In February 2020, the federal government of India imposed changes to the existing crop insurance program, PMFBY (Pradhan Mantri Fasal Bima Yojna), intending to make it more farmer-friendly and improve its appeal to insurers. Since the announcement, the state of Gujarat has left PMFBY, adding to earlier defections by the states Andhra Pradesh, Bihar, West Bengal, and Telangana; Madhya Pradesh has remained in PMFBY and implemented a surplus-sharing model.
Gujarat’s State-Run Scheme
Gujarat provisionally left the scheme for one year due to high insurance rates quoted by insurance companies for PMFBY. The state is implementing a state-run crop insurance scheme called Mukhya Mantri Kisan Sahay Yojna, which differs from the existing PMFBY as outlined in Table 1 . After Gujarat tests its program for one year, the state government will judge whether to continue with their own scheme or to re-establish participation in the PMFBY based on performance.
| Gujarat’s State-Run Program | PMFBY | |
|---|---|---|
| Insuring Agency | State agriculture department (Gujarat Directorate of Agriculture) | Both private and government insurance companies are eligible |
| Perils Covered | Drought, heavy rain, unseasonal rainfall * | Drought, dry spells, flood, inundation, widespread pest and disease attack, landslides, natural fire due to lightning, storm, hailstorm, cyclone, typhoon, tempest, hurricane, and tornado |
| Farmers Share of Premium | No monetary share by farmers; scheme covers all Kharif crops in the state. | Kharif: 2.0% (food grains) or 5% (horticultural cops) of sum insured or actuarial rate, whichever is less Rabi: 1.5% (food grains) or 5% (horticultural crops) of sum insured or actuarial rate, whichever is less |
| Loss Coverage | For cropping area loss of 33–60% at taluka level; payment of INR 20,000/ha and for crop yield loss greater than 60%, payment of INR 25,000/ha for maximum of 4 ha in Kharif season | Up to 100% of sum insured based on calculations of loss cost from actual yield and threshold yield in each insured unit |
| Procedure for Declaring Losses | As per crop-cutting experiments conducted in each insured unit | |
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*State has specified definitions for all three perils based on amount and duration of rainfall. |
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Andhra Pradesh’s State-Run Replacement Scheme
The government of Andhra Pradesh decided to implement both a yield-based crop insurance scheme and a weather-based (parametric) crop insurance scheme. The company floated by the government, Andhra Pradesh General Insurance Corporation Limited (APGICL), has yet to be established. Some of the key features of the state-run replacement scheme include:
- No premium charged to farmers
- Crop insurance claims tied to final yield estimates established by crop cutting experiments (CCEs) and/or post-harvest losses for rice (paddy) crop caused by storm damage to crops drying in the field
- Loss assessment like that of PMFBY, where threshold yield (TY) for a crop in a notified insurance unit is taken as the average yield of the best five out of the past seven years multiplied by applicable indemnity level for that crop
In 2019, following implementation of state-run crop insurance, the area covered under the scheme increased from 18.56 lakh hectares to 30.93 lakh hectares—a 167% increase—while sum insured increased from INR 11,063 crore to INR 23,121 crore—a 209% increase). The state share of the insurance scheme increased by 496%, as it paid INR 1,455.34 crore in 2019 compared to INR 296.46 crore in 2018 Kharif.
Bihar’s State Crop Assistance Scheme
The Bihar state crop assistance scheme replaced PMFBY in 2018. Under this program, the government pays INR 10,000 per hectare if the loss is more than 20% when compared to the threshold yield; if the damage is less than 20% of the threshold limit, farmers get INR 7,500 per hectare. The maximum area covered under the scheme for a farmer is capped at 2 hectares (the average Indian farm size today is about 1 hectares). There was a 56% increase in the number of farmers covered from Kharif 2019 to Kharif 2020.
