Pradhan Mantri Fasal Bima Yojana Update: 4 Leading Private Insurance Companies Withdraw From PMFBY

Four private insurance firms - Tata AIG, Cholamandalam MS, Shriram General Insurance and ICICI Lombard have pulled out of the Centre’s flagship crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY), for both kharif & rabi seasons of the 2019-20 crop year. It said the claims ratios in the States where they were operators last year were quite high, which lead to losses in the business. Also crop damages in Andhra Pradesh, Maharashtra, Chhattisgarh and Haryana in 2018-19 had pushed the claims by cultivators up against the premium collected by the insures, to over 100 percent, while the ratio on a pan-India basis was only 75.4 percent.

Since the insurance claims for kharif 2019 are currently being accumulated by the insurers, there are indications that the claim to premium ratio might be quite high in many states including Karnataka and Maharashtra where the prolonged monsoon rains destroyed key crops such as pulses, cotton & soybean.

An official source said, “Only 13 companies had participated in the bidding process this year as against seventeen last year. This has also increased the premium & burden on the government”. Under Fasal Bima Yojana, farmers pay a fifth of the required premium and the Central & State governments pay the balance amount on a 50:50 ratio.

With state governments shedding their initial uncertainty towards the PMFBY, premium inflows have become more robust & prompt. There were reports that private insurers were collecting big profits from the scheme; the decision of the four top private players to pull out for 2019-20 season however disproves the idea that the insurance scheme is a cash cow for the insures.

Before the introduction of PMFBY, only state-owned insurance firms were in the crop insurance business and since the Centre was meeting their losses, there was no real market-determined discovery of premium / claims settlement. At present, 5 state-owned general or agri insurers have a share of more than half in the crop insurance business & losses from the scheme have hit their bottom lines.

Sources also said that there was a conflict related to the kharif 2018 groundnut crop in Barmer district, Rajasthan where Tata AIG had registered farmers under PMFBY that resulted in the insurer not being in the tussle for the kharif 2019 season. The company said there was no sowing still the state government asked it to pay 100 percent for damage.

As farmers pay a fixed premium, the subsidy burden on the Centre increases when premium prices go up. Insurance is taken by cultivators before sowing & the premium quoted by the insurance companies is generally based on monsoon forecast. Under PMFBY, farmers pay 1.5 percent of sum insured for Rabi crops, 2 percent for Kharif and it is 5 percent for cash crops.

Centre has been considering a number of steps including creating a pool for crop insurance & putting a ceiling on the premium as part of next phase of reforms in the scheme.

In the past three kharif seasons, India received normal and close to normal monsoon in 2 years while another year was 9 percent below normal. But, because of a good distribution of rainfall, it had record production of foodgrains in 2018-19. This year monsoon ended with 10 percent above normal for the whole season while 52 percent more rainfall than LPA in September alone has flooded many crops in states like Karnataka, Maharashtra and Bihar.