PMFBY, India's crop insurance program

Pradhan Mantri Fasal Bima Yojana (PMFBY) is India's national crop insurance program, built on area yield. The farmer pays a premium capped at a small percentage of the sum insured, and the central and state governments fund the rest. February 2016: the Indian government launched PMFBY, which replaced the older NAIS (National Agricultural Insurance Scheme) and MNAIS (Modified National Agricultural Insurance Scheme) schemes starting with the kharif season. The rule that made the program fits in three numbers. The farmer pays at most 2% of the sum insured for kharif crops, 1.5% for rabi crops and 5% for annual commercial and horticultural crops. The rest of the actuarial premium, set by state-level tender, is subsidized, split evenly between the central government and the state. The exceptions are the northeastern states, where the Union has carried 90% of the subsidy since kharif 2020, and the Himalayan states since kharif 2023. The core mechanism is area yield. For each crop and each notified area, often a village or village cluster for major crops, a threshold yield is computed. It is the average of the best recent years times the indemnity level. Actual yield comes from crop cutting experiments (CCEs), and every insured farmer in the area is paid on the same shortfall. Around that index core the program keeps individual covers: prevented sowing, localized perils such as hail or a flooded plot, and post-harvest losses in the field. That is where claims notices, loss adjustment and a share of the disputes sit. The weak spot is timing. A payout needs the CCEs done, reported and accepted, and both subsidy shares paid in; a state running late on its share holds up settlement for its own farmers. Six states left the program after a few seasons to run their own schemes, arguing that premiums were too high for the claims paid. They were Bihar, West Bengal, Gujarat, Jharkhand, Telangana and Andhra Pradesh. Andhra Pradesh came back for kharif 2022, Jharkhand and Telangana later. Other states negotiated profit and loss sharing formulas with insurers, such as the so-called Beed model in Maharashtra. For a reinsurer, PMFBY is one of the largest index-based agricultural books anywhere, with monsoon risk that is highly correlated from one district to the next.