The Centre wants to ensure timely settlement of claims under crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) and has proposed some amount should be deposited by States as well as insurers before the enrolment begins but the initiative is being opposed by both stakeholders. The issue may be discussed in a meeting next week so that guidelines are amended before next kharif season.

“While one of the pleas taken by insurance companies in late payment of claims to farmers as delay by States to deposit their share of premium subsidy, it is not always that States are at fault. Even insurers also make delayed payment to farmers and take a plea that they do not get the claims from the re-insurers,” said an official. All stakeholders need to understand the necessity of timely claims settlement and payment to farmers, the official added.

One of the proposals says: “State/UT will make necessary budgetary provision for premium subsidy based on fair estimates, at the beginning of the crop season to ensure timely premium payment to insurance companies to enable faster claim settlement.”

States seek status quo

States such as Maharashtra, Uttar Pradesh, Tamil Nadu and Chhattisgarh have asked the Centre to maintain status quo whereas companies have agreed with the plan for timely deposit of premium subsidy.

Chhattisgarh has said it will disburse the premium subsidy according to the existing model while Uttar Pradesh has said when a State has accepted to implement the scheme, it is implied that it is committed for the payment of subsidy and it has been paying its subsidy regularly, mostly within timelines.

Going a step further Maharashtra has said “funds cannot be made available by State before enrolment starts. But letter of assurance can be issued.” But Tamil Nadu has said that payment of complete subsidy in an escrow account before issuance of notification is not at all possible as the bank would claim for deposit of a considerable amount and also claim service charges to issue the Letter of Credit (LoC) which will be an additional burden to the States.

Standby LoC

The Centre has also proposed: “Insurance companies will deposit their share of probable claim amount in the form of Standby Letter of Credit (SBLC) or Bank Guarantee (BG) in favour of the State/UT Government, with the ‘contracting bank’ prior to signing of contract between the State Government and the Insurance Company. The probable claim amount shall be calculated on the basis of last 3-year average claim amount.

“If the insurance company fails to release the claims within the stipulated period as specified in the operational guidelines then the SBLC or BG will be triggered by the State Government and the claim amount shall be pushed into the PFMS mapped debit account to be maintained by State Government and will be transferred to the account of the individual beneficiary farmer. In case any excess amount is left after the release of full claims or after the triggering of SBLC or BG, the same shall be returned to the Insurance Company.”

Sources said that insurance companies have taken the plea that since they are depositing a good chunk of premium with the re-insurer, it will not be possible for them to deposit additional amount for the same purpose. If the role of re-insurers is also brought into the ambit of PMFBY, the issue can be resolved, said an executive of an insurance company.

“The main problem lies with the regulator’s relaxation of 180 days to States to deposit their share of premium. Once relaxed, States also do not take it seriously and assume nothing to happen even if they fail to deposit the subsidy premium in time. The regulator has to take a call,” a source said.

Under PMFBY, farmers pay a nominal 2 per cent of the sum insured as premium in kharif season and 1.5 per cent in rabi and 5 per cent for cash crops in both seasons. The remaining premium amount, derived after tender for different crops in different clusters, is shared equally by Centre and States.