Amid climate risks, government could rebalance flagship farm insurance scheme | Latest News India

The Union government is likely to redesign the flagship state crop insurance system, Pradhan Mantri Fasal Bima Yojana (PMFBY), to make it more efficient by providing more coverage for less spending and reducing the tax burden on states, an official said.

PMFBY is a subsidized crop insurance scheme where farmers pay between 1.5% and 2% of premiums depending on the crop cycle. (HT) {{^userSubscribed}} {{/userSubscribed}} {{^userSubscribed}} {{/userSubscribed}}

Following recent discussions, “several state governments” now believe that protection against financial losses from growing weather risks has become necessary for both farmers and states, the official said, asking for anonymity.

PMFBY is a subsidized crop insurance scheme where farmers pay between 1.5% and 2% of premiums depending on the crop cycle. The remaining share is divided 50:50 between the center and state governments. In the case of the Northeastern states, the center pays 90% of the premium subsidy.

However, according to the center’s assessment, many states have pulled out of the program in recent years, being swamped by late payments that make them politically unpopular, time-consuming crop damage assessments, and financial implications despite a major overhaul. A major criticism of states has been disagreements over the relationship of claim to premium and claims settlement.

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State authorities are seeing increasing discrepancies in precipitation patterns caused by climate change and an increasing frequency of heat waves devastating crops, which has increased their need for effective agricultural insurance.

Two states with significant heatwave impacts that opted out of PMFBY are back at it. Andhra Pradesh, which experiences terrible spells of heat in the summer, rejoined the PMFBY 2022 and Punjab will operate the insurance scheme again from this year’s Kharif season, mainly to mitigate weather risks.

Introduced in June 2016, PMFBY replaced a web of complicated, multiple agricultural insurance schemes, all running simultaneously, with a single nationwide plan.

The claims ratio is the percentage of claims expenditures incurred by an insurance company relative to the company’s premiums or revenues. The claims settlement rate is the percentage of claims paid by an insurance provider to total claims in a year. Insurance basically works according to the principle of risk bundling. In other words, while large numbers of people buy into a policy, few would use it at any given time.

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Many activists have often argued that overall claims were very low compared to the premiums paid. “That’s not true. Insurance only pays if something goes wrong, not if everything is fine. With four years of normal monsoons, claims would obviously be low,” said an executive of an insurance provider represented in the PMFBY, denying it, by name to be called.

As part of the Center’s anticipated overhaul of the insurance program, in which actuarial firms participate through open calls, providers will be required to pay between 60% and 130% of gross premiums as claims. However, if the entitlements are below the threshold, the premium is forfeited. “This will relieve the countries considerably,” said the former.

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Climate scientists have warned that searing heatwaves, among other extreme weather events, are being caused by global warming and pose a risk to the country’s food security and farm incomes.

Increasing heatwaves in India are “most likely” caused by changes in weather patterns caused by global warming, said Roxy Mathew Koll, a climate scientist at the Indian Institute for Tropical Meteorology.

The PMFBY, designed to protect farm incomes, eventually ran into many of the old problems. Most worrying for farmers is a delay in payments. The average delay in paying claims is more than a year from the harvest date, according to official figures.

“There were two reasons for delays,” the insurance manager said. First, assessing crop damage is itself a time-consuming process that involves physically cutting and weighing dried damaged crops to determine yield losses. Second, fiscally burdened states often delayed the deadlines for releasing their share of the premium. Claims settlement is only possible when the center and the federal states release their funding shares in full.

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Those two key issues are being re-examined to address them, including largely replacing the assessments with “digital satellite remote sensing methods” to determine crop losses, the government official said.


Zia Haq reports on politics, economics and agriculture. Particularly interested in development economics and growth theories….view detail