ELEVEN private insurers are set to register profits of over Rs 3,000 crore cumulatively from crop insurance business for the year-ending March 2018 as against the Rs 4,085-crore losses incurred by state-owned insurers, raising questions about allocation of business. Premiums collected by private insurers from the government were higher than the claims made by farmers for crop losses due to floods, earthquakes or shortfall of rain during the year.
According to the annual report of the Insurance Regulatory and Development Authority of India (IRDAI), as much as Rs 11,905.89 crore was collected by 11 private sector insurers as premium, but they faced insurance claims of only Rs 8,831.78 crore.
Five PSU insurers collected Rs 13,411.1 crore in premium from the government and farmers, but farmers made claims of Rs 17,496.64 crore due to crop losses. Among PSU insurers, Agriculture Insurance Company of India Ltd (AIC) accounted for the bulk of the losses.
The central and state governments pay 98 per cent of the premium, and farmers contribute just 2 per cent.
The data of PSU insurers shows that the premium collected is not enough to cover the claims made by farmers, as a major chunk of it — 80-85 per cent — is reinsured and they can recover the losses from reinsurers. The AIC alone has a deficit of Rs 4,446 crore as the main crop insurer has received claims worth Rs 12,339 crore from farmers as against the premium of Rs 7,893 crore, IRDAI data reveals.
K K Srinivasan, former Member, IRDAI, said, “IRDAI data does give an impression that the value of claims reported to PSU insurers (and AIC) is higher than the gross written premium. On the other hand, private sector insurers seem to have generally made a profit on gross basis”
“There may perhaps be a need to relook the manner in which business is allocated to insurers — public and private. The data does not give the net position after reinsurance. The portfolio is believed to be substantially reinsured with GIC, the national reinsurer. If that be the case, GIC will take a hit in their books, unless they are protected by retrocessions,” Srinivasan said.
Profits for insurers from the government’s crop insurance scheme — Pradhan Mantri Fasal Bima Yojana (PMFBY) — are expected to rise further as actual disbursals are likely to be much lower than the claims made by the farmers. Lower claims have already left a profit of Rs 3,074 crore in the books of private players.
Of the total 474.9 lakh farmers who were covered under crop insurance PMFBY and Restructured Weather Based Crop Insurance Scheme (RWBCIS), 275.4 lakh farmers made claims worth Rs 26,050 crore as of March 2018. This works out to more than 100 per cent claim as insurers collected only Rs 25,291 crore as premium. These estimates are preliminary calculations without considering the reinsurance recovery.
According to an insurance sector official, all claims made by farmers may not result in actual disbursals. “Actual disbursals will be much lower. The profits of insurers will only increase as claims are processed in the coming months. Monsoon during the period was normal. But some states like Madhya Pradesh witnessed more claims,” said an insurance company official who did not wish to be named.
Farmers have also realised it’s a long wait for claiming money under the scheme. Delay for reimbursements can go up to 18 months with the Centre and states delaying the payment of premium to insurance companies, industry officials said. Most states are delaying payment of premium which, in turn, leads to delay in payments to farmers, said a former chairman of an insurance company.
Among private players, ICICI Lombard has a profit of over Rs 1,000 crore as it received claims worth only Rs 1,362 crore as against gross premium of Rs 2,371 crore. Reliance General has a profit of Rs 706 crore while claims were Rs 475 crore against a premium of Rs 1,181 crore. Bajaj Allianz has a surplus of Rs 687 crore (claims of Rs 1,148 crore against premium of Rs 1,835 crore). HDFC Ergo has a surplus of Rs 429 crore as of March 2018 as it received claims of Rs 1,772 crore, according to IRDAI.
Among PSU insurers, New India Assurance has a profit of over Rs 500 crore (claims of Rs 1,218 crore against premium of Rs 1,784 crore). United India Insurance has over 100 per cent claims of Rs 1,489 crore as against the premium of Rs 1,470 crore by March 2018.
In the case of PMFBY, while the insurance companies charge the actuarial priced premium rate (APR), the farmer has to pay a maximum 2 per cent premium for Kharif and 1.5 per cent for Rabi crops and 5 per cent for commercial/horticultural crops. The difference between actuarial premium rate and the rate of insurance charges payable by farmers is being treated as the normal premium subsidy, which will be shared equally by the Centre and states. This means as much as 98 per cent of the premium is paid by central and tate governments.
The PMFBY mandates compulsory coverage for all loanee farmers and non-loanee farmers too are encouraged. The scheme is open to all food and oilseeds crops and annual commercial/ horticultural crops for which past yield data is available and for which requisite number of Crop Cutting Experiments (CCEs) are conducted as part of the General Crop Estimation Survey (GCES).
However, to reduce the basis risk (i.e. mismatch in farmer expectations and payment from scheme) under the PMFBY, localised losses (due to hailstorm, landslide and inundation) and post-harvest losses (due to cyclone/ cyclonic rains and unseasonal rain) are assessed on individual farm level survey basis. PMFBY also protects farmers in the event of the ‘insured area being prevented from sowing/ planting’ due to deficit rainfall or adverse seasonal conditions.
According to IRDAI, to provide immediate relief to the insured farmers in case of mid-season adversaries causing expected yield to be less than 50 per cent of threshold yield, PMFBY provides for On-Account partial payment (up to 25 per cent of likely claims) without waiting for final yield data.