SSSIHL CADS

Adopting Livestock Insurance in India: Challenges and Opportunities

Authors: K Omkar Reddy, CM Sanathana Sarathi.
Date: 14-06-2025

ABSTRACT

 

The low penetration of livestock insurance in India, while the livestock industry accounts for around 5% of the country’s Gross Value Added (GVA), is discussed in this paper. With insurance coverage at only 0.98% of the livestock, the majority of Indian livestock farmers are exposed to financial shocks emanating from outbreaks of disease, shortages of fodder, and market fluctuations. The study recognizes multiple interconnected obstacles, viz., excessive premium prices, slow and laborious claims processes, low awareness, and a lack of region-sensitive insurance products that cover risks inherent to certain areas. By doing a comparative study of livestock insurance programs in the United States, China, and Germany, the paper points out international best practices such as government subsidy, public-private linkages, and technology-based claim handling. Based on these findings, the research suggests ways to improve uptake of insurance in India, such as the creation of value-added products, demystification of the claim process, and enhanced institutional support. Finally, the paper highlights the importance of livestock insurance in ensuring financial resilience, rural stability, and long-term sustainability of India’s livestock industry.

Livestock Insurance in the United States of America

The US livestock industry remains a vital cornerstone of the nation’s agricultural economy, with a big chunk of cash receipts and agricultural production value. In 2024, cash receipts from meat animals – cattle, calves, hogs, and pigs – were around $128.29 billion, up 9.7% from $116.92 billion in 2023. The cattle and calves segment alone accounted for 79% of this total, or nearly $101 billion, so beef cattle are a big deal in the overall livestock sector. Despite a persistent agricultural trade deficit – $21 billion in 2024, with record agricultural imports of $213 billion – the livestock sector is still generating export and domestic market activity even as the US becomes more dependent on imports to meet demand.

Between 2023 and 2024, beef production was flat at 27.049 billion pounds, but overall red meat and poultry production was up 1.0% to 107.6 billion pounds. Pork production was up 1.5%, broiler meat was up 1.1%, and commercial lamb and mutton were steady at 134 million pounds. This shows a trend of diverging growth rates across the livestock sectors. But underlying all this is a continued decline in key livestock inventories: total cattle and calves were down 2.0% to 87.2 million head in 2024, and beef cows were down 2.4% to 28.2 million head. The calf crop was down 2.3%, so supply will be tighter and prices will go up.

This is a longer-term trend, as 2025 will be the 6th year in a row of inventory declines, with projections of just 86.7 million head, the lowest since 1951. In response to tighter supply, US beef imports were up 23% in 2024 and will be at record levels in early 2025, especially from Brazil and Paraguay. This structural shift makes the US market more price volatile and more susceptible to global disruptions – climate events, trade disputes, and animal disease outbreaks. In this environment, risk management is more important than ever for livestock producers. The US livestock insurance market is $2.4 billion in 2024 and is a financial safety net. The market is a hybrid of federal programs administered by the USDA’s Risk Management Agency (RMA) – Livestock Risk Protection (LRP), Livestock Gross Margin (LGM), Dairy Revenue Protection (DRP) – and private-sector offerings like animal mortality insurance that covers losses from accidents, disease, and extreme weather.

Despite government subsidies, which were increased significantly in 2019 and 2020 to reduce producer premiums, adoption of federal livestock insurance programs is low. A 2021 survey found only 1% of US feedlots used LRP, and a 2015 study found only 7% of cattle producers had used it. The complexity of the programs and too many coverage options are part of the reason. Even so, the Federal Crop Insurance Program (FCIP) insured $116 billion in crops and livestock in 2019 and covered 124 commodities and 6% of all US operations by 2022 (107,409 insured operations, up from 103,060 in 2017).

