Crop insurance, a part of agriculture insurance, is designed to cover crop loss or damage due to an insured peril, such as localized calamities, sowing, plantation or germination risk, and post-harvest losses. Crop insurance is not the same as that of weather insurance.
For example, The Pradhan Mantri Fasal Bima Yojana (PMFBY) pays the claim as per the yield or harvest data received from the respective state government, whereas the weather-based crop insurance settles the claim based on the weather data received from the Meteorological department.
Pradhan Mantri Fassal Bima Yojana is the biggest crop insurance that the Government of India is offering in concurrence with the state governments to benefit a large section of people. Crop insurance covers the loss or damage to the crops due to perils such as acts of god during the harvest and post-harvest period.
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Here are the key factors that might affect your crop insurance premium
Subsidy:
The main factor that would influence the crop insurance premium to be paid by the insured farmer is the subsidy provided by the government, including the State government as well as the Government of India. The maximum crop insurance premium payable by a farmer in any crop season does not exceed 2% of the sum insured or the actuarial rate, whichever is less in the case of the pradhan mantri fasal bima yojana.
The PMFBY scheme provides premium sharing between the state and central governments. Central and state governments share a premium on a 50:50 basis, whereas, for Northeastern states, the sharing pattern is 90:10. The higher the subsidy offered by the state or central government, the lower the premium to be paid by the farmer.
Type of crop:
The most important factor that could influence the crop insurance premium is the type of crop that the farmer is insuring. Certain crops are prone to losses, and some can resist almost all kinds of weather conditions. For example, millets are known to grow even in harsh conditions, whereas paddy and wheat, the most commonly grown crops, are less resistant to adverse weather conditions.
Interestingly, Pradhan mantri fasal bima yojana would specify the type of crop that has to be grown in a particular state, following which a farmer could get a subsidy on premium. The more weather-resistant the crop is, the lower the premium to be paid.
Disease resistance also plays an important role in deciding the premium payable for crop insurance. Non-loanee farmers have to prove their insurable interest by providing proper documents to avail of crop insurance.
Loss ratio:
The insurance company’s loss ratio also decides the premium in crop insurance. The loss ratio of an insurance company is calculated based on the ratio of the total premium received to the total claims paid in a policy period. For instance, the loss ratio would be higher if the claims paid exceed the premium received.
A higher loss ratio leads to an increase in the actual rate of crop insurance. The actuarial rate decides the Crop insurance premium, which would increase with an increase in the loss ratio. However, an increase in the actuarial rate and subsequent increase in the crop insurance premium may only partially be passed on to the farmer as the state and central government would bear the increased premium in the form of an increased subsidy.
Loanee/ Non-loanee:
The other important factor that influences the crop insurance premium is the loan-available status of the farmer. Farmers who have applied for Seasonal agricultural operations (SAO) credit or loans from any financial institution for the notified crops would automatically be covered under the scheme.
Non-loanee farmers can avail of crop insurance by registering and enrolling under the scheme. Another important factor is that the state should accept to share their premium contribution for the schemes that the Government of India implements and the State government.
Area:
The area of the crop also decides the premium to be paid by the farmer. For crop insurance in Pradhan Mantri Fasal Bima Yojana, the crop area is measured in hectares. The higher the crop area, the higher the premium. The actuarial rate, which is 1.5%/2%/5%, applies to the type of crop as well as the season in which it is cultivated.
Crop season:
There are 2 crop seasons in India; Kharif and Rabi. The maximum payable premium by the eligible farmers in Rabi season would be 1.5% for Food & oil seed crops whereas the maximum premium payable in Kharid season would be 2% for food and oilseed crops. In case of annual commercial or horticulture crops the maxim premium that would be payable is 5% of the overall sum insured. A farmer has to decide in which season the insurance has to be taken depending on their farming practices and the type of the crop they are cultivating.
For more details on the key factors that affect the crop insurance premium, please book a call with Ethika insurance broking to discuss with our crop insurance experts.
FAQs
Does the Government of India provide crop insurance?
Crop insurance, although offered by the Government of India, is, in fact, offered by the insurance companies in India through the government. The government of India is sponsoring a part of the premium to be paid by each farmer, and ultimately, the insurance companies are underwriting the risk and setting any claims that arise during the policy period.
What is the use of crop insurance?
Crop insurance is designed to protect farmers against perils that lead to crop failure, thereby stabilizing their incomes and encouraging them to adopt innovative practices.
Is crop insurance mandatory?
Crop insurance is mandatory for loanee farmers whereas it is optional for non-loanee farmers.
What is the unit of insurance in crop insurance?
Crop insurance is usually implemented on an “Area approach basis,” in which the insurance unit is a village or village panchayat.
What Is the basis of loss assessment in crop insurance?
The loss assessment would also be on an area-approach basis, i.e., all the crops damaged in a particular area due to an insured peril will be settled without the requirement of submitting the required documents.
