The finance ministry has begun a review of the cup-and-cap model under the government’s flagship crop insurance programme, Pradhan Mantri Fasal Bima Yojana (PMFBY), amid concerns of a sharp decline in crop insurance business.
Premium collections under the scheme could fall to about ₹20,000 crore this fiscal from nearly ₹30,000 crore in FY25, according to industry estimates, as large states shift away from the traditional PMFBY format towards the cup-and-cap risk-sharing model, which limits the insurer’s exposure and profitability, and cut premiums.
The cup-and-cap model refers to the risk-sharing structure between the insurer and the governments where the Centre and states bear excess claims beyond a pre-agreed ‘cap’-in most cases, 110% or 130% of the premium amount-while insurers return surplus premium to governments if claims fall below the lower ‘cup’ threshold of 60% or 80%.
PMFBY is among the world’s largest crop insurance programmes, covering about 70 million farmers. The cumulative claims paid since its launch in 2016 stand at around ₹1.83 lakh crore.
As part of the review, insurers have been asked to submit company-wise data to determine whether losses or thin margins in crop insurance are being offset by profits from other business lines such as general insurance, and to address issues in pricing, underwriting discipline and long-term sustainability of the scheme, people aware of the development said.
The review panel has also sought granular data on farmer coverage, including the total number of farmers, those eligible for insurance and those enrolled.
Insurers have been asked to explain why eligible farmers remain outside the scheme and whether gaps stem from lack of awareness, access constraints, distribution challenges or other factors.
They have also asked for a channel-wise break-up of enrolments, including coverage through banks, common service centres and other intermediaries, as well as farmers insured through agriculture department-led initiatives.
The move comes amid falling farmer participation.
In Maharashtra, which previously accounted for nearly one-third of the crop insurance market, premiums have fallen from around ₹10,000 crore last year to about ₹2,500 crore in the current cycle following changes to the scheme’s structure.
Farmer enrolment in the state has dropped by nearly half after the rollback of the ₹1 premium offer and tighter compensation norms.
Newer models such as index-linked and reference price-based covers remain at an early stage, officials said, even as the ministry evaluates whether the existing framework delivers meaningful risk protection to farmers.
