PM Fasal Bima Yojana changes, a reply to criticism over insurance firms

The Centre has decided not to fork out its share of the premium subsidy (45-49 per cent) if the premium amount on a crop insured in a particular region under PM Fasal Bima Yojana exceeds 25-30 per cent of the sum insured. Its move comes amidst growing allegations that the PMFBY is benefitting insurance companies more than anyone else. The sum insured is calculated on the basis of scale of finance, which is a measure of the loans that can be given per acre per crop. Hence, a farmer is generally entitled to a loan of ₹23,000 per acre for paddy and ₹44,000 per acre for sugarcane, and this is likely to be the sum insured. Hence, a higher premium hurts the Centre and the States besides the farmer, who pays 1.5-5 per cent of the premium. It is, however, notable that 40 districts account for 50 per cent of the insurance claims under the PMFBY. If the claims ratio here renders existing levels of premium unsustainable, the Centre and States need to work out a solution. The insurance regulator should look into whether there is genuine price discovery in the premium bids invited from insurers with respect to a particular cluster.

Insurance companies, too, have faced criticism for not meeting claims on time, notably in Maharashtra last kharif, where an estimated 70 lakh hectares were impacted by unseasonal rain. Insurance firms, in turn, complain that the States do not pay up their share. It is just as well that the Centre has decided to make crop insurance voluntary for farmers, rather than link the policies to loans taken. In this way, insurance firms will have to work for their customers and match their products to farmers’ needs, rather than get their clientele on a platter. As a result, insurers are often not aware — because they have not interacted with their customers — of what farmers have grown, and hence are not adequately informed when it comes to meeting claims. The industry, on its part, says that crop-cutting experiments are fudged. It should consider investing its workforce in CCEs. The Centre has decided to shift away from CCEs to other technologies which are expected to improve accuracy.

It has also done well to insist that companies stay the course in a region for two or three years, instead of bidding for one year. The sector enjoyed three relatively stable years from 2016-17 to 2018-19, with the premiums collected being ₹9,000 crore more than the claims paid in 2018-19. However, some firms opted out last year, minimising business risk. To escape this messy situation, Bihar and West Bengal have launched their own schemes with no insurance players. The PMFBY covers 5.6 crore farmers and 30 per cent of cropped area. Its modalities need to be improved.

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