Govt plans to delink state and central premium contributions from crop insurance claims

Four crore farmers were covered under the crop insurance (2023-24), which is the highest ever.

The government is working on delinking the premium contribution by the central government and states under the Pradhan Mantri Fasal Bima Yojana (PMFBY) and has directed the insurance companies to issue the policy and process at least 70 percent of the claim even if there is a delay in receiving the states' contribution of the premium, an official said.

The move is aimed to address the late disbursement of claims to farmers under PMFBY.

“The government is trying to desegregate the farmer, state and Centre’s share of premium under PMFBY. The policy is not issued till the state and Centre’s share of the premium gets credited to the insurance company. Eligibility of claim arises only after that. The government is thus delinking the Centre and states’ share of the premium,” the official told Moneycontrol.

The premium split

The premium for the scheme is heavily subsidised, with the central and state governments sharing the major portion of the premium burden. The subsidy ratio is typically 50:50 between the central and state governments. For North Eastern and Himalayan states, the ratio is 90:10. Farmers pay a nominal premium rate under the scheme – 2 percent for Kharif crops, 1.5 percent for Rabi crops and 5 percent for commercial and horticultural crops.

“The government has given directions to the public and private insurance companies that after the delinking, once the farmers’ share and Centre’s share of the crop insurance premium is received, they should not wait for the state’s share to issue the policy and settle claims. The insurance companies must disburse at least 70 percent of the claim liability to the farmers in such cases. The remaining claim may be processed once the state’s share of the premium is received by the insurance company,” he said.

Delays in the release of the state's share of the premium under the crop insurance scheme have been a significant issue causing late disbursement of claims to farmers. State governments often face financial constraints and budgetary limitations, which can delay the timely release of their share of the premium. The states may also prioritise other expenditures over the release of funds for crop insurance causing delay, the official added.

Currently, four crore farmers are covered under crop insurance (2023-24), which is the highest ever.

“Ensuring timely release and disbursement of the premium share by states is crucial for the effective functioning of PMFBY and the timely settlement of claims to benefit the farmers. As a result of delinking, once the Centre’s premium is received, the insurance company will have to issue a policy and also make claim payments,” he said.