ICICI Lombard General Insurance has structured India''s first-ever weather insurance deal in the non-agriculture domain, providing a unique insurance cover to GHCL for the expected loss of salt production owing to unseasonal rainfall at its Nagapattinam salt production fields in Tamil Nadu.

As per the terms of the insurance policy, ICICI Lombard will pay GHCL (according to the extent of rainfall) an insurance compensation of Rs6 lakh (1 to 9 mm rain), Rs10 lakh (10 to 24 mm rain) and Rs25 lakh (greater than 25 mm rain) per non-production day (NPD). An NPD is defined as a day during the cover period on which any rainfall is received at Nagapattinam reference station. The maximum sum insured is Rs1.5 crore.

Explaining the complexities and genesis of the deal with GHCL, Smita Aggarwal, ICICI Lombard''s head of rural and agriculture business said: "An apparently uninsurable risk has been painstakingly analysed taking into account historical production data in conjunction with rainfall incidence and converted into an insurable proposition."

The premium rates were arrived at by ascertaining various components including expected loss, volatility of loss, capital costs and transaction-related frictional costs, as well as a robust distribution analysis of loss, based on historical rainfall data, added Ms Aggarwal

The procedure for claim settlement is simple: ICICI Lombard would collect data from Nagapattinam weather station (World Meteorological Organisation Station Number 43347) on a daily basis. After the expiry of the cover period NPDs type A, B and C would be calculated and, if it is observed that the index is greater than strike, ICICI Lombard would proactively pay out the claim. In this case, GHCL would not be required to file any claim.

This is the first ever weather insurance deal in which a corporate house has protected itself for expected loss of production from adversities of weather. It opens up a completely new set of opportunities for innovative products for other corporate houses in the agri-input, plantation, food processing, sugar and other agri-based sectors.

ICICI Lombard General Insurance is the first insurance company in India to get the approval from the Insurance Regulatory Authority of India (IRDA) last year to launch weather-linked insurance products in the country.