INDIAN GENERAL INSURANCE INDUSTRY
The General Insurance Business (Nationalisation) Amendment Bill, 2021 was passed by the Rajya Sabha on August 11. According to the government, the need arose to address such matters as (a) push for higher private participation in public sector insurance companies; (b) raise the level of insurance penetration and thereby social protection; (c) secure the interests of policyholders in a better manner; (d) contribute to faster growth of Indian economy. The General Insurance bill amended the General Insurance Business (Nationalisation) Act, 1972. This law dealt with nationalizing all private general insurers in the country. The amended legislation has removed the requirement that the central government should hold not less than 51 per cent of the equity capital in a specified insurer. Also, it provides for allowing greater private participation in public sector insurance companies and enhancing insurance penetration and social protection, among other objectives. In non-life insurance business, India is ranked 14th in the world and the country’s share in global non-life insurance market was 0.77 per cent in 2020. Insurance penetration in the country increased from 3.76 per cent in 2019-20 to 4.20 per cent in 2020-21, registering a growth of 11.70 per cent.
India’s general insurance industry narrowly missed the milestone of Rs 2 lakh crore of gross premium during 2020-21, due to the negative growth in motor insurance — the largest portfolio in the industry — and crop business. The industry ended financial year 2020-21 with a positive year-on-year (y-o-y) growth of 5 per cent at Rs 1,98,735 crore, aided by growth in health insurance segment. While the health portfolio, propelled by the Covid 19 pandemic, and has grown by 11 per cent to Rs 58,584 crore, two large business segments— overall motor portfolio and crop business— of the industry declined during FY21. Premiums in the overall motor portfolio have fallen by around 2 per cent to Rs 67,790 crore, while the crop business has fallen by 3.5 per cent to Rs 31,184 crore during FY 2020-21. Among the top 10 general insurers that include three large PSUs, New India Assurance is the only company which has the distinct achievement of positive premium growth, profitability and higher market share by expanding its core business organically in FY21. Led by Star Health & Allied Insurance, all six stand health insurers — at Rs 15,720 crore — have together grown 11 per cent y-o-y in FY21.
Crop Insurance in India
Crop insurance is one of the key elements to stabilize farmers by compensating for crop losses arising out of drought, flood and other causes. In 2016, India overhauled crop insurance to expand its coverage of farmers and farm areas. Initially, it did expand the coverage but since then it has seen a downward slide, one of the key reasons for this being visible profiteering by insurance companies. 13 private companies generated a surplus of Rs 2,725 crore but the five PSU ones recorded a deficit of Rs 3,484 crore in 2017-18. Net effect: a deficit of Rs 759 crore over the premium received. This is easy to understand. If crop loss is less, insurers make a surplus, and if it is more, they report a deficit. Both private and public insurers are also reinsured with public sector insurer General Insurance Company (GIC), which underwrites such losses. However, there was a big brouhaha over this (huge savings from the premium) and farmers and some state governments withdrew from it, reducing the coverage in subsequent years. Country’s agricultural sector brightened up the GDP growth of the country in another year battered by the pandemic, which caused a significant decline in India’s economic activity. In the last fiscal year, while economic activity in the country suffered, agricultural sector posted a robust growth of 3.4%. The pandemic has a silver, or rather, green lining in the form of a thriving agricultural sector.
That is because the premium is paid by farmers and the central and state governments. That the new insurance schemes of PMFBY and RWBCIS expanded the coverage and brought a higher number of farmers and farms is not in doubt. The cause of worry is the subsequent fall in coverage. The biggest challenge for farmers continues to remain the unusual way crop insurance works in India: Farmers are not provided with insurance policy documents or receipts of premiums from banks or insurance companies that would tell them who their insurer is or received their premium (deducted at the time of taking loans). The following graph maps the number of farmers and farm areas in FY18 and FY19. The fall is reversed for FY19 Kharif (marked FY19 K in the graph) but that is only a part of the FY20 cropping seasons (Rabi numbers not available).
