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Crop insurance provides protection for crops, agricultural produce, against natural calamities, such as excessive rain, unnatural rains or drought, diseases and pests, and floods. Crop and agricultural insurance do not cover claims made by malicious people who cause harm to the crop and product.
Crop Insurance was introduced to cover farmers' financial losses caused by natural disasters. India’s agriculture was heavily influenced by moneylenders. They charged any amount of interest and left the poor farmer no choice but to pay. Sometimes, generation after generation has continued to pay the money lenders. As part of its efforts to relieve farmers from being enslaved by money lenders, the government has forced banks into the rural sector. In the past, agriculture was largely dependent upon rain. When we've had bad rains, it has affected our agriculture.
Farmers taking out agriculture loans with any recognized bank are entitled to discounted crop insurance premiums. On the other hand, those taking loans through money lenders were required to buy the insurance themselves and without the government's contribution. Crop Insurance compensates the farmer up to the insured amount. The farmers can recover the investment they made in their farming activity, and without it they might lose their property or even die.
The Indian government invites interested parties to submit tenders for the insurance of crops in specific regions. Government officials research crops before calling for tenders to determine the yields that will be produced in a particular season. The studies are used by insurers to decide if they want to take on a certain risk. In 2016, when the Pradhan Mantri Suraksha Bima Yojana (PMSBY) was introduced, it had few takers and the government needed to force public insurers into covering most risks. As yield prediction processes become more scientific, private involvement is increasing.
Crop Insurance can be bought online by any general insurer that has been appointed under the Pradhan Mantri Fasal Bima Yojana. Agriculture Insurance Company of India Limited. (AIC), and today, most general insurers provide PMFBY. For empanelment, many insurers use a direct route. Unsurprisingly, many of these insurers use agents registered with the government. However, the vast majority of empowerment is achieved through banks.
Registering on the PMFBY site is the first step to purchasing crop insurance.
The information required for crop insurance underwriting proposals is
The banks are usually responsible for the most part of loanee farmer's documentation, as they have an interest in seeing the loan disbursed. Non-loanee farmers must fill out all of the paperwork themselves.
Income Stability
Crop insurance offers farmers an income that is stable. In the case of loss or damage, farmers with KCC limits renewed in the notification area can get crop insurance. Insurance companies will reimburse the amount insured up to this limit. As a result, both farmers who are loaned money and those without it will have the same amount of insurance. For farmers, the claims proceedings could be a useful tool to help them repay their existing loans and obtain new ones.
Reducing Debt
Farmers' debt can be reduced by crop insurance. Farmers taking loans from banks or money lenders would face pressure to repay their debts. Farmer's who take loans from money lenders or banks will face pressure to pay back the debts. A vicious circle would persist throughout the lives of farmers who would be constantly under pressure to repay their debts. If crop losses are caused by unforeseeable events, then farmers may be able to get rid of their debts with the help of Crop Insurance.
Cheap & Affordable
The cost of crop insurance for farmers is affordable. In the case for Kharif and Rabi crops, the premium is 2%. For cash crops it's 5%. Central and State governments bear the remainder of premiums.
Timely Settlement of Claims
Agriculture Insurance of India is responsible for the timely settlement of crop insurance claims. AIC's main responsibility is to settle claims before the following crop season.
Ionnvation and Modern Practices
Crop insurance also encourages modern and innovative farming practices that reduce the risk of crop losses and improve crop yield. The scheme can be implemented using a variety of technological solutions, including remote sensing (satellites and unmanned aircraft), digital photography, smartphones, modern statistical approaches and techniques, IT/ICTs, etc. The technology will improve yield estimations, weather forecasts, etc. This, in turn, would reduce the risk of loss and the premium for agriculture insurance.
Flow of Credit:
Banks and moneylenders are the only sources of credit that farmers can use to get into agriculture. Crop insurance is a way to increase the amount of credit flowing in an economy. If the farmer suffers a loss, the money can be used by the farmer to pay off the loan and to take out a new one for the following season. Credit is a key factor in the growth of the Indian economy, as it's based on agriculture.
Reduce Farmer deaths:
Our farmers are mostly poor. Most of them are unable to support themselves. They find it impossible to repay the loan if and when their crops do not succeed. The farmers view it more as a financial loss than a loan. Crop insurance is credited with reducing the death rate of farmers.
The amount of the loan is used to calculate premiums. Calculation of premiums is based on the amount of financing given to the farmers. Crop insurance premiums are limited to 2% or the amount insured, whichever is lower. The insurance companies acting as implementing agents determine the Actuarial Premium.
