COVID-19 has hit all the sectors of the rural economy. A recent analysis by Credit Suisse reveals that rural incomes were partly boosted through government fiscal support by their COVID response schemes. However, there has been a larger off-set of cash inflows resulting from a sharp drop in agricultural credit, lower remittances from migrant workers and significant volumes of perishables output that are draining nearly Rs 10,000 crore a month from rural incomes.
At a time when rural incomes are declining, Minimum Support Prices and crop insurance, the most significant safety net for farmers — seems to be failing them. According to data released by the Ministry of Agriculture and Farmers Welfare, insurance companies owe farmers outstanding claims to the tune of Rs. 3,928 crore since the inception of the flagship Pradhan Mantri Fasal Bima Yojana (PMFBY) till Rabi 2018–19. Farmers’ compensation for crop damage is useful if it comes in time for the subsequent sowing season. If a farmer suffers a loss in the kharif season, the compensation should be paid in time for it to be used as working capital for sowing during the next season. However, very few farmers receive these claims on time. These delays also seem to be resulting in declining demand for crop insurance among farmers. PMFBY saw a decline in enrolment rates, from 40.5 million farmers in kharif 2016 to 34 million in 2018, a 16% drop within two years.
On the supply side, four key private insurers[1] did not bid for insurance clusters in the kharif 2019 crop season, resulting in a 15% increase in the market share of public insurers (up from 50%) in the wake of these exits. Further, news reports and opinion pieces from industry experts indicate a plethora of problems — which has resulted in several insurers leaving the business. Primary reasons for these problems include: high costs of reinsurance due to erratic weather, a spike in claims and challenges and delays with crop loss estimation. The Central Government too is feeling the fiscal burden through premium subsidy payments and has capped its share at 30%.
Four years on, the momentum built around the PMFBY programme seems to have dissipated. The farmer is distressed because of inadequate protection against risks. At the same time the private insurers are pulling out, due to lack of viability in the model. State governments, who spend a significant amount of their agriculture budget on the scheme appear reluctant to pay their share of premium on time. These challenges on the demand and supply side reiterate the importance of exploring alternative approaches for distributing agricultural insurance, and the current scenario also offers an opportunity to test and validate new models. The focus of our research is to understand the potential of meso-level insurance in agriculture through a multi-stakeholder lens. Our study utilises a framework that defines four categories of actors or stakeholders in the insurance space[2]. The research relies on primary interviews with each of these stakeholder categories:
Key stakeholders identified for this study include, (1) General Insurance Corporation of India (GIC Re) which covers nearly 50% of the risk under the PMJDY,(2) Swiss Re, which has prior experience with meso-level insurance products in Bangladesh, and (3) Oxfam Bangladesh, engaged in providing technical support and capacity building for the meso-level experiments in Bangladesh, will also provide valuable insights on their experiences on the ground.
As we move forward with the study, we will draw insights from these stakeholder interactions, with an emphasis on understanding the demand for meso-level insurance products, the attitudes and perceptions of various stakeholders on the scalability of such products and identifying effective distribution channels for these products.
References
[1] ICICI Lombard General Insurance Co. Ltd, Tata AIG General Insurance Co. Ltd, Cholamandalam MS General Insurance Co. Ltd, and Shriram General Insurance Co. Ltd
[2] Originally created by GIZ, in 2014