The success of PMFBY depends on the accuracy of loss assessment, in this case, the CCEs. Ideally under CCE, a team, consisting of government officials and the local insurance company, selects random fields in an insurance unit (the states notify village/village panchayat/ mandal/taluka/district as an insurance unit). An analysis of data compiled from PMFBY’s dashboard and from government replies in Parliament shows that since 2016, there has been a 62 per cent decrease in farmers covered under crop insurance during kharif season to 15.1 million in 2021, and 46 per cent decrease during rabi to 9.2 million in 2021. Area insured has also reduced — 57 per cent under kharif and 22 per cent under rabi. While there has been a decrease in applications from non-loanee farmers, for whom PMFBY was optional from the start, many loanee farmers tell Down To Earth (DTE) that they pay the premium as they are not aware the scheme was no longer mandatory. Keeping in view the risks involved in agriculture and to insure the farming community against various risks, the Ministry of Agriculture & Farmers Welfare introduced a crop insurance scheme in 1985 and thereafter brought improvements in the erstwhile scheme(s) from time to time based on the experience gained and views of the stakeholders, States, farming community etc. The insurance schemes currently under implementation are the Pradhan Mantri Fasal Bima Yojana (PMFBY) and the Restructured Weather Based Crop Insurance Scheme (RWBCIS). The total funds released by the Government of India during last 5 years under various schemes for crop insurance are as under:
Pradhan Mantri Fasal Bima Yojana (PMFBY)
After detailed discussions with various stakeholders including State Governments, representatives of farmer organizations, Government of India had formulated the new Crop Insurance Schemes viz. Pradhan Mantri Fasal Bima Yojana (PMFBY), which is being implemented in various States/Union Territories of the country from Kharif 2016. The Scheme is being implemented through 18 General Insurance Companies including all the 5 Government Sector Companies. Under PMFBY, a uniform maximum premium of only 2% of the sum insured is paid by farmers for all Kharif crops and 1.5% for all Rabi crops. In case of annual commercial and horticultural crops, the maximum premium to be paid by farmers is up to 5%. The premium rates to be paid by farmers are very low and the balance of actuarial premium is being borne by the Government, to be shared equally by the State & Central Government (except in North Eastern States where the subsidy sharing pattern between Central and State Govt is 90:10) to provide full insured amount to the farmers against crop loss on account of natural calamities.
Earlier, there was a provision of capping the premium rate which resulted in low claims being paid to farmers. This capping in earlier schemes has now been removed. In PMFBY farmers will get claim against full sum insured without any reduction. Central Government has rationalized the GoI subsidy sharing in the view of high premium in select crops and areas and to ensure a detailed analysis of the reasons leading to high premium rates. This needs a detailed examination and necessary course correction by the concerned State Government. Central Subsidy for premium is capped up to 30% for unirrigated & 25% for irrigated area/crops. Districts with irrigated area more than 50% (from all sources) will be considered as irrigated districts. Further, the sum insured has been equated to Scale of Finance/Notional Value of the crop.
Under PMFBY, CCEs has increased manifold.
Every year around 70 lakh CCEs need to be conducted to arrive at yield data within a short harvesting window of 15-20 days is a challenging task. Smart Sampling and Two Step Yield Estimation has been adopted under PMFBY implementation to rationalize and reduce number of CCEs to be conducted. This will ensure reduction in CCE numbers without impacting quality of sampling and yield estimation results. Further, new age technology will be used to assess crop health using remote sensing and satellite indices.
Progress of the scheme implementation
The Scheme has completed 5 years of its implementation. Details of coverage and claims (as on 11.1.2021) are given in the following table:
Coverage under the scheme has increased from 533 lakh farmer applicants in 2017-18 to 577 lakh applicants during 2018-19 and 610lakh farmer applicants during 2019-20, which is despite the withdrawal of Bihar State from the scheme from Kharif 2018 season and West Bengal State Government from Kharif 2019 season. The State Governments of Andhra Pradesh, Gujarat, Telangana and Jharkhand have also not implemented the scheme in 2020. Under PMFBY, benefits to the farmers are also being provided through early payment of claims directly into the bank accounts of the farmers. There is more transparency in assessment of crop losses and assessment of claims through use of technology etc. Text SMS is being sent to all loanee farmers whose mobile numbers have been entered on the portal. Acknowledgement receipt is being generated on the portal and made available to banks. The number of farmers opting for the scheme has been falling gradually every year in Uttar Pradesh — from 2.8 million in 2018 to 1.79 million in 2021.
