The Indian government-backed crop insurance scheme, Pradhan Mantri Fasal Bima Yojana (PMFBY), deserves a dedicated team of professionals, both at the central government and in the states, which can collate and analyse the data collected from the states and insurance companies, says a working paper released by the Indian Council For Research on International Economic Relations (ICRIER) and written by eminent agricultural economist Ashok Gulati and his team.
The paper highlights several shortcomings in the PFMBY, which was launched and played a significant role in the growth of non-life insurance industry in the financial year ended 31 March 2017. Gross direct premium of general insurance companies grew by 32% to INR1.27 trillion (US$19.6 billion) in FY17, of which at least INR200 billion would have been collected from insurance.
The shortcomings in the PFMBY mentioned in the report include:
First, the extension of cut-off dates for insurance for the crops. Many states asked for an extension in tender submissions, reports Swarajya citing the ICRIER paper. The states that floated their tender on time and completed the tender process were able to receive low actuarial premium rates but those which delayed fell victim to adverse selection and received high actuarial premium rates. Insurance companies, due to the delay, became aware of damages to farmers’ crops in some areas, and simply quoted high rates.
Second, it had been expected that increase in insured area would lead to lower actuarial rates but they have increased from around 8-12.5% instead. The delays in cut-off dates was one reason. Another reason is expansion of the reinsurance market. About 75% of the premium risk is covered by domestic and foreign reinsurance players who simply don’t have trust in state governments’ efficiency in implementing the PMFBY. This distrust lead them to quote higher rates. This also leads to delay in payment to farmers eligible for payouts.
Third, the ICRIER paper points out how the insurance coverage in inadequate. The authors write that the sum insured should be equal to scale of finance for that crop as fixed by the District Level Technical Committee but data show how in many districts, it was way lower. The Gulati team believes that state governments indulge in this type of behaviour to restrict their share of premium subsidy.
Fourth, there are insufficient and inefficient cross cutting experiments (CCEs). Ideally, thousands of CCEs should be conducted to properly identify the average crop yield of a given area for a particular crop. The policy guidelines mandate use of technology to make smart assessment of crop yields. The use of human intervention is neither desirable (integrity issues) nor feasible given huge workforce needed to carry out these experiments. Hence, the logic of deploying technology. But the governments haven’t invested in procuring the required devices, so, many cases of over-reporting or under-reporting of yield have come to notice. The former hurts the insurance companies, the latter, farmers.
Fifth, there is the issue of assessment and payment of claims. Some insurance companies delayed payment of claims to farmers for months, defeating the whole purpose of crop insurance.
Given the challenges in implementation, the ICRIER team suggests that:
1) Operational guidelines are to be strictly adhered to so that there are no delays which would positively impact actuarial premium rates.
2) State governments should submit yield data on CCEs to insurance companies on time.
3) The state as well as the central governments should pay their share of premium subsidy to insurers on time so that payouts to farmers are not delayed.
4) There should be greater transparency in the whole process. All the data right from initiation and finalisation of the tender date, sum insured for each crops, actuarial premium rates, payment of premium subsidy by the central and state governments, submission of yield data by state governments, claims accepted and paid by the insurance companies, should be released by the government every month.
5) High quality CCEs should be conducted with the use of technology, such as phones and mobile phones. Satellites can be used to identify farmland for conducting CCEs, and determine the area sown to validate the area insured. CCEs should be conducted in areas which are prone to higher losses.
6) Land records of farmers should be linked to their Aadhaar (personal identification) numbers and bank accounts for assessment and faster settlement of claims.