The Indian Express: Mumbai: Monday, August 28, 2017.
A YEAR after
the central government launched its ambitious crop insurance scheme, Pradhan
Mantri Fasal Bima Yojana (PMFBY), it’s the insurance industry that is all set
to cash in amid spells of drought and the agrarian distress. According to
figures obtained under the Right to Information (RTI) Act by The Indian Express
from Agricultural Insurance Company of India (AIC), the total portfolio, or
premium collected under the scheme, was Rs 22,437 crore in 2016-17, while
claims made by farmers amounted to Rs 8,087.23 crore as on July 25, 2017.
Latest
available data on August 15 shows that insurance firms have received claims,
including those not settled, of Rs 15,100 crore from farmers but only approved
Rs 9,446 crore till date. The government is subsidising the crop insurance
business as it shells out 98 per cent of the premium, which will remain with
insurance companies.
Insurers did
not lose much money on claims made by farmers either, as 80-85 per cent of the
premium is reinsured with reinsurance companies. With this profit in 2016-17,
the insurance industry is set to recover a major part of the underwriting
losses of Rs 15,546 crore it suffered in the previous year. As against a total
premium of Rs 5,626.24, they received claims of Rs 21,172.60 crore in 2015-16,
shows figures provided by the AIC.
According to
the AIC, a public sector body that accounts for almost one-third of the crop
insurance business, Maharashtra, Tamil Nadu and Karnataka topped in claims in
2016-17 (see box). Maharashtra topped the list in the previous year as well. A
senior official of AIC said the claims would be much more in 2016-17. “Claims
keep coming, the final amount could be much more,” said the official.
G Srinivasan,
chairman, New India Assurance, had earlier said that the company, which
received a premium of close to Rs 1,052 crore, had fielded 100 per cent claims
in crop insurance. In crop insurance, settling of claims is a long-drawn
process. The Comptroller and Auditor General (CAG), which audited the business,
said that claims worth Rs 5,871 crore are still pending out of the total of Rs
12,808 crore under the National Agriculture Insurance Scheme (NAIS), which
covered 301.47 lakh farmers in 2015-16.
PSU insurance
companies were the last to take up the business as the Government had initially
mandated only private sector companies. New India received the maximum claims
from Tamil Nadu, which faced a water shortage, and Karnataka.
However,
insurance companies don’t suffer any major loss as the business is reinsured
with General Insurance Corporation (GIC Re), which re-reinsures with global
giants such as Munich Re or Swiss Re. “We reinsure as much as 80 per cent of
the crop insurance portfolio,” said a senior official of a public sector
insurer.
The farmers’
share of premium under PMFBY will be based on one season, one rate. They have
to pay only 1.5 per cent of premium for rabi crop, and 2 per cent for kharif
crop. The remaining premium will be paid as subsidy by the Centre and states
together. If the claims are less, it will turn out to be a bonanza for
insurers.
When
contacted, ICICI Lombard General Insurance, one of the largest private players
in the segment, declined to comment on the claims and premium. In an earlier
statement to The Indian Express, an official of HDFC ERGO General Insurance
said, “The premium collected under PMFBY scheme and RWBCIS (Restructured
Weather Based Crop Insurance Scheme) is around Rs 2,000 crore and around Rs 12
crore, respectively, for FY17. We expect maximum loss payout in Madhya Pradesh
during the Kharif 2016 season. Eighty per cent of the crop insurance portfolio
is reinsured for us.”
PMFBY was
rolled out from the kharif season of 2016, replacing NAIS and Modified NAIS.
According to initial estimates, the premium outgo of the Centre and the states
together involved Rs 8,800 crore, which has now crossed Rs 22,000 crore. The
premium was 3.5-8 per cent under the two existing schemes so far.
Gross premium
underwritten by general insurance companies rose by 32 per cent to reach Rs
1,27,212 crore during the financial year ended March 2017, aided largely by the
crop insurance segment, which has emerged as the third largest business after
motor insurance and healthcare.
“According to
market reports, the general insurance industry showed a phenomenal growth this
year (2016-17), riding on premiums derived from PMFBY. But the recently
released Economic Survey 2016 (second volume), as quoted in the media, says
very significantly, that the crop insurance scheme was yet to show results on
the ground due to poor implementation,” said K K Srinivasan, former member,
IRDAI.
In its
performance audit tabled in July 2017, the CAG made several critical
observations about the business. “AIC failed to exercise due diligence in
verification of claims by private insurance companies before releasing funds to
them. AIC failed to take reinsurance cover on behalf of Government of India and
state governments under NAIS despite requirement in the guidelines. At the same
time, AIC took reinsurance cover for its own share of claim liability,” it
said.
The CAG said
that during the period of operation of NAIS from Rabi season 1999-2000 to Rabi
season 2015-16 AIC had accumulated savings of Rs 2,518.62 crore from the
collection of premium. It also said that the guidelines were silent on the
utilisation of savings, if any, due to difference between premium collected and
claims payable by AIC.
On the
private sector, CAG said, “In Rajasthan, the performance of HDFC Ergo General
Insurance Company was declared by the State Government to be below par for the
last seven crop seasons by the end of Kharif season 2014. However, DAC&FW
has not acted on the recommendation of the State Government to de-empanel the insurance
company.”
On ICICI
Lombard General Insurance Company, CAG said: “Scrutiny of records revealed that
ICICI Lombard obtained proposals from 21,875 non-loanee farmers in Rajasthan
during Rabi season 2012-13 and collected premium of Rs 2.35 crore from the
farmers. Subsequently, the insurance company rejected the insurance proposal of
14,753 farmers due to inadequacy of relevant documents, but did not refund the
premium of Rs 1.46 crore to these farmers (September 2016). No action has been
initiated by the State Government to get the amount of premium of Rs 1.46 crore
refunded to the non-loanee farmers.” ICICI Lombard, HDFC Ergo and AIC did not
respond to emails from The Indian Express seeking comment.
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