Review of Operational Guidelines of the Scheme and issue of Revised Guidelines
The schemes’ implementation is reviewed/ monitored constantly through weekly video conferences, one to one meeting with the stakeholders on a regular basis and the National Level Monitoring Committee (NLMC). Though scheme and revised Operational Guidelines were made after detailed discussion with various stakeholders viz. farmers, States, insurance companies, financial institutions etc, some points/ issues like voluntary coverage of non-loanee farmers, addressing challenges of delay in release of state premium subsidy and Crop Cutting data and leveraging technology for smooth implementation etc. were identified as critical issues in implementation of the scheme during the first eight seasons. Thereafter, after making detailed discussions, the PMFBY/RWBCIS has been revamped with the following changes to make the scheme more beneficial to farmers with effect from Kharif 2020:
- To address the demand of farmers, the scheme has been made voluntary for all farmers. However, there is no change in farmers’ share of premium.
- The premium subsidy sharing pattern between Centre and North Eastern States has been changed from 50 : 50 to 90:10. This has been done to allow more States to notify the scheme and existing States to notify more crops and areas to facilitate greater coverage of farmers under the scheme. For the remaining States, the subsidy sharing pattern will continue as 50: 50.
- To address the issue of high premium rate for few crops/areas due to adverse selection, the requisite central share of premium subsidy (90 : 10 for North Eastern States and 50 : 50 for remaining States) will be provided for areas/crops having gross premium rate up to 25% for irrigated and up to 30% for un-irrigated areas/crops.
- States have to decide on these high-risk crops/areas. They can remove these crops from notification or notify these crops/areas and bear the entire subsidy over and above 25% for irrigated and 30% un-irrigated crops/areas. Central Govt. will share only up to 25% or 30% of applicable premium as the case may be.
- Besides, alternate risk mitigation measures will be explored for these high risk areas/crops. Insurance companies will now be selected by the States for 3 years in a go instead of one year thereby increasing their commitment and accountability to the farmers.
- Option has been given to the States to choose the notional value of average yield or the Scale of Finance as sum insured in the interest of the farming community.
- In view of the demand of many States, option has been given to States to choose additional risk covers besides shortfall in yield-based cover depending upon the local weather challenges and requirements of the farmers.
- Insurance Companies to pay 12% interest to farmers for delaying claim payment beyond prescribed timelines. Similarly, penalty of 12% interest per month shall be levied on State Government if failing to release state share of premium subsidy within 3 months of requisition by concerned Insurance Company. States delaying the release of subsidy beyond stipulated timelines cannot participate in upcoming seasons.
- A two-step process of crop yield estimation using weather and satellite indicators etc. is adopted, which will help in early assessment of loss.
- Use of smart sampling technique through satellite data for crop cutting experiments by some states has shown increased efficiency in implementation. This will now be universalized.
- The delay by some States in submission of crop yield data will now be suitably addressed using technological solutions.
- Provision has been made for earmarked administrative expenses @ 3% for strengthening infrastructure and technology for better delivery of the Scheme.
The 2020 revamped operational guidelines of the scheme also said that “Disputes on the quality of yield data is a challenge in the effective implementation of the scheme” and mandated that the CCE process must be digitised, including geo-coding (providing the latitude and longitude of the CCE location). One of the major reasons for states opting out or delaying paying their share of premium is financial constraints. The premium rates have increased from 11.6 per cent in kharif 2015 to 12.5 per cent currently. For many states, paying the premium subsidy is a huge cost. For example, the total PMFBY premium subsidy to be paid by Rajasthan in 2020-21 was Rs 2,822.7 crore, which formed 25 per cent of the state’s agriculture budget that year.
