Crop Insurance Penetration and Frauds in India

Despite of so many schemes, today, only a fraction of farmers are covered under Crop insurance in India. Apart from that, the crop insurance schemes have divided India into two parts viz. the states with under-penetration of crop insurance due to lack of awareness, and the states with high level of insurance fraud.

Low insurance coverage states

Currently, crop insurance coverage in India is 23% only. States like Punjab, Haryana, Madhya Pradesh, Uttar Pradesh (western region) are low crop insurance coverage areas. The main reason for low coverage is farmers having little awareness about insurance schemes. They are not aware of how the scheme works and when the premium should be paid. Many cases policy becomes inoperative due to defaults on premium payments. Small farmers do not show interest as they have to pay the premium. They request banks to waive off the premium; and banks under pressure to meet their crop loan targets, they waive off premium component.

One reason for under-penetration of crop insurance in states like Punjab and Haryana is most parts of these states are covered under assured irrigation facilities that protect farmers from conventional weather risks. Only famers availing bank loans are forced to get an insurance cover.

High insurance Coverage States and Crop insurance frauds

States having early history of cooperative banks and other institutions were able to implement the crop insurance schemes faster. At the same time, these states also have to regularly deal with droughts, cyclones and other risks to farming. However, these states are suffering from high-level crop insurance frauds. Gujarat (Saurashtra), Maharashtra (Aurangabad and Jalgaon), Karnataka (Dharwad and Haveri), Andhra Pradesh (Rayalaseema), Telangana (Mahbubnagar), and Tamil Nadu (Nagapattinam and Sivaganga) are states with high level of insurance fraud.

Strong “local networks” of farmers, agriculture department officials and bank officials have misused the crop insurance schemes. Farmers in some districts colluded with officials handling the yield assessment. Political influence also played a major role in granting multiple loans and insurance policies by bank officials on a single plot of land.

Suggestions from experts

There is a need to legislate on crop insurance making it compulsory. Banks should not be allowed to exercise discretion on doing away with crop insurance as a component of farm loans. The government should pay the premium for small farmers only. Crop insurance policies should not become inoperative when the farmer defaults because of stress on him.