Companies, not farmers, sole beneficiaries of farm insurance

As India reels under an acute farm crisis, Modi government’s flagship crop insurance scheme helped both public and private insurance companies to profiteer by as much as ₹118 billion

A farmer shows his wheat crop flattened and damaged by strong winds and rains, on the outskirts of Amritsar (IANS)
A farmer shows his wheat crop flattened and damaged by strong winds and rains, on the outskirts of Amritsar (IANS)

Ujjawal Krishnam

As India reels under an acute farm crisis, the Narendra Modi government’s flagship crop insurance scheme helped both public and private insurance companies to profiteer by as much as Rs 118 billion on the back of premiums paid by farmers

The Narendra Modi government launched its crop insurance scheme ‘Pradhan Mantri Fasal Bima Yojana’, known as PMF-BY, in April 2016. The scheme was envisaged to compensate farmers for losses in crop yield. The farmer had to be paid based on the difference between the threshold yield and actual yield. The threshold yield is calculated based on average yield for the last seven years and the extent of compensation is set according to the degree of risk for the notified crop.

However, the Comptroller and Auditor General’s (CAG’s) Report 7 of 2017 observed that there were some discrepancies in the implementation of the scheme. The audit was based on limited range of data and specific provinces chosen by CAG to analyse the scheme. This, based on a broad range of exclusive data accessible to National Herald, is a systematic analysis of the government’s flagship scheme.


National Herald has learnt that there are 18 companies which have been empanelled to implement PMFBY. The farmers’ total share in the insurance premium has been found to be Rs 8,678.59 crore, the government of India and state governments had a share of Rs 19,257.49 crore and Rs 19,497.07 crore respectively.

Between 2016 and 2018, a gross premium of Rs 47,433.15 crore reached insurance companies but only Rs 35,626.20 crore was paid to the farmers. Reliance’s gross premium was Rs 2,469.33 crore but approved claims only amounted to half of it. Out of Bajaj’s Rs 3,297.24 crore gross premium, paid claims were just limited to Rs 2,135.01 crore. HDFC’s disbursement difference is to the tune of Rs 1,092.76 crore. The disbursement pattern of public sector insurance companies is equally problematic. AIC has failed to distribute Rs 309.51 crore of approved claims where it had a stagnant amount of Rs 3,038.56 crore. UIIC had Rs 3,393.36 crore for 2016-18 but the amount paid to farmers was Rs 2,219.29 crore. Only, Tata disbursed the funds equivalent to the approved claims.

States/Union Territories (UTs) maintain that they select the implementing insurance companies from the empanelled companies through transparent bidding process for each season. All financial institutions including banks and Primary Agricultural Cooperative Societies (PACS), which are extending seasonal operational loans/Kisan Credit Card loans for notified crops in the notified areas are involved in the implementation of the scheme.

But companies which failed to disburse approved claims in 2016-17 were not removed from the list of insurance companies empanelled for 2017-18. IFFCO is yet to transfer Rs 101 crore of approved funds. B Axa couldn’t pay Rs 31 crore of approved claims in 2016-17.

Pankaj Patel, an insurance and tax expert told National Herald, “Insurance companies receive premiums from the government and invest the amount elsewhere, like in semi-government or private sectors. Depending on that, they earn interests, sometimes up to 12%. The money always remains in flow. As the number of beneficiaries of general insurance is insignificant, that adds up the profit.”

“The delay in disbursement of insurance premiums increases the time period of outflowed money insurance companies so maximum benefit can be availed. As insurance beneficiaries are the trodden farmers without any support or idea about insurance payouts, this becomes a plus point for the companies. That is one of the reasons the focus of insurance companies is moving from life insurances to general insurances,” Dharmendra Rabari of Jay Consultancy added.


The accessed combined data for PMFBY-RWBCIS shows that there is a strict decline in the number of farmers insured in 2017-18 as compared to 2016-17. This means that the Restructured Weather Based Crop Insurance Scheme (RWBCIS), which was conceptualised to provide risk cover against numerous weather perils, is also in doldrums. In 2016-17, there were 57,356,497 insured farmers.

