Crop Insurance: Waiting For A Technological Breakthrough
One of the major decisions of the Narendra Modi government in the agricultural sector was the introduction of Pradhan Mantri Fasal Bima Yojana from kharif 2016.
Farmers’ premium was brought down to only 2 percent of the sum insured for kharif, and 1.5 percent for rabi crops. For annual commercial and horticulture crops, the premium was 5 percent.
While PMFBY provides an insurance cover based on yield, the weather-based scheme provides protection against adverse events such as deficit and excess rainfall, high or low temperature, humidity, etc.
It seems that farmers see value in crop insurance, as an increase in coverage was one of the demands in their march to Delhi on Oct. 2, 2018.
The two schemes have been implemented in five seasons so far, and based on this experience, the government has issued revised guidelines in September 2018.
The government has also set up a technical support unit in the Ministry of Agriculture to analyse the rates of reinsurance. The government hopes that a closer scrutiny of actuarial rates may bring down the rates quoted by insurance companies.
Critics of the scheme point out that it is primarily benefitting insurance companies, and the premium paid to them is much higher than the claims settled by them.
Payment Of Relief
The alternative to crop insurance is payment of relief from the disaster relief fund.
The present norms for “relief” (officially described as input subsidy) under State and National Disaster Relief Fund are Rs 6,800 per hectare for rain-fed crops, Rs 13,500 per hectare for assured irrigated crops and Rs 18,000 per hectare for perennial crops. This is payable only if the crop loss is more than 33 percent.
Under PMFBY, the sum insured is based on the cost of cultivation in a district. For most crops, the sum insured is many times higher than the above norms of disaster relief. For example, the sum insured for wheat and paddy ranges between Rs 40,000 per hectare and Rs 60,000 per hectare.
In FY17, the area under crop insurance was 57.21 million hectare, while the sum insured was Rs 2.02 lakh crore. In FY18, the area insured came down to 49 million hectare, while the sum insured was Rs 1.98 lakh crore.
There were several valid reasons for the drop in coverage.
The government launched an insurance portal from kharif 2017, and all bank branches were asked to enter details of each farmer, including Aadhaar number, crop, area, sum insured, the premium paid and details of the bank account.
In some states, including Karnataka, Maharashtra and Uttar Pradesh, a large number of farmers were not insured in FY18, as they did not repay crop loans in the expectation of a loan waiver, so they became ineligible for the insurance.
Besides, at an all India level, the claim paid is less than the gross premium paid to insurance companies.
In FY17, the gross premium was Rs 22,170 crore, of which the farmers paid Rs 4,187 crore, while the balance was paid by the central government and states as a premium subsidy. Claims accepted amounted to Rs 16,167 crore, of which Rs 15,745 crore has been paid, while Rs 6,96.46 crore is yet to be paid. So, some farmers have been waiting for about two years.
In FY18, the gross premium was Rs 25,173 crore, of which farmers’ share was Rs 4,317 crore. Claims of Rs 15,790 crore have been approved, of which Rs 14,965 crore has been paid, while Rs 2,134 crore is yet to be paid to farmers.
In FY16 and FY17, monsoon was deficient in 12 and six sub-divisions, respectively, out of the 36 sub-divisions. So, the ratio of claims paid to gross premium (claim ratio) was less than 100 percent at an all-India level.
In states hit by drought or flood, the claims paid were more than the premium. For example, in Rabi 2016, the gross premium was Rs 1,188 crore in Tamil Nadu, while the claim paid was Rs 3,331 crore, mostly for losses in Samba paddy due to drought. In six other states, the claim ratio was more than 100 percent.
Similarly, in Kharif 2017, the gross premium was Rs 314 crore in Chhattisgarh, while claims of Rs 1,303 crore were paid. In Odisha, the gross premium was Rs 841 crore, while claims of Rs 1,603 crore were paid. In Haryana and Madhya Pradesh also, the claim ratio was more than 100 percent.
What Affects The Scheme’s Credibility
A delay in settlement of claims, however, continues to be a serious issue affecting the credibility of the scheme.
Claims of about Rs 695 crore of FY17 and Rs 2,134 crore of FY18 are still unpaid. While some of these claims may be disputed, in many cases, the bank details of farmers are not accurate.
Manipur and Bihar have not even paid their full share of premium subsidy for kharif 2016 and rabi 2017, respectively.
In the latest operational guidelines, the government seeks to make insurance companies and state governments more accountable for expeditious settlement of claims. Both will have to pay a 12 percent interest in the case of delay in settlement of claims or payment of premium subsidy.
A number of additional calamities are also proposed to be covered, including a pilot on coverage for losses from an attack of wild animals. Insurance companies have also been given a target to increase coverage of non-loanee farmers.
The cut-off date for insurance of kharif crops has been advanced from July 31 to July 15. The scheduled arrival of monsoon in Kerala is June 1. The first forecast of monsoon is issued by the India Meteorological Department and Skymet in the first fortnight of April. If tenders (to select insurance companies) are floated after issuing the forecast, insurance companies are likely to quote higher premium in states expecting deficient rainfall.
Therefore, all tendering to select insurance companies should be completed before the first forecast is issued. The most critical aspect of PMFBY is crop-cutting experiment to determine the threshold yield of a crop. In some cases, there are reports that yield data is manipulated by state officials.
Under the Weather Based Crop Insurance Scheme also, there are reports of tampering with rainfall and temperature gauges.
So far, we have not seen a technological breakthrough in a precise assessment of crop yield, and loss of yield is still determined through crop-cutting experiments.
The new guidelines mandate that satellite data should be used for smart sampling to decide where to conduct crop-cutting experiments. This can reduce the number of crop-cutting experiments by up to 40 percent. One hopes that remote sensing, drone and mobile technology will reduce the number of crop-cutting experiments.
The new guidelines will surely bring accuracy and transparency in the operation of crop insurance. Continuous engagement of central government with states and reinsurance companies and real-time analysis of data can bring down the actuarial rates and increase coverage of crop insurance.
Siraj Hussain is a visiting senior fellow at ICRIER.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.