Even as the government is planning to increase the coverage to 50 percent of crop area in FY19, reinsurance support could see a dip
Pradhan Mantri Fasal Bima Yojana (PMFBY), the crop insurance scheme launched by the government two years ago, has helped in premium generation for both private sector as well as public sector general insurers. But there is problem. Foreign reinsurance companies do not want to insure these risks.
Reinsurance refers to the process of insurance companies taking protection against large risks that they have insured. Depending on the size of the cover, the reinsurance support was provided to enable insurance companies to deal with any heavy claims due to weather-related impact on crops.
The agriculture ministry’s data showed PMFBY had a sum insured amount of Rs. 1.9 lakh crore and a premium volume of Rs 24,351 crore in FY18. This was lower than 2016-17 when over 57 million hectares of gross cropped area was covered for a sum insured of Rs 2.05 lakh crore and premiums of Rs 21,500 crore.
In 2017-18, PMFBY has seen 47.5 million hectares of gross cropped area being covered. Premium collections increased due to the rise in claims in the previous year which automatically led to rise in pricing.
Industry sources told Moneycontrol that even while the state-owned General Insurance Corporation of India (GIC Re) is providing the maximum capacity for the insurers, global reinsurance majors are staying away. Their main concern is that India, being highly dependent on monsoons, faces fluctuating weather and could have extreme crop losses. This is why they do not wish to participate as reinsurers.
Even as the government is planning to increase the coverage to 50 percent of crop area in FY19, reinsurance support could see a dip.
Without large reinsurers from abroad providing risk cover to insurance companies, it is going to be a challenge to keep the numbers going. On one hand, claims losses from the Kharif and Rabi season have been high, meaning the premiums collected are lower than the claims incurred. This leads to a direct impact on an insurance company’s bottom-line.
With several reinsurers companies from abroad having branch operations in India, it would be pertinent that they contribute to the domestic economy by offering risk covers for large programmes like PMFBY. A regulatory intervention could also be a possible solution to nudge some of these players to open up their kitty to this scheme.
It is estimated that by 2018-19, potentially there could be coverage of over Rs 3.5 lakh crore of sum insured, requiring over Rs 30,000 crore premium subsidy. If loss ratio continue to be at 140-150 percent, it will be a challenge.
If not, insurers will start bleeding heavily in this portfolio and it may not be sustainable in the long run. The end customer, the Indian farmer, will suffer if insurers start pulling out of the scheme.
