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India’s Crop Insurance Scheme Loses Shine

India’s Crop Insurance Scheme Loses Shine

Three years and seven crop seasons after it had been unrolled, nobody seems to be proud of the Centre’s flagship crop insurance scheme, Pradhan Mantri Fasal Bima Yojana. While the number of farmers enrolling under the plan has gone down, insurance companies too are coitus interruptus of it.

Ahead of the 2019-20 crop season, three private companies — ICICI Lombard, Tata AIG and Cholamandalam MS — didn’t bid for the rabi (mid-November to May) and Kharif (June to October) seasons thanks to heavy losses within the 2018 Kharif season.

This is a worrying trend because the scheme, unrolled during the 2016 Kharif season, is mostly spearheaded by private players. It started with ten private insurance companies and only one public insurance firm.

During rabi 2016-17, five more companies were empanelled, four of which were government-run. This was the season private player Shriram General Insurance exited from the scheme thanks to losses. In Kharif 2017, two new private companies joined the scheme taking the entire list of empanelled companies to 17. Now, the scheme is left with 14 companies, nine of which are private-run.

While the businesses are tight-lipped over the explanations for the exit, data tell the story. Profit of an insurance firm depends on the claim ratio — the share of the amount paid as claims about the premium earned.

ICICI Lombard and Cholamandalam had made some profits within the first year of the scheme as their claim ratio was 79 per cent and 61 per cent respectively, but they made heavy losses after that. Tata AIG made losses altogether the three years, with over 100 per cent claim ratio.

Most of the insurance companies incurred losses in the 2018 Kharif season, with nine states — which include Haryana and Maharashtra — recording over 100 per cent claim ratios.

In another four states, claim ratios were less than 100 per cent but above the India average of 76 per cent, consistent with the Union Ministry of Agriculture and Farmers’ Welfare.

In Goa, which had the very best claim ratio, insurance companies had to disburse Rs 2.8 for each rupee they collected as premium. In Haryana, it had been Rs 1.4. The assessment of rabi 2018-19 remains underway, but companies say an outsized number of claims have already been filed.

There are two distinct reasons behind the high claim ratio: Surge in extreme weather events and alleged political interference in crop loss estimation.

The data of 2016-17, updated till December 2017, shows extreme weather events affecting 2.6 million hectares of the cropped area within the country. In 2017-18, updated till December 2018, the share nearly doubled to 4.7 million hectares, suggests EnviStats India 2019, released by the Ministry of Statistics and Programme Implementation.

Rajeev Chaudhary, chairperson and director of government-run Agriculture insurance firm Ltd (AICL), says traditionally insurance companies would incur losses during the rabi season, which is related to freak weather events, and earn profits during the Kharif season. “So, we might make a profit of 10-15 per cent per annum. This is often not true,” says he.

What adds to the companies’ losses is that the incontrovertible fact that the scheme covers farmers within the pre-sowing also because of the post-harvest periods, unlike traditional insurance schemes that cover just standing crops.

“Most farmers now apply for post-harvest losses, and no insurance firm has the infrastructure to verify them,” says Chaudhary. He estimates the claims in the 2019 Kharif season are going to be the very best ever thanks to prolonged rainfall in Maharashtra, Karnataka and Madhya Pradesh that damaged principal crops like pulses and cotton.

A senior AICL officer, on conditions of anonymity, says in Maharashtra quite 2.5 million farmers had already applied for 100 per cent insurance money till the first week of November. “The insurance companies within the state will go bankrupt if they honour all the claims,” he adds.

Most insurance agents right down to Earth spoke also to allege that local politicians and state governments inflate the loss estimation under the crop cutting experiment, which is administered to determine the extent of crop damage.

“In how private insurance companies are pitted against state governments who are blindly approving claims without site visits then asking us to ante up,” says a personal insurance broker in Gujarat. Media reports suggest that the Rajasthan government asked Tata AIG to pay 100 percent insurance money to farmers in Barmer district for damages to groundnut crops in the 2018 Kharif season, even when the corporation claimed that groundnut wasn’t also sown within the area.

“Because of the political influence, farmers don’t cooperate with us,” says the private insurance broker. Even Chaudhary admits that the crop cutting experiment isn’t in favour of the insurance companies. He suggests the scheme should have the supply of hiring independent agencies that both government and insurance companies have faith in to hold out the crop cutting experiments.

The economic slump and its impact on the reinsurance market have also marred the scheme. “The commission that insurance companies receive once they reinsure the danger cover has gone down from 10 per cent to only 3 per cent within the past five years. The commission amount itself runs into crores of rupees, and this dip has impacted the businesses,” says an insurance market expert on anonymity.

Company officials say their risk has also increased because the amount of farmers covered under the scheme has not increased over the years. In 2016-17, quite 58 million farmers were covered under the scheme, which dropped to around 56 million in 2018-19. This has pushed the scheme’s premium, which is shared by farmers, the Centre and states. A farmer in 2016-17 paid on a low premium of Rs 725 under the scheme, which increased to Rs 860 in 2018.

The losing interest of personal players can severely weaken the scheme. For starters, it’ll increase the danger burden of the govt companies. Already, the five government-run companies under the scheme cover over 50 per cent of the disaster-prone areas. This is often the rationale the general claim ratio of the govt companies within the past three years are substantially higher (86 per cent) than the private players (77 per cent). The remaining players also are expected to extend the premium amount to catch up on the upper risk. This may make farmers more unsure of the scheme.

Chaudhary believes the sole way this logjam is often broken is that if the Centre intervenes and increases the number of farmers under the scheme and ensures that it covers the whole country. “Currently, only 25 percent of districts contribute to the majority of the premium. If the farmer base spreads to new places, companies can earn enough to stay within the scheme,” he says.

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