Crop losses have been on the rise leading to increased underwriting losses
The number of farmers benefitting from the Pradhan Mantri Fasal Bima Yojana (PMFBY) may be on the rise, but general insurers catering to them have been bleeding. Loss ratios under this portfolio have risen to almost 150 percent due to climate-related crop damage.
Large insurers like New India Assurance and ICICI Lombard General Insurance have posted underwriting losses in the crop insurance portfolio in their third-quarter numbers.
Insurers collected Rs 19,767.64 crore as premium under PMFBY in Kharif 2018, a rise of 21 percent over the previous year. Several opposition leaders have criticised the government over this scheme and called it a scheme that has led to a windfall gain for insurers.
However,the reality is slightly different.
New India Assurance posted a crop insurance underwriting loss of Rs 160.59 crore in Q3FY19 compared to an underwriting profit of Rs 90.42 crore in Q3FY18.
The company said there was an impact of an adverse performance of the crop line of business where poor climatic conditions led to claim estimates being revised higher. This was coupled with a refund of some premium due to area correction factor computation.
Similarly, for the crop insurance segment, ICICI Lombard General Insurance posted an underwriting loss of Rs 39.70 crore for Q3FY19 versus underwriting profit of Rs 6.29 crore in the year-ago period.
Launched in 2016, PMFBY compensates farmers if any of the notified crops fail due to natural calamities, pests and diseases. The scheme seeks not just to insulate farmers from income shocks, but also encourage them to adopt modern agricultural practices.
A senior insurance official said while the number of claims paid has been on the rise, premiums have stayed constant. There is, however, no move to increase the premiums for Fasal Bima by the government.
Unlike previous schemes, PMFBY is open for both farmers who have taken loans (loanee) as well as those who have not (non-loanee). The scheme covers food crops (cereals, millets and pulses), oilseeds as well as horticultural crops.
Farmers pay 2 percent of the sum insured as the premium for Kharif crops while it is 1.5 percent of the sum insured for Rabi crops.
PMFBY compensates farmers if any of the notified crops fail due to natural calamities, pests and diseases. The scheme seeks not just to insulate farmers from income shocks, but also encourages them to adopt modern agricultural practices.
Delays in claim settlement in a few cases and requirement of Aadhaar for the joinees has led to a drop a 13.6 percent drop in the number of farmers insured under the scheme. However, insurers have to pay a 12 percent interest rate per annum to farmers for the delay in settlement claims beyond 10 days.The insurers were also finding it difficult to get reinsurance support for the scheme. However, in the past three to four months there has been an improvement in getting reinsurance cover for PMFBY.