Crop Insurance

Even, today, about 70% of the Indias population lives in the rural areas and earns a living through farming and cultivation. Every year thousands of farmers committed suicide because they were experiencing loss in their farming revenues. Keeping this in mind, Congress passed the Federal Crop Insurance Act in the year 1938, which established the first federal crop insurance program. Initially, the efforts were not particularly successful due to high program cost and low participation of farmers. It was difficult to build sufficient reserves to pay claims and was not financially feasible.

But, in 1980, congress passed legislation which was designed to encourage farmer’s participation in the Federal Crop Insurance program and to make it more accessible and affordable. This updated era of crop insurance set benchmark by introducing a public-private partnership between the private insurance companies and the US government. Thus, modernization in the act in 1980, helped to spread out the program by increasing the number of participation and commodities insured.


What is crop insurance?

Crop insurance is a tool that protects the land-owners against minutest probability of any unexpected loss. It is a program that allows people to transfer and share risk where losses suffered can be covered from the accumulated funds by private insurance companies. However, insurance should not be treated as a tool to generate funds, but, it is a program that helps to compensate an individual for any unexpected losses that otherwise might be a financial disaster for an individual.

Thus, it is a source of protecting the farmer to cover the financial losses occurred due to any unexpected reason such as reversed climatic conditions, crop failure, hail drought, and even not getting the right crop prices in the market.

Basically, there are two types of crop insurance:
a. crop-yield insurance
b. crop-revenue insurance


Crop-yield insurance comes mainly in two classes:
Crop hail insurance is offered by private insurers because hail is a narrow peril which takes place in a limited place and thus, its mounted losses tend not to overwhelm the capital reserves of private insurance companies. Multi-peril crop insurance policy covers the broad perils of flood, drought, insects, disease, etc. that may impact many insurers simultaneously and present the insurer with the losses too.


Crop revenue
Typically, crop-revenue insurance policy is an amalgamation of crop-yield and price insurance, and thus, it covers the fall in price that occurs during every crop season.


Features of agriculture insurance scheme

Reduced premium cost
The premium cost has been reduced to cover all food and oilseed crops, and thus, is kept at a maximum of 2% for Kharif, 1.5% for Rabi, and 5% for annual horticultural or commercial crops.


Increased coverage
1. Take a glance at some of the statistics to get a fair idea about the increased coverage of the scheme:
2. In 2016-17, Gross Cropped Area (GCA) was covered to 30%, which was just 23% in 2015-16
3. In 2016-17, around 5.74 crore farmers were insured and covered including 1.35 crore non-loanees.
4. During 2016-17, about 518.11 lakh hectare area was insured which was 56.56 lakh hectare higher than the area covered in the previous financial year, i.e., 2015-16. Thus, an increase of 10.78% was witnessed.
5. During 2016-17, there was an upraise from 5% to 22.5% insurance coverage of non-loanee farmers out of total insured farmers.


Increase in sum insured
Due to insurance premium cover under different schemes, the sum insured has been certainly reduced, which resulted in farmer’s denial for the expected benefits and complete compensation for their crop loss. Later, under the scheme of PMFBY (Pradhan Mantri Fasal Bima Yojna), it was planned to provide maximum risk coverage and thus, the sum has been equated to Scale of Finance (SOF). As a result, the farmers now get sufficient claim settlement for the entire sum insured, so that, they get compensation for their entire crop loss.

1. In 2016-17, a sum of Rs.204779 crore was insured, which was increased by 78.14% than the previous year.
2. In 2016, sum insured per hectare for Kharif was Rs. 34574 and for Rabi, the sum insured per hectare was Rs. 39358.


Increase in risk coverage
Comprehensive coverage has been provided against unavoidable disasters or natural risks from pre-sowing to post-harvest losses. Moreover, crop loss occurred due to localized risks are estimated at the separate farm level for claim settlement. Let’s take a short glance at the crop insurance coverage statistics:

a. Coverage of losses due to prevented sowing – In the financial year 2016-17, the claim worth in Tamil Nadu was Rs.27.61 crore, which was settled against prevented sowing on account of bad weather condition.
b. 25% advance relief due to mid-season adversity – In 2016-17, due to certain adverse climatic conditions such as drought spell, floods, severe drought, unseasonal rains, etc., the sum covered was Rs.31.69 crore in Uttar Pradesh, Rs.11.19 crore in Maharashtra, Rs.11 crore in Chhattisgarh, and Rs.9.42 crore in Madhya Pradesh.
c. Localized claim coverage – In 2016-17, Rs.0.11 crore in Andhra Pradesh, Rs.4.04 crore in Haryana, Rs.0.09 crore in Chhattisgarh, Rs.0.32 crore in Rajasthan, Rs.0.80 crore in Uttar Pradesh and Rs.1.55 crore in Maharashtra were settled expeditiously against localized calamities such as inundation, hailstorm, and landslides.
d. Coverage of Post-harvest losses – In 2016-17, claims against post-harvest losses were covered worth Rs.0.66 crore in Manipur, Rs.0.11 crore in Andhra Pradesh, and Rs.16.51 crore in Rajasthan.


Henceforth, as crop production is a host of uninvited risks and losses, a crop insurance scheme can, ultimately, assist for stabilizing the crop production and generating expected income through compensating the risks and losses. An agriculture insurance policy provides the best allocation of resources in the production process. Therefore, considering the present scenario, it has become more than a necessity for farmers to get a financial support for their agricultural-related risks and losses.


Benefits of crop insurance:

Income stability – the insurance policy protects the farmers for any losses occurred due to crop failure by compensating the loss. Thus, it acts like a tool that supports the farmers for managing their crop and price risks.

Minimal debts – farmers can, now, repay their loans even after their crop failure because they get financial support from the best crop insurance provider.

Technological advancement – insurance provider companies works on agri-platform, IOT, which enhances agricultural practices and reduce farmer’s losses. This helps farmers too to understand the latest technology and thus, can work on improving their crop production.

Yield productions – agricultural insurance covers losses against crop production by offering preventive planning and replant security plans.

Boosts awareness – crop insurance companies conducts several awareness campaigns so that farmers can get aware of the insurance benefits and understand the severe effects of natural calamities for their crops.


Why is it important to take crop insurance plan?

A farmer devotes his day and night for a better crop production and makes every possible effort in order to protect the crop from any uninvited calamities that can spoil their efforts in no time. Farmer’s suicide ratio increases simultaneously with the crop failure ratio, which makes it essential to get the crop insured for getting a financial assistance at the time of crop failure. A crop insurance plan can provide a financial support for any risk or loss associated to crop failure occurred due to

1. Fire & lightning storm
2. Hailstorm
3. Cyclone
4. Tempest
5. Typhoon
6. Hurricane
7. Tornado flood
8. Drought spell
9. Pest attacks
10. Inundation & landslide drought

Keeping the need of an hour in mind, it is important to strengthen the crop insurance portfolio further along with multiple risk coverage plans. Some of the crop insurance products currently offered in the market are sowing failure risk cover, excess rainfall insurance, draught insurance plan, and so on.

To get hold to the insurance benefits, the farmers can get in touch with the insurance provider companies directly or through an insurance agent. They can explore different plans and schemes and are advised with the appropriate coverage plan that includes minimum premium amount and better claim value. Also, if during harvest, the market value of the crop falls below a definite price and then the insurance provider will pay the compensation to the farmers.