Insurance companies have collected premiums totaling around Rs 22,345 crore and paid out claims worth just Rs 5,876 crore to farmers so far for the last kharif and rabi agricultural seasons under the Pradhan Mantri Fasal Bima Yojana (PMFBY). This huge gap between premium receipts and claims paid has invited charges, both from the opposition parties and civil society groups, of “profiteering” by private insurers at the expense of farmers and taxpayers. Such criticism betrays a lack of understanding on how the business of insurance works. Insurance claim payouts are always low in normal years. Unlike in 2014 and 2015, India had a “normal” monsoon last year, with most parts of the country receiving above-average rainfall. Crop damage claims were bound to, then, be generally lower. In areas where the monsoon failed — especially Tamil Nadu and Karnataka — the claims paid did exceed the premium receipts under the PMFBY.
That said, the PMFBY is not without flaws. To start with, the premium subsidy under the scheme is to be equally shared between the Centre and the states. One reason for delay in claim payments by insurance companies is the latter not releasing their part of the subsidy on time. The states are also slow in conducting village-level crop-cutting experiments and submitting yield data from the same to the insurance companies. Secondly, the companies themselves have no direct connection with the farmers. In most cases, they don’t even maintain databases relating to landholdings or cropping patterns. The premiums are collected and passed on by the banks that extend loans to the farmers. The scheme, thus, acts “more as loan insurance than as crop insurance”, as the CAG has pointed out.
If the Modi government wants the PMFBY to succeed, it should take over the entire premium subsidy burden. If the Centre can pay 100 per cent of subsidy on fertilisers, why cannot it do the same for insurance premium, which is at least a productive expenditure unlike the former? One way to force the states to implement PMFBY properly is to bear the whole premium subsidy and link its release to their meeting prescribed operational schedules. Once insurance companies are assured of timely release of subsidy and also of crop yield data from the states, they will have no excuse for delaying claim settlements. The fact that farmers are still to get over Rs 5,600 crore worth of estimated claims from the 2016 kharif season is clear proof of a well-intentioned scheme not delivering on the ground.