By Prabhudatta Mishra
Call it role reversal. Insurers used to complain of the high claim ratio under the crop insurance scheme in the initial years after its 2016 launch; now, state after state is quitting the scheme, as they find it difficult to foot the rising premium bill. A perceived tendency among insurers to admit less of farmers’ claims and the delays in settlement of claims also seem to have prompted some states to develop cold feet about the Modi government’s flagship scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY).
Andhra Pradesh, Telangana and Jharkhand wrote early this year to the Centre, communicating their decisions to exit the scheme. Now, Gujarat and Madhya Pradesh seem to follow suit; till July 31, the deadline for enrolment under the scheme for the standing kharif crop, these two states haven’t signed up. While Punjab never implemented the PMFBY, Bihar and West Bengal have their own crop insurance schemes under which farmers do not pay any premium.
The states’ share of premium jumped to 44% in FY20 from 41% in FY17 under the PMFBY and Weather Based Crop Insurance Scheme (WBCIS) while the Centre’s share increased to 42% from 40% during this period. The claims to premium ratio, which was over 90% in two previous consecutive seasons, dropped to a low of 65% during kharif 2019 (as on June 30, 2020), even though there was 52% above normal monsoon rains in September last year that deluged about 6% (nearly 64 lakh hectare) of the season’s sown area.
Under PMFBY, farmers’ premium is fixed at 1.5% of sum insured for rabi crops and 2% for kharif while it is 5% for cash crops.
The balance premium is split equally between the Centre and states.
Effective Kharif 2020, the Centre has decided that it will foot the PMFBY subsidy bill to the extent of its formulaic share so long as gross premium level is up to 30% of the sum assured in non-irrigated areas and 25% in irrigated areas. The onus will be on states if they want to implement the scheme even if insurers quote any premium above 25-30%. This has put further burden on states, who were already worried over the cost of running the schemes.
The sharp decline in claims to premium ratio in kharif 2019 season also indicates reluctance of the insurers to accept the farmers’ claims, according to analysts (see chart).
Gujarat could not finalise the premium bids and roll out the scheme before the cut off date of July 31 while Madhya Pradesh is yet to decide on the bids. In all likelihood both the states may not be able to implement the crop insurance scheme this year, official sources said.
If Madhya Pradesh wants to go ahead at a later stage, it is for the insurance companies to take a call as already two months of the monsoon season have passed and there is better clarity now on the crops outlook, the sources said. Gujarat is said to have informed the Centre about higher premium quoted by insurance companies this season which it felt was economically not viable, the sources said.
Madhya Pradesh was also mulling to launch its own crop insurance scheme on the pattern of other states and could not take a decision in time, the sources said. While in four clusters, the MP government has somehow agreed to pay premium as quoted by insurance companies, the second round of bidding for seven clusters is still on. It is unlikely that insures will agree to implement the scheme in the state this season.
The Centre has recently written 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 followed reports that insurers had not cleared as much as a third of the amounts claimed by farmers as crop insurance for the Kharif 2019 season as on June 30 and the new crop year began on July 1.
