New Delhi: The government is planning a major revamp of its flagship insurance schemes, including Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). Post-restructuring, subscribers may be allowed to pay proportionately for the period they would be insured. The government objective is to make the scheme affordable to even the poorest of the poor.
The changes have been designed to push the agenda of financial inclusion and ensure that benefits of life insurance reach a larger section of the population. It is felt that even at Rs 330 a year, the premium for PMJJBY may pinch the poorest of the poor. A staggered payment mechanism would make the product more affordable.
As per the changes that have been communicated by the finance ministry to all banks and insurance companies, PMJJBY customers would be allowed to pay premium on pro-rata basis every quarter if they fail to meet the annual premium payment deadline. The pro-rata premium for enrolment under PMJJBY has been fixed with the minimum premium of Rs 86 for one quarter. This minimum payment could be made even if a person enrolls under the scheme just one or two months before the end of the policy year (i.e. if he enrolls in March, April or May).
The cover period under PMJJBY is June 1 of each year to May 31 of subsequent year. For the cover period-- June 1, 2018 to May 31, 2019-- subscribers are required to enroll and give their auto-debit consent by May 31, 2018. Those joining subsequently were required to pay full annual premium for prospective cover. Under staggered payment system now, the premium will be charged only for the period the policy is valid, to be calculated on quarterly basis.
According to a finance ministry letter to banks and insurers, the changes were done on the basis of the decisions taken in a May 2 meeting convened to review the performance of PMJJBY and Pradhan Mantri Suraksha Bima Yojana (PMSBY). LIC had also written a letter to the ministry on May 29 on this subject.
“For instance, if the enrolment for PMJJBY takes place during the months of June, July and August, the annual premium of Rs 330 is payable. If the customer fails and does in September, October or November – three quarters of premium @ Rs 86.00 i.e. Rs 258 is payable. Similarly, for December, January and February – for 2 quarters of premium @ Rs 86.00 i.e. Rs 172 is payable and in March, April & May – for 1 quarter premium @ Rs 86.00 is payable and the lien period of 45 days shall be applicable from the date of enrolment,” the letter added.
The move of the government aims to help eligible account holders of PMJJBY to get the benefit of their life cover. PMJJBY is available to people in the age group of 18 to 50 years (life cover up to age 55) having a savings bank account who give their consent to join and enable auto-debit.
Under PMJJBY scheme, life cover of Rs 2 lakh is available at a premium of Rs 330 per annum per member and is renewable every year. In the case of a joint account, all holders of the said account can join the scheme provided they meet its eligibility criteria and pay the premium at the rate of Rs 330 per person per annum.
Confirming the development, a top official in the finance ministry told FC, “After a thorough review in the middle of June about these two flagship schemes floated by the government, we did not find any encouraging results in this regard. In the review, we observed that PMJJBY scheme showed the lukewarm response from the potential account holders and therefore, we decided to launch quarterly premium scheme for them so that they can get the benefit from the scheme.”
In its letter, finance ministry further said that in case of payment of pro-rata premium the administrative charges payable to the bank, which is currently, Rs 11 per subscriber per annum for premium of Rs 330, would be paid on pro-rata basis (ie; for quarterly premium of Rs 86, the bank will retain an amount of Rs 3.50, for two quarters of premium of Rs 172, the bank will retain of Rs 7 and for three quarters of Rs 258, the bank will retain Rs 10.50).
“Also, the commission charges payable to business correspondents, micro and corporate agents would also be payable on pro-rata basis (ie; for quarterly premium of Rs 86, it would be Rs 7.50, for 2 quarters of Rs 172, it would be Rs 15 and for premium Rs 258, it would be Rs 22.50 for 3 quarters),” said the finance ministry.
According sources in the industry, even as insurance companies have requested the finance ministry to increase the premium rates of both the schemes, they have been informed that it would not be possible to do so.
“Under PMJJBY, the claims ratio for companies during 2017-18 was over 110 per cent, while for PMSBY (Pradhan Mantri Suraksha Bima Yojana) it was around 175 per cent in the same period,” industry sources said.
PMJJBY and PMSBY are the government-backed insurance schemes, launched by prime minister Narendra Modi in May 2015. While the former provides life insurance cover of Rs 2 lakh at an annual premium of just Rs 330, the latter provides accident insurance cover of Rs 2 lakh at only Rs 12 per year to all bank account holders.
State-owned insurance companies, which form around 75 per cent of market share in both the schemes, have been facing losses of around 90 per cent, especially in the PMSBY. As on May 14, 2018, nearly 5.35 crore people had enrolled under PMJJBY, and the total number of claims received till date were nearly 1,02,849.