Key motivators for the growth of livestock insurance include increased climate risk, government support, technology advancements, and increasing demands from commercial lenders. Ninety-three percent of the ninety days from January to September 2024 experienced severe weather. Hurricane Milton in late 2024 resulted in estimated losses in livestock from $29.4 million to $86.5 million. These events are increasing financial security and risk mitigation demands. Simultaneously, technologies such as AI-powered risk modeling, satellite imaging, blockchain for fraud management, and telemedicine-based verification of claims are transforming the insurance industry by increasing precision, reducing bureaucratic burdens, and reaching rural areas. Across the world, the business of animal insurance is also developing at a fast pace. With projected compound annual growth rates (CAGR) between 6.3% and 7.8% from 2030 through 2034, projections in 2024 are between $4.2 billion and $8.9 billion. While the cattle industry itself represents 31.2% of all market value in 2024, the U.S. market contributes approximately 22% of global revenue. 

The stabilizing role of insurance is more essential than ever as the U.S. beef industry navigates a volatile climate formed by shifts in production, trade pressures around the globe, environmental change, and changing consumer expectations. The U.S. cattle and livestock insurance sectors are studied in considerable depth in this article, from historical patterns to risk profiles, insurance policies, patterns of adoption, and present market measurements. Also explored is the strategic interaction of farmer conduct, government policy, and non-public sector innovation in shaping the company’s future resilience, sustainability, and profitability.

 

Livestock Insurance Schemes in the US may be divided into 2 categories, they are:

  1. Federal Agency-sponsored Schemes: Government-funded Insurance programs that work with intermediaries.
  2. Private Insurance Schemes: Operated by Private players.

Federal Agency Sponsored Schemes:

The Federal Government offers mainly two types of Livestock Insurance policies to safeguard producers against loss due to fluctuations in future prices. They are called:

1. Livestock Risk Protection Program: 

  1. In this Insurance scheme for livestock, which is managed and regulated by the USDA’s Risk Management Agency, the producer is safeguarded against the downside fluctuation of prices of livestock on sale during maturity. The producer will have complete gain if the price is above the expected price on a future date, but he is insured against downside fluctuation, and will be paid the margin of loss. The expected future price is determined by the futures index of Livestock prices, and the producer can purchase the policy for weeks (13 to 52 ), matching the time of sale for the livestock.
  2. The Producer can also choose the coverage levels, typically 70-100%, of insurance.
  3. The premium will be subsidised by the federal government, to an extent, and is based on the targeted weight of the animal on maturity, coverage levels, the Insured’s stake in the livestock, number of heads in the policy.
  4. This scheme is vital for stabilizing producer income and reducing financial risk by safeguarding against volatile market prices.
  5. By participating, producers secure more predictable revenue, minimize potential losses, and gain the confidence to invest in their operations, potentially also improving their access to financing.
  6. Conversely, without this protection, producers face unmitigated market exposure, significant financial vulnerability, hindered growth, and difficulties in planning and budgeting, leaving them susceptible to substantial economic setbacks.

For further clarification on this policy, refer, Appendix 1 

2. Livestock Gross Margin Program:

  1. Livestock Gross Margin Insurance (LGM) provides cattle, swine, and dairy producers with an option to fund the financial risk that comes with changing feed and livestock prices. In contrast to physical loss, LGM insures the expected gross margin—the difference between the sales price of the livestock and the cost of feeding it.
  2. Policies are made available every week and can be purchased for up to 11 months into the future. The expected gross margin (EGM) and the actual gross margin (AGM) are calculated using futures market data for livestock, corn, and feeder cattle. If the AGM turns out to be lower than the EGM minus a selected deductible, the policyholder receives an indemnity payment to cover the shortfall.
  3. This insurance is intended to respond exclusively to market-oriented losses, like a decline in the price of livestock or an increase in the cost of feed. It does not respond to physical losses, like death due to age, disease, or culling. The USDA’s Risk Management Agency (RMA) administers and regulates this program.
  4. To join, producers are required to apply first using an Approved Insurance Provider (AIP). This process involves the filing of a Specific Coverage Endorsement (SCE) and a Target Marketing Report, reporting the number of animals and the months when they are to be sold. Producers are also required to have ownership of the animals for a period of not less than 30 days before the SCE expires, and maintain feed use records and sales records for not less than three years.
  5. Premiums are determined on several items: number of head insured, volatility in the market, selected coverage level and deductible, and the producer’s eligibility for special status, e.g., Beginning Farmer/Rancher or Veteran Rancher. Federal government subsidies range from 18% to 50%, depending on deductible size—larger deductibles tend to have smaller premiums but smaller subsidies as well.
  6. The premium is payable on the first day of the second month following the end of coverage. The policy automatically expires on August 31 of the pertinent crop year. Coverage will depend on the availability of market data and federal funds.
  7. By procuring LGM cover, manufacturers can handle unstable markets more effectively and safeguard profit margins, achieving a more predictable revenue stream. Without it, they are entirely at the mercy of unpredictable cost fluctuations, which can scuttle planning schedules and overall business stability.

