Fasal Bima Yojana: Private sector participation and way forward

By Sudhanshu Pandey

Pradhan Mantri Fasal Bima Yojana (PMFBY) is the largest risk mitigation programme launched by Government of India for providing a protective shield for the farmers from all-natural risks in the entire cropping cycle.  This scheme is the first in terms of the lowest premium payable by the farmers and the highest value of crop insured.  All the general insurance companies registered by IRDAI in the country which have a reasonable rural presence have been empanelled for the implementation of the scheme. Presently all the five government companies and 13 private companies registered with IRDAI are empanelled.

The basic idea for increasing the number of companies was to leverage their cumulative network in the rural area and to take the advantage of the efficiency of the private sector in the scheme implementation.

The scheme is in its fifth year of its implementation and has been recently revamped to address the challenges in smooth implementation including making it voluntary for all farmers and leveraging technology for smooth implementation.

A lot has been said about the participation of  Private sector companies and insurance companies reaping supernormal profits from the scheme. In the first 3 years of scheme implementation for which complete data is available, the claim ratio at the national level for all the insurance companies combined is 89%. This would mean that for every 100 rupee collected as premium by insurance companies, 89 rupees have been paid as claims by them Insurance companies generally incur a cost of 10-12% for reinsurance and administrative expenses.  Thus insurance companies have barely broken even in the first 3 years in spite of a good monsoon in those years. Any catastrophic risk programme should be evaluated at least over a 5-year horizon and at the national (aggregate) level. Arguing that a particular company had higher or lower loss ratio in a particular season/year is not the right way of looking at the performance of the company or of the Scheme.

The Kharif 2019 season was particularly a good season for crop however widespread unseasonal rains damaged the harvested crops leading to substantial claim payout in the states of Maharashtra and Madhya Pradesh where claim ratios were 121% and 213% respectively.

Claims payout to the farmers require timely sharing of CCE data with the insurance companies by States and the release of the state share of premium subsidy and in certain instances, there has been a delay in sharing of Crop Cutting Experiments (CCE) data /release of state subsidy leading to delay in the release of claims to the farmers.

There has criticism of low claim ratios and profits earned by insurance companies including private insurance companies based on incomplete data which leads to unfounded criticism of the scheme. Later when the complete data for the season was available, the claim ratio went up substantially. To address the problem of gaps in data in the public domain Agriculture Ministry has been releasing the season-wise data every month to ensure that experts can do analysis of the performance of the scheme on the basis of the most recent data.

On analysing data for Public and Private Insurers for the period of three years (2016-17 to 2018-19) for which majority of the data has been received, claim ratio stands at 98.5% and 80.3% for Public and private companies respectively. For kharif 2019, as CCE data has not been received from states of Gujarat, Jharkhand and Karnataka and Rabi 2019-20 data is pending from half a dozen states, final claim ratio for all companies including private companies for 2019-20 is bound to increase significantly on receipt of pending data.

In the revamped Scheme effective from kharif 2020 provision has been made to allocate work to Insurance Companies for a period of three years which will average out any volatility in terms of high/low claim ratio seasons and will act as an ideal period for the analysis of scheme in terms of claims paid by insurance companies with respect to premium collected.

The primary driver of premiums is the unavailability of historical yield data at the granular level and discrepancies on account of human errors in computation /calculation and recording of yield data. Technology-based yield estimation through a robust arithmetical model incorporating Satellite imagery, gridded weather data and soil moisture data can go a long way in moderating the premium rates and stabilising the scheme implementation.

Agriculture Ministry has initiated large scale prominent Government, International and private technical agencies and it is expected that a technology-based protocol for yield estimation would be in place in next 1 to 2 years. That would lead to a paradigm shift in the implementation of crop insurance schemes and would meet the needs of smallholder farmers in the long run.

Sudhanshu Pandey is union secretary Department of Agriculture & Farmer Welfare, and Department of Food & Public Distribution