Are insurance companies earning profit from PMFBY?

In the last three years, insurance companies involved in Pradhan Mantri Fasal Bima Yojana (PMFBY) have collectively paid 85 per cent claims against the premium collected.

According to the government, the difference between premium collected and claims paid by insurance companies is not the only profit for the companies. The cost of reinsurance and administrative costs are also borne by insurance companies.

Minister for Agriculture and Farmer Welfare Narendra Singh Tomar told Rajya Sabha in March that for insurance companies, no upper or lower limits of profit and loss are set. According to the government, most general insurance companies, except Agriculture Insurance Company of India Ltd (AIC), undertake different types of businesses/policies. Thus, the overall profit/loss of these companies arises out of the profit/loss in these different lines of insurance.

Farmer leaders and organisations have repeatedly alleged that the government had planned the scheme to benefit insurance companies rather than to help farmers. However, according to the government, as per provisions of PMFBY, the government is only paying premium subsidy and all liability of claims rests with the insurance companies. In case the premium-to-claims ratio exceeds 1:3.5 or the percentage of claims to sum insured exceeds 35 per cent, whichever is higher, at the national level in a crop season, then there is a provision to provide protection to the insurance companies. The losses exceeding the above-mentioned level in the crop season is met from equal contribution from the Central government and the concerned State government.

“This eventuality of claim ratio of 1:3.5 at the national level has not yet been triggered. In case losses are below the above-mentioned condition, insurers are responsible to settle the admissible claims,” the Minister informed the House. He added, “However, crop insurance is a major risk mitigation tool for the benefit of farmers. Insurance is all about spreading the risks over the period and over the area. As per the provisions of the PMFBY/RWBCIS, a premium from farmers along with Central and State governments’ share in premium subsidy, is paid to the concerned insurance company for acceptance of risk and payment of claims as per provision of the scheme.”

New models of crop insurance needed

Agriculture expert and economist HM Desarda said that for private insurance companies profit is paramount, and not farmers’ welfare. “The PMFBY is not benefiting farmers but it is helping insurance companies. We need a totally new perspective and approach to insurance and farming to address agrarian distress,” said Desarda, who is also a former member of the State Planning Commission. He added that a public sector insurance company would play a more effective role than private companies.

Nashik-based Sahyadri Farmers’ Producer Company, with over 8,000 marginal farmers as members, is working on a plan to form an insurance company owned by farmers. Vilas Shinde, Chairman of Sahyadri, says that farmers are unsatisfied with the existing crop insurance companies. Because of loopholes in implementation, lack of transparency, and data manipulation, farmers lack confidence in these companies. Sahyadri has already started working on the details of the farmer-owned insurance company.

Premium collected and claims paid by insurance companies during the last three years under PMFBY (₹ in crore)

(Source: Rajya Sabha question and answers dated March 20, 2020)

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