Though the insurance schemes the government came up with were a great way to provide social security to the poor—PMJJBY for life insurance and PMSBY for accident cover—it was always clear they were hugely under-funded. Against a premium of Rs1,529 per annum that LIC charges a 20-year-old for a 20-year cover for Rs 6 lakh going up to Rs 6,273 for a 45-year-old, the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) charged a mere Rs330 for everyone between 18-50. And as compared to Rs 100 per Rs 1 lakh of personal accident cover from non-life insurers, the Pradhan Mantri Suraksha Bima Yojana (PMSBY) charges a mere Rs12 per year for a Rs 2-lakh cover. While both schemes have got a large number of people insured—3.1 crore for life insurance and 10.1 crore for the accident cover—as FE reported earlier this week, the losses on both schemes are crippling.
As compared to a premium of Rs1,028 crore for the life policies in FY17, its second year of operations, the claims were for Rs1,249 crore, giving it a claims ratio of over 120%. In the case of the personal accident policy, the premium collected was Rs120 crore and the claims Rs205 crore, giving rise to a 171% claims ratio. In the case of the Pradhan Mantri Fasal Bima Yojana, another attractive insurance scheme, for crops, where the bulk of the premium is paid for by the Centre and state governments and where 3.8 crore farmers are enrolled, the claims ratio in FY17 was a whopping 86%—Rs19,424 crore of premiums collected vs the claims of `16,807 crore; if this is the situation in a year of good monsoon, imagine the claims in a drought year.
Certainly, in the case of the life and accident covers, getting in more customers will improve the risk profile, especially if they are younger. While no details are available of those enrolling under these policies in terms of their age/income profile, but one of the problems has been the slowing down of enrolments. If the number enrolled for life insurance rose 5.3% in the second year, this has slowed in the first few months of the current year.
There is, though, a limit to how much this will improve the claims ratio if the product is not correctly priced. In FY16, while the claims ratio in the life product was 52%—premium of `976 crore and claims of Rs 511 crore—even the reinsurers made some money since the claims ratio was reasonable; in future years, even reinsurance premiums will go up significantly. While the government must try to get more people covered by PMJJBY and PMSBY, if the premiums are not going to be increased to adequate levels, the government has to, as in the case of crop insurance where the premium are market-determined, pay insurance firms the extra amount to ensure they can continue to service these accounts—in the case of crop insurance, this is why, while the FY17 budget had provided Rs 5,500 crore as the premium, the final outgo was Rs 13,240 crore. As in the case of asking banks to open and service JanDhan accounts, or asking the EPFO to promise an over-generous pension scheme, the government must fund its social security measures and not pass on the bill to someone else.