What is peril?

The need of insurance arises from the chances of an accidental occurrence destroying or making an asset nonfunctional. Such loss producing eventualities are called perils e.g. fire, floods, lightning, earthquakes, etc.

The concept of Risk

The term risk may be defined as the possibility of adverse results flowing from any occurrence. Risk arises, therefore, out of uncertainty. It can also represent the possibility of an outcome being different from the expected. Risk is a condition where there is a possibility of an adverse deviation from the desired outcome that is expected or hoped for, there is no requirement that the possibility is measurable, the only requirement is that it must exist. For those who define risk as uncertainty, the greater the uncertainty, the greater is the risk. For the individual, the higher the probability of loss, the greater is the probability of an adverse deviation from what is hoped for and, therefore, greater is the risk.

Spreading of risk

To be amenable to statistical predictions, insurance risks must be handled on a large scale as in the case of tossing a coin 10 times or a million times. i.e. “law of large numbers.” People facing common risks come together and make their small contributions to a common fund. The contribution to be made by each person is determined on the assumption that while it may not be possible to tell beforehand, which person will suffer, it is possible to tell, based on past experiences, how many persons, on average, may suffer losses.

Insurance business

The business of insurance done by insurance companies (called Insurers) is to bring together persons with common insurance interests (sharing the same risks) collecting the share or contribution (called premium) from all of them, and paying out compensations (called claims) to those who suffer. The Insurer acts as a trustee for managing the common fund for and on behalf of the community. He has to ensure that nobody is allowed to take undue advantage of the arrangement.

Role of insurance in economic development

Insurance benefits society by way of
1. Providing relief to the insured from any mishap.
2. Reducing the burden of Government in providing relief to the old citizens: and
3. Providing funds to the Government for nation-building activities.

Insurable interest

A person should have an insurable interest before insuring any asset. Insurable interest exists on persons/ persons, who by destruction or damage to the asset suffer economic loss arising out of the asset.

Livestock & Poultry insurance

Our country is based on rural activities and hence developments of rural areas lead to the development of our country. Rural people are mainly dependent on agriculture and/or livestock & Poultry. Protection to their assets leads to protection to our country as a whole.

How to take insurance?

Insurance is proposed by a proposal to the Insurer, who, after examining it accepts by receiving a consideration (premium) with certain terms and conditions and issue a policy for a specified period.

Problems faced in insuring cattle

Most cattle owners are based in rural areas, which are remote and not easily accessible by insurance companies/agents. Further, this also makes it difficult for cattle owners to access veterinary health services. Poverty also makes it difficult for small and marginal farmers to pay annual insurance premiums in a lump sum.

Valuation of Cattle

Cattle are valued for their market value based on Breed, Sex, Age, production capacity, etc.

Premium Rate

Animals coming under subsidy scheme are charged with less rate of premium compared to others.

Sum assured Vs Value before illness

Through premiums is charged based on the market value of the animals at the time of insurance, the value of the animals may vary depending on various factors. Hence the market value may either go up or come down. However, the compensation in the event of a loss is limited to sum assured only. In other words, if the market value of the animal goes down at the time of loss, then claim is restricted to that value (value before the illness) only. This condition does riot apply to animals coming under the subsidized loan scheme sponsored by Government. The theme behind this is to re-create the asset for the livelihood of cattle owners.

Calf insurance scheme

In case of calves especially heifer calves, value is variable depending on its age and hence sum assured is fixed at the maximum expected value of the animal on input cost basis, in specified period of cover, mutually agreed by Insurer and Insured, If loss occurs in any particular age, value as per the input cost up to that age is taken in to account. This is because insurance eliminates the profit margin and it compensates the just financial loss to the insured, which is the total input cost only.

Types of cover

Cattle – Death due to disease and or accident / Permanent Total Disability cover due to disease and or accident.

Risk Reduction

As per the available records, only a fraction of the population of animals is insured. Especially animals under bank loans are generally insured, whereas private owners are not enrolling in large numbers for insurance. Hence the spreading of risk is not as expected

Though official figures are not available about the number of animals insured year-wise/State-wise, it is assumed that the insurance coverage is very low based on the premium collected by Insurance Companies.

Why more animals are not covered?

