Insurance Companies Have Paid No Penal Interest for Delay in Payment of Crop Insurance Claims

New Delhi: Despite delaying settlement of crop insurance claims by several months – and sometimes even years – insurance companies have not paid a single rupee in penal interest to farmers, The Wire has learnt through a Right to Information (RTI) query.

The Ministry of Agriculture and Farmers’ Welfare has said in its response that it has so far imposed penal interest of Rs 4.21 crore on insurance companies for delayed settlement of claims under the Pradhan Mantri Fasal Bima Yojana (PMFBY). As per PMFBY guidelines, insurance companies are required to pay farmers 12% penal interest per annum on the amount due for the period due beyond 2 months of the cut-off date.

To put this in perspective, insurance companies have delayed paying claims of farmers worth thousands of crores for several months beyond the stipulated deadline. As The Wire has reported, Rs 5,171 crore remained unpaid three months after the deadline in 2018-19, Rs 3,000 crore was unpaid seven months post the deadline in 2019-20 and Rs 2,829 crore was unpaid seven months after the deadline in 2017-18. Bear in mind, these are only the amounts and the duration of delays that The Wire has been able to ascertain through RTI queries since November 2018.

We are not able to determine from the data made available by the Union ministry the total amount that has been unpaid beyond the stipulated time period and the period for which it has been unpaid since the implementation of the PMFBY. But, from what we know, at least about Rs 11,000 crore was unpaid for a cumulative period of at least 17 months since November 2018, when The Wire started reporting on delays in settlement of claims. Now, even the Rs 4.21 crore that the ministry has ordered the five insurance companies to pay has not been paid. “The insurance companies have so far not paid this amount. They have provided their perspective on the issue. To discuss this, a meeting has been called,” the ministry said in its response without saying when the said meeting would be held.

According to the RTI response by the Centre, it issued an order on September 25, 2019, requiring five companies to pay penalties for delaying payment of claims under the PMFBY. The five companies are Agriculture Insurance Company of India Ltd., Cholamandalm-MS General Insurance Company Ltd., ICICI-Lombard General Insurance Company Ltd., New India Assurance Company Ltd. and SBI General Insurance Company Ltd. The RTI response also says that in addition to the Rs 4.21 crore penal interest imposed by the Union ministry, the state governments of Gujarat, Uttar Pradesh and Haryana have imposed additional penal interests on insurance companies. The ministry, however, did not provide the details of how much interest was imposed by the states and how much of that, if any, was paid by the insurance companies.

It is also interesting to note that the latest season for which the ministry charged penal interest – as per its September 2019 order – is the rabi season of 2017-18. The payment deadline for this season would have ended in July 2018, almost exactly two years ago. But it was only in September 2018 that the Centre announced that insurance companies will have to pay farmers 12% penal interest if claims are not settled within 2 months of the cut-off date. Now, according to the information provided by the agriculture ministry in response to our RTI query, no penal interest has been imposed on insurance companies for delaying payment of claims.

As The Wire‘s reporting has shown – most recently in March 2020 – insurance companies have continued to delay settlement of claims even after the Centre’s announcement of imposing penal interest. For instance, in Haryana’s Sirsa, farmers were paid their crop insurance claims of 2018 almost two years after it was due. “It is only in March 2020 that around Rs 400 crore of claims due in February 2019 were paid to farmers in Sirsa,” said Vikal Pachar of the Akhil Bharatiya Swaminathan Aayog Sangharsh Samiti, Sirsa.

‘Deeper problems’

According to an official at an insurance company empanelled under the PMFBY, the penal interest mechanism has not worked as the problems with the scheme run much deeper.

“I think the Centre has realised that imposing this penalty is not going to work. There are problems such as delayed payment of premium to insurance companies, delay by state governments in providing crop loss data, etc. Insurance companies cannot be blamed and made to pay penalty for these problems,” the official said requesting anonymity.

Indeed, the Centre has also said on several occasions that the reasons for delays in settlement of claims range from delayed premium payment and delay in providing data – like the insurance company official said – to discrepancies in yield data, ‘unrealistic’ crop loss assessments and incorrect submissions of proposals by banks.

The key problem with the PMFBY has been the delayed settlement of claims and in February this year, the Centre made the scheme optional for farmers. Earlier, all farmers who had taken loans through their Kisan Credit Cards were registered for the PMFBY automatically, and the premium amount was deducted from the amount of loan provided to them. Those who were outside the formal credit system could opt to register for the PMFBY by paying the premium.

Source: The Wire