Tag: Prime Minister’s Fasal Bima Yojana

Under Modi’s Crop Insurance Scheme, Companies Owe Farmers a Whopping Rs 2,800 Crore

Claims have remained unpaid even after the stipulated period of two months has long passed.

New Delhi: In January 2016, when the Narendra Modi led government announced the new crop insurance scheme – Pradhan Mantri Fasal Bima Yojana (PMFBY) – it had said that one of the key improvements over previous schemes would be that claims would be settled on time.

However, RTI data received and reviewed by The Wire has revealed that farmers’ claims worth Rs 2,829 crore remain unpaid for the two seasons that the PMFBY has been implemented.

The RTI response of the ministry of agriculture and farmers’ welfare is dated October 10.

“A majority of claims for rabi 2017-18 are yet to be estimated/approved by company,” the ministry noted in its response. Thus, for the 2017-18 season, a majority of the data pertains to Kharif 2017 and the data reflects only 1% of the claims paid for the rabi 2017-18 season.

For the 2016-17 season, claims of Rs 546 crore remain pending. Claims need to be settled within two months of harvest, according to the PMFBY guidelines. Harvest for the 2016-17 season would have ended in May 2017, at the very latest.

For the 2017-18 season, claims worth Rs 2,282 crore remain pending. The data essentially pertains to Kharif 2017-18, as pointed out by the ministry. The harvest for which would have ended in December 2017, at the very latest.

Also read: Exclusive: Under Modi’s Crop Insurance Scheme, Premiums up 350% But Farmers’ Coverage Stagnant

Thus, on the date the RTI was responded to, Rs 2,282 crore remained unpaid more than nine months after the harvest period ended, while the PMFBY guidelines require that claims be settled within two months of harvest.

For the 2016-17 and 2017-18 seasons, the estimated claims of farmers amounted to Rs 34,441 crore. Insurance companies have paid Rs 31,612 crore, and Rs 2,829 crore remains unpaid.

Major insurance companies including Reliance General Insurance, ICICI Lombard, SBI General Insurance, Agriculture Insurance Company (AIC) of India, New India Assurance company are key players in the crop insurance business.

Also read: India Needs to Make Crop Insurance Work for its Farmers

State-owned AIC accounts for a major chunk of the unpaid claims. It is yet to clear farmers’ claims worth Rs 1,061 crore. Rs 154 crore of these claims pertain to 2016-17 and Rs 907 crores pertain to 2017-18, effectively only for kharif 2017-18.

For the year ended March 2018, AIC’s operating profit from the crop insurance business was Rs 703 crore.

HDFC continues to owe farmers Rs 300 crore, while ICICI owes Rs 260 crore.

A large proportion of the claims that remain unpaid pertain to Maharashtra, Madhya Pradesh, Rajasthan, Tamil Nadu, Karnataka and Himachal Pradesh.  

In fact, of the Rs 546 crore that remain unpaid for the 2016-17 season, Rs 257 crore pertain to Karnataka. The state saw a severe drought that year, with 160 of the 176 taluks in the state being declared drought hit.

For the 2017-18 season, 91% of the estimated claims in Himachal Pradesh remain unpaid as on October 10, 2018. The corresponding figure for Tamil Nadu is 86% with Rs 124 crore of the Rs 144 crore estimated claims remaining unpaid.

Credit: Reuters

Delayed rabi claims for 2017-18

The chief complaint of farmers vis-a-vis PMFBY has been that their claims are not settled on time. They argue that they will benefit from crop insurance only if the claims for crop loss for one particular season are settled before sowing for the next season begins. For instance, if the kharif crop is damaged, the claims should be paid before sowing for the rabi season begins.

The response to our RTI query is dated October 10, 2018, over four months after rabi harvest ended in May. But, the ministry was not even aware of the estimated claims for the rabi season.

To reiterate, PMFBY guidelines require that the claims be settled within two months of harvest.

Reasons for delays

A working paper for the think tank ICRIER authored by Ashok Gulati, Prerna Terway and Siraj Hussain identified some of the key reasons for delays in settlement of claims.

