Fasal Bima Yojana: Is crop insurance working? Here’s what data tells us

Updated: April 01, 2019 7:10 AM

Also, with state governments shedding their initial ambivalence towards the scheme, premium inflows have become more robust and prompt.

Among major agricultural states, Gujarat, northern Karnataka, Bihar, West Bengal, Jharkhand and Marathwada region of Maharashtra had witnessed deficient rainfall.

By Prabhudatta Mishra

After the initial years when it looked coming apart, the NDA government’s flagship crop insurance scheme has clearly consolidated itself. Despite 2018 having seen moderate monsoon deficiency and somewhat uneven spread of rains in areas crucial for farming, the claims made by farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY) for the year’s kharif (summer) crop was just 44% of the premium collected by insurers, making it a lucrative part of their business portfolio. Also, with state governments shedding their initial ambivalence towards the scheme, premium inflows have become more robust and prompt.

Insures have settled 100% of the claims for the summer crops of both 2016 and 2017 and 96% for the 2016 rabi (winter) season, as per official data reviewed by FE.

PMFBY’s claims to premium ratio was 88% for kharif 2017 and 99% for rabi 2016, raising doubts about the commercial viability of the scheme. Under the scheme, farmers contribute a fifth of the premium while the Centre and state governments are to contribute the balance amount on a 50:50 basis.

For rabi 2017, as per the latest data available (as in early November 2018), the claims to premium ratio was as low as 26% (by December-January, most claims will be in).

In 2018, India had received 91% rainfall of the long period average (LPA) of 89 cm during the June-September monsoon season. Among major agricultural states, Gujarat, northern Karnataka, Bihar, West Bengal, Jharkhand and Marathwada region of Maharashtra had witnessed deficient rainfall.

The public sector Agriculture Insurance Company of India (AIC) has one-third share in the total crop insurance business, the highest among all insurers while 13 private companies have a combined share of 50%. The Centre has fixed farmers’ share of premium at 2% (of sum insured) for kharif crops, 1.5% for rabi crops and 5% for cash crops.

The flagship PMFBY had faced criticism due to delays in settlement of claims from farmers, leading to charges of ‘profiteering’ by insurers. Officials said that after introduction of 12% penalty for delayed settlement from September 2018, insurance companies have expedited payments to farmers. Around 95% claims made until February-end for kharif 2018 crop losses shave been settled in Rajasthan, Gujarat, Uttar Pradesh and Karnataka.

Responding to the criticism that farmers in some places are not receiving compensation from insurance firms due to delayed contributions by state governments and consequent claim rejections by insurers, NITI Aayog member Ramesh Chand had told FE earlier that crop insurance should not be seen as “some kind of investment scheme” with guaranteed annual returns. He admitted that some states had indeed faltered on paying their share of premiums on time in the initial seasons.

“Crop insurance is a complex problem everywhere in the world. The US Department of Agriculture (USDA) representatives were recently here to discuss India model,” Chand had said. According to USDA data, the claims ratio for US Federal crop insurance scheme ranged from 40% in 2016 to 157% in 2012, depending on weather and drought conditions.
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