Agricultural crop insurance schemes in India suffer from various infirmities and as a result farmers do not willingly opt for it. Farmers find the claims process to be cumbersome and time consuming. They also do not like the fact that decisions on allowing a claim and quantum of compensation take place too far from where they can approach and make out a case for themselves as well as exert pressure. After getting used to liberal payouts in state government schemes they are also unhappy with the low payouts of Crop Insurance schemes. As a result only loanee farmers are participants in the program due to compulsion by banks. This, in spite of the fact that, the premium payable by the farmer is nominal – 1.5% of the sum assured for Rabi crops, 2% for kharif crops and 5% for commercial and horticultural crops.
Previously, the balance of the premium was shared equally by the state and central governments. Recently the government of India has reduced its own share in the premium subsidy to 30% for rain fed crops and 25% for irrigated crops. The entire premium subsidy would now have to be paid by the state governments from their budgets. States are already groaning under a heavy budgetary out go with limited capacity to enhance revenues. Due to lack of public demand for the insurance scheme, many states have opted out of the scheme.
Insurance companies find it very difficult to estimate the crop yield for each farmer. They use secondary data collected by the state governments. The crop cutting experiments conducted by the state government are inadequate to meet insurance requirements. They are performed for estimating the crop yield in the entire country and hence suffice for that purpose. They however do not provide the granular information for an insurance company to act upon.
The microclimate and circumstances even in a reasonable sized district are huge in number and hence there is need to conduct more crop cutting experiments to be closer to truth. In the absence of the same, the insurance companies do not trust the government data fully. They apply much greater rigour in a evaluating claims and spend time collecting secondary data which not only delays the process but also leaves the farmers highly dissatisfied. They also tend to increase the premium over years due to large number of claims they need to service.
It appears that none of the stakeholders are happy with the way the scheme is administered, but all of them are going through the motions to keep up appearances.
The difficulty with this scheme also lies in the fact that the exceptions for which a payout is required is often equal to the entire population resulting in losses. This naturally leads to steep increases in premia in the following years.
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