Finance ministry to take a relook at crop insurance plan
Premium collections under the scheme may fall to around 20,000 crore this fiscal from around 30,000 crore in FY25, as major states shift from the traditional PMFBY format towards the cup and cap risk-sharing model that limits insurer exposure and profitability and reduces premiums, industry estimates show.
The cap-and-cap model refers to the risk-sharing structure between insurers and governments; where the Center and states take on excess claims beyond a pre-agreed ‘cap’ (in most cases, 110% or 130% of the premium amount), while insurers return the excess premium to governments if claims fall below the lower ‘cap’ threshold of 60% or 80%.
PMFBY is among the largest crop insurance programs in the world, covering approximately 70 million farmers. Cumulative claims paid since its launch in 2016 stand at around Rs 1.83 lakh crore.
As part of the review, insurers have been asked to submit company-by-company data to determine whether losses or lower margins in crop insurance are offset by profits from other lines of business such as general insurance and to address issues related to pricing, underwriting discipline and long-term sustainability of the scheme, people aware of the development said.
The review panel also sought detailed data on farmer coverage, including the total number of farmers, those eligible for insurance and those registered. Insurers were asked to explain why eligible farmers were excluded from the program and whether gaps were due to lack of awareness, access restrictions, distribution difficulties or other factors.
They also demanded channel-wise dissemination of records, including insurance coverage through banks, shared service centers and other intermediaries, as well as farmers insured through agriculture ministry-led initiatives.
The move comes at a time when farmer participation is falling.
In Maharashtra, which previously accounted for almost a third of the crop insurance market, premiums have fallen from around ₹10,000 crore last year to around ₹2,500 crore in the current cycle following changes in the structure of the scheme.
Following the withdrawal of the ₹1 bonus offer and stricter compensation norms, farmer registrations in the state have fallen by almost half.
Newer models such as index-linked and reference price-based guarantees are still in their early stages, although the ministry is assessing whether the current framework provides meaningful risk protection to farmers, officials said.
