1. Technical Note
Integrated Insurance
& Risk Mitigation
Solution for
Dairy Farmers
Technical Note
Integrated Insurance &
Risk Mitigation
Solution for Dairy Farmers
Anupama Sharma, Avishek Gupta,
Jai Mohan M*
*Anupama works with IFMR Research’s Centre for Insurance and Risk
Management (CIRM). CIRM designs and disseminates formal risk management
solutions for low income households in partnership with several risk carriers
and design partners.
Avishek works with a dairy supply chain focused company called the Dairy
Network Enterprises (DNE) which is being incubated by IFMR Ventures. DNE
uses a combination of financial investments, technical support and business
linkages to complete the dairy supply chain.
Jai Mohan works with IFMR Rural Finance in new product development and
process innovations. IFMR Rural Finance is working towards creating a network
of Regional Rural Financial Institutions called Kshetriya Gramin Financial
Services (KGFS).
*The views presented in this technical note are solely those of the authors and do not
in any way reflect the views of organizations they work for.

2. Technical Note
Integrated Insurance
& Risk Mitigation
Solution for
Dairy Farmers
2

3. Technical Note
Integrated Insurance
& Risk Mitigation
Solution for
Dairy Farmers
CONTENTS
Background ...................................................................................... 5
Issues in Cattle Insurance ............................................................... 5
Desirable features of a Cattle Insurance product ......................... 7
Cattle Insurance Product offered at KGFS ................................... 8
Economics of Cattle Insurance .................................................... 10
Role of stakeholders ...................................................................... 11
Conclusion and Way Forward ..................................................... 13
History of Cattle Insurance Products in India ............................. 15
Screenshot of Herdman Software ............................................... 16
3

4. Technical Note
Integrated Insurance
& Risk Mitigation
Solution for
Dairy Farmers
4

5. Background
Livestock rearing is central to the livelihood and survival of millions Technical Note
of small and marginal farmers and landless agricultural labour across Integrated Insurance
the country, particularly in the dry land regions of India. As livestock & Risk Mitigation
related activities help to maintain a daily inflow of income for these Solution for
households, livestock economy is a source of self-insurance for Dairy Farmers
farmers. It also provides a diversified source of income and mitigates
the uncertainties of seasonal income from their traditional sources
like agriculture.
Despite vaccination schemes and efforts to propagate livestock rearing
by the government, livestock remains a risky business due to non
availability of timely inputs for health care of animals1, lack of suitable
education/training in rearing for skill development; inadequate finances
and poor rural infrastructure for veterinary care. As the risk reduction
strategies have not developed well (in the form of proper vaccination,
de-worming and curative measures) a key concern therefore remains
whether and how the poor in countries like India can be shielded
against risks faced by them on livestock for income. Many households
are pushed into poverty once they lose their livestock to disease,
scarcity of water and fodder and it is often impossible for them to
rebuild their stock.
Of the livestock rearing the rural population is involved in, dairying is
a predominant occupation of the people in rural India. As a result of
which, dairy cattle is the major livestock that small holders possess.
Hence, a cattle insurance product is possibly the most widely
recognized and most needed livestock insurance product.
Issues in Cattle Insurance
Cattle Insurance has been plagued by adverse selection and moral
hazard leading to high premiums to cover the losses accrued and/or
expectation of losses. The major challenges faced by cattle insurance
product in India are:
a) High Transaction Cost:
! High incidence of fraud in claim settlement process: A number
of fraudulent practices are rampant in the cattle insurance sector.
As a result of the high incidence of fraud, the insurance companies
are forced to adopt cautious measures at the time of policy issue
and claim settlement. This leads to an increase in insurance
premium making it unaffordable for dairy farmers.
! Moral hazard: Cases of farmers letting animal die and claiming
insurance is not uncommon. The skin and hide of the dead
1
Report on 10th Five year plan by Planning commission of India, Chapter 5,
section 5.2.17 “Livestock services”
5

