AIC to appoint consultant to rejig business strategies

AIC wants to reposition itself as crop insurance is turning out to be a market-based product

With crop insurance turning out to be a market-based product, one of the oldest public sector insurer, the Agriculture Insurance Company (AIC), is facing a conflict of interest with its promoters — four public sector companies. AIC has floated tenders for appointment of consultants to formulate new business strategies for itself and reposition itself in the market.

Before the roll out of Pradhan Mantri Fasal Bima Yojna (PMFBY) previous year, AIC was the nodal agency for implementing crop insurance in the country, commanding almost 100 per cent market share.

General Insurance Corporation of India holds 35 per cent stake, National Agriculture Bank for Rural Development holds 30 per cent stake in the company, and four public sector general insurance companies — National Insurance Company, The New India Assurance, The Oriental Insurance Company, and United India Insurance — each of them holds 8.75 per cent in AIC. 

Under PMFBY, the four insurance companies too are empanelled to operate crop insurance. They are competing within themselves and AIC, as well as other private sector general insurance companies, to grab a share of the crop insurance market.    

Within AIC, questions are being raised on whether there is a need to restructure the ownership of the company. 

“It is like father competing with son. There is an urgent need to sort out new role for AIC. Since empanelment in PMFBY is through competitive bidding, it is not apt that the representatives of competing companies gain knowledge of the biding rates by AIC beforehand,” said a government official on condition of anonymity.  

This year the total premium collection under the PMFBY is estimated to be around Rs 25,000 crore, thus making it the third largest sector after motor and health insurance. In the first year of operation itself, the total premium collection under PMFBY was close to Rs 22,000 crore.  Almost all public sector companies expect crop insurance to contribute close to 20 per cent of their premium in the next three to four years.

At present, motor and health insurance together account for close to 50 per cent of their premiums.

Under the earlier scheme, the premium amount was fixed at around 1.5-3.5 per cent but up to 100 per cent of claims were borne by AIC. The claims were settled by AIC, central and state governments (in case claims exceeded premium amount, centre and state governments contributed). PMFBY, on the other hand, is based on risk perception, with rates determined through actuarial calculations. While different companies quote rates through tender, those with lowest bids are empanelled under PMFBY. However, farmers pay flat 2 per cent premium, and the rest is provided by the Centre and state to the insurer. For example, if premium rates come about 12 per cent, with five per cent each borne by the state and the Centre. However, the entire claim is borne by the companies.

In 2015-16, AIC had posted a net profit of about Rs 307 crore, with gross direct premium of about Rs 3,521 crore.