The claim-to-premium ratio under the Pradhan Mantri Fasal Bima Yojana (PMFBY), the crop insurance scheme jointly sponsored by the Centre and states, is set to drop sharply in the crop year through June 2022.

The crash in claims by farmers will likely revive interests of both insurers and states, many of whom were getting disillusioned with the scheme for high payouts. In fact, the claim ratio has been steadily declining over the past three years, as normal monsoon rainfall and improved irrigation facilities have reduced the possibility of crop failures across vast swathes of the country.

Citing preliminary estimates, official sources told FE that the claims-to-premium ratio for both kharif and rabi seasons plunged to just 35% in 2021-22, compared with 61.6% (excluding Assam) in 2020-21 and as much as 99% in 2018-19. The final estimate for 2021-22 will vary from the preliminary one once all the claims are assessed, but the crash in claims ratio will still be substantial.

In absolute terms, while gross premiums stood at `30,038 crore in 2021-22, the claim amount touched `9,460 crore, according to the preliminary data.

States such as Andhra Pradesh, Telangana, Bihar, Jharkhand, West Bengal and Gujarat had dropped out of the scheme because of the high costs. However, Andhra Pradesh rejoined PMFBY from kharif 2022 after the Centre agreed to the state government’s proposal of universalising the scheme for all farmers.

In 2018-19, against the premium payment of `29,607 crore (for both kharif and rabi seasons) to 18 companies empanelled by the Centre, the farmers’ claims were `28,512 crore (claim ratio of 99%).

The ratio has been on a decline since then. In 2019-20, the claim ratio dropped to 85.5% and in the pandemic year of 2020-21, it fell further to 61.6%.

In fact, the claim ratio has come down for both kharif and rabi seasons. From 93.9% in kharif 2018-19, it came down to just 41.9% in kharif 2021-22, as per provisional data. Similarly, for the rabi season, the claim ratio crashed from 106.9% in 2018-19 to 47.1% in 2021-22.

Under the heavily subsidised PMFBY, the premium paid by farmers is fixed at just 1.5% of the sum insured for rabi crops and 2% for kharif crops, while it is 5% for cash crops. The balance premium is equally shared between the Centre and states. But in case of northeastern states, the premium is split between the Centre and states in a 9:1 ratio.

In February 2020, the government made adoption of PMFBY voluntary for farmers from mandatory earlier.

Under the revised guidelines for the scheme issued for kharif 2020, the central government had stipulated that any state failing to pay its share of premiums would be disqualified from implementing it from the next season.

The scheme is currently being implemented in 21 states and Union territories. The Punjab government hasn’t adopted PMFBY since its 2016 launch.

A working group set up by the ministry of agriculture and farmers’ welfare to review PMFBY has recommended a higher claim-premium cap of 130% from 110% now — a move aimed at infusing fresh life into the scheme.

According to an analysis by the working group, since 2016, PMFBY premium has increased by more than six times, raising the subsidy liability of the government.

The group has also recommended targeted premium subsidies for small farmers, empowering the Centre to levy penalty on states for any delay in subsidy settlements and extensive use of remote sensing data for crop yield assessment.