6. animal are sold off resulting in a net positive income from death
of the animal.
Technical Note
Integrated Insurance ! High operational cost: Operational factors like issuance of policy
& Risk Mitigation cover and settlement involves a lot of paper work and is
Solution for manpower intensive. This increases cost of issue of a single
Dairy Farmers insurance cover which in turn affects the premium charged.
b) Lack of information:
! Absence of dependable historical data on mortality rates in
different locations: Neither government departments nor
insurance companies have actual data pertaining to the mortality
of milch animals year-wise. The little data that is available with
the public insurers is not digitized and hence not in a usable
form.
! Lack of information about the coverage of Vaccination
Programmes: Though a lot of government and non-government
programmes actively promote preventive cattle healthcare,
concrete data is not available on their coverage. Hence, the
benefit of such programmes is not passed on to the farmers in
the form of reduced premium for cattle insurance.
c) Unfavorable Coverage terms:
In the conventional cattle insurance products, the cover for cattle
insurance often does not begin immediately on payment of the
premium. Moreover, it takes around 40-60 days to get the claim
settled in the event of death of an animal. The initial periods of
non-coverage and delay in settlement ends up exposing the
farmers to financial shocks which the cattle insurance products
actually try to provide protection against.
d) Poor risk reduction strategies:
Due to financial and operational constraints, at times, Government
institutions are not able to deliver most of the preventive livestock
support services like, vaccination and de-worming. Though the
government understands that there is a compelling need to
improve dairying and animal husbandry sector, the efforts are
very thinly spread. All this increases the risk perception and
experience of insurers leading to a high premium.
e) Demand related challenges:
Ability and willingness to pay the insurance premium is a major
area of concern which is aggravated by the high premium rates
for cattle insurance. The unwillingness to pay is again due to
lack of awareness about the benefits of taking the product.
6

7. Desirable features of a Cattle Insurance
product Technical Note
As evident from the previous sections, there is a need to revisit the Integrated Insurance
existing product structure and delivery of the Cattle Insurance product. & Risk Mitigation
The product envisaged should blend innovation in both product Solution for
Dairy Farmers
and processes leading to a comprehensive risk mitigating tool for
the dairy farmers. Such a product should enable access to dependable
information for insurance companies, access to preventive healthcare
services for farmers, utilization of electronic setup for fast processing
and should reduce moral hazards by multiple procedural and product
related innovations.
Taking all of the above into consideration, an innovative cattle
insurance product has been developed which is now being offered
by HDFC Ergo GIC Ltd through Kshetriya Gramin Financial Services
(KGFS) in partnership with a local Dairy Healthcare Services enterprise
supported by the Dairy Network Enterprise (DNE). A brief introduction
to the different entities involved in the delivery of the product is
given below.
Kshetriya Gramin Financial Services (KGFS) are localized financial
services entities promoted by IFMR Rural Finance2 which provide
high quality financial products and services in remote rural parts of
India. Their customer centric model entails that they develop a deep
understanding of their customers so as to offer customized financial
products and services. The geographical focus enables them to
develop a deep understanding of the needs of the customers and
use the same to offer relevant financial products to their customers.
Each rural branch of KGFS, which serves a population of 2000
households3, is manned by two or three Wealth Managers (WM).
The Dairy Network Enterprise (DNE) is a dairy supply chain focused
company being incubated by IFMR Ventures4. The DNE is trying to
improve access to finance for dairy enterprises. This might entail
supply chain interventions such as training, technology support and
business linkages.
Dairy Healthcare Services Provider is a DNE accredited local entity
which partners with the KGFS to provide support for critical
operational aspects of the product like cattle registration, assessing
the health of animals, and delivery of preventive healthcare facilities
at the farmer’s doorstep. The DNE trains the personnel and equips
them with the necessary devices required to perform the tasks.
2
IFMR Rural Finance is a Brand Name of IFMR Holdings Pvt Ltd, wholly
owned subsidiary of IFMR Trust.
3
For More details on KGFS , please visit - http://www.ifmrtrust.co.in/ventures/
ifmrholdings.php
4
For More Information please visit - http://www.ifmrtrust.co.in/ventures/
ifmradvisoryservices.php
7

8. HDFC ERGO General Insurance Company Limited is a 74:26 joint
venture between HDFC Limited, a Housing Finance Institution and
Technical Note
ERGO International AG, the primary insurance entity of Munich Re
Integrated Insurance
Group.
& Risk Mitigation
Solution for
Dairy Farmers
Cattle Insurance Product offered at KGFS
While designing a livestock product for KGFS, the major objective
was to reduce adverse selection and moral hazard coupled with
introduction of risk reduction methods. It was ensured that the
product addressed all the concerns and short comings of the current
offering to the best extent p ossible and hence be more relevant to
the rural households. The salient features of this insurance product
are listed below:
a) Use of Radio Frequency Identification (RFID) tag
for tagging:
Electronic RFID tags are being used for the purpose of
identification of cattle. The RFID tags are uniquely coded as per
ICAR5 standards. The usage of RFID tag permits faster and error
free reading of tag number and also enables immediate electronic
recording of cattle data. RFID tags are cheaper and more
convenient than other methods of unique identification like retina
identification. It is, however, costlier than options like bar coding.
Usage of bar coding for the purpose of cattle identification is
limited by the fact that any scratch on the surface of bar codes
or dirt accumulation would impair readability of the tags. The
same RFID tag is being used to store data on details of the cattle
with respect to healthcare, breeding, feeding. This would enable
recording of entire history of cattle around the unique code
which would lead to future benefits in cattle valuation and breed
improvement.
b) Health services along with cattle insurance:
Each cattle is guaranteed access to basic preventive healthcare
measures in the form of de-worming and vaccination required
to maintain the health of the animals a year. A detailed history of
de-worming, vaccination and health records of the animals is
maintained in dairy health and productivity management software
called Herdman6 which has been customized to suit the needs of
the cattle insurance product.
5
International Committee for Animal Recording (ICAR) is an international
body which aims to promote the development and improvement of the
activities of performance recording and the evaluation of farm livestock.
6
Herdman is Dairy Cattle Health and Productivity software developed by
Infovet. DNE worked with Infovet to build the insurance and RFID modules in
the software.
8

