india

Updated: Apr 26, 2019 07:37 IST

Insurance companies owe hundreds of crores of rupees to farmers in crop-insurance claims, stoking farm distress and prompting the government to impose steep fines on insurers for the first time, official data reviewed by HT show.

Under a new rule introduced in October 2018 (which took effect in January 2019), insurance companies will have to pay fines for delaying payment of crop-insurance claims. These claims have become a political issue amid an agrarian crisis and the ongoing parliamentary elections.

Enforcement of this new rule governing the Pradhan Mantri Fasal Bima Yojana (PMFBY) — the flagship subsidised farm insurance scheme of the current government — has revealed the magnitude of the problem: outstanding claims owed to farmers amounted to nearly Rs 530 crore until March 31, 2019.

To be sure, some of this amount may have been paid out by the companies since.

About “eight companies” have now been slapped with a fine of Rs 16 crore for various delays, a person familiar with the matter said on condition of anonymity. An insurance company must now make payments within 30 days of receiving all claims-related data, failing which penalty at a rate of 12% of the outstanding is levied.

Delay in paying compensation for crops ruined by weather shocks can have a domino effect on the fortunes of individual farmers and the overall economy.

Such delays can push millions of farmers into poverty, leaving them with little money for the next sowing season. Also, such delays hamper farmers’ ability to service their agricultural loans, pushing them closer to the brink of default. Farm insurance is compulsory for any farmer taking an agricultural loan.

Such vicious cycles of delayed payments, among other issues, were one of the factors behind massive protests by farmers in the last two years to demand farm loan waivers; political parties responded by announcing loan amnesties for farmers ahead of the 2019 elections.

The outstanding amount of Rs 530 crore accrued over the past four sowing seasons between the kharif or summer sown season of 2016 to the winter sowing season of 2017-18, points to entrenched practice of delaying payments.

Farmers under PMFBY have to pay between 1% and 2% of the total premium, depending on crops and sowing season. The rest is shared between the Centre and states on a 50-50 basis. To be sure, farm insurance is crucial in a country where crops are vulnerable to drought, unseasonal rains, even pest attacks. Nearly 54% of the sown area lacks irrigation cover and 12 million hectares, on average, suffer annual weather shocks.

Official data show that the voluntary enrolment of farmers without any farm loan has remained steady since the launch of the PMFBY in 2016, indicating that farmers do find it useful.

A majority of those fined are public-sector insurance companies since they have, between them, a majority share of the farm insurance business.

The fines, aimed at ensuring compliance of insurance companies with making timely payments, are one of the two changes introduced under the revised guidelines of the PMFBY last year. The second provides for penalising state government for their share of the delay.

One partly public-owned insurance firm, Agricultural Insurance Company of India Ltd (AICIL), said it was examining the penalty slapped on it.

“It is a positive step, responsibility should be fixed. But penalty has to have a valid reason. Claims cannot be cleared just because data has been cleared by states. There can be discrepancy in claims data sent by states or consequential delays from state governments, who often cause delays in releasing premium,” said Rajeev Chaudhary, the chief risk officer of AICIL.

Currently 18 companies are empanelled to offer farm insurance. Of these, five are state-owned. The share ofcrop insurance business with state-owned firms is 52%.

According to Ashok Gulati, an economist with think-tank ICRIER, if the PMFBY scheme is to achieve its most critical goal — timely payouts to farmers — it will have to rely on high-end technological fixes, from drones to even a new constellation of satellites, for accurate crop damage assessments, which is the key to faster processing of claims.