Seven years after inception of its flagship insurance schemes – Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY), the Government of India has raised the premium for the first time.
Following this, the annual premium for PMJJBY – that provides a death coverage of Rs 2 lakh to the beneficiary of the policy in case of the sudden demise of the insured person – has moved up from Rs 330 to Rs 436.
On the other hand, the premium of PMSBY – that provides a death coverage of Rs 2 lakh to the policy beneficiary in case of the insured’s accidental demise – has moved up from Rs 12 to Rs 20.
Reasons behind Premium Hike
While there is high demand for the two insurance plans, what compels the government to increase the rates?
High Claim Ratio
According to the Ministry of Finance, since the launch of the PMJJBY, Rs 9,737 crore has been collected as premium, while the amount of claims paid till March 31, 2022 is as much as Rs 14,144 crore.
In case of PMSBY, Rs 1,134 crore has been collected as premium since the launch of the accident policy, while the amount of claims paid till March 31, 2022 is more than double of the premium collected at Rs 2,513 crore.
Such a high claim payout – in comparison to premium collection – makes the insurance plans unviable, unless the premiums are increased.
“Government-sponsored insurance schemes for the underprivileged all over the world face a particular challenge – claims rise due to inflation, actuarial wishfulness, or unforeseen events such as COVID, but premiums cannot be increased due to affordability constraints. For some time, this gap is borne by the participating insurers or bridged through government subsidy, till the schemes become simply unviable. Premiums then get revised, but with a lot of hesitation, because the optics of increasing premiums for the underprivileged are not particularly good,” said Srinath, Co-founder & Director, SANA Insurance Brokers Pvt. Ltd.
Impact of COVID, Inflation
Higher than normal mortality rate during the COVID-19 pandemic and high rate of inflation make continuation of the insurance plans further difficult without increasing the premiums.
“The recently announced increases in premiums of PMJJBY and PMSBY have to be seen in this context. These premiums have been revised after 7 years, during which period the tectonic pressures of adverse claim ratios were building up. COVID-19 resulted in a spike in claims that was the proverbial last straw. Therefore, premiums had to be increased to make these schemes viable. The interesting thing is that the sum insured amounts have not been revised even after 7 years to correct for inflation. Therefore, in real terms, the amount of coverage to the insured under these schemes has actually reduced over time,” said Srinath.