By Prabhudatta Mishra
The Centre has written to state governments urging them to invoke the penalty clause on insurance companies that have defaulted on settling the claims made by farmers under the Pradhan Mantri Fasal Bima Yojana (PMFBY). The move follows reports that insurers are yet clear as much as a third of the over Rs 15,000 crore claimed by farmers as crop insurance for the Kharif 2019 season, even as the new summer season began on July 1.
The delay in claims settlement by insurance companies under the PMFBY and Weather Based Crop Insurance Scheme (WBCIS) have been taken seriously by the government in view of the hardships faced by farmers during the lockdown period and the slump in demand for agriculture produce, according to an official source.
While four public sector insurers — AIC, Oriental, New India and National — together were yet to settle claims of Rs 2,589 crore as on June 29, six companies in the private sector could not clear Rs 2,142 crore by then, official data shows.
AIC, the largest PMFBY player, has acquitted itself by disbursing Rs 7,117 crore (83%) to farmers against claims of Rs 7,946 crore by June 29.
However, New India and Orient still had outstanding amounts at 92% and 66% respectively of the claims. IFFCO Tokio and Reliance General, according to the data, were reported to have not paid 99% and 94% respectively of the farmers’ claims by June 29.0
Of course, almost 100% of the admitted claims eventually get paid — nearly all of the claims pertaining to the seasons before 2018-19 now lie settled, whereas the unsettled amounts for kharif and rabi 2018 are only 5.8% and 14% respectively. Yet, timely release of the monies to the farmers is important for the sustainability of the farming activities, and this has become a more pressing need owing to the Covid-19 crisis.
According to PMFBY/ WBCIS norms, settlement of claims has to be completed by insurers within 60 days from crop cutting experiment (CCE) date, failing beyond which states can levy penal interest at 12%/annum on them and pass on the proceeds thereof to the farmers.
States are also empowered to relax the norms on the basis of genuine reasons for the settlement delays. The CCEs, done during harvesting period to assess the actual yield, start from October and end in January for most of the kharif crops. However, as some crops like tur or cotton in Maharashtra are harvested late the all the CCEs are completed by end of April. So, all kharif insurance claims are required to be settled by end-June latest.
“The department has noticed that substantial amount of claims are still pending for rabi 2018-19 and kharif 2019 seasons where admissible subsidy amount and actual yield data have been provided by the respective state government,” Ashish Bhutani, CEO of PMFBY, said in a letter to states’ agriculture secretaries. He has asked states to impose penalty on the companies and ensure that farmers are paid the claims amount along with penal interest at the earliest.
As all the claims payment to farmers by insurance companies are also subject to receipt of government share in gross premium, the Centre has also stipulated that states have to release their share of premium subsidy within 3 months from requisition made by concerned insurance company, failing which 1% interest per month shall be levied as penalty on the state government.
“Responsibility of any error, omissions and mis-reporting lies with the state’s nodal agency and the insurance company. Both the state and the insurers shall have to resolve all the grievances of the insured farmers and other stakeholders in the shortest possible time,” a government official said, adding all such complaints could not be reason for delaying claims settlement. Claims need to be cleared before start of next season and sowing in 40% of normal area has already been completed in the first month of kharif sowing season (June-September), the official said.
In the three years up to FY19 after the launch of the PMFBY, 5.3 farmers farmers have got Rs 64,541 crore as insurance amounts. Under the PMFBY, farmers pay a fixed 1.5% of sum insured for rabi crops and 2% for kharif, while it is 5% for cash crops. The balance premium is paid by the Centre and states in a 50:50 ratio. The premium is decided through a bidding process every year. However, effective from this season the Centre has allowed states to fix premium for 3 years.
Meanwhile, as reported by FE earlier, a drop in crop insurance claims by farmers in the last kharif 2019 season, coupled with the prospect of a good monsoon and robust crop in the current summer season, has pushed down Fasal Bima premiums quoted by insurance companies. Over the years the premiums against sum assured, as quoted by insurers, have been steadily rising, reflecting the firms’ concerns over the shirking margins. The latest trend may be indicating the cementing of the scheme, largely dependent on government support, as a viable insurance model, according to industry watchers.