Amount owed by insurers to farmers at all-time high

When the Pradhan Mantri Fasal Bima Yojana (PMFBY), the country's flagship crop insurance scheme was launched in June 2016, the idea was to replace complicated, multiple insurance schemes running simultaneously with one simple plan for the whole country. Any farmer with a crop loan gets enrolled automatically and pays between 1.5% and 2% of the premium, while the rest is shared 50:50 by the Centre and states.

Three years down the line, PMFBY has run into many of the old problems. The one most troubling issue for farmers is a continuous delay in payouts. The average delay in payment of claims, according to official data, is more than a year from the date of harvest. Outstanding amounts owed by insurance companies to farmers have now peaked to nearly Rs 3,000 crore until December 15, 2019, according to official data reviewed by HT. On October 31, the outstanding amount was Rs 2,511 crore from the kharif, or summer-sown 2018 crop, season alone, or 16% of the estimated claims.

To be sure, clearing of dues is a continuous process. The agriculture ministry is chasing down unpaid dues by slapping fines on insurers. According to PMFBY's operational guidelines, revised in October 2018, an insurance company must make payments within 30 days of receiving all claims-related data, failing which a penalty at a rate of 12% of the outstanding is levied. Insurers have been fined over Rs 16 crore so far since the scheme's launch.

Delay in payouts can have domino effects. Missed compensation leaves farmers short of funds to invest in their next sowing cycle. It also disrupts their ability to service their agricultural loans, pushing them closer to default. 'That is how I defaulted on my payments,' said Tulcha Ram, a farmer from Rajasthan's Sikar. Ram had taken out Rs 3 lakh in loans on his Kisan Credit Card from the Punjab National Bank's Badalwas branch in Sikar district, which soon grew to Rs 4.5 lakh after defaults. He says his claims from kharif 2017 were never settled because they were rejected unfairly. The insurer is supposed to pay out a compensation amount corresponding to the extent of yield loss.

Such delayed payments, among other issues, were behind massive protests by farmers in the last two years, leading to a spate of farm loan waivers. Since 2014-15, 10 states announced loan waivers equivalent to 1.4% of the country's gross domestic product (GDP). 'One obvious reason is the delay by states in releasing their share of premium subsidy,' an official of the farm ministry, requesting anonymity, said. According to norms, the Union government releases its share of premium subsidy only after the state's share gets disbursed.

Official data showed Madhya Pradesh has delayed its subsidy across seasons, including rabi, or winter-sown, season of 2017-18, kharif season of 2018 as well as rabi season of 2018-19. In India, the summer-sown season falls within one calendar year (June to September), while the winter-sown season is spread over a financial year (December to March).

Rajasthan has been delaying its subsidy from kharif 2018 onwards, while Andhra Pradesh and Telangana saw delays in both kharif 2018 and rabi 2018-19, respectively. Other states, such as Jharkhand, have seen delays in more than one season since the scheme's launch. In any given season, delay in the release of premium subsidy effectively stalls the rollout of PMFBY till the amount is cleared.

By far, the major reason is settlement disputes. 'Crop damage is evaluated by state government officials in presence of insurance officials. Disputes are common. Insurers often don't agree on the extent of yield loss,' said a third-party consultant hired by the Centre to monitor PMFBY, requesting anonymity. The government is experimenting with big data analytics, artificial intelligence (AI) and machine learning to quicken assessment of crop damage. But currently, it is done manually by a process called crop cutting experiments, or CCEs, a lengthy mechanism.

Crop cutting involves, literally, cutting damaged crops, drying them and then calculating the yields. Disagreements are common between farmers and surveyors regarding yield loss as well as patch of the farm chosen for assessment, among others. Annually, the country requires seven million CCEs. 'Disputes are inevitable. Farmers want maximum payouts. They sometimes tend to inflate their losses,' said Sanjay Sinha, a former consultant to the Insurance Regularity Development Authority.

'A related problem faced by insurance agencies is formulating a long-term plan due to the lowest bid (L1) bidding system every year. Insurers have to offer lowest possible actuarial premiums, at the same time accounting for a variety of risks. This generates pressure on their management to prevent or delay claims by raising objections on yield data,' states a February 2019 study of PMFBY by the Centre for Management in Agriculture of Indian Institute of Management Ahmedabad. 'The key question before us is how to bring in technology and remove human interface from the process of estimating crop damage. That's where the focus is,' said the official cited in the first instance.

Source: Hindustan Times