Crop Insurance: Centre rethinking Beed formula as states get large premium refunds

September 06, 2021 3:15 AM

Meanwhile, insurers have approached states like Uttar Pradesh urging them to adopt the Beed formula for next year's crop and offered to reduce their guaranteed premium share to 10% from the current 20% under the 80-110 plan, sources say.

The Centre, in July, had written to states seeking their views on including the ‘Beed formula’ as an option under the PM Fasal Bima Yojana amid several states developing cold feet on the flagship scheme.The Centre, in July, had written to states seeking their views on including the ‘Beed formula’ as an option under the PM Fasal Bima Yojana amid several states developing cold feet on the flagship scheme.

By Prabhudatta Mishra & Nanda Kasabe

After offering the so-call ‘Beed formula’ as an alternative model in crop insurance to retain the states’ participation, the Centre is now reconsidering the 80-110 plan, given that some states have started securing refunds of major shares of the gross premiums collectively paid by the Centre and states. The Centre apprehends that state governments and insures are acting in concert to understate the insurance claims by farmers. The formula is a win-win for states and insurers as the former gets large premium refunds – as high as 153% of the premium paid by the state government in Maharashtra’s Beed district in the current kharif season, for instance – and the insurers get assured return of 20% of the gross premium.

According to sources, the Centre has written to both Tamil Nadu and Madhya Pradesh, which have adopted Beed formula in many districts of the states, stating that “the reimbursements above state share of subsidy will be refunded to government of India as well” in case claim to premium ratio is very low. The Centre, in July, had written to states seeking their views on including the ‘Beed formula’ as an option under the PM Fasal Bima Yojana amid several states developing cold feet on the flagship scheme.

Under the ‘Beed formula’, also known as 80-110 plan, the insurer’s potential losses are circumscribed – the firm won’t have to entertain claims above 110% of the gross premium. The insurer will refund the premium surplus (gross premium minus claims) exceeding 20% of gross premium to the state government. Of course, the state government has to bear the cost of any claims above 110% of the premium collected to insulate the insurer from losses, but such higher level of claims rarely occur, so the states reckon the formula in effect reduces their cost to run the scheme.

Meanwhile, insurers have approached states like Uttar Pradesh urging them to adopt the Beed formula for next year’s crop and offered to reduce their guaranteed premium share to 10% from the current 20% under the 80-110 plan, sources say. The claims ratio in UP was 29-49% in the last five years, barring in 2019-20 when it was 76%. In kharif 2020, the claim to premium ratio in UP is also estimated to be near 40%.

As a temporary relief to Madhya Pradesh and Tamil Nadu, the Centre last month allowed these states to roll out PMFBY under 80-110 formula with a rider that the states can’t get refunds from insurers beyond their subsidy share. “Last year, Madhya Pradesh was allowed to implement under 80-110 plan at last minute after the state delayed crop insurance enrollment for the kharif season. This year too, there were similar delays and the state was allowed to roll out the scheme much beyond the deadline, that is, until August 31. Tamil Nadu, too, was also allowed to run the crop insurance scheme under 80-110 plan where enrollment was said to have declined significantly from last season’s level, a source said.

Madhya Pradesh is yet to finalise yield data of last kharif, delaying claims compilation, sources said, adding the claims to premium ratio in Tamil Nadu was over 70%. The gross premium collected by insurers in Madhya Pradesh was about Rs 4,580 crore and Rs 156 crore in Tamil Nadu during last kharif season. While the claim ratio was 157% in MP in 2019-20, it was as high as 181% in 2018-19 in Tamil Nadu as farmers in the state often face crops damage.

Claims to premium ratio for farmers in central Maharashtra’s Beed district, on the other hand, dropped in kharif 2020 to 1.7% from as high as 245% in kharif 2018 and 89.4% in kharif 2019. Agriculture Insurance Company of India (AIC) will now have to return to the state government nearly 78% of the gross premium of Rs 798 crore collected from the district during kharif 2020, exceeding the state’s share of subsidy of Rs 406 crore, sources said.

Two successive years of far-below-normal monsoon rainfall in Beed dissuaded insurers from covering farmers in the district under the PMFBY for kharif 2020, which prompted the Centre to ask AIC to bail out. Not a single insurance company participated during the three rounds of bids in Beed last year, citing past losses.

Under PMFBY, premium to be paid by farmers is fixed at 1.5% of the sum insured for rabi crops and 2% for kharif crops, while it is 5% for cash crops. The balance premium is split equally between the Centre and states. Many states have demanded their share of the premium subsidy be capped at 30%.

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