Pradhan Mantri Fasal Bima Yojana- Participation of Private Sector Companies and the Way Ahead

PradhanMantriFasalBimaYojana (PMFBY) is the largest risk mitigation program launched by Government of India for providing a protective shield for the farmers from all natural risks in the entire cropping cycle. This scheme is the first in terms of the lowest premium payable by the farmers and the highest value of crop insured.. All the general insurance companies registered by IRDAI in the country which have a reasonable rural presence have been empanelled for the implementation of the scheme. Presently all the 5 government companies and 13 private companies registered with Irdai are empanelled.

Basic idea for increasing the number of companies was to leverage their cumulative network in the rural area and to take the advantage of efficiency of private sector in the scheme implementation.

The scheme is in its 5th year of its implementation and has been recently revamped to address the challenges in smooth implementation including making it voluntary for all farmers and leveraging technology for smooth implementation.

A lot has been said about participation of Private sector companies and insurance companies reaping super normal profits from the scheme. In the first 3 years of scheme implementation for which complete data is available, the claim ratio at the national level for all the insurance companies combined is 89%. This would mean that for every 100 rupee collected as premium by insurance companies, 89 rupees have been paid as claims by them Insurance companies generally incur a cost of 10-12% for reinsurance and administrative expenses. Thus insurance companies have barely broken even in the first 3 years inspite of a good monsoon in those years. Any catastrophic risk program should be evaluated at least over a 5-year horizon and at the national (aggregate) level. Arguing that a particular company had higher or lower loss ratio in a particular season/year is not the right way of looking at performance of the company or of the Scheme.

The Kharif 2019 season was particularly a good season for crop however widespread unseasonal rains damaged the harvested crops leading to substantial claim payout in the states of Maharashtra and Madhya Pradesh where claim ratios were 121% and 213% respectively.

Claims payout to the farmers require timely sharing of CCE data with the insurance companies by States and the release of the state share of premium subsidy and in certain instances there has been a delay in sharing of Crop Cutting Experiments (CCE) data /release of state subsidy leading to delay in release of claims to the farmers.

There has criticism of low claim ratios and profits earned by insurance companies including private insurance companies based on incomplete data which leads to unfounded criticism of the scheme. Later when the complete data for the season was available, the claim ratio went up substantially. To address the problem of gaps in data in the public domain Agriculture Ministry has been releasing the season wise data every month to ensure that experts can do analysis of the performance of the scheme on the basis of the most recent data.