Crop insurance scheme: Penalty for delayed payment in the offing

Centre is also looking at technological upgradation for smooth data integration and faster claim settlement

The new operational guidelines for Pradhan Mantri Fasal Bima Yojna (PMFBY), the government crop insurance scheme, may include penalties for both the insurer and government for delayed payments.

In case the insurance firm delays claim settlement to farmers, they might have to pay penalty. At the same time, if the government delays the release subsidy component to the insurer, the government may have to compensate for the interest accrued due to the delay, government sources said. 

"Any delay, be it in the government's release of subsidy, or delay in claim settlement, has a cascading effect. Prompt settlement is crucial in increasing the scalability of the scheme. Thus, the idea of compensation in case of delay is being discussed,” said industry sources.

This apart, the Centre is looking at technological upgradation for smooth data integration and faster claim settlement. 

Between FY16 and FY17, the number of farmers enrolled in the scheme fell from about 57.3 million to 48.5 million, a fall of close to 15 per cent. Gross premium collection by insurance firms increased from Rs 221.90 billion to Rs 243.58 billion. However, this year, there was a growth in the number of farmers enrolled, compared to last year, according to people in the know. 

In case of farmers who availed of loans, banks auto-deduct the premium. For the rest, enrollment is optional. 

Farmers with loans constitute 80 per cent of the enrollment under the PMFBY. 

Data discrepancy, leading to high claim ratios in certain states, has been a major concern, often resulting in delay of settlement. According to insurers, crop cutting experiments (CCE) in the previous years were not properly conducted in several states. 

The CCE data at harvest helps assess yield loss. But collecting the data requires substantial manpower. At present, state governments have the responsibility to conduct these experiments. 

In some cases, the test was not conducted on the date mentioned to insurers, while in others, the data provided by state governments did not match ground realities.

The PMFBY is based on actuarial calculations, and rates based on risk perception. Therefore premiums differ, based on crops and regions. However, a farmer pays only a flat 2 per cent premium. The rest is borne by the central and state governments.

Tracking the numbers

• Between FY16 and FY17,  the number of farmers enrolled in the scheme fell by around 15%

• The premium collected increased by about 10%

• Lack of manpower in states for conducting accurate crop cutting experiment is seen as an hindrance in claim settlement

• Average premium comes at around 10-15% of sum assured

• Farmers pay about 2 per cent of sum assured