With insurers increasing premium rates every year, farmers and the government -- State and the Centre -- are coughing up more under the Pradhan Mantri Fasal Bima Yojana (PMFBY).

Sample this: In 2016-17, the premium rate was 10.75 per cent (of sum insured). This increased to 12.36 per cent in 2017-18 and to 12.60 per cent in 2018-19. For 2019-20, the rates have gone up further in Kharif, and is likely to be around 15 per cent for the full year.

The increase in premium rates has led to higher premium outgo, despite minimal change in the gross cropped area covered under the scheme. In 2018-19, the total premium paid to insurers under PMFBY was Rs 29,429.6 crore, up from Rs 25,480.8 crore in 2017-18 and Rs 22,008.1 crore in 2016-17.

Given that a large portion of the premium under PMFBY is paid by the government, the higher premium outgo is pinching it year after year. For farmers, too, rising premium has been a concern.

According to PMFBY guidelines, a farmer is required to pay 2 per cent of SI in case of Kharif crop and 1.5 per cent of SI in case of Rabi crop (5 per cent of the SI as premium for a horticulture crop) as premium; the balance is shared 50:50 by the state and Centre. However, when seen as a percentage of premium, what the farmer pays out of his pocket is a hefty sum.

With the increasing challenges that farmers face in getting claim settlement from insurers, the rising premium rates are another reason why farmers may not willingly come forward to take the cover.

Why the increase?

Insurance companies blame the changing guidelines under PMFBY for the increased costs, which has forced them to increase the premium rate. While in the first year there was not much of a push from the government on insurers empanelled under PMFBY to open offices at the block (tehsil) level, now that has become mandatory, said a highly placed source inside an insurance company.

He added that effective rabi 2018-19, the formula for calculation of ‘threshold yield’ that forms the basis for claim settlement, has been changed. “Earlier, it was an average of 7 years excluding up to 2 calamity years; now insurance companies have to take the moving average of the best five years out of seven… so threshold yield has gone up across all the states.”

When threshold yield rises, the claims outgo increases for insurance companies and they adjust this by increasing premium. Further, given the mandate that every insurance company empanelled under PMFBY should necessarily spend 0.5 per cent of premium collected for publicity and awareness, costs have further gone up, rue insurers.

Another reason for premium rates going up is manipulation of yield data by states to help their farmers get a higher settlement. A source in a large crop insurance company, who didn’t want to be named, said, “It happens routinely in some states such as Gujarat (in case of groundnut) and we insurers factor that in premium…”

This practice by states will only backfire on them, he added. Over a period of time, the threshold yield for the particular district will become so low that farmers may not be eligible for compensation at all.

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