Types of crop insurance and their importance for farmer in India

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Types of crop insurance and their importance for farmer in India

    Types of crop insurance and their importance for farmer in India

22 Jun, 2022

Crop Insurance is an important agent when farming activities are performed. Crop Insurance helps the farmer cope with the loss which has been caused to the crops due to natural calamities like floods, drought, cyclones, or any other things, etc., 

Crop insurance protects agriculturists against financial losses resulting from crop failures/losses caused by named or all unforeseen risks beyond their control.


Types of Crop Insurance 

There are mainly two types of crop insurance one is crop yields and the other is crop revenue.

Crop yields insurance includes protecting the crops against the natural calamities of life whereas crop revenue insurances include protection of the producer from unexpected fluctuations in the selling prices resulting from decreasing demand for the crops.


Crop Insurance Schemes in India. 

1. Pradhan Mantri Fasal Bema Yojana – FMFBY 

The Pradhan Mantri Fasal Bima Yojana ensures the protection of the food crops, oilseeds, horticulture, and commercial crops announced by the state government.

The Pradhan Mantri Fasal Bima Yojana aims to stabilize the income of farmers to ensure continuity in their farming activities.

Furthermore, to encourage the farming activities by adopting different innovative and modern methods of agricultural practice such that the flow of credit in the agricultural sector is assured. 

Under Pradhan Mantri Fasal Bema Yojana Farmers will pay an actuarial/bidded premium but a uniform maximum premium of only 2%, 1.5 percent, and 5% for all Kharif crops, Rabi crops, and commercial/horticultural crops, respectively. Premiums beyond these limitations are split 50:50 between the federal and state governments, except in the Northeastern region, where it is 90:10.


2. Weather Based Crop Insurance Scheme – WBCIS

The Weather Based Crop Insurance Scheme is launched in 2016 and is administered by the ministry of agriculture and farmers welfare.

The weather-based crop insurance scheme aims to lessen the hardships of the insured farmers against the occurrence of financial loss over the crop loss resulting from adverse weather conditions such as heavy rainfall, temperature, or humidity.

Food crops, oilseeds, and horticultural/commercial crops are all covered by insurance. 

The maximum premium for all farmers, such as PMFBY: 

  • 2% of the money insured during the Kharif season. 
  • The Rabi Season accounts for 1.5 percent of the total sum covered. 
  • Crops grown for commercial or horticultural purposes account for 5% of the total sum covered.  

The difference between the actual premium and the rate of insurance paid by farmers will be split evenly between the Centre and the State. 

When the weather indices (rainfall/temperature/relative humidity/wind speed, etc.) diverge (less/more) from the Guaranteed Weather Index of notified crops, all insured farmers in the notified region are entitled to a claim payment equivalent to the deviation/shortfall.


3. Coconut Palm Insurance Scheme – CPIS

Coconut palm growers have insurance protection. The premium fee per palm varies from Rs. 9.00 (for plants aged 4 to 15 years) to Rs. 14.00 (for plants aged 16 years and up) (in the plant age group of 16-60 years). Premium subsidies range from 50 to 75 percent for all categories of farmers. 

When the palm is damaged, the insured is entitled to a claim reimbursement equal to the input cost loss damage in the reported locations.


4. Unified Package insurance scheme 

The Unified Package Insurance scheme aims to provide farmers with financial security and full risk coverage for their crops, properties, lives, and student safety. Crop Insurance (PMFBY / WBCIS), Loss of life (Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)), Accident Insurance (Pradhan Mantri Suraksha Bima Yojana - PMSBY), Student safety, Household, Agriculture equipment, and Tractor are among the seven sections covered by the pilot. 

Insurance for crops will be required. Farmers can, however, choose at least two pieces from the remaining areas. 

Farmers may be able to obtain all the necessary insurance products using a single proposal/application form and a single window. 

Apart from asset insurance, the government's major programs, PMSBY and PMJJBY, have been included.


Why is Crop Insurance important? 

The goals are to: 

  • Provide financial assistance to farmers if any of the reported crops fail due to natural disasters, pests, or illnesses. 
  • To rehabilitate farmers' creditworthiness because of crop losses and nonpayment of crop loans. 
  • To encourage farmers to use innovative farming techniques, high-value inputs, and advanced technologies in agriculture.  
  • To aid in the stabilization of farm earnings, especially during disaster years


Who is eligible to ensure or take the advantage of crop insurance? 

Farmers who are planting notified crops in notified regions as designated by the state government are eligible for insurance. Loanee farmers' crops are required to be insured, but no loanee farmers can choose to insure their harvests.


How are crop insurance schemes administered or delivered?

Various insurance crops are mainly designed to deliver crop insurance. The concerned State Government is solely responsible for choosing an insurance company to provide crop insurance in the state, and this decision may change from season to season. The Government of India has authorized the following general insurance companies to handle crop insurance:


Some of the companies who are responsible for providing crop insurance are as follows, 

1. HDFCERGO General Insurance Co. Ltd

2. TATA – AIG General Insurance Co. Ltd

3. Cholamandaalm MS General Insurance Co. Ltd.

4. Bajaj Allianz General Insurance Co. Ltd

5. SBI General Insurance CO. Ltd


How much of a premium must a farmer pay to obtain insurance coverage? 

NAIS: Food and oilseed crops are subject to flat premium rates ranging from 1.5 percent to 3.5 percent. Actuarial premium rates are charged for annual commercial and horticultural crops. Premium subsidies ranging from 40% to 75% are given to all farmers to make it more affordable. 

WBCIS and MNAIS: Premiums are charged at actuarial rates that differ from crop to crop and location to area. Premium subsidies are given to all farmers to make it more affordable.


Documents required for crop insurance 

  • Duly completed claim form
  • Land Registration Papers or Land Patta Number
  • Land Ownership Documents
  • Aadhar Card
  • Personal Identification Proof-like ration card, PAN Card, and/or voter card
  • Bank Account Details
  • Sowing Declaration
  • Claim Reimbursement Form or the Application Form


Advantages of crop insurance 

  • Covers crop loss and damage due to unanticipated circumstances by providing financial assistance to farmers. 
  • Farmers are free from paying taxes on the premiums they pay for crop insurance policies. 
  • Farmers would have peace of mind because they wouldn't have to rely on high-interest loans from private lenders. 
  • Encourages farmers to use contemporary and creative farming techniques to boost their revenue. 
  • Farmers would be able to repay loans using crop insurance reimbursements, which will enhance the country's economy.


Risks Under Crop Insurance in India 

1. Basic Risk

The term "basis risk" refers to the likelihood that an insured person would not get any compensation despite suffering a loss. Alternatively, it could relate to the potential of a payoff to a farmer who has not sustained any losses. As a result, basis risk refers to the insurance company's mistakes.


2. Spatial Risk 

Crop insurance is vulnerable to geographic risk. This is because one farm in each area is designated as the reference farm. As a result, there may be variances in weather conditions between the reference farm and the actual farm. As a result, the yields are misinterpreted at the ground level, leading to the two inaccurate options indicated in basis risk.


3. Other factor risks 

Crop insurance treats all farms in a certain area as homogeneous entities. This is not the situation. Even if there was no human intervention, the yield would vary greatly from farm to farm. This disparity would be due to variances in irrigation availability, agricultural soil type, and other factors.


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