Insurance companies face steep challenges from Pradhan Mantri Jeevan Jyoti Bima Yojana
With the low premium offered under PMJJBY, agents are finding it difficult to push higher-value insurance products, especially in smaller towns.
Under the scheme, the government offers life insurance cover of Rs 2 lakh for a premium of Rs 330 annually to savings account holders aged 18 to 50 in participating banks. Entry-level plans of other insurers offer higher cover and cost much more.
State-owned Life Insurance Corporation of India, the country's biggest insurer, offers a five-year term plan with a minimum assured sum of Rs 6 lakh for a premium of Rs 1,212 at the entry level. The premium increases with age.
ICICI Prudential quotes a premium of Rs 2,452 a year for a 25-year-old for a 30-year plan, according to the company's online tool.
The government introduced the scheme with the objective of increasing insurance penetration in India, which stood at 3.9% in 2013 compared with the world average of 6.3%. Already, 2.66 crore people have enrolled for the scheme.
With the low premium offered under PMJJBY, agents are finding it difficult to push higher-value insurance products, especially in the smaller cities and towns.
"The clientele for such products were lower middle-class households," said the corporate agency of a leading insurance company. "In any case, it was difficult to convince them to buy a pure term plan, which has been further affected on account of this low-premium plan." Agents are trying to make people aware about the limitations of the government scheme, according to another insurance agent, who said coverage under PMJJBY is up to the age of 50, which is below current life expectancy figures.
"You cannot match the low premium as the scheme has government support. But it also has a positive that people get aware about insurance and pension products, and as they move up in the financial ladder they opt for more coverage," the agent added.
Prime Minister Narendra Modi had launched two other schemes along with the PMJJBY for comprehensive social security -- the Pradhan Mantri Suraksha Bima Yojana for accidental death insurance and the Atal Pension Yojana to provide old-age income. Total enrolment in all three schemes is 10.4 crore as of now. Most banks offer the insurance product through their branches in a tie-up with group promoted firms or bancassurance partners.
Corporate agents of insurers, who solicit business on behalf of insurance companies, said that their costs have also increased as they are required to hire staffers on a permanent basis.This "increases our cost on account of employee benefits," said Vanamali Polavaram, managing director of GTFS Multi Services Ltd. Under the PMJJBY, the reimbursement amount to an agent is Rs 30 per annum per member.