| Kharif 2018 | Kharif 2019 | Kharif 2020 | |
|---|---|---|---|
| Number of Farmer Applicants | 1,150,527 | 2,494,495 | 3,929,108 |
| Number of Claims Paid | 292 crore | 385 crore | Data not available |
West Bengal’s Bangla Shasya Bima Scheme
The Agriculture Insurance Company of India (AIC) implemented the Bangla Shasya Bima scheme during Kharif 2020. The unit of insurance was Gram Panchayat (village) and block levels. There was no premium charged to farmers. Loss assessment was made based on a crop health factor (CHF), which is found using three parameters derived from remotely sensed data:
- Crop greenness as measured by NDVI (Normalized Difference Vegetation Index)
- Crop wetness measured by LSWI (Land Surface Water Index)
- Crop structure measured by backscatter ratio (SAR)
Technology from the National Remote Sensing Centre—of the Indian Space Research Organisation—is used to support the program.
According to the state’s government, claim payable is calculated using this formula: (Threshold CHF - Current season CHF)*(Sum Insured)/Threshold CHF. Prevented sowing and mid-season adversity are also covered in the scheme, similar to PMFBY. The liability of all claims is of AIC. Surplus of premium over claims in excess of 20% would be paid back to the West Bengal government by AIC.
Telangana’s Lack of Scheme
The state of Telangana has opted not to have a crop insurance policy this season. Heavy rains in October 2020 damaged around 81,000 hectares of crop area in Telangana, which is approximately 15% of the total cropped area.
Madhya Pradesh’s Beed Surplus Sharing Model
A different type of development occurred in Madhya Pradesh for Kharif 2020, in which the state government instituted a tendering process three times to select the insurance companies that would implement the program and finally decided to go ahead with a “Beed surplus sharing Model” (Beed is a district in Maharashtra with its own insurance program).
For the Beed surplus sharing model crop insurance program, there will be two bids given by the interested insurance companies: the first including district, cluster (a cluster is a group of typically four to six districts), and crop-wise premiums; and the second including district and crop-wise premiums for which the company can be selected at state level. Through first bid, multiple companies can be selected for various clusters based on lowest premium. Through second bid, only one company for the whole state can be selected. The lowest weighted-average premium at the state level from the two bids will be selected with different primary companies administering the program in different clusters or with a single company administering the program for all clusters in the state.
Liability of the insurer is limited to the loss ratio range 80–110%. That is, the insurer will return to the state all premiums associated with any profits realized on loss ratios below 80%. On the loss side, the state will bear all losses for loss ratios above 110%. AIC was selected as the insurer for all clusters in Madhya Pradesh for Kharif 2020 and Rabi 2020-21.
PMFBY Kharif 2020 Progress
According to company reports, there was a decrease of 4.45% in gross direct premiums for PMFBY crop insurers through August 2020. General insurers other than AIC showed a decrease of 10.62% from September 2019. As on September 2020, gross direct premium was INR 18,358 crore. Approximately INR 5,000 crore more would be added from Madhya Pradesh and Tamil Nadu, which will be reflected by December 2020. How much of the drop in premiums can be attributed to the scheme being made voluntary for farmers is unknown.
The Road Ahead for PMFBY
Since PMFBY has been made voluntary for farmers, service delivery in terms of assessing losses and faster claim payments will play a key role in determining farmer interest in the scheme in the coming years. By default, the banks will ensure all loanee farmers are covered unless they opt out in writing. Building awareness of this requirement among rural farmers may take a few years, but Tamil Nadu has already seen the number of loanee farmers drop by 48% compared to Kharif 2019.
Bihar and Andhra Pradesh have not taken reinsurance support since exiting PMFBY, and Gujarat and Telangana experienced huge crop losses this year due to flooding. It will be interesting to see if they participate in PMFBY next year to get support from the central government and private companies.
Because Kharif 2020 is the first season since the implementation of the new PMFBY operational guidelines, it will be crucial to see if states are able to conduct timely and effective CCEs if government subsidies are released to the insurers on time, and if payments to farmers are made within stipulated timelines. These factors likely will determine if farmers have a continued interest in PMFBY.
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