India’s facade of agricultural insurance

Even if a single farmer’s crop is damaged in a village he will get the benefits of insurance

 - Prime Minister Narendra Modi had said while launching the government’s flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) from Madhya Pradesh in 2016.

The words, however, mean nothing to the farmers of the state’s Harda district whose standing crops got destroyed by a severe hailstorm on January 9, 2021.

The state’s agriculture minister Kamal Patel, who belongs to Harda constituency, reached the district on January 10 to survey the crop loss. Chief Minister Shivraj Singh Chouhan also directed officials to ensure that the damage survey is done effectively and every report be read out in front of the farmers in the panchayat.

But Mahesh Jageshwar Ramkuche, a small farmer from Pantalai village, has no hopes of compensation though he has lost the entire chana (chickpea) crop on his 1.27 ha farm. In 2019, when his soybean crop got destroyed due to heavy rains, Ramkuche received only Rs 2 in the name of insurance claim.

“A similar survey was conducted at that time for assessing crop loss,” he says, adding that he has regularly paid the premium for PMFBY for the past six years. Though Ramkuche does not remember the exact premium amount, he says Rs 10,000-12,000 gets deducted from his Kisan Credit Card (KCC) account every year towards PMFBY premium and for the interest on agricultural loan he has taken from the bank.

The scheme was initially compulsory for loanee farmers but has been made voluntary for all since 2020. It insures farmers against all non-preventable natural risks from pre-sowing to post-harvest. It is a yield index-based scheme and mainly implemented on area approach basis.

Claims are worked out on the basis of shortfall in actual yield vis-à-vis the threshold yield in the notified area. The premium is, however, determined through bidding.

Farmers have to pay a maximum 2 per cent of the total premium of the insured amount for kharif and 1.5 per cent for rabi food crops and oilseed and 5 per cent for commercial/horticultural crops. The balance of actuarial/bidded premium is shared by the Union and state governments on 50:50 basis, and on 90:10 basis in case of northeastern states.

At the start of each season, the state government notifies the threshold yield of individual crops in each insurance unit, calculated based on the average yield of past seven years. The notification also mention the sum insured for individual crops in insurance units.

Despite the severity of crop loss due to extreme weather events increasing in recent years, the number of farmers opting for crop insurance has been declining.

An analysis of data compiled from PMFBY’s dashboard and from government replies in Parliament shows that since 2016, there has been a 62 per cent decrease in farmers covered under crop insurance during kharif season to 15.1 million in 2021, and 46 per cent decrease during rabi to 9.2 million in 2021.

Area insured has also reduced — 57 per cent under kharif and 22 per cent under rabi. While there has been a decrease in applications from non-loanee farmers, for whom PMFBY was optional from the start, many loanee farmers tell Down To Earth (DTE) that they pay the premium as they are not aware the scheme was no longer mandatory.

To understand how the scheme helped farmers cope extreme weather events, DTE reported from eight states that have faced extensive crop damage during the kharif and rabi seasons in the current agricultural year. Their bitter experiences highlight the many flaws in the scheme. 

Compensation low or never 

Some complain that crop loss surveyors of the insurance company while computing the claim do not base it on the market price of the product but on the cultivation cost.

“In 2020 my crop was lost due to the floods in the Hemavati river and cultivation was not possible in 2021 due to siltation. Both years I lost my income, but my return from insura-nce was only 30 per cent which is equal to the insurance premium I paid. What’s the use of insuring,” asks Bharamappa, a far-mer from Udupi district, Karnataka, which saw 60 per cent excess rainfall in 2021.

Hathi Singh, a farmer from Rajasthan’s Jaisalmer district laughs at the absurdity of the way the scheme functions. He and his brother Ghenwar Singh have 70 ha and 15 ha adjacent agricultural lands in Bhimsar village.

Yet when a hailstorm in March 2020 damaged harvest-ready chickpea, mustard, cumin and psyllium husk (isabgol) crops in both their fields, only Ghenwar Singh could avail insurance claim under PMFBY. Two years later, Hathi Singh, who is also the district president of Bharatiya Janata Party Kisan Morcha, is still waiting for his money.

“Since 2016, I have been paying Rs 14,000 every year as premium. Does it make sense that both our crops failed on adjacent lands but one of us got the claim and the other did not,” a perplexed Hathi Singh asks.

Rajasthan is one of the few states where the number of farmers under PMFBY has been increasing—from around 2 million in 2018 to 3 million in 2021 in kharif. However, they are also increasingly getting irritated. Shivdan Singh Bhati, a farmer leader from Moolana village, Jaisalmer, says the number of farmers opting out of crop insurance has also increased in Rajasthan, since the insurance companies do not clear the claims.

