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India: Call to change crop insurance scheme to prevent 'abnormal' gains by insurers

Source: Asia Insurance Review | Dec 2018

The financial administration of the government-backed giant crop insurance flagship scheme for farmers, the Pradhan Mantri Fasal Bima Yojana (PMFBY) should be tweaked to ensure that insurers do not make ‘abnormal’, yet participate in the scheme, says a report by the Centre for Management in Agriculture of the Indian Institute of Management Ahmedabad.
The report, titled ‘Performance evaluation of Pradhan Mantri Fasal Bima Yojana’, is supported by the Ministry of Agriculture and Farmer’s Welfare. With insurers reporting large profits from the PMFBY, there are allegations that insurers are profiteering from a public scheme, in which the government pays 95-98% of the premium.
The report makes recommendations for improving the scheme that include:
Special fund 
A cap and a floor are to be set for the profits which insurers make in a ‘normal’ year. In a profitable year, insurance companies will plough back all the money beyond its normal capped profit to a PMFBY special fund. In a loss-making year, this fund can be used to compensate the insurers for losses. This will reduce the cost of reinsurance and ensure companies keep participating and farmers receive assured claims. 
Use of technology 
There has to be minimum human involvement in yield assessment. Satellite imagery and RST can provide area estimation of crop with 90% accuracy at village/panchayat level. Combined with ground-truthing, reasonable yield assessment can be made. 
Panel of insurers
It appears that there are too many insurers (18 in 2017-18) empanelled at present and many of them do not have adequate experience and infrastructure and intent of servicing public good. It would be advisable to restrict them to 10 for better monitoring and administration. 
PMFBY enrolment has to be linked to Aadhar, a unique identity number issued to each Indian resident, eventually. This will reduce the exclusion of tenant farmers, reduce double or ‘ghost’ claims and reduce workload of implementing banks. Investments in co-risk management options such as micro-irrigation is very important as it minimises residual risk. A 
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