India’s Largest Crop Insurer Delays Claims As It Is Yet To Receive Subsidy

State-run Agriculture Insurance Company of India Ltd. has paid only 30 percent of its crop insurance claims as several states are yet to pay their share of the premium under the government's flagship scheme.

The insurer had received claims worth Rs 4,602 crore as of Dec. 31, of which it paid only Rs 1,371 crore, as per disclosures on its website. It took six months to more than a year to settle nearly three-quarters of these claims.

“There is a delay in getting subsidies. Until then we cannot disburse the claims,” TL Alamelu, chairman and managing director of the insurer, told BloombergQuint in an interview on the sidelines of the Fourth International Insurance Conference in Hyderabad last week. “We are following up with the states and have also informed the government that the process needs to be sped up.”

Crop insurance has become the third-largest business after motor and health for most non-life insurers after the launch of Pradhan Mantri Fasal Bima Yojna last year. The government increased the coverage from 30 percent to 40 percent of farm credit and increased the outlay by nearly 18 percent to Rs 13,000 crore in the Budget for 2018-19.

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India's largest reinsurer General Insurance Corporation of India, which reinsured nearly half the AIC's crop business, also reported underwriting losses, partly due to higher crop claims paid in the quarter ended December. There were no agriculture claims in the first two quarters, Alice G Vaidyan, chairman and managing director, said at the earnings press conference held on Feb. 12. The reinsurer received claims for the kharif season in the third quarter, she said.

Agriculture Insurance Company's outstanding claims rose 28 percent on a yearly basis to Rs 3,301 crore as of Dec. 31. The lag in yield data due to inadequate crop-cutting experiments only added to the delay in payments, Alamelu said.

Net incurred claims as a proportion of net earned premium stood at 93 percent as of Dec. 31 compared with 89 percent a year ago. If claims are higher than the premium earned, the company stands to make underwriting losses. “In adverse years (when crops fail), there is never going to be a profit,” said Alamelu.

The insurance regulator should lower the company's solvency margin — capital required to cover the insurer's liabilities, she said. The Insurance Regulatory and Development Authority of India mandates 150 percent as the required solvency margin.

GIC's Vaidyan said underwriting losses from the Pradhan Mantri Fasal Bima Yojana could be minimised by increasing the premium rates and ironing out of delays in the results of crop-cutting experiments, she said.