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Insuring against insurance failure PDF Print E-mail
Wednesday, 26 July 2017 03:43
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PM Fasal Bima Yojana is a big step forward but important to use technology to reap its benefits

When a government reply to a Parliament question says insurance companies collected Rs 20,374 crore of premium in Kharif 2016 and Rabi 2016-17 but paid out just Rs 3,656 crore—total claims made were Rs 5,650 crore—it is not surprising to feel insurance firms have made a killing in the Prime Minister Fasal Bima Yojana (PMFBY). More so since, as Centre for Science and Environment points out, if the percentage of claims-to-sum-insured exceeds 35%, the government will make good the difference. Indeed, many argue that if the government is paying the bulk of the premium anyway, why not just compensate farmers for losses directly and cut out the insurance company profits. 

Apart from the fact that the profits of insurance schemes have to be seen over several years before coming to a conclusion—last year was a good monsoon year, we have to see the claims in a bad year—the Parliament data also looks incorrect. Data filed by eight insurance companies that FE has looked at for the year ending March 2017 show they got crop insurance premiums of Rs 9,900 crore and have claims of Rs 8,100 crore against this—while big insurers like the public sector AIC have not filed their data yet, it is difficult to see how the claims ratio can be very different. So, for any sensible conclusion, the ministry of agriculture needs to relook its numbers.

Based on what data is available, it can unambiguously be said PMFBY is a success given how the number of farmers covered is up by 1 crore and the amount insured nearly double at Rs 210,986 crore in the latest season. While earlier farm insurance schemes, to the extent farmers bought them, tended to cover the value of the loan taken—they were really loan-insurance schemes, and the loan amount is typically 15-20% of the value of the crop—PMFBY covers the full value of the crop. There are, however, problems that need to be addressed if the scheme is to be a total success. The target of covering 40% of the gross cropped area this year means 776 lakh hectares need to be covered, a big leap from the 511 lakh hectares last year. While PMFBY’s success is due to the very low premium the farmer pays—it is capped at 2% of the value of the output—the problem lies in the fact that the assessment methods haven’t really changed. So, the value of the crop is based on the average yields of the last three years—to that extent, in an area where yields are growing, or for farmers who have higher yields, the sum insured doesn’t represent the real value. Most districts tend to have just one or two notified crops, so most vegetables/fruit tend to be uninsured if they are not the major crop of the district. Losses are still calculated by crop-cutting experiments—30-40 in each cluster—so the delays are huge; the latest CAG report points out that, during 2011-16, five out of the nine selected states took more than the prescribed time of 45 days, with delays of up to 1,069 days, in processing claims. Moving to modern methods like drones, satellite imagery and water-logging stations is required, but this has not happened.

 

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