Aggressive pricing pulls down crop insurance premiums by over 30% in FY26

Crop insurance premiums dropped over 30% in FY26 till August due to aggressive pricing, state re-tendering and unsustainable loss-sharing models under PMFBY

Crop insurance premiums have dropped by over 30 per cent on year in the financial year 2026 (till August) due to several structural changes and aggressive pricing by insurers, according to industry sources.

 

The General Insurance Council (GIC) data showed that in April-August period of FY26, crop insurance premium collected has dropped by 34.29 per cent to ₹6,781 crore from the same time last year with the segment leader, Agriculture Insurance Company of India, also recording 4 per cent year-on-year (Y-o-Y) decline to ₹ 2539.29 crore.

 

“The crop insurance model with the current structure has led to aggressive pricing. While insurers recognise the flaws, competitive pressures and expense of management (EOM) mandates are driving unhealthy participation. The current 80:110 structure at low premiums is not feasible. However, several insurers who were not participating in the business have also started aggressively participating to manage their EOM,” an industry official said.

 

“In addition, the crop insurance is usually for 3 years, however, some states have initiated re-tendering at the end of 2 years. This along with aggressive pricing has led to a steep decline in premiums this time. The premiums of Maharashtra’s crop insurance scheme has dropped from around ₹9000 crore earlier to around ₹3000 crore this time. There is a possibility of other states following the same route causing steep decline in premiums,” the person cited above added. 

 

According to Pradhan Mantri Fasal Bima Yojana (PMFBY), in India, the sum insured for a farmer under the scheme, is determined by the scale of finance per hectare for the specific crop which is decided by the District Level Technical Committee and pre-declared by the State Level Committee. The total sum insured for a farmer is then calculated as this Scale of Finance multiplied by the area (in hectares) of the notified crop they propose to insure.

 

Agricultural insurance has a low premium rate across the country which is charged from the famers. They are charged maximum 2 per cent of sum insured for Kharif crops, maximum 1.5 per cent of sum insured for Rabi crops and maximum 5 per cent of sum insured for commercial/horticultural crops. The remaining part is paid by the central and state governments.

 

There is also an alternate cup and cap model risk sharing model (80:110), cup and cap model (60:130) and profit and loss sharing model under which in case of claims below a certain threshold, a portion of the premium paid by the government as subsidy will go back to the state treasury.

 

In the cup and cap model of 80:110, if claims are between 80 per cent and 110 per cent of the premium, the insurer will give out the claims. However, if the claims are less than 80 per cent, a portion of the premium paid by the government is refunded to the state government’s treasury and if claims exceed 110 per cent, the government takes care of the additional liability. The model is similarly applicable in case of the 60:130 model.

 

Further in case of claims above a certain threshold, Centre and state are required to pay claims. States have been given the flexibility to choose from any one of these models.

 

“The segment is seeing stiff competition with aggressive pricing from insurers who are trying to manage their EoM guidelines. Also re-tendering of crop insurance by states has dragged prices to half the previous levels. The premiums are so low that they are not sustainable in the current loss sharing model. The reinsurers are also hesitant to support at these rates. This is also putting more pressure on other lines of business owing to drop in top line.,” another insurer said.

 

The industry collected premiums worth ₹30,095.17 crore in FY25. However, this is likely to drop by one-third in FY26, industry experts said.