9. Figure 1: Process flow of Cattle Insurance
Technical Note
Integrated Insurance
& Risk Mitigation
Solution for
Dairy Farmers
c) Use of electronic cattle registration and real time
data upload system:
The registration of animals is taken care of by the health and
productivity management software that has been customized for
use. This reduces the paperwork in the issuance of the policy
and thereby reduces the operational cost.
d) 85% coverage:
Upon death of the cattle, only 85% of the value of cattle is paid
out. This acts like a deductible in health insurance and is expected
to minimize the risk of moral hazard like letting the animal die.
e) Integration of systems:
The process is designed in such a way that the Dairy Health and
Productivity Management Software of DNE, the Customer
Management system (CMS) of KGFS and the policy issuance
system of HDFC Ergo are integrated real-time so as to enable an
on the spot issuance of cattle insurance policy – A first time in
this market in India.
f) Claim Settlement Process:
Should there be a claim upon death of the animal; the KGFS
WMs play an important role in verifying the genuineness of the
claim and coordinating submission of documents. This expedites
the claim settlement process making the claim settlement take
place within 72 hours of the death of the animal. This process
reduces the long Turnaround time (TAT) for settlement that exists
in the products available in the market.
9

10. Economics of cattle insurance
Technical Note
Insurance Premium charges:
Integrated Insurance
& Risk Mitigation The cattle insurance that are currently offered by most insurers are
Solution for in the range of 4% to 5% for a one year policy and are around 12%
Dairy Farmers
for a 3 year policy. Due to the risk mitigation mechanisms and cost
reduction mechanisms proposed in this product, a reduction in the
premium has been made possible. The product offered at KGFS is
priced at 2.9% for a year and 7% for 3 year policy.
Table 1.1: Comparison of existing and the
IFMR-HDFC product cattle insurance product
Value of cattle Existing IFMR-HDFC
Products Products
(Rs.) For 4%7 5% 7 All Inclusive8
Premium Premium
(Rs.) (Rs.) (Rs.)
10000 400 500 510
15000 600 750 655
20000 800 1000 800
25000 1000 1250 945
Dairy Healthcare charges:
It is a common practice for the veterinary doctor’s to charge
anywhere between Rs.100- Rs.150 for a visit to the doorstep of the
farmer. In order to get the cattle vaccinated outside the schedule of
the Government would require the farmers to take the animals to
the nearest veterinary dispensaries. This not only results in
inconvenience and loss of wage but the farmer also incurs cost in
carrying the animal to the nearest veterinary dispensary. In cases
where the vaccination is done by a private veterinary doctor, the
farmer has to arrange for at least 10-15 more cattle to get vaccinated
at the same time or else one farmer will have to bear the cost of the
entire bottle which costs anywhere between Rs.140-Rs.180 for one
vaccine. In case, the cattle is not vaccinated and it gets affected by
any of the diseases it may result in permanent reduction in milk
productivity along with treatment charges and sometimes even death.
The Dairy healthcare package provides two vaccines and two de-
wormers at the doorstep of the farmer over the period of a year for
a total cost of Rs.220.
7
Does not include charges for the doctor or other processing charges which
varies between Rs.100-Rs.200.
8
The charge is inclusive of the premium and the Healthcare Package charges.
The package includes not just vaccines and de-wormers but also includes
charges for the doctor and the RFID tag charges. This charge is for coverage
of 85% of the value of animal.
10

