Farm loan waivers lead to fewer crop insurance policies

New Delhi | Updated: November 21, 2018 7:28:43 AM

Implementation of farm loan waivers by various state governments has led to a sharp decline in both the number of insurance policies and the farm area insured under the Pradhan Mantri Fasal Bima Yojana (PMFBY).

farm loan, Pradhan Mantri Fasal Bima Yojana, PMGBY, loan waiver, farmers loanIn a matter of two years, PMFBY has become the third largest line of non-life insurance business in India after motor and health insurance.

By Prabhudatta Mishra & Prasanta Sahu

Implementation of farm loan waivers by various state governments has led to a sharp decline in both the number of insurance policies and the farm area insured under the Pradhan Mantri Fasal Bima Yojana (PMFBY). According to data gathered by FE, during kharif 2018 (the harvesting of the crop is on), the number of insured loanee farmers under PMFBY was just over 2 crore, compared with 3 crore such farmers insured during kharif 2016. The drop of over 1 crore in the loanee farmers’ count between the summer crops of 2016 and 2018 was despite the non-loanee farmers under PMFBY cover being around 1 crore during both the seasons (see chart).

The shrinking of the PMFBY cover could mean that more farmers are vulnerable to disasters/crop damage. Already, Maharashtra, Karnataka, and Andhra Pradesh, which implemented farm loan waivers, have sought drought relief for farmers from the Centre. While pruning their capital expenditure, six states have implemented farm loan waivers of a total of `1.26 lakh crore between 2017 and 2018. After Maharashtra implemented loan waivers of `34,000 crore, PMFBY coverage of the state’s loanee farmers, for whom crop insurance is meant to be mandatory, fell 58% to 16 lakh in kharif 2018 from 38 lakh in 2016. Similar reductions in coverage of loanee farmers were seen in Karnataka (down 43%), Rajasthan (38%) and UP (22%).

“Farm loan waiver has affected the PMFBY coverage,” PMFBY CEO Ashish Kumar Bhutani told FE. Also, mandatory seeding of Aadhaar with crop insurance and issues like delays in notification of the crop covered under PMFBY also led to lower enrolments. The number of loanee farmers covered in both kharif and rabi seasons declined by 19% from 4.36 crore in 2016-17 to 3.54 crore in 2017-18. The area insured under both kharif and rabi also declined by 13% to 49 million hectares during the period.

In a matter of two years, PMFBY has become the third largest line of non-life insurance business in India after motor and health insurance. The insurers are estimated to have made a surplus of Rs 9,500 crore in the first three crop seasons (for which full data is available). However, their profit could be around Rs 5,000 crore after factoring in at least 10% (of the gross premium) expenditure on reinsurance and other administrative expenses, sources explained. The expense ratio is about 10 to 15% of the premium collected by the companies, Bhutani said.

As against gross premium receipt of Rs 36,022 crore in the two kharif seasons (2016 and 2017), the claims paid were Rs 26,861 crore (of Rs 27,510 crore approved). Some payments were held up due to non-payment of premium by some state governments, quality issues with crop cutting experience data etc. Claims paid were 64% of the gross premium collected for kharif 2016, the first year of the PMFBY, while it was 84% in kharif 2017.

Of the 12% (of sum insured) premium paid for PMFBY, farmers pay only 2 percentage points while the remainder is split equally between the Centre and states. About 50% of the PMFBY business is with public sector general insurers, 30% with AIC alone.

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