“I had sown mustard and cumin on 12 ha, spending Rs 1.2 lakh, but everything was ruined because of hail. I pay a yearly premium of Rs 10,000 for each crop and was supposed to get around Rs 4 lakh as my coverage, but the insurance company did not provide the claim,” Bhati says.

An amount of over Rs 3,372 crore is pending in claims worth Rs 66,460 crore in the last three years under PMFBY, as of Nove-mber 25, 2021, and “state subsidy pending” is one of the major reasons, as per a reply by Union agriculture minister Narendra Singh Tomar in the Lok Sabha on November 30, 2021. Of the Rs 3,372 crore, Rs 1,087.35 crore is pending for financial year 2020-21.

States say premium too high

However, Bhati and Hathi Singh both say that the response they get from the insurance companies is that the state government has not paid its part of the share in the scheme and that is why the claims cannot be settled. This seems to be true. A whopping Rs 4,744 crore is pending from states — Rs 321.96 crore from 2018-19, Rs 1558.28 crore from 2019-20, and Rs 2,863.79 crore from 2020-21. If the states do not pay their premium share on time, the insurance process cannot be initiated as the Centre pays its share only after states have paid.

The inclination of states in the scheme, which started with the participation of 27 states, is on the wane. Seven states—Andhra Pradesh, Jharkhand, Telangana, Bihar, Gujarat, Punjab, and West Bengal — all predominantly agriculture states, have discontinued the scheme. Some of these states have their own insurance schemes. Of the rest 29 states and Union Territories, only 19 have participated in the ongoing rabi 2021 season.

One of the major reasons for states opting out or delaying paying their share of premium is financial constraints. The premium rates have increased from 11.6 per cent in kharif 2015 to 12.5 per cent currently. For many states, paying the premium subsidy is a huge cost. For example, the total PMFBY premium subsidy to be paid by Rajasthan in 2020-21 was Rs 2,822.7 crore, which formed 25 per cent of the state’s agriculture budget that year.

Assessment crucial

Disappointed with the scheme, Ranjan Barik of Babebira village from Bargarh, Odisha’s most important agrarian district, has opted out of PMFBY this year. Barik says initially they were getting compensation based on the joint crop cutting experiments (CCEs) by officials of the state agriculture department, revenue department and representatives of the insurance company.

But from 2019, the private insurers are not following the assessment by the government officials and rejecting many claims on the basis of their own assessment.

CCEs are conducted just before harvest to assess crop loss by estimating average yield for all notified crops in the notified insurance units, and insurance companies are bound to settle the claims within two weeks of receiving the yield data.

In the case of mid-season adversities, the loss assessment should be carried out within seven days from the occurrence of the event and the payment made within 30 days.

In a localised event, the insured farmer has to intimate the insurance company within 72 hours, following which assessment of the affected area will be done in 10 days and the payment made within 15 days of the preparation of the loss assessment report.

The success of PMFBY depends on the accuracy of loss assessment, in this case, the CCEs. Ideally under CCE, a team, consisting of government officials and the local insurance company, selects random fields in an insurance unit (the states notify village/village panchayat/mandal/taluka/district as an insurance unit).

The team then identifies a small portion of the field and the crop in that area is harvested to ascertain the yield of that season. Depending on their assessment, all farmers enrolled under the scheme in the insurance unit will either get the compensation or not.

The minimum sample size for randomly selected plots is four in case of a village/village panchayat, 10 in case of a mandal, 16 in case of taluka or block, and 24 in case of a district. The average yield of a notified crop in an insurance unit will be the average yield of the best five years out of the last seven years.

Farmers in Bargarh say that earlier agriculture department officials would inform them days before the CCEs, and they used to be present during the exercise. But now private companies do the assessment without informing the farmers. Agriculture department officials agree with the farmers.

“Claiming that they assess the crop damage from satellite, they take unilateral decisions and reject the claims. As a result, farmers have lost their trust in the insurers,” says an official requesting anonymity.

Corruption, dispute 

\Far away in Uttar Pradesh’s Jalaun district, farmers complain of corruption. Kamlesh, a farmer from Amkhera village, has paid R7,200 in PMFBY premium annually since 2017. A hail in February 2020 damaged his and other farmers’ peas crop and CCEs were conducted in the village thereafter.

“Almost 500 farmers lost their crop that year but in the survey only 50-60 people got their claims. The lekhpal (patwari or government official at block level) takes bribe from farmers for assessing the damage. Those who pay, get their names included,” he says.

