Redefining cattle insurance
A joint collaboration of IFMR Holdings and Dairy Network Enterprise (DNE), together with HDFC Ergo GIC, has led to the development of an innovative cattle insurance product that has been introduced in Tamil Nadu’s Thanjavur district.
For the first time in India, an on-the-spot cattle insurance product backed by radio frequency identification (RFID) tags and preventive dairy healthcare is being issued to dairy farmers. With these features, the product addresses major hurdles in cattle insurance in India.
Use of RFID tags enables fast and accurate identification of insured animals
Three entities are involved in offering the product to rural households. They are:
- Pudhuaaru Kshetriya Gramin Financial Services (PKGFS), a company promoted by IFMR Rural Finance (the brand name of IFMR Holdings), that provides high quality financial products and services in remote locations of Thanjavur and Tiruvarur districts of Tamil Nadu.
- Dairy Network Enterprise (DNE), being incubated by IFMR Ventures to plug gaps in the dairy supply chain, which uses a combination of financial investments, technology and technical support.
- Insurance provider HDFC Ergo General Insurance Company Limited (GIC), a 74:26 joint venture between HDFC Limited, India’s premier housing finance institution, and Ergo International AG, the primary insurance entity of Munich Re Group.
The product is offered to rural households by PKGFS, which has branches in the villages. If required by clients, PKGFS can give loans for payment of the insurance premium. PKGFS will pay claim amounts to clients within 72 hours of claim approval by HDFC Ergo.
DNE helped in developing the RFID-backed electronic platform which enables issuance of on-the-spot cattle insurance. “By using the electronic platform, we have been able to eliminate paperwork and slash the time required for issuance of insurance policy,” explains Avishek Gupta of DNE.
"While it normally takes 15 days for issuing a cattle insurance policy, we do it immediately."
DNE also handles critical operational aspects of the product, like sourcing RFID components and veterinary drugs, coordinating with local veterinarians for animal registration, assessing the health of animals, and delivery of preventive healthcare facilities at the farmer’s doorstep.
Animal registration is done at the customer’s house. The health status and productivity details of the animals are also recorded using a customised dairy health and productivity management software that enables real-time transfer of data to the insurance company. A detailed history of de-worming, vaccinations and the animal’s health records is maintained using specially developed software.
"Apart from reducing the chance of sudden loss in income due to the death of an animal, these measures encourage the insurance company to offer a lower premium," explains Jai Mohan of IFMR Rural Finance. While premiums charged for such a product in India are around 4-4.5% of the value insured, the premium for the IFMR-HDFC Ergo product is around 2.9%, plus healthcare charges.
The customised dairy health and productivity management software, PKGFS’s customer management system, and HDFC Ergo’s policy issuance system are integrated real-time, to enable on-the-spot issuance of a cattle insurance policy -- a first in this market in India.
To ensure fool-proof identification of insured animals, RFID tags are fixed to the animals’ ears. First developed in the US in the 1970s, and used for defence and other applications, RFID tags are radio transponders with memory. Each tag contains an integrated circuit chip for storing and processing information, and modulating and demodulating a radio frequency (RF) signal, and an antenna to receive and transmit signals.
Each RFID tag used in the cattle insurance product is uniquely coded, making duplication near impossible. Each tag is designed in such a way that if it is removed from the ear of the animal, the chip is destroyed, leading to non-acceptance of the insurance claim. The tag thereby reduces the possibility of fraudulent claims, which, in turn, means that the insurance company can offer a lower premium.
The tag serves other purposes as well. The cattle health and productivity management software has been designed in such a way that if the veterinarian has to update data on vaccinations given to a particular animal, he has to visit the animal, read the tag, and update the data -- he cannot simply enter the data from his office. The RFID tag also enables a faster, more accurate reading of each animal’s unique identification number.
When an insured animal dies and a claim is made, wealth managers from PKGFS will verify the genuineness of the claim and coordinate the submission of required documents. This is expected to greatly expedite the claims settlement process; settlements can be made within 72 hours of the animal’s death.
"The mix of products, processes and innovations addresses the issues of high transaction costs and information asymmetry in livestock insurance, thereby contributing to significant reductions in premium and an increase in the efficiency and efficacy of the product," explains Jai Mohan. As cattle happens to be an important source of income for a majority of PKGFS clients, the product will act as a safety net and provide support for buying cattle after the loss, he adds.
Although various livestock insurance products have been offered in India since 1971, it is estimated that less than 7% of India’s cattle is insured. Major problems identified in the promotion and acceptance of livestock insurance include a high insurance premium thanks to high transaction costs and poor spread of animal healthcare services, rising incidence of fraudulent claims, lack of data on animal mortality, and long time taken to settle claims.
Designed in association with IFMR’s Centre for Insurance and Risk Management, the IFMR-HDFC Ergo cattle insurance product was launched in PKGFS areas of operation in September 2009.
While the product is expected to be next introduced in other KGFS areas -- in Ganjam district of Orissa and hilly areas of Uttarakhand -- DNE is offering the RFID-backed electronic platform and also linkages for vaccines and drugs required for dairy healthcare services to other entities like NGOs, MFIs and dairy enterprises.
"The RFID-backed electronic platform is powerful not only because it enables issue of on-the-spot cattle insurance, but it can also be used to plan, monitor and deliver dairy healthcare, feeding and breeding services to farmers across the country," explains Avishek.
If required, DNE can facilitate access to finance for different entities planning to use the platform, he adds.
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