Look who’s cashing in on crop insurance plan-insurance firms

Insurers did not lose much money on claims made by farmers either, as 80-85 per cent of the premium is reinsured with reinsurance companies.

Written by George Mathew | Mumbai | Updated: August 28, 2017 5:41 am
crop insurance, crop insurance scheme, Pradhan Mantri Fasal Bima Yojana, PMFBY, Agricultural Insurance Company of India, AIC, farmers, india news According to the AIC, a public sector body that accounts for almost one-third of the crop insurance business, Maharashtra, Tamil Nadu and Karnataka topped in claims in 2016-17.

A YEAR after the central government launched its ambitious crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY), it’s the insurance industry that is all set to cash in amid spells of drought and the agrarian distress. According to figures obtained under the Right to Information (RTI) Act by The Indian Express from Agricultural Insurance Company of India (AIC), the total portfolio, or premium collected under the scheme, was Rs 22,437 crore in 2016-17, while claims made by farmers amounted to Rs 8,087.23 crore as on July 25, 2017.

Latest available data — on August 15 — shows that insurance firms have received claims, including those not settled, of Rs 15,100 crore from farmers but only approved Rs 9,446 crore till date. The government is subsidising the crop insurance business as it shells out 98 per cent of the premium, which will remain with insurance companies.

Insurers did not lose much money on claims made by farmers either, as 80-85 per cent of the premium is reinsured with reinsurance companies. With this profit in 2016-17, the insurance industry is set to recover a major part of the underwriting losses of Rs 15,546 crore it suffered in the previous year. As against a total premium of Rs 5,626.24, they received claims of Rs 21,172.60 crore in 2015-16, shows figures provided by the AIC.

According to the AIC, a public sector body that accounts for almost one-third of the crop insurance business, Maharashtra, Tamil Nadu and Karnataka topped in claims in 2016-17 (see box). Maharashtra topped the list in the previous year as well. A senior official of AIC said the claims would be much more in 2016-17. “Claims keep coming, the final amount could be much more,” said the official.

G Srinivasan, chairman, New India Assurance, had earlier said that the company, which received a premium of close to Rs 1,052 crore, had fielded 100 per cent claims in crop insurance. In crop insurance, settling of claims is a long-drawn process. The Comptroller and Auditor General (CAG), which audited the business, said that claims worth Rs 5,871 crore are still pending out of the total of Rs 12,808 crore under the National Agriculture Insurance Scheme (NAIS), which covered 301.47 lakh farmers in 2015-16.

PSU insurance companies were the last to take up the business as the Government had initially mandated only private sector companies. New India received the maximum claims from Tamil Nadu, which faced a water shortage, and Karnataka.

However, insurance companies don’t suffer any major loss as the business is reinsured with General Insurance Corporation (GIC Re), which re-reinsures with global giants such as Munich Re or Swiss Re. “We reinsure as much as 80 per cent of the crop insurance portfolio,” said a senior official of a public sector insurer.

The farmers’ share of premium under PMFBY will be based on one season, one rate. They have to pay only 1.5 per cent of premium for rabi crop, and 2 per cent for kharif crop. The remaining premium will be paid as subsidy by the Centre and states together. If the claims are less, it will turn out to be a bonanza for insurers.

When contacted, ICICI Lombard General Insurance, one of the largest private players in the segment, declined to comment on the claims and premium. In an earlier statement to The Indian Express, an official of HDFC ERGO General Insurance said, “The premium collected under PMFBY scheme and RWBCIS (Restructured Weather Based Crop Insurance Scheme) is around Rs 2,000 crore and around Rs 12 crore, respectively, for FY17. We expect maximum loss payout in Madhya Pradesh during the Kharif 2016 season. Eighty per cent of the crop insurance portfolio is reinsured for us.”

PMFBY was rolled out from the kharif season of 2016, replacing NAIS and Modified NAIS. According to initial estimates, the premium outgo of the Centre and the states together involved Rs 8,800 crore, which has now crossed Rs 22,000 crore. The premium was 3.5-8 per cent under the two existing schemes so far.

Gross premium underwritten by general insurance companies rose by 32 per cent to reach Rs 1,27,212 crore during the financial year ended March 2017, aided largely by the crop insurance segment, which has emerged as the third largest business after motor insurance and healthcare.

“According to market reports, the general insurance industry showed a phenomenal growth this year (2016-17), riding on premiums derived from PMFBY. But the recently released Economic Survey 2016 (second volume), as quoted in the media, says very significantly, that the crop insurance scheme was yet to show results on the ground due to poor implementation,” said K K Srinivasan, former member, IRDAI.

In its performance audit tabled in July 2017, the CAG made several critical observations about the business. “AIC failed to exercise due diligence in verification of claims by private insurance companies before releasing funds to them. AIC failed to take reinsurance cover on behalf of Government of India and state governments under NAIS despite requirement in the guidelines. At the same time, AIC took reinsurance cover for its own share of claim liability,” it said.

The CAG said that during the period of operation of NAIS — from Rabi season 1999-2000 to Rabi season 2015-16 — AIC had accumulated savings of Rs 2,518.62 crore from the collection of premium. It also said that the guidelines were silent on the utilisation of savings, if any, due to difference between premium collected and claims payable by AIC.

On the private sector, CAG said, “In Rajasthan, the performance of HDFC Ergo General Insurance Company was declared by the State Government to be below par for the last seven crop seasons by the end of Kharif season 2014. However, DAC&FW has not acted on the recommendation of the State Government to de-empanel the insurance company.”

On ICICI Lombard General Insurance Company, CAG said: “Scrutiny of records revealed that ICICI Lombard obtained proposals from 21,875 non-loanee farmers in Rajasthan during Rabi season 2012-13 and collected premium of Rs 2.35 crore from the farmers. Subsequently, the insurance company rejected the insurance proposal of 14,753 farmers due to inadequacy of relevant documents, but did not refund the premium of Rs 1.46 crore to these farmers (September 2016). No action has been initiated by the State Government to get the amount of premium of Rs 1.46 crore refunded to the non-loanee farmers.” ICICI Lombard, HDFC Ergo and AIC did not respond to emails from The Indian Express seeking comment.

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