Govt eyes reforms aimed at lowering fiscal burden of crop insurance premium by Rs 5,000 cr

For North-Eastern and Himalayan regions, the premium cost of the crop insurance is shared in the ratio of 10:90 between the state and the Center.

The government is aiming to lower the fiscal burden for crop insurance premium by Rs 5,000 crore for both the Center and states with technological reforms, risk diversification and wider coverage, two government officials said.

“Currently four crore farmers are covered under the crop insurance  (2023-24), which is the highest ever. The crop insurance premium is expected at seven to nine percent in the next tender cycle. The premium rate for crop insurance is 10.8-11 percent currently at approximately Rs 30,000 crore annually. The savings will begin in the next tender cycle in 2026-27, which is likely at Rs 5,000 crore. The tendering will begin in 2026 April-May,” a government official told Moneycontrol.

A Yes-tech (yield estimation systems through technology) for accurate determination of claim currently covers wheat and paddy. It has been extended to soybean from kharif 2024 and is likely to cover cotton during the next six months. With these reforms bringing transparency into the calculation of claims, the premium rate for crop insurance is expected to reduce from 10.8 percent to seven to nine percent in the next bidding cycle in 2026, they said.

“Yes-tech assesses crop losses through technology for determination of claim amount. Now soybean has been included in it from Kharif 2024. The government is doing pilots to include cotton and pulses crop under the new technology. Cotton is likely to be included in it in the next six months. Mahalanobis National Crop Forecast Centre (MNCFC) under the Agriculture Ministry are drivers of the Yes-tech technology,” a government official told Moneycontrol.

The Yes-tech is based on satellite imagery and uses drones to check the length of the crop, thus reducing manual work and scope for errors.

“Yes-tech, more coverage, risk diversification, will help bring down the premium costs by Rs 5,000 crore. Or in the same Rs 30,000 crore premium, the crop insurance could cover 5 crore farmers in the next bidding cycle in 2026,” the second official told Moneycontrol.

Beed Model

In order to diversify risks, the government has opened the options under the Beed model for states. So far 10 states have opted for the Beed model and the government hopes more states will opt for it to diversify their risk, he said. The beed model has been adopted by states including Madhya Pradesh, Maharashtra, Rajasthan, Odisha, Karnataka and Andhra Pradesh.

The model offers 80:110 and 60:130 options for risk sharing. Under the 80:110 option, the risk is shared between the state and insurance company while in 60:130 the risk is shared between the insurance company and state and center equally. Most of the states are currently implementing the 80:110 option, he said.

Under the 60:130 option, if the claim is less than 60 percent of loss ratio, the surplus premium is returned to both the Centre and state government equally. And if the claim is more than 130 percent, it is borne by the state and central government equally. So is the case under the 80:110 option. Apart from this, the standard Pradhan Mantri Fasal Bima Yojana is also available that offers no capping on loss ratio under which the insurers need not pay anything back to the government as they have to incur the entire claim liability themselves.

For the North-Eastern and Himalayan regions, the premium cost of the crop insurance is shared in the ratio of 10:90 between the state and the Center. For the rest of the country it is shared 50:50. Currently, 24 states and union territories have opted for crop insurance while states like Bihar, Gujarat, Punjab, West Bengal and Telangana continue to opt out of it.