For more information, refer to Appendix 2.

3. Dairy Revenue Protection (DRP):

  1. In this Daily Revenue protection scheme, the dairy is insured for fluctuations in the price of milk and the quantity of milk insured. The Insurer reimburses the marginal loss that occurs due to fluctuation in the prices or quantity insured.
  2. It’s crucial because it offers financial stability, allowing dairies to predict revenue, reduce risk, and ensure business continuity, thereby fostering investment confidence and potentially easing access to credit.
  3.  Without it, dairies face volatile revenues, increased financial vulnerability, operational instability, hindered growth, and challenging budgeting, leaving them fully exposed to unpredictable market forces.

For more information, refer to Appendix 3.

The USDA also has a few other similar policies, like weaned calf protection, that address some of the needs of the producers.

Private  Livestock Insurance Products:

1. Animal Mortality Protection:

  1. This Insurance is given by private insurance operators and covers them against perils of death due to disasters like floods, cyclones and storms, accidents, weather conditions, and attacks from wild animals.
  2. This private livestock insurance is crucial as it offers essential financial protection to livestock owners, safeguarding them against significant economic losses from unforeseen events.
  3. By securing this coverage, producers can mitigate the financial impact of animal deaths due to disasters, accidents, harsh weather, or wildlife attacks, thereby ensuring greater stability and resilience for their operations. Without it, producers face unmitigated financial risk, potentially leading to substantial economic hardship and threatening the viability of their livestock businesses when such unfortunate events occur.
  4. The following may be added to the mortality cover: (Extended Cover)
  1. Vet fees and life-saving surgery coverage.
  2. Prospective calf death due to animal mortality.
  3. Slaughter due to accident or sickness, etc.
  4. Disposal of the carcass.

For more information, refer to Appendix 4.

Having known about the type of Insurance policies in one of the most advanced livestock markets in the world, let’s contrast and compare it with other global markets.

Livestock Landscape in India

India’s livestock sector is a cornerstone of its economy, contributing approximately 5% to the Gross Value Added (GVA). As the world’s leading milk producer, the sector plays a crucial role in national food security and provides a more stable income source for rural livelihoods compared to the often fluctuating and seasonal nature of crop farming.

Despite its economic importance and the existence of initiatives like the National Livestock Mission, livestock insurance penetration in India remains alarmingly low, at just 0.98%. This significantly low rate points to fundamental issues hindering widespread adoption.

 

Key Reasons for Low Insurance Penetration:

Several factors contribute to the reluctance of livestock owners to embrace insurance:

  • Difficulties in Getting Claims: Producers often face arduous processes and delays when trying to claim insurance benefits, leading to distrust in the system.
  • High Premium Rates: For many small-scale farmers, the cost of premiums is perceived as prohibitive, outweighing the perceived benefits.
  • Lack of Awareness: A significant portion of the livestock-owning population, especially in rural areas, is unaware of the existence or benefits of livestock insurance schemes.
  • Cumbersome Paperwork: The bureaucratic and often complex documentation required for purchasing policies and filing claims acts as a major deterrent for less literate or time-constrained farmers.
  •  

Major Pain Points in the Indian Livestock Industry:

Beyond insurance, the Indian livestock industry grapples with several systemic issues that impact productivity and profitability:

  • Disease Burden: India faces a formidable challenge from animal diseases. Approximately 80% of diseases listed by the World Organization for Animal Health (OIE) have been reported in India, leading to significant economic losses due to mortality, reduced productivity, and trade restrictions.
  • Fodder Shortage: A critical deficit in feed resources plagues the sector, with a notable 35% shortage in green fodder and 25% in dry fodder. This directly impacts animal health, growth, and milk production.
  • Low Productivity: Indigenous animal breeds, while resilient, often exhibit low productivity. For instance, local cattle typically yield only 3-5 liters of milk per day, starkly contrasting with global averages of 20-25 liters per day from high-yielding breeds. This limits the income potential for farmers.
  • Low Income for Farmers: The culmination of these issues often results in low income for farmers. This financial constraint directly impacts their ability or willingness to invest in essential services like livestock insurance, perpetuating a cycle of vulnerability.

 

Dominant Livestock Categories and Insurance Focus

Within the vast Indian livestock market, cattle, buffalo, goats, and sheep constitute approximately 95% of the entire business. Consequently, the majority of livestock insurance offerings are tailored and focused predominantly on these key categories, reflecting their economic significance and the need for targeted risk management solutions.

Refer to Appendix 5 for more information.

 In India, livestock insurance is offered through a diverse landscape of providers, including government-backed programs, cooperative ventures, and private insurers. The Centrally Sponsored Livestock Insurance Scheme (LIS), a government initiative, subsidizes premiums for farmers and cattle owners, covering up to two animals against death by disease or accident. Cooperative models like MyMul Free Livestock Insurance in Karnataka offer near-zero premium coverage for registered dairy owners against various causes of death. Additionally, numerous private insurance companies, such as Oriental Insurance, New India Assurance, and others, provide policies for cattle, covering death from accidents, diseases, and surgeries, with varying premiums and exclusions, catering to broader individual and institutional needs.

Appendix 6 has a more detailed explanation of the different policies existing in India.

The following table captures the challenges in Indian Livestock Insurance and also provides one version of solutions for the same:

Conclusion and Key Takeaways:

  • Insight: Diversification of Indian Livestock Insurance Beyond Mortality and PTD:  India’s current livestock insurance schemes are predominantly limited to mortality and Permanent Total Disability (PTD). This leaves farmers highly exposed to critical risks like market price fluctuations and volatile feed costs, which significantly impact their income and business viability. By introducing policies like Dairy Revenue Protection (DRP-India) and Index-Based Fodder Scarcity cover, India can offer comprehensive risk management, similar to the advanced US models. This would stabilize farmer income, foster investment in the livestock sector, and reduce financial vulnerability, preventing substantial economic setbacks due to market forces or feed shortages.

 

  • Insight: Addressing “Natural Cause” Exclusions in Indian Policies: Most Indian and US private sector livestock policies exclude natural causes of death (like old age), which is a common occurrence. This omission leaves farmers unprotected against predictable losses, eroding trust in insurance. Adopting an “Enhanced Mortality policy” that covers natural causes, similar to Germany’s “All-Risks Mortality” policies, even at a higher premium, would provide a more complete safety net. This would increase policy adoption by aligning coverage with real-world risks, providing greater financial security and peace of mind for farmers.

 

  • Insight: Digital Transformation for Underwriting and Claims in India: India’s current manual processes for underwriting and claims lead to significant delays and bureaucratic hurdles, frustrating farmers and hindering adoption. Implementing “Automated Underwriting Systems” and “Smart Underwriting” models (like Germany’s MIRA and “4+2” questions), along with digital claims processing (telemedicine, satellite imaging, digital payouts), is crucial. This would streamline operations, reduce complexity, combat fraud, and significantly improve farmer satisfaction, leading to higher penetration and efficient risk management across the sector.

 

  • Insight: Mandatory Digital Health Records and Ear Tagging in India: The lack of comprehensive digital integration for animal identification and health records in India creates transparency issues and makes fraud prevention challenging. Mandating “Digital Health Records” and “Digital Ear Tagging” (with muzzle pattern recognition as a superior identification method) for all insured animals, linked to a central database, would significantly enhance transparency and fraud prevention, drawing from China’s technological integration successes. This would build insurer confidence, potentially lower premiums due to reduced risk, and ultimately benefit farmers through a more robust and trustworthy system.