11. Role of stakeholders
The role of each of the stake holders in this innovative product Technical Note
design and structure are given below: Integrated Insurance
& Risk Mitigation
Solution for
Role of KGFS Dairy Farmers
a) Increasing awareness about product:
KGFS on enrollment of a customer as its client collects all the
details like, house hold cash flows, asset, liability details etc. So,
they have the details pertaining to the livestock pertinent to all
their enrolled customers in the area. This helps them to
communicate all the details of the product to the relevant group
of clients.
b) Reduction in moral hazard:
KGFS branches have a close local presence. Owing to this, the
KGFS WMs have become an integral part of the social fabric of
KGFS villages. This, together with the stress on Know Your
Customer (KYC) norms makes KGFS a more effective agency in
reducing cases of moral hazard.
c) Customer verification:
KGFS have Unique Reference Numbers (URN:) for all their clients.
For all the cattle being insured with KGFS, the respective tag
no’s are assigned to the URN of the client. This links the
households with their livestock assets and acts as a double check.
d) Funding for Cattle Insurance premium:
KGFS on its part would advocate the benefits of the product and
would fund the premium, if necessary through easily repayable
small loans to the clients.
e) Quick Claim Settlement:
KGFS makes the payment to the client within 72 hours of
intimation of the claim after the same has been admitted by
HDFC Ergo.
11

12. Role of DNE
Technical Note
Integrated Insurance
a) Maintenance of electronic platform for the
& Risk Mitigation product:
Solution for In order to enable on the spot issue of insurance policy, it was
Dairy Farmers
necessary to develop a system where the animal registration is
done at the customer doorstep and the data reaches the
insurance company in real time. A system was also required to
track health and productivity related details of each animal to
ensure that the basic preventive measures were being taken care
of. The DNE has worked with partner Software Company and
customized the Dairy Animal Health and Productivity Management
Software which enables registration of animal and also enables
real time upload of data for the insurance company to issue the
policy. The software also maintains detailed records of preventive
healthcare measures taken. Over a period, it would also have
concrete data on mortality rates of insured animals.
b) Training of Local Dairy Healthcare Services
Provider:
DNE trains the Local Dairy Healthcare Services Provider in
performing the tasks of cattle registration, scheduling for
vaccination and helps in setting parameters for the different
activities to be performed by the local entity.
c) Linkage for inputs and equipments:
The DNE provides the linkages for the vaccines, de-wormers and
other equipments required to the local dairy healthcare services
provider. The DNE also takes care of the hardware and software
requirements of the product.
Role of Local Dairy Healthcare Services Provider
a) Approval of Health Condition of dairy animal:
DNE accredited veterinarian verifies the health of the animal.
The veterinarian allows only healthy dairy animals to be tagged
and issued insurance. The veterinarian also ascertains the age of
the animal and records other identification details.
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13. b) Tagging of cattle using RFID ear tags:
In order to ensure that the each animal is identified with a Technical Note
unique Identification number, ICAR certified RFID Ear Tags are
Integrated Insurance
being used instead of plastic tags. The tags have a unique code & Risk Mitigation
which cannot be allocated to any other animal in the world. The Solution for
RFID tag enables fast and error free recording of tag numbers Dairy Farmers
and immediate recording of cattle details in electronic form. The
same tag may be used for multiple uses like for Healthcare data
recording, breeding data recording and other requirements for
the same animal. Usage of such unique ID for identification of
cattle is a step ahead in the direction of ensuring availability of
complete history of cattle during its lifetime. This would lead to
benefits like better suited premium rates and clear knowledge
about valuation of each cattle in future. Moreover, the Dairy
Health and productivity Management software has been designed
in such a way that if the veterinarian has to issue cattle insurance
or update data about vaccination being done on a particular
animal, s/he has to visit the animal and read the tag. Only then
can s/he update the data that the animal has been vaccinated.
This reduces chances of veterinarian not administering vaccines
but simply entering the data that the animal has been vaccinated
while at his/her office.
c) Dairy Animal Registration and maintenance of
records:
The Local Dairy Healthcare Services Provider is entrusted with
the responsibility to register healthy cattle for the purpose of
insurance. The details of the cattle are entered into an electronic
form on the data entry device and uploaded whenever internet
connection is available.
d) Access to Preventive Healthcare Support:
Dairy Healthcare Services Provider ensures that the customers
are able to have easy access to preventive healthcare facilities
like de-worming and vaccination at their doorstep. De-worming
and vaccination acts as a basic preventive measure to reduce
chances of animal mortality due to diseases. By adopting
vaccination, the farmer is not only reducing chances of sudden
loss of cash flows due to death of animals but also contributing
to the confidence of the insurance company to offer the
insurance products at a lower premium.
Conclusion and Way Forward
The Integrated Insurance and Risk Mitigation solution thus uses a
mix of product and process innovations to address the issues of
high transaction costs and information asymmetry, thereby
contributing to significant reduction in premium and increasing the
13

