The Great Premium Drain, Why India’s Crop Insurance Scheme Is Failing Its Farmers
Ten years ago, the Pradhan Mantri Fasal Bima Yojana (PMFBY) was launched with grand ambitions. It was meant to be a safety net for India’s farmers, protecting them from the growing volatility of climate and markets. In a country where agriculture remains the primary livelihood for hundreds of millions, and where erratic monsoons and price crashes can spell disaster, a robust crop insurance scheme was not just a policy initiative; it was a necessity.
Today, as the scheme completes a decade, it stands at a crossroads. Reports from Haryana and Rajasthan—both BJP-ruled states—tell a disturbing story. Between 2023 and 2025, insurance companies in Haryana collected gross premiums amounting to ₹2,827 crore under the PMFBY. They paid out claims of only ₹731 crore. The insurers pocketed more than ₹2,000 crore as profit.
The nationwide numbers are even starker. Over the same three-year period, insurers collected ₹82,015 crore in premiums and disbursed ₹34,799 crore in claims. The profit—the difference between premiums collected and claims paid—exceeded ₹47,000 crore.
These are not marginal returns. They are windfall profits, earned on the back of public money meant to protect farmers. And they raise a fundamental question: who is the PMFBY really serving?
The Promise of the Scheme
The PMFBY was launched in 2016 as a flagship risk mitigation scheme. Its primary aim was to shield farmers from the growing volatility of both climate and markets. In an era of climate change, where unseasonal rains, droughts, and cyclones are becoming more frequent and severe, crop insurance is essential. Without it, a single bad season can push a farming family into debt and destitution.
The scheme integrates modern technology—satellite imagery, drones, and a tech-based yield estimation system—to enhance transparency. Premiums are heavily subsidised by the central and state governments, making them affordable for farmers. On paper, it is a well-designed intervention.
But the gap between design and implementation is where the scheme has gone wrong. The premiums collected are overwhelmingly public money—subsidies paid by taxpayers. When claim ratios are disproportionately low, that money does not go to farmers in distress. It goes to insurance companies as profit.
The Haryana and Rajasthan Data
The data from Haryana is particularly striking. Over the three-year period from 2023 to 2025, insurance companies collected ₹2,827 crore in premiums. They paid out ₹731 crore in claims. The claim ratio—claims paid as a percentage of premiums collected—was just 25.8%. More than 74% of the premium pool was retained by insurers as profit.
In Rajasthan, the situation is compounded by allegations of large-scale irregularities. Reports have surfaced of forged forms and fraudulent bank accounts being used to siphon off funds. Farmers who should have received claim payments found that their claims were rejected on technical grounds, or that the money never reached them.
These are not isolated incidents. Across the country, farmers have been staging dharnas and protests over delayed or rejected claims. The bureaucratic hurdles are many. The process of proving crop loss, getting it assessed, and receiving payment is labyrinthine. For a small farmer with limited literacy and no connections, it can be impossible.
The National Picture
The national numbers reveal the scale of the problem. Over three years, insurers collected ₹82,015 crore in premiums and disbursed ₹34,799 crore in claims. The claim ratio was 42.4%. That means for every rupee collected in premiums, only 42 paise was paid out to farmers. The remaining 58 paise—over ₹47,000 crore—was profit for insurance companies.
To put that in perspective, the entire annual budget for the Ministry of Agriculture and Farmers’ Welfare is around ₹1.5 lakh crore. The profits pocketed by insurers over three years are equivalent to nearly one-third of that budget. This is public money that should have gone to farmers in distress, but instead enriched private companies.
Crop insurance need not eliminate profit-making. Insurance is a business, and companies need to make a return to stay in business. But the current arrangement is grotesquely skewed. When claim ratios are this low, it is not insurance; it is a transfer of public funds to private balance sheets.
The Technology Paradox
One of the selling points of the PMFBY has been its use of technology. Satellite imagery, drones, and tech-based yield estimation systems are supposed to enhance transparency and reduce fraud. In theory, technology should make it easier to assess crop losses accurately and disburse payments quickly.
In practice, technology has been used as much to deny claims as to validate them. Farmers report that satellite assessments often fail to capture localized losses—a hailstorm that destroys one field but leaves the next untouched, for example. The yield estimation process is opaque, and farmers have little ability to challenge the results.
The technology is also expensive. The cost of deploying drones, satellite imagery, and sophisticated data analysis is built into the premiums. Farmers and taxpayers pay for it. But when the system fails to deliver, the costs are borne by farmers, while the technology providers and insurers still get paid.
The Trust Deficit
The PMFBY suffers from a fundamental trust deficit. Farmers do not believe that the scheme will deliver when they need it. They have seen too many claims rejected, too many delays, too many bureaucratic hurdles. They have seen insurers profit while they struggle.
This trust deficit has real consequences. Farmers who do not trust the insurance scheme are less likely to invest in their farms, less likely to take risks, less likely to adopt new technologies. They fall back on traditional coping mechanisms—selling assets, borrowing from moneylenders, pulling children out of school. The safety net that was meant to enable risk-taking becomes just another source of uncertainty.
