Insurance has to be seen in a new light, given the recent developments. With the pandemic bringing an additional focus on agriculture and allied activities, on which 55 per cent of the workforce is dependent, there is a need to consider how insurance coverage can support the sector.

The crop insurance programme, Pradhan Mantri Fasal Bima Yojana (PMFBY), which came into force in 2016 essentially enables a contract between the farmer and an insurance company, which can be a public or private sector entity. For loanee farmers, the premium is subsidised and purchased on the farmer’s behalf by the government compulsorily; non-loanee farmers take coverage based on their need.

Based on the feedback that the PMFBY was not achieving its objectives, key changes have been made with effect from kharif 2020. However, some issues remain to be addressed.

Distribution: The scheme is now voluntary. All farmers can decide on the need and the extent of insurance cover, thereby enabling transparency; it addresses some of the criticism regarding auto deduction of premium amounts without the consent of farmers. Loanee farmers can choose to withdraw from the coverage. The loanee farmers constituted 63 per cent and non loanee 37 per cent of the 564.5 lakh farmers covered in 2018-19.

In order to prepare for the transition agents, brokers and other intermediaries will need to be trained to sell crop insurance cover. These intermediated channels, which accounted for a meagre 2.5 per cent of the crop business in FY 2018-19 as per the General Insurance Council data, can develop this market, as only 30 per cent of the gross cropped area is covered by insurance and the government plans to expand this to 50 per cent by 2021.

Pricing: Insurers are expected to be more rational in their pricing in kharif 2020 due to the fear of rejection. Only those expecting a loss will take the cover due to the voluntary nature of the purchase. The minimum period of contract is three years. This pricing is also dependent on the reinsurers’ support. Four private sector insurers have already moved out of the business citing inadequate pricing and operational issues.

Benefits: The option given in the revised scheme to fix the sum insured at the notional average yield multiplied by the minimum support price directly links the potential revenue loss to a loss in yield. This will lead to a rationalisation of farmers’ expectations regarding the benefits. In the long term, contract farming can also provide an effective price point for coverage. The development of farmer producers’ organisations has the potential to provide a higher unit area for insurance coverage.

Claims settlements: In FY 2019-20, the claims to be paid as a percentage of the premium received (₹31,500 crore) by insurers are likely to exceed 100 per cent. The issues in claims settlement including delays will to some extent be addressed by a two-stage process, using weather indicators and satellite indicators for each area and taking up crop cutting experiments (CCEs) only for areas with deviation from the normal range. Along with smart sampling techniques, the number of crop cutting experiments required can be reduced, easing the claim settlement process.

Agri infrastructure and insurers: Insurers are mandated to invest not less than 15 per cent of their investment assets in housing and infrastructure. The National Infrastructure Pipeline has projected investment in agriculture and food processing infrastructure for the period FY 2020-25 at ₹60,553 crore.

It is a lesser known fact that the definition of ‘infrastructure’ for insurers was first revised as per the IRDAI Registration of Insurance Companies (Second Amendment) 2008. Under Section 2 (ix), investment in construction relating to projects involving agro processing and supply of inputs for agriculture is included. Further, Section 2 (x) provides for construction for preservation and storage of processed agro products, perishable goods such as fruits, vegetables and flowers and testing facilities for quality.

Such investments can contribute to reduction of wastage of produce — which is estimated as being up to 16 per cent for fruits and vegetables, 6 per cent for cereals, 8.4 per cent for pulses and 10 per cent for oilseeds — and thereby increase farm incomes. Insurers can also cover losses due to failure of electric supply, storage losses and inland transit insurance of agriculture produce for inter-State trade, thereby minimising risk to the farmer.

Safety net: Identifying, providing and enhancing the health and social security cover to those in the agriculture workforce, including migrants, is also a key requirementin view of the Covid experience. There is an urgent need to increase awareness on the Ayushman Bharat Scheme, which provides ₹5 lakh per family medical cover. This holds true with respect to accident cover of ₹2 lakh under the PM Suraksha Bima Yojana and a ₹2-lakh life cover under the PM Jeevan Jyoti Bima Yojana.

Key linkages: Currently for the economy, with agriculture holding up, it is important that both the Centre and the States ensure continued crop insurance coverage for kharif 2020 in spite of their stressed budgets as premium payments are due by July 15, 2020.

Better risk management, reduction in price risks through development of agri infrastructure across the value chain, building up a safety net and income stabilisation for farmers are key agriculture outcomes for which the insurance sector can act as an enabler.

The writer is a senior insurance professional

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