PM crop insurance scheme: States may have to share profit or loss with insuring firm

After ‘informally’ allowing some States for the last two years under the so-called Beed formula or 80:110 plan, the Centre is all set to allow three additional options under the Pradhan Mantri Fasal Bima Yojana (PMFBY) in which insurers’ income or liability will be limited in a band, beyond which State government will take over the responsibility.

A sub-committee under a joint secretary in the Finance Ministry is said to have finalised the plans to be offered and the Agriculture Ministry will decide if the recommendations are to be accepted once the report is submitted, sources said.

Insurers’ liability

One of the recommendations under the 60:130 plan says the insurers’ liability will be a maximum of 130 per cent of the gross premium collected and if the amount of the claim exceeds that, States will have to bear the financial burden. Similarly, if claims fall below 60 per cent of the gross premium collected, the insurer will have to return the amount to the State government after retaining 60 per cent with it.

For instance, if claims are 45 per cent of the gross premium in a season, the insurer will return 15 per cent of the gross premium to the State government after keeping 60 per cent with itself.

Under PMFBY, the balance premium is split equally between the Centre and States after farmers pay a fixed premium—1.5 per cent (of the sum insured) in rabi season, 2 per cent in kharif and 5 per cent for cash crops. The premium is arrived at, based on quotations from insurance companies in a cluster. The Centre has capped the maximum premium at 30 per cent in unirrigated areas and 25 per cent in irrigated areas.

Madhya Pradesh and Maharashtra have issued tenders for crop insurance premium for kharif 2022 under 80:110 and 60:130 plans, besides the regular PMFBY scheme, sources said. Based on the premium quotations they receive from insurance companies, they will decide which scheme to roll out, the sources said. “If it is regular PMFBY, the States do not need Centre’s approval, but in case they want to implement either of the 80:110 and 60:130 plans, prior approval is required,” an official said.

Joint share in liability

The third recommendation is a co-insurance model in which both the insurer and State will jointly share the liability to the extent they share the premium among themselves.

In September, the government had formed the working group under PMFBY’s CEO to examine alternate risk management mechanism and suggest financial and operational models with sustainable underwriting capacities and rationalised premium pricing. Further, in that group, the expert committee was formed to conduct cost benefit analysis of all “accepted models – agriculture insurance pool, cup and cap 80-110 per cent and co-insurance 20-80 per cent”, as well as any profit-loss sharing model.

“The main issue for the whole crop insurance scheme is partly political and to some extent, financial. Unless these are addressed, the States which have left the scheme are unlikely to return. The three proposed models, unfortunately do not address these concerns,” an expert in crop insurance said.

Gujarat had no reason to leave PMFBY, still it quit the scheme and the Centre maintained its silence. Similarly, Bihar is spending 4-5 times more on crop insurance than its share on premium subsidy under PMFBY when it was implementing the scheme, sources said. West Bengal says since the schemeis named and publicised with the Prime Minister’s tag, the entire burden of premium subsidy should be on the Centre.

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