Crop Insurance: A Risky Business

General insurers are aggressively tapping into the new crop insurance business subsidised by the government for farmers, but the risk could be huge

- Anand Adhikari

There is a perception of widespread farm distress along with farmers’ suicides and calls for loan waivers across states. But the business of crop insurance has shown strong growth. On the face of it, all is hunky-dory. Farmers are getting crop coverage even though they pay a hugely subsidised premium of less than 2 per cent of the sum assured. General insurance companies, especially big players like ICICI Lombard, HDFC Ergo and Bajaj Allianz, are underwriting it without any fuss. And the centre, as well as the state governments, are happily contributing the lion’s share. The two-year-old scheme called Pradhan Mantri Fasal Bima Yojana (PMFBY) has promised all this and more, looking like a win-win for everyone.

For the records, PMFBY has replaced two earlier initiatives, the 18-year-old National Agricultural Insurance Scheme (NAIS) and the Modified National Agricultural Insurance Scheme (MNAIS). Both had lower sum assured and no participation from private insurers. Under the new policy, the National Democratic Alliance (NDA) government has already committed ₹13,240 crore for the current financial year, up from ₹5,500 crore in 2016/17. What’s more, insurance companies are getting actuarial premium rates – a market-linked approach where they can fix their rates without any ceiling, taking into account costs, risks and margin to avoid losses. Last year, this new category helped general insurance companies post a 32 per cent growth at ₹1,26,000 crore. In a year’s time, crop insurance has accounted for 18-20 per cent of their product portfolio, only next to auto and health covers.