Try alternatives before imposing the penalty: Crop insurance firms to govt

The new operational guidelines tries to address several complaints, but the biggest among them is imposing a sort of penalty on insurance companies and state governments

Almost three years after it was launched, the Central government earlier this week released the updated operational guidelines for the ambitious Pradhan Mantri Fasal Bima Yojana (PMFBY) that proposed a 12 per cent interest as penalty on insurance companies for delay in processing claims and a similar amount on state governments for delayed release of premium subsidy.

Both the measures are meant to hasten claim settlement and ensure that farmers get the claims of the damages suffered on time, which has been found to be one of the biggest drawbacks of the much-talked-about scheme.

Low claims in comparison to the premium charged along with the fewer number of non-loanee farmers opting for the scheme are the other two complaints against the scheme.

The new operational guidelines try to address several complaints, but the biggest among them is imposing a sort of penalty on insurance companies and state governments.

Though, most insurance industry players have welcomed the Centre’s order on the grounds that it would bring in much-needed efficiency into the programme, but cautioned that alternatives should be tried before imposing the penalty, adding as the scheme involves a large number of stakeholders, if everyone addressed the problem, then penalties would not be needed at all.

“PMFBY is a scheme in which multiple agencies are involved, states have their role, central government has its own responsibilities and so also insurance companies and if all of them jointly address the problem of delayed compensation, then penalties won’t be required in the first place,” a senior official from a public-sector crop insurance firm told Business Standard.

"As against the mandatory claim settlement of 90 days, the average time taken by insurance companies to settle the claim is 5-6 months," Government officials said.

Insurance companies say apart from the delay on part of state governments to release their share of premium subsidy, crop cutting experiments (CCEs) are also inadequate, and even if they are done, their quality is so poor that results are unreliable.

CCEs and their quality is the basis on which insurance claims are settled and determined because if the yield estimate is wrong, claims would be inadequate.

CCEs are conducted on selected fields after the incident to assess the extent of damage and any discrepancy in this could delay claim settlement.

“Under PMFBY, state governments are required to conduct far higher number of CCEs than earlier insurance schemes, but the state machinery simply does not have manpower and resources to conduct such large number of CCEs,” the official said.

He said due to increase in the number of CCEs, there is a delay in sending the details to the insurance companies in the absence of which claims can’t be processed.

The second most important reason for delayed claim settlement is the delay on part of the state governments to release their share of premium subsidy.

“If these fundamental problems are addressed then I don’t think financial penalties would be needed,” the official said.

Farmers under PMFBY are charged a uniform low premium rates of 2 per cent for all ‘Kharif’ crops, 1.5 per cent for all ‘Rabi’ crops and 5 per cent for commercial and horticulture crops.

The difference between the premium paid by a farmer and the actuarial fair premium (APR) is subsidized by the government (shared by central and state governments on 50:50 basis).

The new operational guidelines of PMFBY also laid down the detailed standard operating procedure for performance evaluation of insurance companies and their de-empanelment.

Shiraz Hussain, a former agriculture secretary of Government of India welcomed the move to levy penalty as a step which would bring efficiency into the system but said issues such as delayed notification by states should be addressed.

“Most states are finalizing their bids for crop insurance by July-end when monsoon forecast is already known, which is like taking a car insurance after it has met with an accident,” Hussain said.