Yesterday, Congress spokesperson Priyanka Chaturvedi tweeted how crop insurance is a sham and a scam since premium collected is Rs. 22,437 crore whereas the claims by farmers is Rs. 8,087.23 crore. Priyanka is Ironically, also an Alumni of very reputed Narsee Monjee College of Commerce and Economics.
Yet she got laughingly schooled on Twitter for not knowing very basics of Insurance industry. It is unfortunate that political mileage has also been sought to be gained from this absurdity peddled by Priyanka Chaturvedi, who has given credence to this stupidity.
She immediately got schooled on how premium vs. claims work when it comes to insurance. by her tweet it is evident that she has no idea of How Insurance premium and its claims process work.
you would be surprised to know that Priyanka Chaturvedi is considered to be one of the Intellectual think tanks of congress party. she is also known as someone quite close to our very own comedy king Pappu A.K.A Rahul Gandhi.
It is a no-brainer that the total amount of premium collected will be more than the total amount in payments made through the settlement of claims. If this were not so, the business of insurance itself would collapse and then nobody would be in a position to bail out the farmer.
HOW PMFBY WORKS:
The PMFBY scheme has brought about significant advancement in crop insurance in terms of both are covered and number of farmers covered (For details, please out article: “Farmer’s Umbrella: Examining the Area Coverage and Performance of PMFBY”). However, PMFBY has also ensured unprecedented speed in claim settlements. In 2016-17, the estimated total claims have been Rs 15,100.68 crore (or 68%) against a total premium of Rs 22,344.93 crore. For 2016-17, of the total Rs 15,100.68 crore claim amount, claims amounting to Rs 9,446.83 crore have been approved and claims worth Rs 6,624.65 crore have been settled, as on August 11, 2017.
This last and crucial detail – of claim settlements worth Rs 6,624.65 crore already paid by firms out of the Rs 15,100 crore claim — does not feature in The Indian Express article, which only mentions the sum of Rs 9,446 crore approved.
It may also be noted that erstwhile insurance schemes did not have technology to assist, thereby delaying the availability of proper Crop Cutting Experiment (CCE) data. Thus, claim settlements could take as much as 6-12 months. Under PMFBY, states are required to provide insurance firms with the CCE data within a month from the harvest. The insurance firms must settle the claims within 3 weeks of receiving said data.
In general terms, insurance companies pool the money for settlement payments, they also bear expenses of selling and insurance and providing protection against risks, and the money is also invested. The income from investing the money allows the insurance industry to keep the premium and costs low for individuals who take out insurance policies.
Where the PMFBY is concerned, the individual farmer’s premium is low compared to the payouts that have to be made. As the article itself admits, the PMFBY premium is as low as 1.5% for Rabi and 2% for Kharif.