They pointed out frequent extension of cut off dates; delayed submission of yield data of crop cutting experiments; delayed payment of premium subsidy to insurance companies, as some of the key reasons why claims settlement is delayed.

“The scheme with a noble intention to protect farmers can succeed only if operational guidelines are strictly followed,” they noted in the paper.

Siraj Hussain adds that the crop cutting experiments are also disputed. “The results are disputed by companies. So, that is another reason for delays,” he told The Wire.

Also read: How the PM’s Crop Insurance Scheme Turned Into a Goldmine for 10 Private Insurers

The Centre has also admitted to delays in settlement of claims. Responding to a question in the Lok Sabha in July 2018, it revealed that more than 40% of claims for the 2017 kharif were yet to be paid even when more than seven months had passed since the kharif harvest ended.

In September, the Centre attempted to address the issue. It issued fresh guidelines for the PMFBY. The key change was that insurance companies would have to pay 12% interest to farmers if the claims were delayed more than two months over the prescribed cut off dates.

The Centre also said that states will have to pay 12% interest to insurance companies if they delayed in releasing their share of the subsidised premium.

Kuldeep Tyagi, president of the Bhartiya Kisan Andolan, a farmer organisation that works in western UP, argues that the new guidelines have had little impact. “It has made no difference. Companies are continuing to work as they did before,” he said.

He points to the heavy rainfall that most of north western India saw in late September. “There was massive crop loss. Even sugarcane, which is a sturdy crop, was damaged.”

“But, no process has even been initiated to compensate farmers for that loss. We have approached district offices but nothing has happened,” Tyagi said.

How the PM’s Crop Insurance Scheme Turned Into a Goldmine for 10 Private Insurers

The only government insurer which participated exited the scheme after making large gains in the first year.

Correction: An earlier version of this article described the difference between premiums received and compensation paid in a financial year as profit. We regret the error.

New Delhi: The prime minister’s crop insurance scheme ended up being a goldmine for ten private insurance companies in just two years, with the difference between premiums received and compensation paid at nearly Rs 16,000 crore in just two years.

The scheme also failed to enthuse farmers. In just four BJP-ruled states, over 84 lakh farmers exited the scheme after just a year. This information has been obtained by an activist through Right to Information appeals.

The applications were filed by Haryana-based RTI activist P.P. Kapoor on September 12 with the ministry of agriculture. Charging that the crop insurance scheme was a major scam, Kapoor said while the scheme was meant to benefit farmers, it had ended up as a money maker for private insurance companies.

Also read: Exclusive: Under Modi’s Crop Insurance Scheme, Premiums up 350% But Farmers’ Coverage Stagnant

He said the replies received from the ministry on October 14 were proof enough that farmers have realised that the scheme is not meant for their benefit. “As many as 2.90 lakh farmers exited the scheme in Madhya Pradesh, 31.25 lakh in Rajasthan, 19.47 lakh in Maharashtra and 14.69 lakh in Uttar Pradesh,” he said.

In the year 2016-17, he said, 5,72,17,159 farmers had joined the scheme. The following year, only 487,70,515 remained in the scheme. This indicated that 84.47 lakh farmers had exited it. So over 68 lakh farmers exited the scheme in these four BJP-ruled states.

Insurance companies reduced compensation payments

In 2016-17, these companies paid a compensation of Rs 17,902.47 crore, and the difference between the premiums received and compensation paid was Rs 6459.64 crore. In 2017-18, they paid over Rs 2,000 crore less in compensation. The outgo in compensation during 2017-18 stood at just Rs 15,710.25 crore.

This meant that while the number of farmers covered under the scheme decreased, the profit of the insurance companies increased greatly, said Kapoor. He said, “The scheme was a big flop. Instead of allowing the insurance companies to make huge profits, the Centre should have devised mechanisms to compensate the farmers directly as these would have benefited them more.”

