FinMin keeps term insurance, accident insurance rates unchanged

The finance ministry is said to have kept the annual premium for policies under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) unchanged for FY22, a move that will benefit customers.

The annual premium of Rs 330 for a life insurance policy under PMJJBY and Rs 12 for a disability and accidental death policy under PMSBY will continue this year. The annual policies can be renewed by the end of June.

While insurers had sought an increase in premiums of up to 20 percent, it was decided not to go ahead with the hike considering income losses and pay cuts due to the pandemic, people familiar with the matter said. “Any hike would have directly impacted customers and this was not considered appropriate during COVID-19,” an official said.

The government’s term insurance and accident insurance schemes are the cheapest products in the Indian market. Regular term plans offering the same cover of Rs 2 lakh can cost Rs 900-1,000 per year, while accident insurance covers can cost Rs 600-700. Immediately after the schemes were introduced in May 2015, banks focussed on enrolling policyholders aggressively and were able to bring 120 million customers on board in the first five months.

Though enrolment stagnated in FY19 and FY20, the COVID-19 outbreak helped it pick up speed. Enrolment under PMJJBY stands at 103 million subscribers and under PMSBY at 234 million subscribers. Under PMJJBY, a total of 4,65,000 claims valued at Rs 9,307 crore were paid as of June 5. Since the COVID-19 outbreak in April last year, 1,20,000 death claims amounting to Rs 2,403 crore have been paid, which is a disposal rate of 99 percent.

Under PMSBY, a total of 82,660 claims totaling Rs 1,629 crore were paid as of May 31, 2021.

Will insurers face claims losses?

Insurers will have to bear the burden of the decisions to hold premium rates, they told Moneycontrol on condition of anonymity because the matter is sensitive and under regulatory supervision.

“On the one hand, claims are on the rise, while on the other, premiums have stayed stagnant. This could lead to rise in claim losses,” said the actuarial head in a life insurance company. This could also lead to a reduction in exposure for some general insurers.

The head of underwriting at a mid-sized general insurance company said eventually, insurers that are unable to manage the cost of claims will exit because the pricing is not sustainable.

Finance minister Nirmala Sitharaman directed insurance companies on June 5 to process claims under PMJJBY and PMSBY in seven days. Till now, insurers had 30 days to process these claims. The finance minister also said there should be end-to-end digitisation of the claim settlement process between banks and insurance companies.