The crop insurance scheme or the Pradhan Mantri Fasal Bima Yojana (PMFBY) has led to a rise in loss ratios for the insurance companies. While a large proportion of the industry’s new premiums have been contributed by crop insurance, so have the losses. This fiscal, too, while the coverage has been increased, losses are expected to continue. This scheme aims at supporting sustainable production in agriculture sector by way of providing financial support to farmers suffering crop loss/damage arising out of unforeseen events, stabilising the income of farmers to ensure their continuance in farming and also ensuring flow of credit to the agriculture sector. Approved in 2016, PMFBY has said that there will be a uniform premium of 2 percent to be paid by farmers for all Kharif crops and 1.5 percent for all Rabi crops. In case of annual commercial and horticultural crops, the premium to be paid by farmers will be only 5 percent. The balance will be paid by the government. Especially for the public general insurance companies, the crop insurance losses which were hovering around 80 percent went up to 100 percent by the end of the last financial year (FY17). A senior public general insurance executive said that while there has not been a major natural catastrophe in the previous fiscal, smaller claims have added up. Loss ratios refer to the premiums collected versus claims paid. Hence, if loss ratio is at 100 percent, for every Rs 100 of premium collected, the same amount is remitted as claims. In the scheme, there is no upper limit on government subsidy. Even if balance premium is 90 percent it will be borne by the government. From FY18, PMFBY has received an additional impetus with the government allocating Rs 9000 crore for the scheme. In 2016-17, they were allocated Rs 5,500 crore. Finance Minister Arun Jaitley in his budget speech said that the coverage under the scheme will be increased to 50 percent of cropped area in 2018-19. The coverage of this scheme will be increased from 30 percent of cropped area in 2016-17 to 40 percent in 2017-18 and 50 percent in 2018-19. Further, the budget provision of Rs 5,500 crore for PMFBY in budget estimate for 2016-17 was increased to Rs 13,240 crore in the revised estimate for 2016-17 to settle the arrear claims. “While the monsoons were more or less normal in FY17, we are getting mixed signals for FY18. If there is either deficit or surplus of rainfall, crops will be hit directly impacting our books,” said the head of crop insurance in a mid-size general insurer. It is estimated that the sum insured under this Yojana has more than doubled from Rs 69,000 crore during kharif or summer sowing season in 2015 to Rs 1.5 lakh crore in 2016. Source - http://www.moneycontrol.com