For the government, the trust deficit is a political liability. Farmers are a powerful voting bloc. When they feel abandoned, they make their feelings known at the ballot box. The protests in Haryana and elsewhere are not just about money; they are about dignity and respect. Farmers want to be treated as partners in the scheme, not as supplicants.
The Way Forward: Reforms for the Next Decade
As the PMFBY enters its 11th year, reforms are urgently needed. The goal should be to realign the scheme with its original purpose: protecting farmers, not enriching insurers.
First, transparent audits are essential. The claim ratio data from Haryana and Rajasthan should be scrutinized. Why are claims so low? Are assessments accurate? Are rejections justified? Farmers and the public have a right to know.
Second, claim settlement must be faster and simpler. The current process is too complex for the average farmer. It should be streamlined, with clear timelines and simple procedures. Technology should be used to simplify, not complicate.
Third, stricter oversight of insurers is needed. If companies are earning windfall profits while farmers suffer, the regulatory framework is failing. There should be penalties for excessive claim rejection, and incentives for timely and fair settlement.
Fourth, farmers must have greater representation in the scheme’s governance. Currently, decisions are made by bureaucrats and insurance executives. Farmers, who are the intended beneficiaries, have little voice. Farmer organizations should be consulted on scheme design, claim assessment, and grievance redressal.
Fifth, the premium structure needs review. If premiums are too high relative to claims, either premiums should be reduced or the coverage should be expanded. The current imbalance benefits insurers at the expense of farmers and taxpayers.
Conclusion: Restoring Trust
The PMFBY was launched with the noble aim of protecting India’s farmers from the vagaries of nature and markets. Ten years later, it has fallen short of that aim. The scheme has become a vehicle for transferring public money to private insurers, while farmers continue to struggle.
This is not to say the scheme has no value. Millions of farmers have received claim payments over the years. The technology and infrastructure built under the scheme are impressive. But the fundamental imbalance—insurers profiting while farmers suffer—must be corrected.
The scheme can remain a safety net for India’s annadata (food providers) only if it restores trust. That means putting farmers first, not insurers. It means transparency, accountability, and fairness. It means remembering that the purpose of crop insurance is not to generate profits, but to protect livelihoods.
As the PMFBY enters its second decade, the choice is clear: continue on the current path, and watch trust erode further, or reform, and make the scheme worthy of its name. Farmers are watching. The future of Indian agriculture depends on getting this right.
Q&A: Unpacking the PMFBY Crisis
Q1: What is the Pradhan Mantri Fasal Bima Yojana (PMFBY), and what was its original purpose?
A: The PMFBY is a crop insurance scheme launched by the Modi government in 2016. Its primary purpose is to protect farmers from the financial risks associated with crop failure due to natural calamities, pests, and diseases. It aims to provide a safety net that enables farmers to take risks, invest in their farms, and recover from bad seasons without falling into debt. Premiums are heavily subsidised by the central and state governments to make them affordable.
Q2: What do the Haryana and Rajasthan data reveal about the scheme’s performance?
A: The data from Haryana shows that between 2023 and 2025, insurance companies collected ₹2,827 crore in premiums but paid out only ₹731 crore in claims—a claim ratio of just 25.8%. Insurers pocketed over ₹2,000 crore as profit. In Rajasthan, allegations have emerged of large-scale irregularities, including forged forms and fraudulent bank accounts. These examples illustrate a pattern where insurers are earning windfall profits while farmers struggle with delayed or rejected claims.
Q3: What do the nationwide numbers tell us?
A: Nationally, over the same three-year period, insurers collected ₹82,015 crore in premiums and disbursed ₹34,799 crore in claims. The claim ratio was 42.4%, meaning that for every rupee collected, only 42 paise was paid out to farmers. Insurers retained over ₹47,000 crore as profit. This is public money—subsidies paid by taxpayers—that should have gone to farmers in distress but instead enriched private companies.
Q4: What role does technology play in the scheme, and why has it not solved the problems?
A: The PMFBY integrates satellite imagery, drones, and tech-based yield estimation systems to enhance transparency and accuracy. In theory, technology should make it easier to assess crop losses and disburse payments. In practice, it has often been used to deny claims rather than validate them. Satellite assessments can miss localized losses, and the yield estimation process is opaque. The technology also adds to the cost of the scheme, which is borne by farmers and taxpayers, without necessarily improving outcomes.
Q5: What reforms are needed to make the PMFBY work for farmers?
A: Several reforms are essential: (1) transparent audits of insurer performance, especially claim ratios; (2) faster and simpler claim settlement processes; (3) stricter oversight of insurers, with penalties for excessive claim rejection; (4) greater representation of farmers in scheme governance; and (5) a review of the premium structure to ensure it is fair. The goal is to realign the scheme with its original purpose: protecting farmers, not enriching insurers. Trust must be restored.
