Domestic general insurance companies are gradually reducing their exposure to the crop insurance segment, the Pradhan Mantri Fasal Bima Yojana (PMFBY), in a bid to balance their portfolios and cut down losses on account of high claims, even as the Centre made the scheme optional and slashed its contribution.
Gross premium underwritten by general insurers has fallen by 12.37 per cent to Rs 4,221 crore in the four-month period ended July 2021 as against Rs 4,817 crore in the year-ago period. This follows the 16.76 per cent decline in crop insurance premium to Rs 19,071 crore (excluding Agriculture Insurance Corporation) in the fiscal ended March 2021 as against Rs 22,911 crore in the previous year, according to figures available from General Insurance Council (GI Council).
Public sector insurance firms — particularly country’s largest general insurer, New India Assurance — have almost reduced their exposure to nil in the four months of the current financial year. All the four PSU insurers — New India Assurance, United India Insurance, National Insurance and Oriental Insurance — have a combined exposure of just Rs 3.8 crore in the period.
Private sector general insurers like ICICI Lombard General Insurance and Tata AIG had exited the portfolio two years back. ICICI Lombard General Insurance had said it is exiting in the wake of losses and high reinsurance costs.
Launched in February 2016, PMFBY witnessed huge claims of over 100 per cent in the first few years, leading to losses for insurers. Even GIC Re, which was earlier bullish on the portfolio, has cut down its exposure drastically after it was hit with heavy losses in the last two years. In the June quarter, the reinsurer slashed its crop portfolio by 23 per cent to year-on-year to Rs 5,312 crore but has achieved profitability in the portfolio.
In February 2020, the government revamped PMFBY and the Restructured Weather Based Crop Insurance Scheme (RWBCIS) to address existing challenges in implementation of crop insurance schemes. In a major step, enrolment in the two schemes was made voluntary for all farmers, including those with existing crop loans. When PMFBY was launched, it was made mandatory for all farmers with crop loans to enrol for insurance cover under the scheme.
“The Centre has almost halved its contribution to its own flagship crop insurance schemes, slashing its share of the premium subsidy from the current 50 per cent to just 25 per cent in irrigated areas and 30 per cent for unirrigated areas from the kharif season of 2020,” said an official of an insurance firm. The reduction in crop insurance exposure has come despite losses suffered by farmers in in floods and other natural calamities in the last two years.
According to figures available from the GI Council, Agriculture Insurance Corporation (AIC) accounted for almost all of the premium at Rs 2,063 crore in the four months, up from Rs 1,728 crore a year ago. “Crop insurance business seems to have shifted from four PSU insurers to AIC,” said an insurance sector source.
Among private sector players, Reliance General Insurance has increased its exposure to Rs 624 crore from Rs 431 crore in the four-month period ended July 2021. Bajaj Allianz cut down to Rs 924 crore from Rs 1,212 crore and ICICI Lombard to Rs 0.04 crore from Rs 28.71 crore.
While farmer enrolment has reduced, another reason for the drop in farmer enrolment is reportedly the delay in pay-outs. Yet another reason that can be attributed to lower crop insurance is the mismatch between digital records and land ownership claims made by the concerned farmers (this mismatch prevents farmers from available crop insurance), said a Care Rating report.