The Government of India is reportedly considering a pool mechanism for its national agricultural insurance program to limit money flowing out of the country to international reinsurance companies.
Indian publication Business Standard reported that foreign reinsurance and private insurance firms have been big beneficiaries of premiums collected under Pradhan Mantri Fasal Bima Yojna (PMFBY), the state-sponsored crop scheme.
In the last six seasons, almost Rs 5,000 crore (US $726 million) has gone to reinsurers domiciled outside India, while the program’s overall claim ratio has been around 77%.
As a result, the government has been looking to reduce the involvement of reinsurance in the PMFBY scheme.
According to Business Standard, the total premium collected under the program from 2016-2018 was about Rs 48,267 crore ($7.0 billion), while the claim payout was Rs 39,789 crore ($5.8 billion), indicating that Rs 8,478 crore ($1.2 billion) went to re/insurers.
Of the total premium, about Rs 8,720 crore ($1.3 billion) was paid by farmers, while close to Rs 39,547 ($5.7 billion) crore was subsidised collectively by central and state governments.
Currently, about 50% of the risk is reinsured by state-backed company GIC Re, and the rest by international reinsurers.
Under the newly proposed pool mechanism, while private firms would retain a small part of the premium, a large part would go into the pool, which could then be used to pay out claims.
“The pool mechanism will help the money stay in the country itself, instead of going to foreign reinsurers,” a government official was quoted as saying
“The new model should be sustainable in the long run,” a top official in a private insurance company added.