Fines for Delaying Payment of Crop-Insurance Claims

• 26 Apr 2019

Under a new rule introduced in October 2018 (which took effect in January 2019), insurance companies will have to pay fines for delaying payment of crop-insurance claims.

• Enforcement of this new rule governing the Pradhan Mantri Fasal Bima Yojana (PMFBY) has revealed the magnitude of the problem:
  • Outstanding claims owed to farmers amounted to nearly Rs 530 crore until March 31, 2019.
  • It accrued over the past four sowing seasons between the Kharif and summer-sown season of 2016 to the winter sowing season of 2017-18.
• About “eight companies” have now been slapped with a fine of Rs 16 crore for various delays.
• As per rules, an insurance company must now make payments within 30 days of receiving all claims-related data, failing which penalty at a rate of 12% of the outstanding is levied.
• Farmers, under PMFBY, have to pay between 1% and 2% of the total premium, depending on crops and sowing season. The rest is shared between the Centre and states on a 50-50 basis.
• A majority of those fined are public-sector insurance companies since they have, between them, a majority share of the farm insurance business. Currently, 18 companies are impaneled to offer farm insurance. Of these, five are state-owned. The share of crop insurance business with state-owned firms is 52%.'
• The two changes introduced are:
  • The fines, aimed at ensuring compliance of insurance companies with making timely payments.
  • It provides for penalizing state government for their share of the delay.

Consequences of Delay

• Delay in paying compensation for crops ruined by weather shocks can have a domino effect on the fortunes of individual farmers and the overall economy.
• Such delays can push millions of farmers into poverty, leaving them with little money for the next sowing season.
• Such delays hamper farmers’ ability to service their agricultural loans, pushing them closer to the brink of default. Farm insurance is compulsory for any farmer taking an agricultural loan.
• Such vicious cycles of delayed payments, among other issues, were one of the factors behind massive protests by farmers in the last two years to demand farm loan waivers

Concerns

• Fixing responsibility is a positive step, but the penalty has to have a valid reason. Claims cannot be cleared just because data has been cleared by states.
• There can be a discrepancy in claims data sent by states or consequential delays from state governments, which often cause delays in releasing premium.

Way forward

• If the PMFBY scheme is to achieve its most critical goal, timely payouts to farmers must be ensured.
• It should rely on high-end technological fixes, from drones to even a new constellation of satellites, for accurate crop damage assessments, which is the key to faster processing of claims.