Amid climate risks, govt may rejig flagship farm insurance scheme

The Union government is likely to remodel the Pradhan Mantri Fasal Bima Yojana (PMFBY), the flagship state-run crop insurance scheme, to make it more efficient by providing more coverage for less expenditure, and easing its fiscal burden on states, an official said.

After recent discussions, “several state governments” are now of the view that protection against financial losses due to growing weather risks had become necessary for both cultivators and states, the official said, requesting anonymity.

The PMFBY is a subsidized crop insurance scheme, where farmers pay between 1.5% and 2% of the premiums depending on crop cycles. The remaining share is shared 50:50 between the Centre and state governments. In case of northeastern states, the Centre pays 90% of the premium subsidy.

Yet, many states have opted out of the scheme in recent years, swamped by delayed payments that make them politically unpopular, time- consuming crop- damage assessments and financial implications despite a major revamp, according to an assessment by the Centre. A key gripe of states has been disagreements over the claim to premium ratio and claim settlements ratio.

State authorities foresee increasing climate-change induced deviations in rainfall patterns and rising frequency of crop-roiling heatwaves, which has heightened their need for efficient farm insurance.

Two states, with significant impacts of heatwaves, which had opted out of the PMFBY, are back in. Andhra Pradesh, which sees dire hot spells in summers, rejoined in the PMFBY in 2022 and Punjab will run the insurance scheme again from this year’s kharif season, primarily to mitigate weather risks.

Launched in June 2016, the PMFBY replaced a web of complicated, multiple farm insurance schemes, all running simultaneously, with a single countrywide plan.

The claims ratio is the percentage of expenditure on claims incurred by an insurance firm with respect to premiums, or the firm’s earnings. Claim settlement ratio is the percentage of claims disbursed by an insurance provider out of total claims in a year. Insurance generally works on the principle of pooling risks. In other words, while a large pool of people buys into a policy, only a few would put it to use at any given period.

Many activists have often argued that overall claims have been very low compared to premiums paid. “That’s not true. Insurance pays only when things go wrong, not when things are okay. With four years of normal monsoon, claims would obviously be on the lower side,” an executive of an insurance provider empaneled in the PMFBY said, declining to be named.

Under the Centre’s likely revamp of the insurance programme, where actuarial firms participate through open bids, providers will have to pay between 60% and 130% of the gross premium as claims. However, if the claims are below the threshold, then the premium will stand forfeited. “This will greatly ease burden of the states,” the person cited in the first instance said.

Climate scientists have warned that scorching heatwaves, among other extreme weather events, are being driven by global warming, posing a risk to the country’s food security and farm incomes.

Increasing heatwaves in India are being “most certainly” driven by global warming-induced changes in weather patterns, said Roxy Mathew Koll, a climate scientist at the Indian Institute of Tropical Meteorology.

The PMFBY, meant to shield farm incomes, eventually ran into many of the old problems. The one most troubling for farmers is a delay in payouts. The average delay in payment of claims, according to official data, is more than a year from the date of harvest.

“The reasons for delays were two-fold,” the insurance executive said. One, assessing crop damage itself is a time consuming process, involving physical cutting and weighing of dried damaged crops to determine yield losses. Secondly, fiscally burdened states often lagged deadlines for releasing their share of premium. Claims can only be settled once both Centre and states release their subsidy shares in full.

Both these key problems are being re-examined to fix them, including replacing the assessments to a “large extent” with “digital-satellite-remote sensing modes” of determining crop losses, the government official said.