This had 40,285,485 Kharif croppers and 17,071,012 Rabi croppers. But in 2017-18, the number of insured farmers declined to 51,636,172, a reduction of 5,720,325. The insured area which was approximately 56,610,038 ha in 2016-17 was reduced to 51,544,747 ha—with a difference of 5,065,291 ha. 15,845,787 farmers’ insurance claims were approved in 2017-18 but only 13,893,798 could benefit with respect to paid claims.


About 145,107 farmers of Rajasthan, 1,288,749 farmers of Tamil Nadu, 72,921 farmers in Madhya Pradesh have not been paid their approved claims. All the three states, in the crop season of 2017-18, had NDA governments. Sikkim had 574 non-loanee insured farmers in 2016-17 but a total of sum insured for them was nil. No non-loanee farmer was insured in A&N Is- lands, Goa and Meghalaya in 2016-17 as per accessed statistics. The accessed document shows that the government neglected provinces like A&N Islands, Manipur and Meghalaya. In 2017-18, zero sum premium was insured for A&N Islands in spite of 364 loanee farmers over 248 ha insured area. Claims of Rs 73.68 crore, for 2016-17, of farmers from Kerala are yet to be paid.


Even after CAG’s recommendation, Department of Agriculture, Cooperations and Farmers’ Welfare (DAC&FW) doesn’t have any data on the coverage of SC and ST farmers under the insurance scheme. The Agriculture Insurance Company of India (AIC) did not maintain separate data on financial support to these categories.

It also did not maintain data on women farmers under the schemes even though the NCIP guidelines of 2013-14 required special efforts to ensure maximum coverage of SC/ST and women category of farmers, and DAC&FW had asked AIC (December 2011) to record and maintain such information.

Since no details of sharecroppers or tenant farmers were maintained by the state governments it is not possible to verify for any external body

whether the benefits of the scheme were extended to this category. DAC&FW has also failed to introduce a mechanism to identify and include this cate- gory under the scheme. On March 6, 2018, Parshottam Rupala, then MoS, Ministry of Agriculture and Farmers Welfare, said in Lok Sabha that the target was to increase coverage to 50% of Gross Cropped Area in 2018-19 and the focus was to ensure more coverage of non-loanee farmers through insurance intermediaries. The minister also asserted that the Centre and states had equal shares in the premium subsidy. The data, however, doesn’t support minister’s claims.

A large number of farmers are unable to insure their crops due to low target, bureaucratic red-tapism and unwillingness of intermediaries. No corrective action has been taken yet in this regard.

Santosh Mehrotra, Professor of Economics and Chairperson, Centre for Informal Sector and Labour Studies, Jawaharlal Nehru University, New Delhi, said, “If there will be more pay- outs of insurance claims than inflow of premium, insurance companies will always make losses. These data are from 2016 to 2018. These years saw good insurance claims will be lower; insurance companies would make profit. In an- other year, a bad rainfall year, insurance claims will be higher and may exceed the inflow of premiums that year, which is when the reserves from a previous year may come in useful. That is the nature of the insurance business.”

Not surprised by the facts the investigation reveals, Mehrotra further added, “The basic trouble with most government programmes is that it launches them nationwide to cover the entire population, without first conducting a pilot test. A pilot in one district or a few districts across the country, and learning from the mistakes committed in the pilot, would enable correcting those mistakes in the de- sign of the programme before launching it nationwide. This is never the case here in India. In China, this never happens they first go pilot, before going nationwide. Bureaucrats in In- dia think that they know every- thing. Politicians try to trans- form these ill-planned schemes into political capital. Schemes fail as a result of a combination of these factors.”

National Herald e-mailed many insurance companies seeking comments on the tremendous gap between premiums collected and claims paid. We also enquired for state-wide disparity and companies’ response on the CAG’s audit. They haven’t replied till now.

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