The Centre recently wrote to state governments urging them to invoke the penalty clause on insurance companies that have defaulted on settling the claims made by farmers under PMFBY.
Two successive years of far-below-normal monsoon rainfall in central Maharashtra’s Beed district have dissuaded insurers from covering farmers in the district under the Pradhan Mantri Fasal Bima Yojana (PMFBY)
for kharif 2020, but the Centre has now asked public-sector Agriculture Insurance Company of India (AIC)
Of course, the insurer’s potential losses from the extending cover to Beed farmers will be circumscribed: the Centre told AIC that it won’t have to entertain claims above 110% of the gross premium. Also, the state government could bear the cost of any claims above the premium collected to insulate the insurer from losses, the PMFBY brass told the state agriculture department.
Claims to premium ratio for farmers in Beed district skyrocketed in kharif 2018 to 245%. Even in kharif 2019, the ratio for the crop insurance cover of these farmers was 89.4%, higher than the national average of 65%. “Liability of the Centre will remain capped as per revamped guidelines of PMFBY. All the admissible risks as prescribed under PMFBY with indemnity level of 70% will be covered. AIC shall assume maximum liability of 110% of annual gross premium. Claims exceeding 100% of gross premium shall be borne by the state government,” PMFBY CEO Ashish Bhutani wrote in a communication to Maharashtra’s agriculture secretary Eknath Dawale.
The Maharashtra government had earlier this month requested the Centre to make alternative arrangements, as not a single insurance company participated during the three rounds of bids for crop cover in Beed, citing losses during last kharif season. The Centre’s agriculture ministry last week approved the request of the state government, but insisted that this is a special case and must not to be cited as a precedent in future.
The Centre said in order to help the state government meet its liability if claims exceed the 110% cap, the premium surplus (gross premium minus claims) exceeding 20% of gross premium would be refunded by AIC to the state government. Beed district was left out in the last rabi season as insurers stayed away after incurring losses during the previous kharif period.
Beed district saw two successive deficient years of monsoon rainfall in 2018 (-33%) and 2019 (-27%). The district is part of the drought-prone Marathwada region, which itself received rains 12% below normal in the last kharif season. Other districts in the state were slightly better in terms of precipitation, but not enough rains were received in many places during the crucial sowing period (July).
The rainfall in last June, July and August were -34% (deviation from LPA), -40% and -47%, respectively, in Beed. So, even though there was 3% surplus rain (against LPA) in September, it did not save the crop. Overall, the claims ratio in Maharashtra was 120% in kharif 2019 and 97.4% during 2018-19 crop year (July-June), as against all-India claims ratio of 65% and 95.6%, respectively.
The claims by Beed farmers in kharif 2019 were Rs 639 crore against premium paid of Rs 715 crore. For the summer crop 2018, farmers in Beed district claimed insurance amounts of Rs 1,326 crore, while the premium collected were just Rs 541 crore.
“Since we are not getting rainfall in time, the crop is bound to get affected. The government should ensure that companies bidding for other districts should also do so for Beed. Otherwise, auction for all of Maharashtra should be held at a time instead of dividing the state into clusters,” said Satish Pawar, a farmer of the district who last year shifted to growing soyabean from tur crop. Major soyabean-growing districts in the region are Latur, Oshmanabad, Parbhani, Hingoli and Nanded.
The Centre recently wrote to state governments urging them to invoke the penalty clause on insurance companies that have defaulted on settling the claims made by farmers under PMFBY. The move follows reports that insurers are yet to clear as much as a third of the over Rs 15,000 crore claimed by farmers as crop insurance for the kharif 2019 season, even as the new summer season began on July 1. The delay in claims settlement by insurance companies under the PMFBY and Weather Based Crop Insurance Scheme (WBCIS) has been taken seriously by the government in view of the hardships faced by farmers during the lockdown period and the slump in demand for agriculture produce.
Of course, almost 100% of the admitted claims eventually get paid — nearly all of the claims pertaining to the seasons before 2018-19 now lie settled, whereas the unsettled amounts for kharif and rabi 2018 are only 5.8% and 14%, respectively. Yet, timely release of the monies to the farmers is important for the sustainability of farming activities, and this has become a more pressing need owing to the Covid-19 crisis.