High demand for PM life insurance cover in FY21
„PMJJBY sales rise 48%, insurers seek premium hike
The onset of the Covid 19 pandemic last year has led to a huge spurt in the sale of the government’s low-cost term life insurance policy, namely the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). In 2020-21, a whopping 3.31 crore people bought the cover, a rise of
48 per cent, taking the cumulative number of persons enrolled in the scheme to 10.27 crore as on March 31, 2021.
The low-cost insurance policy, targeted at unorganised sector workers, including self-employed, has been priced at Rs 330 for Rs 2 lakh annual term life cover and is linked to all savings bank accounts. It is renewable annually.
Over the prior three years to 2020-21, the scheme had growth rates between 11 per cent and
18 per cent. Around 1.04 crore people bought the term cover in 2019-20, a growth of 18 per cent, while 59 lakh people were covered in 2018-19, a growth of 11 per cent. A good 2.23 crore people had bought PMJJBY in 201718, a rise of 72 per cent. However, despite having a low incidence rate/mortality rate of 0.2-0.3 per cent, the scheme continues to make losses for life insurers. As a result, only Life Insurance Corporation of India and very few private life insurers are offering the scheme to their customers through their banking partners.
An incidence rate or the mortality rate refers to the number of people who died out of the number of people enrolled in a given year.
Explains Amit Bharwani, assistant vice-president at Prudent Insurance Brokers, “Out of the total 3.31 crore people who bought the cover in FY21, the number of people who died were
62,166 that resulted in a claim outgo of Rs 1,243 crore against a premium of Rs 1,023 crore earned. So, the loss/claims ratio for insurers stand at 122 per cent in FY21. The average loss ratio for insurers in the last five years is Rs 139 which means as against a premium of Rs 100, insurers are on an average paying claim of Rs 139.”
Ashvin Parekh, managing partner at Ashvin Parekh Advisory Services LLP, said, “Over
10 crore is quite a sizeable number of people covered. The enrolments have mostly come in 202021, which has largely to do with the Covid pandemic. With so many people getting covered, the government should give a choice to customers to enhance their coverage but increase the premium less than proportionately as it is targeted towards the lowest strata of the society.”
Calls, text messages and questionnaire sent to LIC chairman M. Kumar did not ellicit any response.
Heads of private life insurance companies told Financial Chronicle that in several meetings they have asked the government to increase the premium for the scheme.
Says R.M. Vishakha, managing director and chief executive officer at IndiaFirst Life Insurance, “PMJJBY is a very good scheme for social security, but the coverage needs to increase. Secondly, our loss ratio in the scheme has been in excess of 125 per cent and the scheme has been loss making since inception. Even though term premium rates have gone up across the board where there is complete underwriting, PMJJBY continues to have a flat premium of Rs 330 with no medical underwriting. There is a repricing required to make it more viable and then it's in everybody’s interest to push the scheme. According to our estimates the premium should rise to Rs 550.”
Dhirendra Kumar, chief executive officer at Value Research, said, “This is the only insurance that has not been sold but it has been bought without any mis-selling and well targeted at people who would never have been served by life insurance companies directly. I really wonder if Rs 2 lakh is good enough to sustain anything. The government should give an option to customers to enhance their coverage.”