Modi govt's crop insurance marred by delayed claim settlement, low coverage

Centre bears higher share of premium for states which gives adequate budget for PMFBY, suggests panel

The Narendra Modi-led central government’s ambitious Pradhan Mantri Fasal Bima Yojana (PMFBY), in the first two years of its operations, has been set back by issues like low coverage among non-loanee farmers and delayed or non-payment of claims, a high-powered panel has found.

If the issues with PMFBY are not addressed in time, they could impact the government’s official target of covering 50 per cent of the gross cropped area (GCA) under insurance by 2019, the panel has said.

“Though all complaints, particularly with regards to non-payment, might not be correct, it only demonstrates the need for a robust process backed by technology. That will assure farmers that their genuine claims are being settled in time. Any deviation in this regard will prove to be discouraging and affect the volumes in the long run,” the official panel on Doubling  Farmers’ Income (DFI) has said in the chapter on ‘Risk Management in Agriculture' in its report.

PMFBY, meant to provide a comprehensive crop insurance for farmers at a low premium, was started in 2016. It replaced all other existing insurance schemes except the Restructured Weather-Based Crop Insurance Scheme (WBCIS).

An area-yield based programme where farmers are charged a uniform low premium rate of 2 per cent for all kharif crops, 1.5 per cent for all rabi crops, and 5 per cent for commercial and horticulture crops, PMFBY has been one of the most ambitious programmes of the National Democratic Alliance (NDA) government.

The difference between the premium paid by the farmer and the actuarial fair premium (APR) is subsidised by the government (shared by central and state governments on 50:50 basis). Under PMFBY, according to the panel, over 57 million hectares of GCA was covered during 2016-17 for a sum insured of Rs 2,050 billion with a premium volume of Rs 215 billion ($ 3.3 billion).

In 2017-18, the corresponding figures were a coverage of 47.52 million hectares of GCA for a sum insured amount of Rs 1916.34 billion and a premium volume of Rs 243.51 billion. By 2018-19, there could potentially be a coverage of over Rs 3,500 billion of sum insured, requiring over Rs 300 billion premium subsidy, the panel estimated.

However, since its inception, the scheme has been mired in controversies over delayed payment of claims and actual claims far exceeding the premium paid. On this, the panel has said that normally in a cycle of 5 years the good and bad (monsoon) years are split in a ratio of 3:2. “It would, therefore, be more appropriate to evaluate the effectiveness and resilience of PMFBY over a period of 5 years,” according to the panel.

However, on coverage of non-loanee farmers, to escalate the target of covering 50 per cent of GCA by 2019, bringing more non-loanee farmers within the fold of PMFBY is absolutely essential, the report added. 

This can be done through an increase in institutional credit to as many farmers as possible, with a particular focus on small and marginal farmers; by updating and digitising land records and making lessees, share-cropper, etc, eligible for loans, promoting the concept of Joint Liability Groups (JLGs), which can be made eligible for loans and insurance cover simultaneously and quicker computerisation of all PACSs (Primary Agriculture Cooperative Societies) so that small and marginal farmers can be monitored for pushing up credit coverage.

Among the other challenges that the panel found in the first two years of PMFBY, premium rates in drought-prone and rainfed areas was as high as 25 per cent due to a relatively less number of bidders. “In fact, the intensity of vulnerability is higher in rainfed systems, and it is the farmers here that deserve risk cover on priority,” the panel said.

Also, in the last two years, states were notifying select crops for PMFBY depriving all crops of risk cover, which could also impact the target of increasing area coverage, it added. The awareness level about PMFBY was low among farmers.

To ensure that claim settlements were made on time, the panel said, while the Centre had been making budgetary allocations on time, some state governments had been faltering in the timely release of their premium subsidy which affects both timely payment of claims and also solvency of insurers.

To address this anomaly in PMFBY also pointed by a working paper on crop insurance prepared by Icrier in February, the panel said that states should be incentivised to make adequate budgetary allocation to the PMFBY premium. Towards this, the panel said that two models could be adopted. 

First, for those states that release their share of premium subsidies by September 30 for kharif and March 31 for rabi, or have 100 per cent transparency in Crop Cutting Experiments (CCEs), the ratio between the Centre and the state could be fixed at 55:45 (instead of the existing 50:50). 

And second, for states that release their premium subsidies by September 30 for Kharif and March 31 for Rabi along with 100 per cent transparency in in CCEs with a CCE App, the ratio between the Centre and the state could be 60:40, with Centre bearing a higher portion of premium subsidy instead of the current 50:50 share.

“Integrating CCEs with funding pattern of premium, the states can be motivated to bring a focus on transparency by deploying technology and systems of yield and loss estimates,” the panel said.

PMFBY So Far

a) Launched in 2016, it replaced all other existing insurance schemes except for the Restructured Weather –Based Crop Insurance Scheme (WBCIS).

b) Farmers were charged low and uniform premium rates of 2 per cent for all kharif crops, 1.5 per cent for all rabi crops and 5 per cent for commercial and horticulture crops.

c) The difference between the premium paid by farmers and the actuarial premium charged was paid by the Centre and state government in the ratio of 50:50.

d) Under PMFBY, over 57 million hectares of gross cropped area was covered during 2016-17 for a sum insured of Rs 2050 billion which dropped to a coverage of 47.52 million hectares of gross cropped area for a sum insured amount of Rs 1916.34 billion in 2017-18.

Challenges

a) Low coverage of non-loanee farmers which has made the task of covering 50 per cent of Gross Cropped Area (GCA) by 2019 difficult.

b) Delayed claim settlement or non-payment of claims.

c) States delaying the release of their share of premium leading to delayed claim settlement.

d) Premium rates going up to 25 per cent on actuarial bases in drought-prone and rainfed areas due to a fewer number of bidders.

e) States not notifying all crops under PMFBY and just doing it for select few.

f) Poor awareness level among farmers.