India has the third-highest crop insurance claim ratio globally, next only to Canada and Italy as these countries have at least one extreme climate event every year.
As far as global standards are concerned, China, the US and India account for 70 per cent global crop insurance premium collected while in Canada and the US, the administration and operating costs of insurers are subsidised.
In the last seven years, the average crop insurance claim ratio in India was at 83 per cent while that of the Canada and Italy was 99 per cent and 98 per cent, respectively, according to a study by Kolli N Rao, Head of Agriculture Insurance and Senior Advisor to the International Reinsurance and Insurance Consultancy and Broking Services.
Turkey and China had the lowest claim ratio of 55 per cent and 59 per cent, respectively. Claim Settlement Ratio is the percentage of claims that an insurer settles in a year out of the total claims. It indicates the credibility of an insurance company.
Gaining traction
Crop insurance in India gained traction in 2016 when the Pradhan Mantri Fasal Bima Yojana was introduced in place of the existing claim subsidy-based models.
Insurance companies had collected ₹1,54,265 crore as premium in the last seven years and settled claims worth ₹1,28,418 crore leading to a claim ratio of 83 per cent.
Since India has not experienced any wide-spread extreme event and had largely normal monsoon during this relatively short cycle of seven years under PMFBY journey, India clocked a 83 per cent claim ratio, leaving a little reserve with insurers for future events, said Rao.
Adverse weather events
Between 2016-18, Tamil Nadu experienced extreme droughts, resulting in ₹8,397 crore claims against the gross premium of ₹4,085 crore, resulting in a claim ratio of over 200 per cent.
Similarly, farmers in Maharashtra received compensation of about ₹4,500 crore due to heavy rains during the crop maturity or at harvest stage in 2019. Several states such as Chhattisgarh, Haryana, Karnataka, Jharkhand, Madhya Pradesh, Odisha, Telangana had experienced over 100 per cent claim ratio in one or more years due to regional adverse weather events, he said.
About 50-100 personnel are deployed in each major districts by the PMFBY administration during key periods, said Rao.
An industry average break-even point for PMFBY is about 90 per cent claim ratio for a company writing a premium of about ₹2,500 crore.
Since 2020, the business has become so tough that eight of the 18 originally empanelled insurance companies have stopped writing crop insurance business, he said.