Drop in reinsurance support to crop scheme as global players reduce exposure

Global reinsurers are losing interest in Pradhan Mantri Fasal Bima Yojana (PMFBY), the government-sponsored crop insurance scheme. The coverage under the scheme has increased to 40 percent of cropped area in FY18 but insurers are anticipating inadequate capacity of reinsurance capacity.

"While the domestic reinsurer, General Insurance Corporation of India (GIC Re), is providing cover for crop insurance, this may not be adequate when 50 percent of cropped area is covered in FY19. We will need global reinsurance support for that," said a senior public sector insurance official.

The Pradhan Mantri Fasal Bima Yojana (PMFBY) will have an increased presence since the government has allocated Rs 9,000 crore for the scheme. In 2016-17, it was allocated Rs 5,500 crore. During his budget speech, Finance Minister Arun Jaitley said that the coverage under the scheme will be increased to 50 percent of cropped area in 2018-19.

Sources in the industry said that global reinsurance companies with presence in India have considerably reduced exposure to this scheme. In several other countries, crop insurance is considered a risky segment. A senior industry official said that without foreign reinsurance support, Indian reinsurance support will not be able to sustain the scheme.

The coverage of this scheme will be increased from 30 percent of cropped area in 2016-17 to 40 percent in 2017-18 and 50 percent in 2018-19. The Budget provision of Rs 5,500 crore for this Yojana in the budget estimate of 2016-17 was increased to Rs 13,240 crore in the revised estimate of 2016-17 to settle arrears claims.

The crop insurance segment saw premiums of Rs 20,611.42 crore in FY17 as compared to Rs 5,310.06 crore collected in FY16. The scheme, approved by the Cabinet in January 2016, has a uniform premium of two percent to be paid by farmers for all kharif crops and 1.5 percent for all rabi crops. For commercial and horticultural crops, the farmers’ premium is five percent. The rest of the premium is paid by the government.

Data from the General Insurance Council showed that compared to a market share of 5.5 percent in FY16, it grew to 16.1 percent in FY17. The private sector players collected Rs 9,864.77 crore of premium in the crop segment while public sector insurers collected Rs 3,682.52 crore of premium. Agriculture Insurance Corporation of India (AIC) collected Rs 7,064.13 crore in FY17.

More than 1 million farmers have been given cover under this scheme, making India the third largest agriculture insurance market in the world after US and China.