The Union Cabinet on Wednesday approved a new crop insurance scheme that aims to reduce the premium burden on farmers and ensure early settlement of claim for the full sum insured.

The premium charged in the new scheme will be up to 2% of the sum insured for food crops and oilseeds and up to 5% of the sum for horticultural and cotton crops under the scheme. At present, premiums charged in crop insurance schemes go up to 25% of the sum insured.

The government proposes to implement this scheme from the next kharif season starting this June.

The Centre plans to cover 50% farmers through the scheme in next 2-3 years as against the current coverage of 23%.

Besides lower premium, the ministry has proposed there will not be a cap on the premium and reduction of the sum insured, 25% of the likely claim will be settled directly on farmers account, there will be one insurance company for the entire state, and farm level assessment of loss for localised risks and post harvest loss.

The ministry has proposed that private insurance companies along with Agriculture Insurance Company of India Limited (AIC) will implement the scheme. It has recommended that all claim liability will be on insurer and the government would give upfront premium subsidy.

The new crop insurance scheme has been proposed to replace the existing National Agricultural Insurance Scheme (NAIS) and Modified National Agricultural Insurance Scheme (MNAIS).

Under NAIS, launched in 1999 and being implemented in 14 states by government insurance company AIC, the premium burden on farmers is up to 3.5% for foodgrains and oilseeds crops while actuarial rates for horticultural crops and cotton apply. However, all the claims liability is on the government.

Whereas, under MNAIS, launched in 2013 but implemented in only six states, the premium burden on farmers varies between 2 and 15% but the actuarial premium goes up to 57% depending on the risky crops and areas. But due to capping of the premium, the sum insured gets reduced and as a result farmers are getting lower claim amount.

The ministry has also implemented a Weather-based Crop Insurance Scheme since 2013 in 12 states.

Last year, only 27% of the crop area was insured under these three crop insurance schemes, which cost Rs 3,150 crore to the national exchequer.