Insurers rolling in money raised for crop cover

NEW DELHI: When the gross premium collected by insurance firms is more than the total value of the claims settled, you know insurance is a profitable business. But when insurance companies appear to be rolling in money generated from farmers’ meagre premiums for covering their crops even after settling their loss claims, you wonder what’s happening.

Take the Centre’s ambitious PM Fasal Bima Yojana (PMFBY). The gross premiums received by insurance companies under the scheme over the last five years is Rs 1.26 lakh crore, but farmers got just Rs 87,320 crore as claims (see table). The difference is a cool Rs 40,000 crore. Surely a farm welfare scheme ought not to benefit the insurance firm, certainly not by such a big margin?

The huge profit the insurance firms are enjoying actually comes from the government, as under the PMFBY, a uniform maximum premium of only 2% of the sum insured is paid by farmers for all Kharif crops and 1.5% for all Rabi crops. The rest is borne by the state and the Centre.

Agriculture policy expert Devinder Sharma said there are many flaws in the crop insurance scheme, adding it needs an overhaul. “It looks like that it is for the benefit of insurance companies. There is a complete need to overhaul and redesign it. Many states opting out of the scheme is a clear indication of it,” he said.

Sharma said new technological innovations should be used for clear assessment of claims to be paid to the farmers. “Drones should be used for assessment. Why are they not applying the per unit area yardstick for assessment of crop loss and claims? There are flaws in the method of assessment,” he pointed out.

Bharatiya Kisan Union leader Buta Singh of the echoed Sharma. “There have been issues related to proper assessment of crop loss and claims under this crop insurance scheme. Only government insurance companies should be given the responsibility to implement this scheme,” he said.

However, the Union agriculture ministry recently said the yawning gap between premium mop up and claims paid ought not be read as full profit since the cost of reinsurance and administrative cost of the insurance firms need to be factored in.

The PMFBY was launched in April, 2016 to de-risk cultivation. According to government data, since the inception of the scheme in 2016-17, over 29 crore farmers have been enrolled and nearly 2,354 lakh hectares insured.

However, the total area insured under the scheme has gone down from 567 lakh hectare in 2016-17 to 495 lakh hectare in 2019-20. One reason is the opting out of six states from the scheme — Andhra Pradesh, Bihar, Gujarat, Jharkhand, Telangana and West Bengal.

“Financial constraints of the State government and low claim ratio during normal season are the major reasons for non-implementation of the scheme by these states,” the ministry said.