Claim Settlement Overview
Crop insurance is one of the main agriculture insurance products that financially benefits farmers in case of any natural calamity. For claim settlement, various items are taken into consideration, such as:
Indemnity Level (IL) & Threshold Yield (TY): Indemnity level is the maximum amount of claim the policy would pay. For example, the indemnity level could be anything between 70% to 90%, corresponding to the crop risk in the designated areas, which means the insurance company would pay 70%-90% of the loss in case of a claim. The threshold yield is the benchmark for comparing the actual yield before settling the claim. Threshold yield becomes the basis for the sum insured calculation in crop insurance. The threshold yield for a particular crop in an insurance unit would be the average yield of the last seven years minus any two years' bad yield due to any calamity declared and covered under the policy and multiplied by the level of indemnity in that particular area. In short, threshold yield will be the average yield in the last 7 years for a particular crop in a particular area.
Yield Losses: In simple terms, yield is the average production per unit of land. Yield data for all of the agricultural land in India is published from time to time. This yield data becomes the basis of claim settlement for insurers. Threshold Yield is the expected yield for a crop in a season. If the Actual Yield (AY) turns out to be lesser than the Threshold yield (TY), then all the farmers in that unit (District/ Tehsil/ Taluka) who had availed crop insurance are compensated.
Claim Payout: The claim payout is calculated based on the following formula:
Claim Payout = (Shortfall in Yield / Threshold Yield ) * Sum Insured
Shortfall in Yield = (Threshold Yield - Actual Yield)
Prevented Sowing Claim Amount Calculation: The prevented sowing claim occurs when the farmers are prevented from sowing their agricultural land due to adverse weather conditions. This, in turn, results in a loss of their initial investment. Monies they may have borrowed or invested out of their pocket for sowing the seeds, tilling the land, or other farming activities. Under this section, the insured farmer is paid up to 25% of the sum insured.
Localized Calamity Loss Assessment: The crop losses due to localized calamities such as hailstorms, landslides, floods, and inundation are based on the clusters of affected farms, and the implementing agency does the assessment. All the insured farmers in the insurance unit can be covered under the scheme.
Post-Harvest Loss Assessment: Post-harvest losses are allowed for crops published by the State in consultation with the Implementing Agency. Such coverage is available for up to a maximum of about 14 days from harvesting.
On-Account Payment of Claims due to Mid-season Adversity: In case of damage to the crops due to adversities such as spells, drought, unseasonal rains, etc., the Implementing Agency can release up to a maximum of 25% of the likely claims in anticipation of claims. The Implementing Agency would decide the appraisal and the quantum of the payment in concurrence with the State Government and the Central Government. Payment is likely to happen when the expected yield is less than 50% of the normal yield during the season.
Claim settlement:
The government department notifies the threshold yield for crops for particular seasons. It also uploads historical threshold data for insurers to be able to underwrite the crop insurance policy. At the end of a season, the actual harvest data is uploaded, and insurers are appropriately intimated. Insurers are to verify this data and contest if there's any discrepancy.
Crop Insurance Claim Settlement Time:
Claim settlement time is the time the insurance companies or the implementing agency takes to settle the reported claims. It is the time between the date of reporting the claim and the date of settlement of claims. The crop insurance claim settlement time generally ranges between 30-45 days of State Government notification. The claim should be intimated to the Implementing agency within 72 hours of the damage. This is particular to the farmers who lost their crops from pests or diseases. The timeline of 72 hours is critical in case of individual losses for insurers to assess the damage. In case of large-scale losses, the Implementing agency would collect the data from the State government or UTs and process the claims accordingly.
The claim settlement is also done within 7 days by the insurance companies if all the documents are received within the stipulated period. The Central Government has taken steps to speed up the crop insurance claim settlement process by integrating the crop loss intimation feature into Crop Insurance App, allowing farmers to intimate their crop losses due to localized calamity within the stipulated period. Certain additional covers are provided under the PFBY/WBCIS besides the yield shortfall depending upon the local conditions and the other requirements of the farmers.
For more information on the crop insurance claim settlement process, please book a call with our insurance team at Ethika insurance broking. Crop insurance can be taken from the banks or any insurance companies impaneled to offer crop insurance in India by paying the required premium. The major portion of the crop insurance premium is borne by the State Government and the Government of India, whereas only a minor portion of the premium is to be paid by the farmer. This is done to reduce the burden on the farmers needing help to arrange funds for crop insurance premiums.