Page 33 - Insurance Times December 2020

the increasing efficacy of the scheme from the farmers' has also gone up by almost 25% from Rs 11,258 in 2016-17
standpoint. to Rs 14,038 in 2018-19. This has in turn, rippled into an
increase of almost 42% and 52% in average claim per insured
Sustainability: Insurance works on the principle that the farmer and insured hectare respectively. Here it is pertinent
cost of risk at an individual or household level will significantly to note that the farmers' share in the gross premium has
reduce when diversified risk exposures are aggregated in a actually gone down from 19.2% in 2016-17 to 16.9% in
portfolio. This is why the risk of yield losses that can become 2018-19, the rest being subsidized by state and central
catastrophic for individual farmers becomes commercially governments.
viable for insurance companies. In this process reasonable
profits for insurers have to be allowed, in order to ensure This means that the burden of attaining sustainability for
their sustained interest. the scheme is not being passed on the farmers but is borne
by the government. While this is fine for the farmers, the
Despite profits, insurance remains beneficial for individuals fiscal burden for the government is rising. This perhaps
on account of the aleatory nature of risks it covers. Hence, explains the recent decision of Central Government to
social insurance schemes like PMFBY need to offer adequate reduce its share in the premium subsidy for PMFBY from
protection to farmers while remaining profitable for insurers. 50% to 25% in irrigated areas and 30% in non-irrigated
Therefore, while very low claim ratios diminish the client areas. Social insurance needs to be sustainable not just for
value of the scheme, very high claims ratios impair its the risk carrier but also for the government that rolls out
sustainability. The appeal of insurance lies in attaining and huge subsidies as well as the farmers who also pick-up a part
maintaining a right balance between sustainability and client of the cost.
value.
It is actually a healthy sign to see a variety of market forces
In the last three years the average premium rate for crop at play trying to balance the equilibrium of crop insurance
insurance has gone up by almost 15% from 10.7% in 2016- in the country. A market-based system keeps evolving
17 to 12.3% in 2018-19. In a competitive bidding system according to the market dynamics which in turn helps the
with such large volumes involved an increasing premium sector in discovering the right balance between
rate indicates a correction towards sustainable pricing. On sustainability and client value so that a palpable de-risking
the other hand, probably because of increase in input costs of agriculture sector takes place. Only then can a win-win
as reflected in the scale of finance, the average sum insured situation emerge for all stakeholders.
per insured hectare has also increased by almost 27% in
three years. Conclusion
To sum up, the above data reveals that crop insurance
Both these factors have had a compounding effect on the schemes in India are moving in the right direction towards
average premium per insured farmer and insured hectare gaining scale, client value and sustainability. Agriculture
which have increased by 37% and 46% respectively. insurance schemes however, need to be evaluated on a
Correspondingly, like the claim ratio, the average claim size bigger longitudinal timeframe for any definitive conclusions.

Crop Insurance Performance 2016-2019 (PMFBY and RWBCIS)

Year Average Average Average Average Claims Claims Average Average Average
Premium Premium Sum Premium Incidence Ratio Claims Claim Per Claim
Per Per Ha Insured Rate (%) (%) (%) Size Insured Per
Farmer (Rs.) Per (Rs.) Farmer Insured
(Rs.) Ha (Rs.) (Rs.) Ha (Rs.)
2016-17 3,748 3,832 35,842 10.7% 25.5% 76.7% 11,258 2,874 2,939
2017-18 4,801 4,922 39,697 12.4% 33.1% 86.5% 12,536 4,153 4,257
2018-19 5,123 5,605 45,502 12.3% 29.1% 79.6% 14,038 4,079 4,463
Total 4,544 4,756 40,204 11.8% 29.1% 81.1% 12,654 3,684 3,855
Kharif 2018 and Rabi 2018-19 Claims figures are provisional
The Insurance Times, December 2020