Fasal Bima Yojana: Fewer claims and good monsoon prediction bring down premiums

A drop in crop insurance claims by farmers in the last kharif 2019 season, coupled with the prospect of a good monsoon and robust crop in the current summer season, has pushed down Fasal Bima premiums quoted by insurance companies.

Over the years the premiums against sum assured, as quoted by insurers, have been steadily rising, reflecting the firms’ concerns over the shirking margins. The latest trend may be indicating the cementing of the scheme, largely dependent on government support, as a viable insurance model, according to industry watchers.

“Among different clusters for different crops, the highest premium in the current kharif season after finalisation of bids, is around the same level as the average of last summer crop season.

When the actual gross premium will be known after enrolment of farmers completed by August, it is most likely to be lower by 1-2 percentage points from the previous season,” an official said.

The premium to sum insured is derived for notified crops in a cluster of few districts through competitive bidding.

In Karnataka, for instance, the premium finalised by the state government based on quotations from insurers have been in the range of 18.2-25.4% for different clusters, whereas the average was 25.2% in kharif 2019 (see chart). That means the final average will likely be lower than 25.4%, though factors like number of enrolment, crops and clusters determine the number.

Under Pradhan Mantri Fasal Bima Yojana (PMFBY), launched in 2016, farmers pay 1.5% of sum insured for rabi crops and 2% for kharif, while it is 5% for cash crops. The balance premium is paid by the Centre and states in a 50:50 ratio.

The all-India average premium was 12.17% of sum insured in kharif 2016, which increased to 15.82% during kharif 2019, even though there was prediction of a normal monsoon that ended up finally with ‘above normal’ rainfall at 110% of the long period average (LPA). The weather bureau has predicted 102% of LPA for this year’s monsoon.

To check this rising trend of premium, the Centre had earlier decided in February that it would foot the PMFBY subsidy bill only to the extent of its formulaic share, for a gross premium level of 30% in non-irrigated areas. The onus will be on states if they want to implement the scheme when insurers quote any premium above 30%. The cap is 25% in irrigated areas.

During kharif 2018, the premium for jowar crop in Chamrajnagar in Karnataka was 72% of sum insured, while it was 75% for sapota in Thane, Maharashtra. Similarly, the premium for bajra in Jaisalmer, Rajasthan, was 55% during same season. Premiums for crops exceeded 30% in as many as 53 districts in kharif 2018 and the crop insurance scheme put a heavy onus on the Central exchequer.

The claims ratio under the flagship PMFBY and RWBCIS declined to about 63.6% in kharif 2019 against 92.5% in the previous season, despite the country witnessing heavy crop damage in about 6% (nearly 6.5 million hectare) in kharif-sown areas by heavy rains and hailstorms. Bihar, which never implemented PMFBY, had announced Rs 60-crore compensation to farmers who lost at least 33% crop damage.

“There is a time lag in data collection which the government needs to speed up. The claims ratio was about 65% in June 2019 for the kharif 2018 crops even as harvesting season starts in October. The season ended up with over 92% claims ratio. So, we need to wait before arriving at any conclusion,” an industry expert said. However, government officials said the claims ratio of the last kharif season is unlikely go up to the 2018-level. Over 65% of about Rs 14,000 crore of claims have been paid to 1.08 crore farmers, bulk of it after the Covid-19 lockdown.

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