In his budget speech, Finance Minister Yashwant Sinha has asked the four non-life insurers to jointly float a separate outfit to do crop insurance. Till date the General Insurance Corporation of India (GIC) managed this loss-making business on the governments behalf.

Though Sinha declared that the premium rates will be determined on actuarial tools, it is doubtful whether there will be a real pricing freedom for the new corporation, given the past history of governmental intervention in pricing insurance products. For example, for a long time the government did not allow the non-life insurers to revise upwards the motor insurance premium rates due to the pressure from the transporters lobby. Only after the private players entry was there a move towards motor insurance premium revision.

One way of making the crop insurance business profitable is to involve the private non-life insurers, thereby making it difficult for the government to initiate any populist actions. The private insurers could be allowed to take an equity stake in the proposed new corporation, or underwrite the crop business on their own, and get it reinsured either with the new corporation or with GIC, the national reinsurer.

If this happens it will be the second alliance between government and private non-life insurers. The first one is going to happen with the four PSU general insurers planning to underwrite terrorism risks, even for risks insured with domestic private insurers.

There will be equity among private and government companies in this arrangement, says an industry official. In addition, the business underwritten could qualify to meet the rural targets laid down by the Insurance Regulatory Development Authority. I doubt whether the private sector will show any interest in such a proposal, says the chief of a government insurer.

The other proposal of Sinha relating to PSU general insurers is the designing of a new health insurance policy called Janraksha. According to the finance minister, on payment of a premium of Re 1 per day a person can claim a benefit of up to Rs 30,000 in case of hospitalisation or Rs 2,000 as outpatient treatment charges. Janraksha is the second populist healthcare scheme announced by the government.

The government, some years back, had made a similar announcement, resulting in a health insurance product called Jan Arogya. As a standalone product, the policy did not take off the way it was planned.

If, on the other hand, a decision is taken to offer health insurance as a packaged policy along with Kisan Credit Cards, then the dynamics of business will change in a different fashion. In one stroke a large population - now there are 2.07 crore cardholders - will come under the healthcare cover and will also help the government insurers to balance the losses it incurs due to the governments populist measures. At present the personal accident insurance cover is offered as part of Kisan Credit Cards.