PMFBY: Tech revamp boosts govt's crop insurance scheme, yields results

In the early days of the govern­ment’s marquee crop insurance scheme, the Pradhan Mantri Fasal Bima Yojana (PMFBY), its domi­nant image showed farmers hold­ing aloft claim settlement cheques of amo­unts as low as Rs 1. Regardless, the sch­eme had a rough start, amid insinuations that private insurance companies could be its biggest beneficiaries.
 

Unsurprisingly, in February 2020, more than three years after the scheme’s launch, the Union Cabinet made it optional for loanee farmers, in line with the National Democratic Alliance’s 2019 election promise. The Cabinet effected other changes to make it more farmer-friendly, such as capping the central subsidy for premium rates at 30 per cent in unirrigated areas and 25 per cent in irrigated areas. If states did not release their share of premium subsidy before March 31 for the kharif season and September 30 of successive years, they would not be allowed to implement the scheme.
 

The Cabinet also decided that when states engaged any insurance company for PMFBY, the insurer would have to stay enrolled for at least three years, against the earlier provision of one to three years.
 

The changes, which had good intent, may have had unintended results.
 

“When the scheme was made voluntary, even banks stopped pushing the products, which slowed the offtake,” said a senior official. It did not help that the scheme put a financial burden on states. In some cases, officials said the states’ share of the premium subsidy accounted for almost 50 per cent of their annual agriculture budget.
 

“This was not feasible, which is why many states gradually started opting out,” the official explained.
 

In 2021-22, the average all India act­ua­rial premium rates for PMFBY touched an all-time high of almost 17 per cent, though according to global benchmarks it should have been 8 to 9 per cent. On the one hand, premiums were rising, but on the other, payouts started dipping.
 

In rabi 2021, 19 states participated in the scheme, down from 21 in rabi 2018, while the farmers covered declined to 9.8 million from 14.68 million. The area insured went down to 14.81 million hectares from 19.79 million hectares. The sum insured, too, dropped.

Similarly, in the kharif season of 2021, 19 states participated in the scheme, down from 22 in kharif 2018. The farmers enrolled dipped from 21.66 million to 15.09 million, and the area insured from 27.83 million hectares to 23.92 million.
 

With the scheme going nowhere, the Centre appointed a panel under joint sec­retary, insurance, department of financial services (DFS), and actuaries from the in­surance industry to explore an alternative risk management mechanism, or ARTM. A working group headed by the chief exec­utive officer of PMFBY worked on the models suggested by the panel and got it approved from the Expenditure Finance Committee of the government, which were then presented to the states as alternatives.
 

Model codes of insurance
 

The three approved models were profit and loss sharing, cup and cap (60-130), and cup and cap (80-110). In the first, a state-specific risk band is created to share the profit and loss between insurance companies and the government.
 

In the second, the insurance companies would pay if the claims were in the range of 60 per cent to 130 per cent of the gross premium. If claims total less than 60 per cent of the gross premium, the government will refund it. If claims exceed 130 per cent of the gross premium, the Centre and states will pay claims through insurance companies.
 

In the third model, the insurance firm does not have to entertain claims above 110 per cent of the gross premium. The state government has to bear the cost of compensation above 110 per cent of the premium collected to insulate the insurer from losses. However, if the compensa­t­ion is less than the premium collected, the insurance company would keep 20 per cent as handling charges and reimburse the rest to the state government. This model is also called the “Beed Model” of crop insurance.
 

The two cup and cap models have found favour with Madhya Pradesh, Maharashtra, Uttar Pradesh, Rajasthan, Tamil Nadu, and Andhra Pradesh in kharif 2023 and have led to considerable reduction in the overall cost of premium and savings to these states.
 

“The state government for the first time felt as being equal stakeholders in the implementation of the PMFBY and therefore had an interest in its success,” the official said.
 

To tide over the problem of inadequate claims, the one that gave rise to tiny claim amounts, the Centre embarked on a mas­s­ive exercise to integrate digitised land records with PMFBY. This stopped de­d­up­lication of land parcels and helped in unique identification of the land parcels of insured farmers. This further ration­alised premium subsidies and ensured genuine utilisation of the benefits.
 

So far, land records of Maharashtra, Rajasthan, Karnataka, Odisha, Madhya Pradesh, Chhattisgarh, Andhra Pradesh, Tamil Nadu, and Haryana have been int­egrated with the National Crop Insurance Programme (NCIP). With this, more than 90 per cent of the insured area is pre-validated through digital e-land records.
 

“Discussions with other states, including Uttar Pradesh and Himachal Pradesh, are in an advanced stage for integration of digitised land records with NCIP,” an official explained.
 

Maharashtra has even laid down a minimum threshold value of claims. This has ensured that a tiny settlement of som­e­times just around Rs 50 never happens.
 

Claim settlement delays
 

Claim settlements sometimes ran into years because of delay in release of the share of premium subsidy by states and in furnishing of Actual Yield (AY) data by states. Disputes raised by insurers on the quality of AY data and wrong banking details of farmers on the NCIP were some other factors.
 

To address this, the government has embarked on a Digi-Claim-Payment Mod­ule, under which all PMFBY claim calculation and settlement is done through the Digi-Claim module of NCIP using the Public Financial Management System platform.
 

