Insurers seek up to 30% premium hike for Jan Suraksha policies from 2021

Insurance companies have asked the Finance Ministry for an increase of at least 25-30 percent in the premium rates for the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). This is amidst rising claims under the insurance policies.

The government’s term insurance and accident insurance schemes are the cheapest products available in the Indian market. Regular term plans of the same size (Rs 2 lakh) would cost up to Rs 900-1,000 per year while accident insurance covers would cost up to Rs 600-700 per annum.

In comparison, the government covers cost just Rs 330 and Rs 12 for term and accident insurance, respectively.

“It has been five years since these schemes were launched but there has been no increase at all in the premium rates. Claims have been on the rise, especially this year due to Coronavirus-related deaths, and it is time that premiums are increased,” said the chief financial officer of a private life insurance company.

He added that the life and general insurance industry had communicated about the rising claims and mounting pressure on balance sheets to the Finance Ministry. These policies, which are auto-renewed every year, will come up for renewal from June 2021. The industry is hoping that a premium hike announcement will be made during Union Budget 2021.

The government had kept the premium rates at Rs 12 per annum for PMSBY, a personal accident insurance scheme, while PMJJBY has a Rs 330 annual premium for term insurance. The size of the cover is Rs 2 lakh for both and was launched under the Jan Suraksha Yojana by Prime Minister Narendra Modi in May 2015.

In the period immediately after the launch of these schemes, banks were focussing on enrolling more policyholders aggressively. In the first five months of the schemes' launch, around 120 million policyholders were enrolled.

Though there was a stagnation in enrolment in FY19 and FY20, the Covid outbreak has helped it pick up speed. PMJJBY and PMSBY are the cheapest life insurance and accident insurance products available in the Indian market.

The insurance industry has sought an increase in premium rates since FY19. However, the government had turned down the demand saying this would dissuade customers from renewing their policies and also affect new enrolment.

“Now that customers have been willingly buying the product, why can’t the premiums be hiked? It is not sustainable for insurers to continue offering these policies at such low rates. If premiums don’t increase, several private insurers will be forced to exit this scheme,” said the chief actuary of a bank-led private life insurer.

All insurers are part of this programme and nobody has exited the scheme so far. However, participation in these programmes is not mandatory and insurers can choose whether they wish to participate or not.

A total of 28,600 death claims have been filed between March and November 2020 under PMJJBY, the term insurance product, which pays Rs 2 lakh as death claim if the insured dies during the policy term. Close to 90.6 percent of the claims have been settled so far.

In the first five months of the schemes' launch, around 120 million policyholders were enrolled.

During the same period, enrolment rose from 69.6 million (March 2020) to 94.8 million (November 2020). This was attributed to the rising fear of high mortality from the Covid outbreak.

So far, 1,44,789 people have died in India due to Covid-19 and total cases stand at 9.97 million, of which active cases are at 3,22,366.

Insurers are worried about the rising claims expenses under this product due to Covid-19 and hence want the prices to be revised from 2021 onwards.

Due to the lockdown, accident claims filed were under control. Between March and November 2020, a total of 5,436 claims were filed. Between March and July, the number of claims filed was close to 2,000 due to strict control on movement during these months to prevent the spread of Covid.

But since the unlock phase from August, there has been a higher incidence of claims under the accident insurance product.