Insurers who thought they could make farm insurance a profitable business were in for a disappointment. In the latest development, the Karnataka government scrapped a tender as the offers were for higher premium, and has called for fresh bids.
Crop insurance, which is fast moving towards becoming a third of the Rs 1.25 lakh crore general insurance industries, is facing issues such as high claims, inadequate premium and lower interest in buying cover when the monsoon is good.
“States like Maharashtra and Karnataka have come up with retendering because they did not find the price they want,” a senior executive of a general insurance company said. “If it is a stress state, all farmers are insured. If they expect bountiful harvest, they do not buy cover.”
The number of farmers insured in Maharashtra in a bad monsoon year was 25 lakh, which fell to 8-9 lakh last year, the executive added.
General insurance companies have seen bumper revenue growth in crop insurance, with the Pradhan Mantri Fasal Bima Yojna policy offering the boost. The scheme is one of the most comprehensive crop insurance policies that cover four stages of insurance cover: preventive sowing, failure of grain or yield loss, localised calamities and post-harvest losses. There is no uniformity in tenor or size of policy. States come up with one season to three-year tenders. For instance, Tamil Nadu bought three years for both seasons.
For 2017-18, the government has provided Rs 9,000 crore towards the crop insurance scheme. This will be increased to Rs 13,240 crore next fiscal year.
For insurers writing crop, fake claims is a major worry. Global reinsurance companies are squeezing capacity, because the bogus claims are hurting profitability. “The concern that reinsurers have is, if the profitability is low in a good year, what will happen in a bad year”, said Bhargav Dasgupta, managing director, ICICI Lombard General Insurance. The real issue is that the industry is willing to pay genuine claims. But if claims are not genuine, and is thrust upon the industry, industry loses confidence.
The Pradhan Mantri Fasal Bima Yojana has talked about use of technology to record crop cutting, etc. But a lot of it is not implemented in the first year. While for crop monitoring, insurance companies take help of external bodies, there are many operational issues involved in crop insurance. “It has to become more systembased, where insurance policy is bought and uploaded at the same time,” said an executive from a public sector insurance company on the conditions of anonymity.