For Indian farmers, the benefit from the new crop insurance scheme would be tied to the level of technology insurance companies build into their offerings, say government and industry experts.
The Pradhan Mantri Fasal Bima Yojana, which the government has described as "a path breaking scheme for farmers' welfare", needs high tech content to make a difference on a substantial scale for the farmers when they face a crisis, they said.
"The companies have been given a larger (national) canvas to draw on," said K N Rao, chief risk officer of International Reinsurance and Insurance Consultancy & Broking Services (IRICS), Mumbai. But they need to assure genuine farmers that the level of documentation will be minimal. The larger canvas makes possible a larger premium income for the companies and the use of technology will ensure a tight but fair claim ratio for the farmers.·
Reinsurance companies had over the years shied away from crop insurance due to its adverse claim ratio. The lack of reinsurance cover, has in turn, limited the ability of the insurance companies to sell crop insurance to farmers. What the government is offering farmers is a simple product viz an insurance to cover their losses when their crops fail. The premium so far being paid by the farmers has been halved. For the rest, each state government will write a cheque and keep an open door to ensure that the largest cohort of farmers joins.
One of the problems in the existing crop insurance schemes is that companies need a declaration from farmers saying that they intend to sow a particular crop and show evidence that they have a stake in the farm - either as a tenant or owner. But the process of certifying those documents from district offices makes smaller farmers avoid taking out the insurance. Frauds are not uncommon in this sector, which Rao said can be cut down by a strategy as simple as taking digital photos of the farmers with the land they have sown as record.
The crop insurance scheme is a part of four recent insurance covers conceptualised by the government instead of the Insurance Regulatory Authority of India. For all the schemes, the states offer bids for the public and private sector insurance companies to run, via a tender. Since the total premiums are sizable, companies have bid aggressively for them but made for these tenders. The other three are Rashtriya Swasthya Bima Yojana (RSBY), Prime Minister Jeevan Jyoti Yojana and Prime Minister Jeevan Saral Yojana. RSBY, for instance, is under revision due to some of these concerns.
Jeetu Nayyer, a former officer of one of the government- run general insurance companies and chief of Amicus Brokers, nevertheless described the Cabinet decision as a brave one. "It takes the crop insurance cover to pretty near universal coverage," he said. "It needs the government to push the product through non-banking channels. Since there is a fear of high loss insurance companies restrict it to only those farmers who take out a loan from the banks," he added. Nayyer also said that for the agents to step out of the banks, technology can be a big help.
A release issued after the meeting of the Union Cabinet acknowledged the critical role technology will play to make the scheme work. "The use of technology will be encouraged to a great extent. Smartphones will be used to capture and upload data of crop cutting to reduce the delays in claim payment to farmers. Remote sensing will be used to reduce the number of crop cutting experiments," the release said.
Rajeev Chaudhary, chief risk officer at government-owned Agricultural Insurance Company of India, said that while he did not expect satellite imaging to do away with crop cutting altogether to establish losses, larger use of digital data will certainly do away with the role of patwaris and junior district level officials to use their discretion at the time of loss.
Eleven general insurance companies including Agricultural Insurance Company of India are expected to bid for the market that generated a premium of about Rs 5,000 crore in FY 15. The market could double in a year, averred both Chaudhary and Rao.
An insurance regulatory official said that states must insist on high technology content when they negotiate the premium rates with these companies. "Otherwise the insurance companies will try to minimise their liability by limiting their losses as has happened with the weather insurance cover which has been a non starter," he said.
The regulatory official added that they would encourage the states to make the loss assessments at the village level. "When companies deal with insured, often the small farmers are unable to negotiate. This makes for a lot of rejection of claims,'' he said.