Lack of awareness of livestock insurance among rural mass
The poor condition of the rural mass leading to unable to pay the insurance premium in one instant
Non-availability of insurance representation in the vicinity
Non-availability of veterinary healthy cover in the vicinity
No image building for immediate claim compensation to the insured
Insurance offices are located far away from rural areas
Non-utilisation of self-help groups in bringing more insurance
Failure of some of the societies/self-help groups on the transparency of public accounts
Lobbying of money lenders in rural areas
Scarcity of good and loyal leaders in rural areas
No proper education to rural mass on various schemes of Govt.
Certain difficulties faced by rural people in insurance procedure
Non-availability of bank loan for insurance premium
Rural people are unable to pay for escalated health care expenses

Risk Involved in Healthy Livestock Insurance

Selection of risk thereby only few among an available herd of animals are proposed to insurance
Not taking proper veterinary care on the assumption that insurance will compensate the loss
Animals having illness also are proposed for insurance
Uninsured animals are being claimed against insured animals
Proper identity of animals are not assured always
The post-mortem is not conducted in some cases due to poor transport facility
Claim intimation is not sent to Insurer on time thus not giving chance to Insurer to verify claims on random
Claim intimations are sent on Friday evening or Saturday morning to avoid Insurer to do the random check-up
Claim forms are sent in some cases belatedly without valid reasons
Insurance procedures are not made known to all insured especially un-educated people
Communication becomes difficult for insured in remote villages with Insurer
Periodical vaccinations are not carried out especially in milch animals with the fear of loss of milk production
A balanced diet is not fed to animals because of the poor condition of rural people
Non-availability of the market for the product for a reasonable cost. leading to improper management of animals
Animals are purchased for lesser value as against the loan amount

Role of Insurance in Economic Development

Providing relief to the insured from any mishap
Reducing the burden of Government in providing relief to the old citizens
Providing funds to the Government for nation-building activities
Enabling financial institutions to give loan for cattle for the betterment of rural/ needy people
Livestock insurance enables rural people to avail certain assets and thereby generating income for their livelihood

Suggestions for more insurance coverage

Involvement of more NGOs / Self-help groups to cater to the need of needy people
Arranging mobile veterinary assistance for a cluster of villages
Arranging ways and means for assured marketing of products for a reasonable rate
Organizations to come forward to pay an annual premium and collecting back the same on easy installments., enable cattle owner to pay the premium
Taking insurance for cattle owner also along with animals, so that in case of death of the owner, the loan can be repaid and the balance amount can be given to the legal heir
Forming grazing lands in villages thus reducing the maintenance cost
Creating district wise livestock centers to distribute young animals/milch animals at a reasonable cost to poor people (i.e. on an input cost basis)
Creating units locally to utilize animal by-products thus creating a need for more Animal Husbandly activities
Education to rural people on Animal Husbandry Economics

Public Awareness

Many clients are not convinced to pay insurance premiums for an intangible product with benefits not yet consumed or claimed. Also, they often harbor a basic distrust of insurance companies. Some insurers distribute information to educate low-income households on the need for risk reduction and management in their businesses, explaining micro-insurance and other options. Policies targeting micro and small businesses need to be differentiated from conventional insurance products. In areas where levels of insurance literacy are low, campaigns to disseminate such useful information are required. Micro-insurance companies must settle claims and recover losses quickly – at a minimum – to prevent customers from losing faith and interest in their insurance policies. To make micro-insurance plans successful and attractive, insurance companies must satisfy their clients through comprehensive programs and understandable language and procedures.

Insurance companies

Out of many companies, some of them are
1.The New India Assurance Company Limited Head Office: 87, M G Road, Fort, Mumbai-400001

2.National Insurance company, Mumbai Regional Office I Royal Insurance Building, 12 J Tata Road, Churchgate Mumbai Maharashtra Pincode: 400020 HDFC

3.ERGO General Insurance Company Limited. 6th Floor, Leela Telephone: 22821963/22821844 Business Park, Fax: 22842745 Andheri Kurla Road, Andheri (East), Mumbai 400 059. Email : mbro-i@nic.co.in; Phone: +91 22 6638 3600; Fax: +91 22 6638 3699

PROFORMA SAMPLE

Claim

In the event of loss due to disease or permanent disability

Sub: Livestock Claim Intimation.

Policy No…Date from…… to …….(period) S. Nos…………….. belonging to Shri/Smt………….of ……… died on………or suffering from Permanent Total Disablement. This paper is submitted fulfilling all formalities of the above claim, please make necessary arrangements for the settlement of the claim. The tags of the above animals are submitted herewith.

Thanking you,

Date:

DEATH CERTIFICATE

I hereby certify that the above-mentioned animal belonging to Shri/Smt……………….. of village……………died on ………. ………. due to accident/disease as confirmed byPost-Mortem &/or symptoms before death and observation of carcass.

Date:
Signature of Vet. Doctor
Name:
Qualification:
Registration No:

Dr. Rajesh Kumar Singh

Mob. 9431309542, Email: rajeshsinghvet@gmail.com