 

  • Insight: Inclusion of Third-Party Liability Coverage in India: The absence of “Third-Party Liability coverage” for damages caused by animals in Indian policies leaves farmers exposed to substantial legal and financial repercussions. Incorporating this feature, as is essential in Germany due to its strict liability laws for animal owners, is vital. This would protect farmers from unforeseen liabilities, providing a holistic risk management solution and promoting responsible animal ownership, ultimately safeguarding their assets and livelihoods.

 

  • Insight: Strategic Implementation of Tiered and Targeted Subsidies in India: Importance: Despite high subsidies, India’s livestock insurance penetration remains low, partly due to perceived complexity and lack of awareness, similar to the US LRP program. Introducing “Tiered Subsidies” for higher-end coverages (like revenue protection or index-based policies) would encourage farmers to invest in more valuable protection, aligning with the US LRP/LGM models. Simultaneously, “Targeted Subsidies” for poor households, akin to China’s QTP model, would ensure equitable access and contribute to poverty reduction, making insurance accessible where it’s most needed. 

 

  • Insight: Valuing High-Value Animals Beyond Replacement Cost in India: Current Indian policies generally cover animals only for their market value, which often falls short of the total economic loss for high-value breeding or revenue-generating animals. Allowing the sum insured for such animals to include an “additional component for lost revenue or labor expenses,” as seen in China’s expanding liability coverage and US private mortality policies, would provide more adequate compensation. This would incentivize farmers to insure their most valuable assets, better reflecting their true economic contribution and protecting their overall farming enterprise.
  1. Unique Aspect (USA): Federal Agency-Sponsored Price and Gross Margin Protection
  • Why it’s unique to the USA: The US stands out with its government-funded Livestock Risk Protection (LRP) and Livestock Gross Margin (LGM) programs, administered by the USDA’s Risk Management Agency (RMA). These are unique because they specifically protect producers against price fluctuations and gross margin decreases (livestock price minus feed cost) rather than just physical mortality. This addresses a critical market-oriented risk for large-scale, commercial operations, which is less prevalent in the more subsistence-oriented livestock farming of many other countries. If not followed, producers face unmitigated market exposure, significant financial vulnerability, and hindered growth, as seen in the US with low adoption despite subsidies due to complexity. If followed, it stabilizes producer income, reduces financial risk, and provides confidence for investment.

 

  • Unique Aspect (India): Mandatory Ear Tagging with “No Tag No Claim” Policy: Why it’s unique to India: India has a distinct and mandatory “Ear Tagging” system for insured animals, enforced with a “No Tag No Claim” rule. This is unique in its strictness and widespread application to combat fraud and ensure proper identification in a country with a vast and diverse livestock population. While other countries may use tagging, the direct link to claim validity and its scale in India make it a particularly unique and crucial aspect of its livestock insurance framework. If not followed, it would lead to rampant fraud and make proper claim settlement impossible, undermining the entire insurance system. If followed, it greatly enhances transparency, reduces fraudulent claims, and ensures accountability in the insurance process. However, the industry is keen to move to the muzzle identification system.

 

  • Opportunity ahead for India: The massive potential for growth is the primary opportunity, given India’s status as the world’s leading milk producer and the livestock sector’s significant contribution to GVA and rural livelihoods. Leveraging technology (AI-powered risk modeling, satellite imaging, muzzle identification for fraud-check, telemedicine for verification) offers immense scope to increase precision, reduce bureaucracy, and reach remote areas. Developing diversified products beyond mortality, including revenue and index-based covers, incorporating comprehensive “all-risks” mortality, introducing third-party liability, and implementing smart, tiered subsidy models can significantly boost adoption. Finally, a strong focus on digital integration for health records and animal identification, coupled with targeted awareness campaigns, presents a clear path to transform the Indian livestock insurance market into a robust financial safety net for millions of farmers.

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