Under the PM crop insurance Scheme, states might have to share their profit or loss with the insurance company.
After letting some states use the so-called Beed formula or 80:110 plan ‘informally’ for the past two years, the Centre is about to give three more options under the Pradhan Mantri Fasal Bima Yojana (PMFBY). In these options, insurers’ income or liability will be limited within a band, and if it goes over that band, the State government will take over.
Sources say that the plans to be offered have been finalised by a subcommittee under a joint secretary in the Finance Ministry. Once the report is turned in, the Agriculture Ministry will decide whether or not to accept the recommendations.
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Liability of insurers
One of the recommendations of the 60:130 plan is that the insurers’ liability will be limited to no more than 130% of the gross premiums collected. If the amount of the claim is higher than that, the States will have to pay the difference. In the same way, if claims are less than 60% of the gross premium collected, the insurer will have to give the rest back to the State government.
For example, if the claims for a season are equal to 45% of the gross premium, the insurance company will return 15% of the gross premium to the State government after keeping 60% for itself.
Under PMFBY, farmers pay a fixed premium of 1.5% of the amount insured during the rabi season, 2% during the kharif season, and 5% for cash crops. The rest of the premium is split equally between the Centre and the States. Quotes from a group of insurance companies are used to figure out the premium. The maximum premium has been set at 30% in areas without irrigation and 25% in areas with irrigation.
Sources say that Madhya Pradesh and Maharashtra have put out bids for crop insurance premiums for Kharif 2022 under the 80:110 and 60:130 plans, as well as the regular PMFBY scheme. Sources say that they will decide which scheme to roll out based on the premium quotes they get from insurance companies. ‘If it’s a regular PMFBY, the States don’t need approval from the Centre, but if they want to use the 80:110 or 60:130 plans, they need to get approval first,’ an official said.
Shared responsibility
The third suggestion is a co-insurance model, in which both the insurance company and the state will share the risk to the same extent that they share the premium.
In September, the government set up a working group led by PMFBY’s CEO to look at different ways to handle risk and suggest financial and operational models with sustainable underwriting capacities and reasonable premium pricing. Also, in that group, an expert committee was made to do a cost-benefit analysis of all ‘accepted models, such as agriculture insurance pool, cup and cap 80–110 percent, and co-insurance 20–80 percent,’ as well as any profit-loss sharing model.
‘The whole crop insurance scheme’s biggest problem is partly political and partly financial. If these aren’t fixed, the states that have left the scheme probably won’t come back. Unfortunately, these worries aren’t taken into account in any of the three models that have been proposed,’ a crop insurance expert said.
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Gujarat didn’t have any reason to leave PMFBY, but it did anyway, and the Centre didn’t say anything. Sources say that Bihar spends four to five times as much on crop insurance as it did on its share of premium subsidies under PMFBY when it was running the programme. West Bengal says that the Centre should pay for all of the premium subsidies because the scheme is named after the Prime Minister and is promoted with his name on it.
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