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However, most of the states that floated their tender on time and completed the tender process
were able to receive low actuarial premium rates. For example states like Andhra Pradesh,
West Bengal and Chhattisgarh completed their bidding process in the months of April and
May, 2016. These states were able to receive actuarial rates between 4-9 percent. However,
other states like Bihar, Gujarat, Rajasthan and Maharashtra were late in opening and
evaluating bids and completed the process only in the months of June and July, 2016 and they
received high actuarial rates of around 20 percent (Annexure 6). Moreover, requests for such
extensions of cut-off dates by State Government in future could lead to the problem of
adverse selection. For example, Bihar encountered excessive rainfall and flood during Kharif
2016. The tender was floated in July, 2016 when the flood situation was already known. As a
result, the companies quoted very high actuarial rate of 17 percent. Moreover, the reinsurance
companies also quoted high reinsurance rates. Similarly, after the demonetisation of Rs 500
and Rs 1000 currency notes was announced by the government, the cut off dates for
enrolment under PMFBY in Rabi 2016-17 was extended to 10th January, 2017 from the
original date of 31st December, 2016.
Actuarial Premium rates and premium subsidy
The gross premium for FY 2016-17 is Rs 21,882 crore (PMFBY and RWBCIS) out of which
famers’ share is Rs 4,373 crore. The remaining premium subsidy is shared by the Central
government and the State government. The share of the Central Government was Rs 6,623
crore in Kharif 2016 and Rs 2,182 crore for Rabi 2016-17. Thus the total amount required for
premium subsidy by the Central government was Rs 8,805 crore in 2016-17. As mentioned
above, there were outstanding bills of NAIS also. Due to increase in premium subsidy in
Kharif 2016, the government revised the amount allocated towards crop insurance to Rs
11,051 crore in FY 2016-17. In 2016-17, the actual expenditure of DACFW on all the
schemes was Rs 36,912 crore out of which Rs 13,397 crore was for interest subvention. Thus
if interest subvention is excluded from department’s budget, premium subsidy on crop
insurance took almost 17 percent of the budget of Department of Agriculture, Cooperation
and Farmers' Welfare
With an increase in area insured it was expected that the actuarial premium rates would go
down. However, gross premium as a share of sum insured increased to 12.5 percent in Kharif,
2016. Although there is an increase in the actuarial premium rates, it must be noted that there
are comparability issues across various insurance schemes. In case of NAIS, premium rates
were administered by the government and in MNAIS they were market determined but
capping on these rates acted as a barrier in real discovery of actuarial premium rates. Under
PMFBY, capping on premium rates was removed and therefore the actuarial rates of 2016-17
can be said to perhaps reflect the risk profile more accurately.
Experts in the industry also informed the authors that high actuarial rates were also caused by
the expansion of reinsurance market. According to them, only 25 percent of risk (as a
percentage of sum insured) is absorbed by the domestic insurance companies. Out of the
remaining 75 percent, 50 percent is absorbed by the domestic reinsurance company (General
Insurance Corporation) and balance 25 percent by foreign reinsurance companies. Some of