New Delhi: High crop insurance claims despite normal rains in the past two years show the extent of production risks faced by farmers and the government should focus on covering more farmers in rain-fed areas, a government appointed panel has said in its report.

Claims under the Prime Minister’s crop insurance scheme was 75% of the premium collected in 2016-17, while for the rain-fed kharif season last year (2017-18) the claims ratio is likely to be upwards of 90%, the report Risk Management in Agriculture by the centre’s committee on doubling farmers’ income said.

The report, which is the 10th in a series of 15 volumes, was released on 27 April.

The committee praised the flagship central scheme Pradhan Mantri Fasal Bima Yojana (PMFBY) for bringing in more crop area under insurance coverage and providing low premium rates for farmers, but it also flagged several gaps.

The coverage of farmers under the scheme who do not avail crop loans (non-loanee farmers) has been low, the report said. It added that “the number of bidders in the drought-prone rain-fed areas have been relatively less resulting in (actuarial) premium rates as high as 25%."

Fewer insurance companies bidding in rain-fed areas also imply that they may be cherry-picking low risk areas leaving out high-risk districts where farmers are more vulnerable. Under the scheme, farmers pay between 1.5-2% of sum insured as premium while the rest is equally shared by the centre and state governments.

“If premium rates are high in normal monsoon years we can imagine what will happen in years when monsoon is deficient… the government should make it mandatory to invite bids before the monsoon forecast is out," said Siraj Hussain, a former agriculture secretary and currently a fellow at Delhi’s Indian Council for Research in International Economic Relations.

Data on PMFBY shows that after a rise in area coverage from 52.4 million hectares in 2015-16 to 57.1 million hectares in 2016-17—the year when the scheme was launched by Prime Minister Narendra Modi—coverage in 2017-18 fell to 47.5 million hectares, which translates to a 17% drop in coverage year on year.

However, gross premium collected by insurance companies in 2017-18 is estimated at Rs24,352 crore, a 9.8% rise from the Rs22,180 crore the year before, the government told the Rajya Sabha on 9 March.

Delayed settlement of claims could be one reason why farmers are losing interest.

“One of the major complaints of the majority of the farmers has been about delay in or non-payment of claims… it only demonstrates the need for a robust process backed by technology that will assure the farmers that their genuine claims are being settled in time. Any deviation in this regard will prove to be discouraging and affect the volumes in the long run," the committee’s report said.

The committee also suggested that the government play a greater role in pricing of crop insurance “instead of letting the matter be decided by the insurance or reinsurance industry."

“The price discovery should happen for longer duration, so that driven by higher volumes, price quotes can be expected to be lower," the report said.

Data from the 2017 kharif crop season shows that in some areas such as Umariya district of Madhya Pradesh insurance companies charged an actuarial premium of Rs9,800, or a staggering 40% as premium, for a coverage of Rs24,500 per hectare of pigeon peas sown.

The committee in its report also said that state governments are not releasing their share of premium subsidy on time, which is affecting claim settlement by insurers. For faster claim settlement, it suggested use of technology like high resolution satellite images to assess crop loss and the digitization of land records.

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