Amid super El Nino threat, which PMFBY crop insurance model suits farmers?

A super El Niño threat in 2026 has intensified the debate over which crop insurance model — the standard PMFBY structure or the Maharashtra-pioneered "Beed f...

What Happened

A super El Niño threat in 2026 has intensified the debate over which crop insurance model — the standard PMFBY structure or the Maharashtra-pioneered "Beed formula" — better protects farmers against catastrophic losses.
Under the standard PMFBY framework, if total claims in a season are less than 80% of total collected premium, the insurance company retains 20% of gross premium as handling charges and refunds the remainder to the state government.
Maharashtra's Beed model, piloted during the 2020 kharif season in drought-prone Beed district, modifies this formula: the insurer provides coverage up to 110% of collected premium; if compensation exceeds 110%, the state government pays the difference (the "bridge amount").
If claims are below the premium collected under the Beed formula, the insurer retains 20% as handling charges and refunds the surplus to the state — similar to the standard model in the downside scenario, but with the state absorbing extreme upside loss scenarios.
Maharashtra's Chief Minister formally requested central government approval for state-wide rollout of the Beed model.
A super El Niño event — characterised by anomalous warming of the central and eastern Pacific Ocean — is expected to cause below-normal monsoon rainfall across parts of India, threatening kharif crop output and amplifying insurance claim ratios.

Static Topic Bridges

Pradhan Mantri Fasal Bima Yojana (PMFBY)

PMFBY, launched in 2016, replaced the earlier National Agricultural Insurance Scheme (NAIS) and the Modified NAIS. It is a government-sponsored crop insurance scheme that integrates farmers, state governments, insurance companies, and banks on a single platform to provide comprehensive crop loss coverage against natural calamities, pests, and diseases.

Farmer premium contribution: 2% for kharif crops, 1.5% for rabi crops, and 5% for commercial/horticultural crops — the balance of the actuarial premium is shared by the central and state governments.
Actuarial premiums for high-risk crops or geographies can exceed 20%, meaning the government subsidy in such cases is substantial.
Coverage extends to pre-sowing losses, standing crop losses, post-harvest losses (up to 14 days), and localised calamities.
Localised losses must be reported within 72 hours for eligibility.
In 2026, the YES-Tech (Yield Estimation System) — using drones for crop-cutting experiments — was launched nationally, replacing manual Crop Cutting Experiments (CCEs) to improve assessment accuracy and speed.
Participation was made voluntary for loanee farmers from 2020 onward (previously compulsory).

Connection to this news: The core debate around El Niño is whether PMFBY's standard actuarial premium structure, or the Beed model's state-backed loss-sharing design, better insulates farmers when systemic, climate-driven losses push claim ratios far above normal-year baselines.

El Niño and Indian Monsoon Dynamics

El Niño refers to the anomalous warming of sea surface temperatures in the central and eastern equatorial Pacific Ocean, which disrupts global atmospheric circulation patterns. It is the warm phase of the El Niño–Southern Oscillation (ENSO) climate cycle. El Niño years are strongly associated with below-normal monsoon rainfall over India, as the warming shifts rainfall towards the Pacific and weakens the Indian Ocean–land temperature gradient that drives the southwest monsoon.

The 1982–83 and 1997–98 El Niño events each triggered severe droughts and agricultural crises across South Asia, including India.
Most major Indian droughts in the 20th and 21st centuries have coincided with El Niño conditions.
El Niño also reduces reservoir inflows, stresses irrigation-dependent areas, and causes heatwaves before the monsoon onset.
India's kharif season (June–October) — covering rice, pulses, coarse cereals, oilseeds, and cotton — is the most vulnerable agricultural period.
A "super El Niño" denotes an event with unusually strong sea surface temperature anomalies (typically above +2°C in the Niño 3.4 region), associated with more severe monsoon disruption than standard El Niño years.

Connection to this news: A super El Niño threatens to push claim ratios in PMFBY well above the 80% and 110% thresholds that define the financial boundaries of both the standard model and the Beed formula, testing the fiscal resilience of each design.

Agricultural Risk Management and Systemic vs. Idiosyncratic Risk

Agricultural insurance is complicated by the fact that crop losses from weather events such as El Niño are systemic (correlated across an entire region simultaneously), unlike idiosyncratic risks (e.g., a single farmer's field flooding) which are diversifiable. Standard commercial insurance is calibrated for uncorrelated, diversifiable risks. When all farmers in a district lose their crops simultaneously due to a drought, insurers face concentrated, correlated claims — known as "catastrophe risk" or "systemic risk" — that require either high premiums, reinsurance, or government backstops to remain solvent.

The Beed formula's design — placing excess-loss risk above 110% with the state government — is a form of public reinsurance backstop.
Standard PMFBY's actuarial pricing attempts to price systemic risk into premiums, but frequently results in premium rates farmers find unaffordable without heavy subsidy.
Weather-Index Insurance (WII), an alternative to yield-based insurance, uses objective weather station data (rainfall, temperature) rather than crop-cutting to trigger payouts — reducing settlement delays but introducing "basis risk" where a payout does not match the actual farmer loss.
India has both yield-based (PMFBY) and weather-index schemes (RWBCIS — Restructured Weather Based Crop Insurance Scheme) operating simultaneously.

Connection to this news: The Beed model is essentially a state-backed catastrophe reinsurance layer added on top of a standard commercial insurance structure, designed specifically to handle the systemic dimension of monsoon failure — making it particularly relevant under a super El Niño scenario.

Key Facts & Data

PMFBY launched: 2016 (replaced NAIS and Modified NAIS)
Farmer premium cap: 2% (kharif), 1.5% (rabi), 5% (commercial/horticultural crops)
Beed formula: insurer covers up to 110% of collected premium; state covers excess above 110%
Beed formula surplus rule: insurer retains 20% as handling charge; remainder refunded to state
Beed pilot: launched in Beed district, Maharashtra during Kharif 2020
YES-Tech (drone-based yield estimation) launched nationally: 2026
1997–98 El Niño: among the strongest on record, caused severe drought across South Asia
Participation: made voluntary for loanee farmers from 2020 (previously compulsory under PMFBY)