Against claims of Rs 14,453 crore made by farmers for crop losses in kharif 2017 under the Pradhan Mantri Fasal Bima Yojana (PMFBY), insurance firms have paid a mere Rs 733 crore so far, a payout ratio of just 5%. A year ago, in kharif 2016, the payout ratio was a much higher 95% across both PSU and private sector insurance firms.
The reason for the low payout ratios is that very few state governments have made payments for the premium due from them — typically, farmers pay around 20% of the cost of insurance and the balance is equally split between the state and the central government; till the state government pays its share, the Centre does not pay its share either. Some states like Bihar and Odisha have not paid their full premium for 2016-17 as well.
Apart from the low payouts ratio, insurance firms are making losses in the second full year of the scheme. While the claims ratio — claims made as a share of premium — was a healthy 68% in kharif 2016, this rose to 88% in kharif 2017, and can go up a bit more since not all claims have been processed. Once you add in the profit margins of insurance companies, they are running at a loss.
The claims ratio for PSU firms rose from 64% in kharif 2016 to 96% in kharif 2017 and from 72% to 75% for private insurance firms. The total claims ratio for PSU firms was 90% in the first three crop seasons (data for rabi 2017-18 is not available at an aggregated level) and 74% for private sector insurers. While around 30% of the country’s Gross Cropped Area is covered by PMFBY right now, the target is to raise this to 50% in 2018-19.