14. efficiency of the product. As cattle is an important source of income
for majority of KGFS clients, this product would act as a safety net
Technical Note
and protect the clients from financial shocks and provide support
Integrated Insurance
for buying cattle again. This product may also be seen as a protection
& Risk Mitigation
to KGFS loan portfolio when the animal is bought with a KGFS loan.
Solution for
The structure also demonstrates the value proposition that a co-
Dairy Farmers
ordinated effort of this nature can bring about to the customers
served.
Each of these stake holders mentioned would be keen to offer the
product, process, technologies with entities/ agencies interested in
knowing more about the product or replicating the product.
For entities and individuals who are interested in replicating the
product or interested in knowing more please mail to
cattleinsurance@ifmr.co.in.
14

15. Annexure 1
Technical Note
History of Cattle Insurance Products in India
Integrated Insurance
The Government of India pioneered the effort to create a market for livestock & Risk Mitigation
insurance with the help of Small Farmer’s Development Agency9 (SFDA) in 1971 Solution for
and subsequently various schemes were launched at national level to provide safety Dairy Farmers
nets for all livestock rearing farmers in the country. Though public insurers have
been in this field for the past 35 years, there has little innovation in product structure.
The Insurance cover remained restricted to death and Permanent Total Disability
(PTD) only, but not for other insurable risks like cattle diseases, epidemics, and
hence this market remains underpenetrated with less than 7% of cattle being insured.
The table below gives the important developments in the Cattle Insurance related
products chronologically:
Table 1.2: History of Cattle Insurance related products
Year Implementing Agency/program Remarks
1971 “Cattle insurance scheme” Nationalized banks began to finance
by Small Farmer’s the purchase of cattle (i.e. credit linked
development agency livestock insurance was provided) and agreed
to collect premium from beneficiaries. Cover
was for one year and premium was collected
annually.
1983 “Cattle insurance policy” under Livestock and asset insurance was
Integrated Rural Development extended to the poor along with the
Program subsidized loans under IRDP.
Cattle Insurance was bundled with the loan and
hence was compulsory. This product was
devised by General Insurance Company (GIC)
and implemented through its four subsidiary
agencies of GIC 1983 onwards. Premium
charged was 2.25% (death) with extra charge
of 0.85% for PTD. No age limit for cattle was
prescribed specifically for this.
1983 Market agreement No subsidy was provided and was offered
(Market agreement is an as a voluntary product. Was also offered to
arrangement done when animals that were not purchased under
government/insurance any schemes animals. Premium charged
company has lesser was 2.85-4%. Cover was available at
experience for the product given premium for milch cow of age
and in this arrangement 2-8 years and buffalo of age - 3-12 years.
livestock insurance was
provided as retail product)
9
All India Rural credit committee (1969) recommended establishment of an agency to assist
small farmers who had not benefitted from gains of green revolution. And as a result Small
Farmer’s Development Agency (SFDA) came into existence, which started working in 1971-
72. Programs based on agriculture and animal husbandry was started. SFDA provided subsidy
to the extent of 25% to identify small farmers on capital investments and inputs. Loans from
commercial and co-operative banks were made available. (Source: Rural development:
Principles, Policies, and Management, By Dr. Katar Singh Edition: 2)
15

16. Year Implementing Agency/program Remarks
Technical Note 1999 IRDA Inception of IRDA, liberalization of
Integrated Insurance Indian insurance industry.
& Risk Mitigation
2001 Private players registered ICICI Lombard, IFFCO-TOKYO, HDFC ERGO,
Solution for on- Royal Sundaram registered as private
Dairy Farmers wards insurers offering livestock insurance.
2005 Micro-insurance regulation, Micro-Finance Institutions (MFIs),
2005 Non-Government Organizations (NGOs) and
Self-Help Groups (SHGs) can act as an agent
for insurance companies to increase the
penetration of insurance in the rural markets.
2005- “Livestock insurance scheme” Premium of the insurance is subsidized to the
2006 implemented by State tune of 50%; Premium not to exceed 4.5% for
Livestock Development Boards annual policies and 12% for three year
(SLDB and State Animal policies. Scheme is extended in 11th Five Year
Husbandry Departments Plan (2007-2012) to cover entire country.
Ref: “Livestock Insurance in India: A sector Review” by Dr.Anupama Sharma, CIRM, IFMR10
Annexure 2
Screenshot of Herdman Software
10
www.ifmr.ac.in/cirm/downloads/Session2_Livestock_Insurance.ppt
16