PMFBY Update: Insurance Companies Reduce Exposure to Crop Insurance

General Insurance companies are gradually decreasing their exposure to the crop insurance segment, Pradhan Mantri Fasal Bima Yojana, (PMFBY), in order to balance their portfolios and cut down losses on account of high claims, as the union government made the scheme optional and slashed its contribution. 

Gross premium under various General Insurance Companies has fallen by 12.37 % to  in the four month period till July 2021 as compared to Rs 4,817 Crore in the previous year. This has come after 16.76 % decline in Crop Insurance premium to Rs 19,071  Crore (Excluding Agriculture Insurance Corporation) in the last fiscal as against Rs 22,911 Crore in the previous year, according to figures available from General Insurance Council (GI Council). 

Public sector insurance firm such as the New India Assurance has almost reduced their exposure to nil in the last four months. The top 4 Public sector insurer companies – New India Assurance, United India Insurance, National Insurance & Oriental Insurance have a combined exposure of just Rs 3.8 Crore in the period discussed above. 

While the private sector companies like ICICI Lombard General Insurance & Tata AIG had exited the portfolio 2 years back due to losses and high reinsurance costs. In the beginning PMFBY witnessed huge claims of over 100 percent in the first few years which incurred losses to the insurers. 

In February 2020, the government revamped the PMFBY and the restructured Weather Based Crop Insurance Scheme (RWBCIS) to address existing challenges in implementation of crop insurance schemes. The government made the 2 schemes voluntary for the farmers including those with existing crop Loans.  Earlier it was compulsory for all farmers with crop loans to enroll for insurance cover under the scheme. 

An official from Insurance firm said that the government has almost halved its contribution to its own flagship crop insurance schemes, slashing its share of the premium subsidy from current 50 % to just 25% in Irrigated Areas and 30% for unirrigated areas from kharif season 2020. 

The Farmer Enrollment has Reduced 

The reason behind the drop is the delayed payouts. Another reason may be the mismatch of the digital records and land ownership claims made by the concerned farmers which prevents the farmers from available crop insurance.