Restructured Weather Based Crop Insurance Scheme (RWBCIS)
With the objective to provide coverage for those crops for which there is no standard/ approved methodology for assessment of yield and to overcome the shortcoming under erstwhile NAIS, a pilot Weather Based Crop Insurance Scheme (WBCIS) was launched in 20 States (as announced in the Union Budget 2007-08). However, WBCIS was implemented as a full-fledged component scheme of the National Crop Insurance Programme (NCIP) from Rabi 2013-14 season to Rabi 2015-16. WBCIS intends to provide insurance protection to the farmers against adverse weather incidence, such as deficit and excess rainfall, high or low temperature, humidity etc. which are deemed to impact crop production adversely. It has the advantage to settle claims within the shortest possible time. Under WBCIS, actuarial rates of premium were charged. The scheme has further been restructured on the basis of premium structure and administrative lines of PMFBY and is available in the country from Kharif 2016 as Restructured WBCIS.
Coconut Palm Insurance Scheme (CPIS)
The Coconut Palm Insurance Scheme (CPIS) has been implemented since the year 2009- 10 in the selected areas of Andhra Pradesh, Goa, Karnataka, Kerala, Maharashtra, Orissa and Tamil Nadu. The scheme has also been continued during 2018-19 and 2019-20. Since inception of the scheme, 57.25 lakh palms of 1.24 lakh growers for a sum insured of Rs. 506 crore have been covered. Against premium of Rs. 3.26 crore claims of Rs. 4.40 crore have been paid to about 0.09 lakh farmers.
Coverage of Women Farmers under PMFBY
All farmers whether sharecroppers, tenant farmers including women farmers growing crops in the areas notified by the concerned State/UT Government are eligible for coverage under the scheme and can insure themselves as per provisions of the scheme. The coverage under the scheme is subject to land records and tenancy contract. Further, the Scheme is demand driven. Since, the scheme has been made voluntary for participation, all farmers including woman farmers are eligible to enroll under the scheme. There are no specific extra benefits/provisions for women farmers under the scheme. However, the Government is bound to pay its share in premium subsidy for all the farmers including women who take up crop insurance. The coverage of women farmers under PMFBY has remained consistent since inception of the scheme.
Government agencies made losses
Only 10.86 per cent of the five government enterprises empanelled for the scheme made profits. The five government corporations control 50 per cent of the crop insurance market. Agriculture Insurance Company of India (AIC) Ltd has a majority of this share. Other government-owned enterprises under the scheme are National Insurance Company Ltd, Oriental Insurance Company Ltd, United India Insurance Company Ltd and New India Assurance Company Ltd. Only AIC has a competitive advantage in this industry among the five. In four years, the company earned Rs 32,429.24 crore in premiums and paid Rs 26,874.6 crore in claim — a profit of 17.12 per cent. New India Assurance Company got Rs 4,660.31 crore in premiums and paid Rs 5,145.22 crore; Oriental Insurance collected a premium of Rs 3,893.16 crore and paid claims worth Rs 4,305.66 crore; National Insurance paid a total of Rs 2,514.77 crore in premiums against a total of Rs 2,574.34 crore in premiums.
