Beed model of crop insurance

• Maharashtra government has asked for state-wide implementation of the ‘Beed model’ of the crop insurance scheme Pradhan Mantri Fasal Bima Yojana (PMFBY).
• Launched in 2016, the flagship PMFBY insures farm losses against inclement weather events.

PMFBY:

• It is a central scheme implemented by state agriculture departments as per central guidelines.
• Farmers pay 1.5-2% of the premium with the rest borne by the state and central governments.

Beed Model

• Beed is a district located in the drought-prone Marathwada region.
• The district presents a challenge for any insurance company because farmers here have repeatedly lost crops either to failure of rains or too heavy rains.
• Given the high payouts, insurance companies have sustained losses.

The solution:

• To attract the insurance companies, the state Agriculture Department decided to tweak the PMFBY guidelines for the district.
• Under the new guidelines, the insurance company provided a cover of 110% of the premium collected, with caveats.
• If the compensation exceeded the cover provided, the state government would pay the bridge amount.
• If the compensation was less than the premium collected, the insurance company would keep 20% of the amount as handling charges and reimburse the rest to the state government.

Why is the government pushing for it for the entire state?

1. Another source of funds: In the Beed model, the profit of the company is expected to reduce and the state government would access another source of funds.
2. Reduced burden for the state: The reimbursed amount can lead to lower provisioning by the state for the following year, or help in financing the paying the bridge amount in case of a year of crop loss.

PMFBY to PMFBY 2.0:

1. Completely Voluntary: It has been decided to make enrolment 100% voluntary for all farmers from 2020 Kharif.

2. Limit to Central Subsidy: The Cabinet has decided to cap the Centre’s premium subsidy under these schemes for premium rates up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops.

3. More Flexibility to States: The government has given the flexibility to states/UTs to implement PMFBY and given them the option to select any number of additional risk covers/features like prevented sowing, localised calamity, mid-season adversity, and post-harvest losses.

4. Penalising the Pendency: In the revamped PMFBY, a provision has been incorporated wherein if states don’t release their share before March 31 for the Kharif season and September 30 for rabi, they would not be allowed to participate in the scheme in subsequent seasons.

5. Investing in ICE Activities: Insurance companies have to now spend 0.5% of the total premium collected on information, education and communication (IEC) activities."