The Pradhan Mantri Fasal Bima Yojana (PMFBY)-led crop insurance portfolio, that constitutes about 35 percent of the general insurance industry’s business, has turned profitable in the first quarter of FY19 after bleeding for two years. Better pricing coupled with low claims have led to underwriting profits in crop insurance.
Launched in 2016, PMFBY has a uniform premium of two percent to be paid by farmers for all Kharif crops and 1.5 percent for all Rabi crops. For commercial and horticultural crops, the farmers’ premium is five percent. The rest of the premium will be paid by the government.
Insurers’ crop portfolio bleeds
When PMFBY was launched by the government two years ago, both public sector as well as private sector insurers were part of the scheme. Being the first year, insurance companies were hit by losses and added to it were cyclones like Ockhi that hit India and surrounding areas.
For most insurers, the loss ratio jumped to 140-145 percent, meaning for every Rs 100 collected as premium, Rs 125 was paid out as claims by the companies.
Also, being the first year, the product portfolio of insurers was skewed towards crop insurance. While the government had encouraged use of drones for determination of crop yields, it was not being followed by all players.
The agriculture ministry’s data showed PMFBY had a sum insured amount of Rs. 1.9 lakh crore and a premium volume of Rs 24,351 crore in FY18. In the fourth quarter too, losses stayed in the range of 120-130 percent.
PMFBY compensates farmers if any of the notified crops fail due to natural calamities, pests and diseases. The scheme seeks not just to insulate farmers from income shocks, but also encourage then to adopt modern agricultural practices.
Since the crop cycle of Kharif and Rabi are seasonal, the first few months of calendar year 2018 saw losses on the rise again. However, towards May 2018 when the pricing stabilised and technology was being used in a widespread manner for crop-yield determination, losses have come down.
Take ICICI Lombard General Insurance for instance. The insurer posted a 35 percent increase in June quarter net profit at Rs 289.29 crore on account of lower combined ratio.
In his post earnings conference call, Bhargav Dasgupta, MD & CEO, ICICI Lombard General Insurance said that they have seen an improvement in the crop insurance segment as far as loss ratios are concerned. The crop insurance segment posted an underwriting profit to Rs 2.89 crore in Q1 compared to Rs 12.57 crore loss YoY.
Similarly, New India Assurance’s crop insurance portfolio had an underwriting profit of Rs 43.98 crore in Q1FY19 compared to a loss of Rs 7.89 crore a year ago.
For the country’s largest reinsurer, General Insurance Corporation of India, segments like crop showed better growth in the first quarter. Their The underwriting loss reduced to Rs 96.37 crore in Q1FY19 as against Rs 658.47 crore in the year ago period.
The combined ratio — a measure of insurer profitability calculated by taking the sum of claim-related losses and general business costs, divided by the earned premiums over the period — stood at 99.9 percent for Q1 compared to 99.7 percent in the year ago period. Among segments, agriculture accounted for the largest share of gross premiums at Rs 10,696.27 crore.
As the Centre plans to increase coverage of PMFBY to 50 percent of crop area in FY19, insurers are of the view that this will spread the risks across a wider base and will help bring down losses further over the next three quarters.