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The central government’s two-year old crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY) has seen 47.5 million hectares of gross cropped area being covered in 2017-18. Even as the Centre plans to increase coverage to 50 per cent of crop area in FY19, some gaps need to be filled to ensure timely release of claims to the end beneficiary, the farmer.
The agriculture ministry’s data showed PMFBY had a sum insured amount of Rs. 1.9 lakh crore and a premium volume of Rs 24,351 crore in FY18. This was lower than 2016-17 when over 57 million hectares of gross cropped area was covered for a sum insured of Rs 2.05 lakh crore and premiums of Rs 21,500 crore.
This made it the third largest line of insurance in the country after motor and health. Incidentally, India also ranks as the third largest crop insurance market globally, behind United States of America and China.
The Scheme
PMFBY compensates farmers if any of the notified crops fail due to natural calamities, pests and diseases. The scheme seeks not just to just to insulate farmers from income shocks, but also encourage then to adopt modern agricultural practices.
Unlike previous schemes, PMFBY is open for both farmers who have taken loans as well as those who have not. It covers food crops (cereals, millets and pulses), oilseeds as well as horticultural crops.
“Earlier, only claims for certain crops were paid and that too limits were imposed. All those have been removed, even though the government bears a heavy subsidy burden,” said the head of crop insurance segment at a large public sector insurer.
It has a uniform premium of two percent to be paid by farmers for all Kharif crops and 1.5 per cent for all Rabi crops. For commercial and horticultural crops, the farmers’ premium is five percent. The rest of the premium is paid equally by the Centre and state government.
The scheme also mandates use of new technology include remote sensing and drones to measure crop yields. A total of 18 insurance companies, private and public sector have been empanelled for the scheme.
PMFBY benefits
The insurance scheme says that each state has to conduct a certain number of crop cutting experiments (CCEs) to get basic estimates about crop yields in each area. This data is then submitted to the insurance company within a time limit. This information is crucial, because it gives the insurance company an idea of how much crop is estimated to be produced in each region for the Kharif and Rabi seasons.
The earlier crop insurance schemes had a limit on the government subsidy that was payable. However, PMFBY has done away with it. In this, even if the balance premium is 90 per cent, it will be borne by the government. So, the farmers will get claim against the full insurance amount that they have taken.
The loss assessment for crop losses due to climatic conditions is done for each area. If there is a situation where majority of crops in one area could not be planted due to bad weather, farmers can claim 25 per cent of sum assured. However losses due to localised perils (like hailstorm, landslide & inundation) and post-harvest losses due to specified perils (cyclone, unseasonal rains) will be assessed at the affected field of the farmer, who had taken the insurance cover.
Challenges
Delay in claims has been one of the key concerns under PMFBY. A committee appointed by the agriculture ministry has said that with substantial claims payable in Chhattisgarh, Haryana, Madhya Pradesh, Maharashtra, Odisha, the Kharif 2017 claim ratio is expected to be upwards of 90 percent.
The report, “Strategy for Doubling Farmers' Income by 2022”, by the Committee on Doubling of Farmers' Income, Ministry of Agriculture said that states should promote availing of crop insurance facility without waiting for completion of sowing.
The head of underwriting of a mid-size private general insurance company said while drones and GPS were to be used, the usage has been minimal so far. “Since the claims are paid based on crop yield, technology is critical to minimise fraudulent claims,” he added.
On one hand while claims settlement has been growing at healthy pace, the government panel report said that the states have to make sure that the tender process for selection of insurance companies and premiums should be done before the crop season starts. During 2016 and 2017, the last tender for Kharif went into August, depriving the non-loanee farmers an opportunity to enroll.
The report also added that by 2018-19, potentially there could be coverage of over Rs 3.5 lakh crore of sum insured, requiring over Rs 30,000 crore premium subsidy.
“This is best realised if the transparency, reliability and sustainability issues are taken care of in administering the programme. Also, with huge premium subsidy bill, the government needs to sense that there is a value for the funds,” the report released on April 28 said.
Due to heavy claims in the Kharif season, insurers including ICICI Lombard General Insurance have reported an underwriting loss in their crop portfolio. This meant that there was a gap between premiums collected and claims paid out. To ensure that the business is viable, further tweaks in the premiums during the upcoming tender processes may have to be considered.
Way forward
The centre has also allowed states to set up their own specialised insurance companies for the implementation of the PMFBY. A PTI report had said that the agriculture ministry has allowed this, subject to participation in bidding process.
Further, as more players enter this process, not only will the pricing be improved, claims will also be settled in a timely manner.
Also, as the government panel suggested, deployment of technology, that can remove human biases and generate accurate and real time data in an efficient manner will be beneficial. As additional crop area and number of farmers covered is increased this financial year, the emphasis will be on how much time is taken to settle the claims and if there is a need to increase premiums.
Subsidies under various crop insurance schemes by government
| Year | Farmers Premium | Premium Subsidy | Gross Premium | Total Claims Paid |
| 2014-15 | 2707.16 | 2238.89 | 4946.05 | 7831.05 |
| 2015-16 | 3418.20 | 2187.30 | 5613.38 | 21428.59 |
| 2016-17 | 4383.31 | 17796.51 | 22180.28 | 12948.98* |
| 2017-18** | 4013.68 | 20338.03 | 24351.71 | Not reported |
| Grand Total | 14522.36 | 42560.72 | 57091.42 | 42208.62 |
Note: All figures in Rs crore * Against approved claims of Rs. 14433.36 crore, an amount of Rs. 12948.98 crore has already been paid **Tentative Source: Government reply to Rajya Sabha question on March 9, 2018