The Indian government should reframe the crop insurance contract with farmers so that they can pay the premium at the time of harvest. This will help enrol more growers in the Pradhan Mantri Fasal Bhima Yojana (PMFBY), says a top official of Terragni Consulting, which specialises in behavioural science.

“Farmers can be told not to pay anything right now. When they are harvesting the crop, if there is any damage, let the insurance firm look at what the yield is. 

“Let the farmer look at the shortfall and the insurance company can step in and bridge that whatever value is agreed upon. So reframing means that the farmer now is not going to have to invest in the hope that he’s going to get something,” said  Anil Pillai, Director, Terragni Consulting. 

36% uptake in 1st year

Instead of front-loading, the farmers’ expenses are moved back giving them the option to pay during harvest. “This is an experiment that has been tried out and tested in countries such as Chile. The authorities saw almost a 36-38 per cent uptake straight away in the first year,” he said.

This will ensure that the farmer will have the money and work out how much the insurance company has to pay. “So it is a far more transparent mechanism than giving a premium every month and hoping to get something in return,” Pillai said.

Such reframing of contracts will help in getting more farmers, who have not heard of anyone getting ₹2 lakh or ₹4 lakh.  “Farmers need social proof to believe in crop insurance,” he said, adding that lack of such proof has resulted in them believing that insurance “is not a great thing to do”.  

Concept-to-reality gap

Crop insurance companies will have to come up with a standardised method for ensuring a proper value of the crop for better enrolment of farmers, the  Terragni Consulting director said.

“The first challenge is how would you come up with a standardised method of figuring out what is the insured value on which an insurance company will make the payment. The value of a car is defined, and a human being’s value is also defined. Agriculture value is still a question mark. This is the first challenge,” said  Pillai. 

 There are a couple of challenges in crop insurance, though it is well thought out. “There is a concept-to-reality gap where everyone agrees insurance is a great thing, but when you ask them they say they don’t want it,” he said. 

In the case of crop insurance, a farmer thinks he would get ₹x when he begins insurance payment. But when the payment is made, it turns out to be totally different. “There have been hilarious instances in Madhya Pradesh where people have got ₹2 as a payout of the insurance. There’s no certainty to the outcome, which is unexpected,” Pillai said.   

Root of the problem

Terragni is an organisation which uses consumer neuroscience and behavioural science to get insights into insurance. These are done using methods beyond asking questions. After getting the insights, the company designs the outcomes that could impact a project or scheme. It has worked with multinationals such as DuPont and Bayer, besides insurance companies such as Bajaj Allianz.

Pillai said the root of the problem in crop insurance is probably Union and State governments bearing over 90 per cent of the premium. “If you really look at personal life insurance, it is done by a person for himself. So there is an assurance of fulfilment of some kind,” he said. 

In the case of crop insurance, the problem is how it is determined. “It is very uni-dimensional. The yield is calculated by the insurance company, the collector’s office and the agriculture revenue department. Now, what happens if the farmer’s estimation of yield is higher? Such a dissonance means the motivation to get insurance is not very high,” the Terragni director said.

States’ reluctance

The method used to calculate the yield today is only for the purpose of agriculture planning. It is not a method for insurance. “We have just taken that method and applied it for the insurance payout. This is a flawed method,” Pillai said.  

The second issue is the method for determining the loss. “The sample size done in an area, say for example hit by a cyclone, does not mean everyone there will get the same amount of payment. “There have been cases in Haryana and Madhya Pradesh where in two adjoining farms one has got the payment and another nothing at all,” he said.

The third problem is that while the Centre is ready to make the premium payment, States are not willing to follow suit. “A lot of the payouts today is held back because the insurance companies have not got the payment from the States,” Pillai said, adding that this leads to the insurance companies being blamed for the farmers’ woes.

The ‘opt in’ choice

Agriculture is a highly variable industry and there is no predictability now due to the small sizes of farms. “I am not saying that things have not improved. Things have indeed improved over the years, but we have got a long way to go,” the Terragni director said.

Pillai said crop insurance was compulsory earlier but in 2020, the Centre changed it, leaving it to farmers to “opt in”. This has resulted in two segments of farmers emerging - one that is risk-averse and the other risk-embracing. 

“Risk-embracing farmers are more tolerant of the shortcomings. But the risk-averse growers are not prepared to enrol for crop insurance unless they see the benefits flowing into other farmers,” he said.   

A scientific method of understanding crop yield has to emerge for assessment and payment. “Technology will help take care of this, in particular, to plug the last mile leakages,” he said. 


Some farmers have an optimism bias that nothing bad will happen to them and it can happen only to their neighbours. “There is also overconfidence bias among some other farmers who expect their crop to be good despite bad experiences in the previous years,” Pillai said.

The friction between insurance companies and farmers on the dues to the latter should be eliminated. “The number of crop insurance providers has been falling steadily. Given the importance of the agriculture sector, we believe that the insurance companies are also bound to look at how to reduce friction in terms of payoffs,” he said.  

The other issues are insurance companies saying they are not earning profits, while States are complaining that they don’t have the funds. “West Bengal for example, have opted out of the central crop insurance scheme,” he said.