Also read: India Needs to Make Crop Insurance Work for its Farmers

The ministry, in its replies, also revealed that along with the government-owned Agriculture Insurance Company (AIC) of India, ten private insurance companies were involved with the Prime Minister’s Fasal Bima Yojana (PMFBY) scheme over a two-year period.

In its reply, the ministry had stated that the 2017-18 yearly data includes both kharif 2017 and rabi 2017-18. It added that “majority claims for Rabi 2017-18 are yet to be estimated / approved by company”. This amount, if and when released, would reduce the gains to the insurance companies.

Also, experts have pointed out that the difference between the premium received and the claims paid does not constitute a clear-cut profit for a company as a lot of operational expenses are also involved.

They also insist that farmers lost little in the bargain as they had paid only about 2% of the premium, with the Centre and the respective state government contributing the rest.

AIC made gains in first year, yet did not do business in the second

In the year 2016-17, AIC alone earned a premium of Rs 7984.56 crore by insuring the crops of 246,83,612 farmers in 21 states. Out of this, it paid a total compensation of Rs 5373.96 crore.

However, in 2017-18, the government-owned company did not remain in the crop insurance business. “At whose instance was this profit-making company asked to step aside? Was it only asked to not take any premiums so that the private players could make a killing?” Kapoor asked.

Gains of private insurers swelled in the second year

During these two years, RTI replies revealed, a total premium of Rs 49,408 crore was paid to the insurance firms for crop insurance on behalf of 10.6 lakh farmers. A sum of Rs 33612.72 crore was paid out of this to 4.27 crore farmers in compensation. The difference between the premium received and compensation paid was Rs 15,795.26 crore, and the activist alleges that most of this money was pocketed by the 10 private insurance companies.

The ten private sector companies which had been allowed to cover crops were ICICI Lombard, Reliance, Tata-AIG, Universal, Bajaj Alliance, Future, SBI, HDFC, IFFCO-TOKIO and Cholamandalam.

State-wise distinction

Among the states, the data revealed that in Uttar Pradesh, the number of farmers insured in 2016-17 was 67.69 lakh but fell the next year to 53 lakh. Surprisingly, despite the fewer insurance policies, the difference between premiums received and compensation paid rose sharply from Rs 548.94 crore in 2016-17 to Rs 1046.81 crore the following year.

In Madhya Pradesh, the insurance companies had insured over 71.81 lakh farmers in 2016-17 – and the difference between premiums received and compensation paid was Rs 1,862.32 crore. The following year, over 2.90 lakh fewer farmers insured their crops and the difference between premiums received and compensation paid for these companies plummeted to just Rs 39.21 crore.

Also read: To Benefit Farmers and Not Private Insurers, the Crop Insurance Scheme Must Be Overhauled Completely

In Maharashtra, nearly 1.20 crore farmers were insured in 2016-17 and the difference between premiums received and compensation paid was Rs 2,424.23 crore for the year. In 2017-18, only about one crore farmers were insured. The difference between premiums received and compensation paid was Rs 1617.94 crore.

Gujarat was probably the only state where the number of farmers who insured their crops increased during these two years. In 2016-17, the figure was 5.20 lakh but it grew exponentially to over 17.63 lakh the following year. Simultaneously, the difference between premiums received and compensation paid also shot up by nearly 5000% from Rs 40.07 crore in 2016-17 to Rs 2,222.58 crore in 2017-18.

The period also saw the number of farmers insuring their crops rising in Haryana. While 13.36 lakh farmers had insured their cops in 2016-17, as many as 13.51 lakh got them insured the next year. The difference between premiums received and compensation paid rose even more sharply from 71.83 crore to Rs 95 crore in these two years.

Another state which saw an increase in the gains of insurers during the period was West Bengal. Here the number of farmers who insured their crops in 2016-17 was 41.33 and this reduced by around 2.23 lakh to touch 39.09 lakh the following year. However, the difference between premiums received and compensation paid rose from Rs 321.26 crore in 2016-17 to Rs 547.87 crore in 2017-18.