The number of farmers opting for the scheme has been falling gradually every year in Uttar Pradesh — from 2.8 million in 2018 to 1.79 million in 2021.

Disputes over yield quality

CCE, as a method for estimating crop damage, has been criticised since the beginning for its unreliability in giving an accurate assessment.

The 2020 revamped operational guidelines of the scheme also said that “Disputes on the quality of yield data is a challenge in the effective implementation of the scheme” and mandated that the CCE process must be digitised, including geo-coding (providing the latitude and longitude of the CCE location) and officials must take photographs of the CCE plot and the CCE activity with date/time stamp.

However, the new rules have not brought much change. A discussion paper by International Food Policy Research Institute in 2020 says that the implementing agencies at the state level did not act upon it.

Several studies have highlighted malpractices in CCEs by farmers, insurance companies and the government.

While in some cases, misuse of aerial survey through drones by selection of healthy crop patches by the appointed loss assessor have been reported, in other cases, pressurising the staff conducting CCEs by farmers to document higher losses were recorded.

Rajeev Chaudhary, who has handled crop insurance during his tenure at two public sector undertakings (PSUs) — Agriculture Insurance Company Ltd and United India Insurance Company Ltd—says that loss assessment has not gone as envisaged.

“Damage assessment is manual and you can imagine there will be lot of leakages and wrong claims lodged under the patwari system. CCE is an age-old practice. It was designed mainly for estimating yield for planning purposes and not for insurance purposes,” he says.

Human resource shortage

Human resource shortage in conducting and observing CCEs is a hurdle that the government has not been able to cross since the inception of PMFBY. States also attribute the delay in payments to inadequate human resources. For such a large scheme, CCE requires a dedicated staff since a huge number of CCEs need to be covered within the short harvesting period.

The government is aware of this and is working on shifting to assessment by drones or satellites. “It was expected that by 2021 the government would be able to assess loss of major crops—wheat and paddy through satellite or drones. Work was piloted and 16 remote sensing companies were shortlisted. They had submitted their plans but things have not progressed much,” says Chaudhary.

Meanwhile, PMFBY seems to be a scheme nobody — farmers, states or insurance companies — is happy with. The scheme started with 19 insurance companies — 14 private and all five public sector general insurance companies, but only 11 companies have bid for the kharif 2021 season — 10 private and one PSU.

They say PMFBY has become a loss-making scheme. In 2018-19 and 2019-20, the gross premium amounted to Rs 17,220 crore and Rs 19,966 crore respectively. Against this, the reported claims were Rs 29,341 crore and Rs 27,394 crore, meaning a cumulative loss of Rs 19,549 crore.

“The insurance industry is at an 80-85 per cent loss ratio currently. If we add expenses of the industry like reinsurance cost, marketing and management, the industry is at close to 100 per cent loss ratio. And this is when India has not suffered any huge calamity in last four five years. Local extreme weather events have increased, yes.

Few of the states are loss making and in other states that have not made claims frequently, the calamity for when they made, was severe. This means the incidence ratio is low but calamity is high. Hence, we are not seeing much profits and insurers like ICICI, Tata, Cholamandlam, Sriram have opted out,” says an industry source.

In the initial years of the scheme, the pattern was reverse — claims paid by insurance companies was less than the gross premium. The problem is aggravated when most of the states which are part of the scheme are loss making.

“Few state governments have opted out of the scheme claiming that they have not received the adequate claims in a particular year, basically meaning that it was a good crop year.

“For example, Punjab. States say why should they pay subsidy premium under PMFBY when they can manage on their own by giving cash disbursements or through some compensation schemes if required. In the start of 2016 season, many states had come forward but now only those states remain which see continuous claims,” the source says.

To its credit, PMFBY is an improvement in terms of less premium for farmers and more types of risk coverage, compared to its predecessor — Modified National Agricult-ural Insurance Scheme.

The government has made changes to the scheme twice, with an aim to make it more efficient. It has recently also set up two separate panels to suggest suitable working models for PMFBY, following the withdrawal of seven states from the scheme.

One of the panels will study the feasibility of adopting various technology-based approaches and use of drones in crop yield estimation and the other committee will conduct a cost-benefit analysis of different insurance models, especially the cup and cap model, now also known as the Beed model.

In Beed, the insurance company provides a cover of 110 per cent of the gross premium and if the claims exceeds the cover, the state government would pay the bridge amount. If the claims are less than the premium collected, the insurance company would keep 20 per cent of the amount as handling charges and reimburse the rest to the state government.

Their success of these models, if and when implemented, will be decided only after the next disaster, which, chancer are, will not be too far off.

This was first published in Down To Earth’s print edition (dated 1-15 February, 2022)

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