India is the third-top county to settle number of crop insurance claims

India is the third-top county to settle a number of crop insurance claims

India has the third-highest number of crop insurance claims in the world, after Canada and Italy. This is because Canada and Italy both have at least one extreme weather event every year.

As far as global standards go, China, the US, and India pay 70% of the world’s crop insurance premiums. In Canada and the US, the costs of running and managing insurance companies are paid for by the government.

A study by Kolli N. Rao, Head of Agriculture Insurance and Senior Advisor to the International Reinsurance and Insurance Consultancy and Broking Services, found that the average crop insurance claim ratio in India was 83% over the last seven years, while it was 99% in Canada and 98% in Italy.

At 55% and 59%, respectively, Turkey and China had the fewest number of claims. Claim Settlement Ratio is the share of all claims that are settled by an insurer in a given year. It shows that an insurance company can be trusted.

Getting noticed

In 2016, when the Pradhan Mantri Fasal Bima Yojana replaced the existing claim subsidy-based models, crop insurance became more popular in India.

In the last seven years, insurance companies took in ₹1,54,265 crore in premiums and paid out ₹1,28,418 crore in claims. This gives them a claim ratio of 83%.

Since India hasn’t had any large-scale extreme events and its monsoons have been mostly normal during this relatively short cycle of seven years under PMFBY, it only had 83% of its claims paid out. This left a small amount of money with insurers for future events, Rao said.

Events with bad weather

Between 2016 and 2018, there were severe droughts in Tamil Nadu. This led to ₹8,397 crore in claims, which was more than 200% of the gross premium of ₹4,085 crore.

In the same way, farmers in Maharashtra got about ₹4,500 crore in compensation in 2019 because of heavy rains when their crops were ready to harvest. Several states, including Chhattisgarh, Haryana, Karnataka, Jharkhand, Madhya Pradesh, Odisha, and Telangana, had a claim rate of over 100% in one or more years because of bad weather in the area, he said.

During important times, Rao said, the PMFBY government sends between 50 and 100 people to each of the major districts.

For a company that writes a premium of about ₹2,500 crore, the break-even point for PMFBY is about a 90% claim ratio.

Since 2020, the business has gotten so hard that eight of the 18 insurance companies that used to sell crop insurance have stopped doing so, he said.