There has been more than 60% decline in the crop insurance claims of farmers at Rs 9,570 crore under the PMFBY for the 2020-21 crop year from the previous year as there were no major crop losses, according to official data. However, much of the crop insurance claims reported for 2020-21 and 2019-20 crop years have been cleared by the government. Crop insurance claims stood at Rs 27,398 crore in the 2019-20 crop year (July-June). About 445 lakh hectares of farm land was insured by 612 lakh farmers under the PMFBY with a total sum insured amount of1 Rs,93,767 crore during 2020-21. However, total claims reported were of Rs 9,570 crore for 2020-21. Out of which, claims reported from the Kharif season were Rs 6,779 crore, while from Rabi season Rs 2,792 crore. The claims at Rs 9,570 crore for 2020-21 were significantly lower as there were no major losses unlike previous year. During the 2019-20 crop year, about 501 lakh hectare was insured by 613 lakh farmers under the PMFBY with a total sum of Rs 2,19,226 crore. The claims reported from Kharif season remained higher at Rs 21,496 crore, while from Rabi season at Rs 5,902 crore of the 2019-20 crop year. Maximum crop insurance claims were reported from Maharashtra at Rs 6,757 crore, followed by Madhya Pradesh at Rs 5,992 crore and Rajasthan at Rs 4,921 crore during 2020-21. About Rs 6,845 crore crop insurance claims of farmers for 2020-21 has also been cleared The outstanding claims of Rs 1,200 crore will be cleared soon.
Insurer’s point of view
In the initial years of the scheme, the pattern was reverse — claims paid by insurance companies were less than the gross premium. The problem is aggravated when most of the states which are part of the scheme are loss making. Few of the states are loss making and in other states that have not made claims frequently, the calamity for when they made, was severe. This means the incidence ratio is low but calamity is high. Hence, insurers like ICICI, Tata, Cholamandlam, Shriram have opted out. The government has made changes to the scheme twice, with an aim to make it more efficient. It has recently also set up two separate panels to suggest suitable working models for PMFBY, following the withdrawal of seven states from the scheme. One of the panels will conduct a cost-benefit analysis of different insurance models, especially the cup and cap model, now also known as the Beed model. In Beed, the insurance company provides a cover of 110 per cent of the gross premium and if the claims exceed the cover, the state government would pay the bridge amount. If the claims are less than the premium collected, the insurance company would keep 20 per cent of the amount as handling charges and reimburse the rest to the state government.
INDIAN NON-LIFE INSURANCE MARKET- BY PRODUCT 2020-2027
Several legislations and technologies that have the potential to take India’s agricultural productivity to a higher orbit will become a part of the mix as we move towards the budget for fiscal year 2022-2023. Considering the opportunity in the sector, this change will be driven by a few key factors: government policies that favor farmers, easier access to new technologies among farmers and surging innovation in the agri-services sector, and enhanced sustainability focus in the field of agriculture. Together these drivers could help the country’s agricultural sector grow beyond the critical 4% mark in 2022. The Pesticide Management Bill is expected to be passed into law in 2022. With its passage will come greater governmental control over the production, sale, and use of pesticides. With regards to the introduction of new-age farming technologies – the government has already taken significant steps in the right direction. One hopes to see more focus from government in pushing regulatory bodies to facilitate faster introduction of newer technologies for the farmers, as a follow up step of its initiatives in the last year. To its credit, the government has paved the way for use of drones in agriculture. Globally, drones have proven their efficacy in fertilizing and protecting crops more efficiently. The sustainability will be a vital lens to view the progression of Indian agriculture from here. Globally, there is a palpable shift underway in favor of environment-friendly farming practices. One of the greatest hindrances to the Indian agricultural sector – that most Indian farmers own an average of 2.6 acres of land – presents a difficult challenge to increasing farm output and profitability. Farms of such size cannot be as efficient as large farms. The Indian non-life insurance industry is driven by the rising demand for many associated sectors, for example, the automobile industry, and the healthcare industry. Crop insurance is a heavily reinsured portfolio, with the empanelled insurance companies relying on reinsurance support. With the introduction of PMFBY, almost 75%-80% of risk is now ceded to reinsurers. The loss ratio performance had been quite negative over the years, with 2015-16 especially bad due to severe drought. As the entire claim liability under all crop insurance schemes is borne by implementing agencies, it is much easier for the government to ascertain budgetary requirements for crop insurance in advance. Crop Insurance aims at supporting, sustainable production in agriculture sector by way of, providing financial support to farmers suffering crop loss / damage arising out of unforeseen events and stabilizing the income of famers to ensure their continuance in farming. It would be interesting to see if crop insurance can herald a change in the Indian General Insurance Industry.