“This ensures that now the govern­ment has the visibility of the quantum of eligible claims, claims paid by the insu­r­a­n­ce company and the actual claims tran­s­ferred to the beneficiary farmers, which till now was missing and the government had to depend on the insurance company for the data,” an official claimed.
 

Since its launch in March 2023, so far more than Rs 9,000 crore of claims for 5.5 million beneficiaries have been transact­ed through the module. NCIP has been developed as a single source of Data for AY and Threshold Yield values for

current and historical years.
 

“This has built trust band transpa­rency in the scheme ecosystem and insurers have responded with better pricing in the recently concluded tendering cycle,” the official said.
 

A mechanism of escrow account for states is also being worked on, which wo­uld ensure that the premium subsidies payments are not delayed beyond the pre­scribed timelines. Enrolments for crop insurance will be opened only after the states commit to deposit their share of the premium liability into an escrow account.
 

Under PMFBY, both Centre and states share the premium subsidy equally.
 

“This will be implemented from rabi 2023 onwards,” the official said.
 

Now comes loss and yield assessment.
 

Tech to the rescue
 

Assessment of yield and losses is the backbone of crop insurance. So far, states usually relied on data generated through the crop cutting experiments (CCEs) and loss assessment using simple eye estima­tes. Insurers and reinsurers often doubted this, on grounds of personal bias, moral hazard, and inconsistency in the yield data recording and reporting.
 

This caused disputes and delays in claim settlement, and dented insurers’ and reinsurers’ interest in the scheme. As a result, premiums rose as competition dropped. The Centre has now embarked on a technological upgrade of PMFBY.
 

Yield Estimation based on Techno­logy (YES-Tech) has been developed after two years of testing and pilot runs across 100 districts. It seeks to blend crop loss as­sessment and yield estimation using data from remote sensing indices, weather in­dices, crop phenological information, soil types, etc. (Phenology refers to the tim­ings of cyclical or seasonal biological events, such as migrations, egg laying, flowering, and hibernation.) YES-Tech initially plans to blend manual yield estimation with technology-based estimation and gradually reduce the dependence on the former.
 

Maharashtra and Madhya Pradesh are the first states to implement YES-Tech, from kharif 2022, and eight other major states have consented to adopting it from kharif 2023 onwards. The government hopes that 10 others will implement it in the current financial year.
 

WINDS, or Weather Information Net­work and Data System, is in the works to complement YES-Tech. A joint initiative of the Indian Meteorological Department and the agriculture ministry, it will have a network of Automatic Weather Stations (AWS) and Rain Gauges (ARGs) at taluk, bl­ock and gram panchayat levels to create a database of hyper-local weather data. This data will be used for claim assessment.
 

As of now, India has 13,000 AWS and 20,000 ARGs. An additional 3,500 AWS and 160,000 ARGs are proposed to be est­a­blished across the country. Hima­chal Pradesh, Uttarakhand, Rajasthan, Chh­a­t­tisgarh, Uttar Pradesh, Mahara­shtra, An­d­hra Pradesh, Kerala, and Karn­a­taka will implement WINDS in this financial year.
 

Then there is CROPIC, or Collection of Real Time Observations and Photographs of Crops, which will collect photographs of crops during their growth cycle to validate sown and insured crops, crop damage assessment at the time of any localised and widespread calamity, or during a climatic condition affecting the crops.
 

Not only these, the PMFBY itself is being tweaked to enable insurance intermediaries to use its database to register farmers for personal insurance and hospicash products.
 

The results of the various tweaks and changes have started pouring in.
 

In the just concluded kharif season, ac­c­ording to official data, farmers’ enrol­ments in PMFBY (after including newly joined Karnataka and Andhra Pradesh) touched 25 million, the highest since 2018.
 

Of this, 44.5 per cent, or 11.1 million, are non-loanee farmers, that is those who have not taken a loan. The rising number of non-loanee farmers shows increasing voluntary acceptance of the scheme by farmers.
 

A buoyed government now targets to enrol 37.5 million to 40 million farmers in 2023-24, which would include the rabi season of 2023 enrolments, which is currently on.
 

Finally, the government’s crop insurance scheme looks to be growing fresh green shoots. Will they continue to grow, and bloom?

Evergrowing

- Largest crop insurance scheme in the world in terms of farmer enrolments

- Largest scheme in the world in terms of insurance premiums

- Currently implemented in 22 states and UTs

- Has touched 27 states and UTs in one or more seasons in the last seven years

- Farmer enrolment is estimated to increase by 23% in 2023-24 and reach 37.5-40 million with more than 130 million farmer applications for the year

- Since inception in 2016, a total of 554.9 million farmer applications have been insured for a sum insured of more than Rs 15.75 trillion

- Andhra, Bihar, Gujarat, Jharkhand, Telangana and West Bengal exited from the scheme during 2018-20, Andhra rejoined from kharif 2022

- Jharkhand likely to join in kharif 2024

- Punjab never implemented the scheme, but has shown keenness, along with Telangana, to join

- Kerala has its own scheme with PMFBY, Goa is likely to converge another scheme under PMFBY from next season

- Both Karnataka and Goa have been implementing PMFBY every year since 2016