Private Companies Earned Double Profits Than Govt. Firms in Union Crop Insurance Scheme

Bhopal: The farmers' wait to double their income continues even after eight years of Prime Minister Narendra Modi's promise. But by ensuring their grains, private insurance companies have doubled their profit compared to government firms in the last five years under the Crop Insurance Scheme.

As many as 10 firms, out of 13 private insurance companies empanelled under the National Democratic Alliance's (NDA) flagship Pradhan Mantri Fasal Bima Yojana (PMFBY), have earned Rs 24,350 crore between 2016-17 to 2020-21 with their lucrative business models. Meanwhile, two government-owned firms, out of five, made a loss of Rs 3,344 crore in the same duration, reveals Agriculture Department data presented in the Parliament.

The stark difference between the profit-making of private and government-owned companies came to the fore when in 2018-19 and 2019-20, all five government firms incurred losses of Rs 2,506 crore under the scheme while private companies earned a profit of Rs 9,278 crore in the same duration.

Launched in 2016-17, PMFBY is a crop insurance scheme which primarily aims to provide insurance coverage and financial support to farmers in the event of failure of any of the notified crops as a result of natural calamities, pests and diseases. The government roped in 18 general insurance companies, including 13 private firms, for the scheme's implementation.

Under the scheme, farmers pay 2% of the sum insured as their share of the premium for Kharif crops, 1.5% for Rabi crops (winter crops) and 5% for horticulture and commercial crops. The premium for crop insurance is subsidised heavily, with the costs being borne by the state and the Centre.

"Since the inception of the scheme till Kharif 2021- 22 season, Rs 4,190/hectare has been paid as claims to farmers under the scheme," Union Agriculture Minister Narendra Singh Tomar said in a written response to Rajya Sabha.

The analysis of the data further reveals that both Government and private firms received a total of Rs 1,38,312 crore as gross premium (farmers, states and GoI) between 2016-17 to 2020-21. The farmers' share was 15.5%, the states' share was 43.4%, and the Union government's share was 41.1%.

To be specific, the private insurance companies received Rs 69,697 crore as gross premium and paid Rs 45,317 crore in claims making a direct profit of Rs 24,350 crore.

In the meantime, the government-run firms received Rs 68,645 crore as premium and paid Rs 56,728 crore as claims in five years, putting their profit at Rs 11,917 crore, almost half of the private companies.

The data suggest that both private and government firms received almost similar premiums, but private companies made double profits. It happened when the government firms held 55% of the crop insurance market from the total 2.47 crore loanee farmers, while private companies owned the remaining 45%.

According to the Union Agriculture Department, out of five government insurance firms, only Agriculture Insurance Company of India (AIC) made a profit of Rs 14,934 crore, while two others -- National Insurance and United India Insurance -- earned a profit of Rs 140 crore and Rs 187 crore respectively. Nonetheless, the remaining two companies -- New India Assurance and Oriental Insurance -- jointly incurred heavy losses of Rs 3,344 crore.

On the other hand, Anil Ambani-owned Reliance General Insurance earned the highest profit from the crop insurance policy, making a cut of Rs 4,731 crore followed by HDFC Ergo by Rs 4,060 crore. In contrast, IFFCO Tokio General Insurance Company made a profit of Rs 3,704 crore.

Universal Sompo General Insurance and Bajaj Allianz have also earned a profit of Rs 3,365 crore and Rs 3,221 crore, respectively. Bharti AXA insurance, which joined the PMFBY In 2017-18, earned Rs 1,865 crore in the next four years. It received Rs 2,529 crore in premiums and paid Rs 664 crore in claims.

Some private corporations that lost money or made small profits dropped out of the arrangement. Shriram GIC Ltd gathered a premium of Rs 170.95 crore in 2016-19 but quit the PMFBY after paying a claim of Rs 256.95 crore. ICICI Lumbard, too, withdrew from the scheme after a year.

Due to low profitability, Tata TIG and Chola Mandalam ceased to participate in the PMFBY after 2018-19.

"Apart from that, the insurance companies earn huge profits from the interests," said an official working for a private insurance firm in Madhya Pradesh to NewsClick.

Requesting anonymity, he explained, "As per the provisions of the scheme, claims should be paid within six months. But the whole process takes almost a year and a half. Suppose a company receives Rs 2,000 crore as gross premium by June 2020, but it pays the claim in September 2021 when the government hands over the final list of claims to the insurance company. In a span of 12 to 18 months, the company minted profit on interests which did not reflect in the actual data."

He added, "The private insurance firms are making profits because they selectively chose the clusters based on the recent weather, soil and crop reports. Besides, they mostly focus on wheat growing belts which have a rare chance of loss but much to profit."

Speaking to NewsClick, General Secretary of All India Kisan Sabha Hannan Mollah pointed out that the data indicating that the private insurance companies under PMFBY was not a good idea.

“When farmers are making losses, the insurance companies are earning crores from their crops. The scheme was floated to support farmers, not private insurance companies. We have also raised this issue prominently during the Kisan protest.”

Emphasising the effective public sector insurance system, Mollah said, “Only government-owned companies should be empanelled under the scheme, crop-wise insurance should be done, small farmers must have rebates, and for effective implementation of the scheme, the government should appoint village-wise representatives to assess the losses. We need a totally new perspective and approach to insurance and farming to address agrarian distress."

Another farmer leader from Madhya Pradesh, Shivkumar Kakka, told NewsClick, "It's an open secret that the insurance companies are earning huge profit from the PMFBY rather than the farmers, specifically private firms. They gave a wide berth after sensing losses irrespective of the government agencies. For example, between 2018 and 2019, when government firms incurred heavy losses, private companies made a whopping over Rs 9000 crore profit. How could this be possible?"

"In Madhya Pradesh, farmers have received Rs 1 for the loss of crop worth Rs 1 lakh," he added.

In 2020, when the Madhya Pradesh government doled out crop insurance compensation to 22 lakh farmers, many of the farmers complained about receiving meagre sums as crop insurance claims. Puranlal, a farmer from Betul district of Madhya Pradesh, who was entitled to the compensation of Rs 1 lakh for crop losses, has received only Rs 1. Just like Puranlal, two other farmers from Betual received compensation of Rs 70 and 92 for their crop losses.

As many as 21 states/UTs implement PMFBY, while states like Andhra Pradesh, Bihar, West Bengal and others have framed their own crop insurance policies on similar lines.

After four years of its launch, the scheme was revamped in 2020, enabling voluntary participation of the farmers. It also made it convenient for the farmer to report crop loss within 72 hours of the occurrence of any event -- through the Crop Insurance App, CSC Centre or the nearest agriculture officer -- with claim benefits getting transferred electronically into the bank accounts of the eligible farmer.

States with the Highest Earning Differences

Under PMFBY, the insurance companies have minted close to Rs 31,000 crore from the top 15 agricultural states, says the Agriculture Minister, who presented the state-wise data of PMFBY in the ongoing Monsoon session of the Parliament.

Insurance companies made the highest profit from Maharashtra with Rs 8,070 crore, followed by Gujarat with Rs 6,813 crore, while Uttar Pradesh remained in the third position with Rs 3,902 crore.

In Bihar, Telangana, Jharkhand and Assam, which have loanees between 28 lakh to 50 lakhs, the insurance companies have earned Rs 4,524 crore, while in states with the highest number of farmers, the insurance companies have earned a huge profit.