Posted on January 3, 2019 by Author

In May, 2015 two massive government insurance schemes were launched as an effort to bring more people into the formal economy and provide them with medical assistance. The Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) would become the largest ever insurance schemes undertaken. The schemes meant for the poor or underprivileged are of two types. Pradhan Mantri Suraksha Bima Yojana is an accident coverage scheme that covers treatment, disability arising from an accident, & accidental death. The scheme covers people aged 18 to 70 years, for an extremely low premium of Rs. 12 per annum that is debited directly from their bank savings account. Nominees could benefit by getting ₹2 lakh in case of an accidental death or ₹1 lakh in case of partial Permanent disability. The Pradhan Mantri Jeevan Jyoti Bima Yojana on the other hand is a life insurance policy that covers people aged 18 to 50 years. Under the scheme, nominees get ₹2 lakh in case of the holder’s death for a small premium of ₹330 per annum. GST rates were also waived off on the schemes in a bid to make them popular.

Since their inception in 2015, a total of 11.41 crore people have enrolled for PMJJBY, while PMSBY has seen a total of 32.95 crore people enroll.

Both schemes did well in their first years. However the last two years have seen claim amounts outpace the premiums received. This trend has seen the claims ratio for PMJJBY rise to 102% in 2017-18, while PMSBY saw its claims ratio rise to a shocking 203% in the same year.This has worried both private & national insurers as they’ve had to set aside more of their reserves to be able to compensate for the losses. Other losses have been in terms of the administrative costs of the schemes. With the low premiums, banks and insurers are spending more to disburse the schemes than they are able to receive.

While reinsurers had offered to cover the schemes when they were first launched, the schemes attract little support at the moment. Reinsurers aren’t sure they can compensate the inevitable losses that the two policies will result in. This comes even as the IRDAI offered a 50% rebate on insurance for the PMJJY. Reinsurers & insurers alike see the schemes as a great means of increasing the insurance penetration in the Indian market. One of the main things insurers have been looking for is a hike in the premium rates. Most insurers believe that only a hike in the premium rates will allow the two welfare schemes to become viable in the long run. Unfortunately, it can only be revised in June 2019, when the next government comes in power. One of the troublesome parts of the schemes in their current form is that the calculations & rates haven’t been set by insurance industry experts. This has severely affected the profitability of the schemes.

Add to it the lack of documentation and restrictions. It allows insurers very little control of the inherent risks associated with them.

The Pradhan Mantri Fasal Bima Yojana has also hit a bit of trouble but has managed to stay afloat thanks to a lower claims ratio. But insurers fear a much higher claims ratio should a drought season hit the country. The two schemes have helped insurers and reinsurers learn a great deal about the risks involved with such a massive undertaking, as well as the need to mitigate these risks through higher premiums and better rules & processes. These learnings will go a long way and could eventually help if the government decides to launch a much wanted catastrophe insurance scheme.