The Centre’s flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) is facing headwinds due to delays in settlement of claims from farmers, leading to charges of profiteering by insurers.
By Prabhudatta Mishra and Prasanta Sahu
The Centre’s flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) is facing headwinds due to delays in settlement of claims from farmers, leading to charges of profiteering by insurers. However, PMFBY CEO Ashish Kumar Bhutani tells FE’s Prabhudatta Mishra and Prasanta Sahu that the scheme has a payout ratio (claims paid against claims made) of above 95% in first two kharif seasons. This shows that the scheme is robust. The real test of the policy, he said, would be when there is distress in the farm sector.
Farmers complain about delays in claims settlement. How are you addressing the issue?
There are several reasons for delays. One, there has been delay in depositing the state’s share of premium with insurance companies. Secondly, there is delay in submitting the crop cutting experiment (CCE) data to the insurers. Third, the quality of the CCE data generated is suspect. To address these complains, we have allowed the companies to be present at the time of CCE data collection and use of technology to minimise manipulation. A penalty (of 12% per annum) has been introduced in new guidelines for delayed claims payment to farmers.
There are complaints that insurers are making undue profit under the scheme.
Before the PMFBY, most states had opted for the NAIS (National Agricultural Insurance Scheme), which was a trust model and was largely funded from the Budget. There was no market-driven premium in that scheme. In the PMFBY, there is market-driven premium having three components – shares of farmers, states and the Centre. Under the PMFBY, in the event of a very bad season, the liability on the insurance companies can be huge as the scheme is not Budget-funded. So, a comparison of premium between the old scheme and the PMFBY is wrong.
How much of the PMFBY coverage is due to private companies?
Thirteen private companies have about 50% share in the coverage of the scheme while five public sector insurers have the balance 50%. The public sector AIC has one-third share in the total crop insurance business – the highest among all insurers.
Why the cut-off date for buying crop insurance advanced?
The cut-off date for buying the insurance policy under the old scheme was September 30 for kharif crops. In a drought year, everybody knows by the third week of August if there there will be a drought. So, informed farmers were buying the insurance policies after knowing whether a drought loomed large. Now, the cut off date for kharif is July 31. The idea is when the date is advanced, there would be a fair play between premium and risk taken by insurers.
How was the claims ratio for rabi 2017?
The data are getting updated regularly and they are not yet finalised. The claim ratio was 99% for rabi 2016-17 and 87% for kharif 2017. It may be about 90% for rabi 2017-18. The claims ratio for the four seasons combined (2016-17 and 2017-18) was 81%. In Tamil Nadu, which was hit by a massive drought in rabi 2016 season, the claim ratio (claims to premium) was 287% and it was 425% in Chhattisgarh during kharif 2017.
Sates like Maharashtra, Karnataka, Jharkhand and Andhra Pradesh have sought drought relief from the Centre. Does this means failure of the PMFBY in alleviating farm distress?
Drought relief covers far more than what is covered under crop insurance. There are a lot of other things they get. Drought relief is for everybody irrespective of whether the farmer has taken the insurance or not.