 "agriculture, rabi season, crops")
Gross premiums collected under the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) have dropped in the ongoing kharif 2025 season and, as per industry estimates, might end up somewhere around ₹14,000 crore, down from almost ₹19,000 crore last year, a fall of nearly 28 per cent.
So far, as per the PMFBY website, the gross premium collected is around ₹12,309 crore, but it will go up as states such as Karnataka, which is a major agricultural state and a large user of PMFBY, have yet to submit their data.
Overall, some industry players’ premiums for the full financial year could be in the range of ₹20,000 crore, down from the usual ₹30,000 crore.
So what is causing this dip, because traditionally gross PMFBY premiums in just the kharif season range between ₹19,000 crore and ₹20,000 crore.
If subject experts and officials are to be believed, the drop is largely due to the newly introduced cup and cap model, in which risk has been transferred more to the state and Central governments and less to the insurance companies.
Which is why companies have quoted lower actuarial premiums, leading to a drop in gross premium in rabi and kharif.
Also, Maharashtra, which is a large user of PMFBY, dropped some of the add-on covers with PMFBY in the latest round of tenders that will conclude in March 2026, which has also led to lowering of actuarial premium quotes by companies as risk also went down.
Some reports said that the ministry of finance was planning to review the flagship PMFBY scheme and had also sought detailed data from companies.
But sources said the meeting has not taken place so far and there is no intimation on when it might happen.
Under PMFBY, farmers have to pay a maximum 2 per cent of the sum insured for kharif crops, 1.5 per cent for rabi food and oilseed crops and 5 per cent for commercial or horticultural crops.
The balance of the actuarial or bid premium is shared by the Central and state governments on a 50:50 basis and 90:10 in the case of north-eastern states from the kharif 2020 season, as per provisions of the scheme.
The premium rate of crops depends on the risk associated with them, and the total liability of the state depends on the actuarial or bid premium rate, sum insured of crops, area insured and number of crops notified by the states.
PMFBY has been one of the main flagship schemes of the Central government for a long time. However, over the years, the scheme has undergone multiple changes and alterations, the biggest of which has been making the scheme voluntary for all participants.
What is the cup and cap model?
Under the cup and cap model, there are three variants available for the states.
First is the cup and cap model (80:110), the cup and cap model (60:130), and the profit and loss sharing model.
A majority of the states, numbering around 11 out of the 23 which have adopted PMFBY in kharif 2025, have opted for the cup and cap (80:110) model.
Under this, as an official explained, if the claims-to-premium ratio exceeds 110 per cent — meaning if for a ₹100 premium collected, claims exceed ₹110 due to unfavourable weather — the insurance companies’ liability is limited to ₹110 only, and anything over and above that is passed on to the state government.
Similarly, if the claims-to-premium ratio drops below 80 per cent, say to around 70 per cent, then the insurance company has to submit the balance ₹10 back into the state exchequer.
“As per the cup and cap 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. States have been given the flexibility to choose any one of these models. Due to adoption of these models, the premium rates have significantly reduced, thereby reducing the outgo of the Government of India and states,” the Centre said in a Parliament reply a few months back.
As per officials, the cup and cap model has brought about a degree of certainty in the industry, and risk has been transferred to the state governments rather than insurance companies, which is why the gross actuarial premiums have come down.
Sources said, on average, actuarial premiums are in the range of 10–11 per cent but have gone down due to the cup and cap model.
“Those states which are financially sound and are capable of taking a slight financial burden have all opted for the cup and cap model of 80:110,” another official remarked.
For the Central government, it also means savings in subsidy if actuarial premiums drop.
The FY26 Budget had estimated the Central subsidy share in PMFBY to be around ₹12,242 crore, while the actual requirement could be much less, sources said.
“A big tender cycle for PMFBY will start from March–April 2026, as the three-year cycle for most states will come to an end. This is where the actual impact of the cup and cap model will be known, which could also get reflected in the FY27 Budget Estimates for PMFBY premium subsidy share of the Centre,” the official remarked.
