Thanks to generous government subsidy of up to 8% of the sum assured, private general insurance companies have participated in the revamped crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY), with as much or even greater vigour than public-sector insurers.
Despite farmers’ contribution being just 1.5-2% of the insured value, the scheme’s claims-to-premium ratio was 86.5% in 2016-17, not problematic from the insurers’ point of view. The question is, how long can the exchequer bear the huge cost?
While the PMFBY was launched in January 2016, in the last financial year itself the government had to drastically increase the subsidy to run the scheme. Against the original estimate (BE) of Rs 5,500 crore, the Centre’s outlay for PMFBY was later hiked to Rs 13,240 crore. When the scheme was launched, the government committed to provide “unlimited” subsidy to run it; “even if the balance premium (after farmers’ contribution) is 90%, it will be borne by the government”, an official was then quoted as saying.
However, even now, the schemes’ coverage is barely a third of the area under cultivation, though up from less than a quarter before the PMFBY was rolled out. It was estimated that during the PMFBY launch that the Centre’s subsidy outlay would be Rs 8,800 crore in 2018-19, by when half of the crop area is expected to be covered. Obviously, this was an underestimate; the budget estimate of Rs 9,000 crore for the current financial year looks certain to be breached. With government announcing the increase in coverage for farmers under the scheme, the insurance industry is hopeful that this financial year’s crop insurance premiums would touch Rs 28,000-30,000 crore.
The crop insurance coverage hasn’t spread as fast as many expected, partly because many state governments, which had been laggardly in implementing the pre-PMFBY schemes that most farmers found unaffordable, have remained reluctant to fund the new scheme as well.
The coverage of PMFBY has been largely restricted to Andhra Pradesh, Chhattisgarh, Gujarat, West Bengal, Karnataka, Madhya Pradesh and Uttar Pradesh.
With the premiums, including government subsidy, being around 10% of the sum assured, insurers have found a good business opportunity in PMFBY. General insurance companies collected gross premiums of around Rs 19,425 crore under the crop insurance scheme in 2016-17 while the claims were about Rs 16,810 crore (see chart). Along with state-run Agriculture Insurance Company of India, (AIC) which has been allocated the largest number of districts under the scheme, United India Insurance, New India Assurance and Oriental Insurance, and private general insurers like HDFC ERGO, ICICI Lombard, Reliance GI and Iffco-Tokio have reported healthy increases in their crop insurance portfolio. Among these firms, the premium-claim ratio ranged from 41-108%.
Under the PMFBY, farmers need to pay a uniform premium of just 2% for the more rain-dependent kharif crops and 1.5% for all rabi crops. The remaining share of the premium will be borne equally by the Centre and the respective state government. In the schemes that existed earlier, the premiums paid by farmers was in the range of 4-8% of the insured value.
”In the last fiscal we implemented crop insurance scheme (PMFBY and Restructured Weather Based Crop Insurance Scheme) in Bihar, Chhattisgarh, Haryana, Telangana, Andhra Pradesh and Maharashtra and insured more than 21 lakh farmers in both the seasons. We paid huge claims in the Rayalaseema region of Andhra Pradesh in the kharif season due to deficit rainfall, while claims in other states were moderate. Yield data for the rabi season is still not available for many states so the final claim experience is still not available,” said Ashish Agarwal, head, agri-business, Bajaj Allianz General Insurance.
Government functionaries cite global precedents to justify the huge subsidy for crop insurance. “The US provides subsidy of more than 60% while China gives 80% subsidy. The nature of agriculture insurance is such that unless it is heavily subsidised, neither farmers nor private companies will show interest. There are issues about compensating farmers for crop losses when damages are not uniform across the country. There are serious problems of errors of inclusion and exclusion of farmers,” NITI Aayog member Ramesh Chand had told FE earlier.
“With the government’s expectation to enhance the crop insurance penetration to 50% among the loanee farmers and also boost the penetration among non-loanee farmers, the portfolio is expected to grow. The investment in technology and the initiatives taken by companies like ours will raise the bar for servicing to a whole new level with more scientific yield assessment, faster turnaround time (TAT) in loss settlement, transparency in loss assessment yet to be witnessed. We are hopeful that in the times to come, crop insurance will be a value creator for all the stakeholders’ involved, viz. farmers, government insurers and reinsurers, making it more sustainable portfolio,” said Anuj Tyagi, executive director, HDFC ERGO General Insurance.