Govt's low cost insurance schemes also drive financial inclusion

By launching social security schemes last year-- Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY), and Atal Pension Yojana (pension scheme) — the Centre has not only taken its financial inclusion drive a step further, but also tried to address the problem of very low penetration levels in insurance. Over the past year, about 3 crore policies have been issued under PMJJBY scheme (life insurance). This is more than the 2.6-odd crore new life policies issued in whole of 2014-15. The response under PMSBY (personal accident) has been stronger. More than 9.2 crore people have enrolled for the scheme. Until two years back, just 17 crore people were covered under personal accident insurance. Around 15.85 lakh people have registered for the Atal Pension Yojana so far.

Beyond bank accounts

Banks have opened over 20 crore bank accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY). However, realizing that opening of such accounts alone cannot guarantee financial inclusion, the Centre has resolved the dormancy issue to some extent by routing subsidies through these accounts. As per the latest data on Jan Dhan, about 30 per cent of the accounts have zero balance, down from the more than 60 per cent last year.

Now, subsidies get deposited directly in the bank accounts through direct benefit transfers. Currently, the Centre is using direct benefit transfers for 35-40 schemes and about Rs 40,000 crore were directly transferred to the beneficiaries in calendar 2015.

Aside from raising the deposit levels in these accounts, it is necessary to increase the number of transactions to ensure viability of these accounts. This means that banks have to leverage these accounts to provide a variety of financial services. By launching simple and affordable insurance schemes, the Centre has helped banks to increase activity in these accounts.

Under penetration

But it is not that banks alone have benefited from the Centre’s low cost insurance schemes. Life and non-life insurers, grappling with low penetration levels, have also got a leg up. In life insurance, the penetration is just about 2.6 per cent of GDP, while in non-life it is lower at 0.7 per cent of GDP. Complexity of insurance products and low awareness has led to abysmal levels of penetration in the country.

According to Suresh Sugathan, Head Health Insurance, Bajaj Allianz General Insurance, the biggest breakthrough for the insurance industry has been the financial inclusion initiatives launched last year. These products are simple and are being distributed through banks that have the largest network in the country.

“This initiative is a great example of how simplicity of a product, a robust distribution network and use of mobile technology can transform the entire industry. The initiative showed how we can reach millions of customers when the products and process are simplified,” he adds.

The two insurance schemes launched by the government are low-cost. PMSBY provides accident insurance worth Rs 2 Lakh at just Rs 12 per year, while PMJJBY provides life insurance at just Rs 330 per year.

High volumes

Big volume has helped insurers to offer these products at a much cheaper cost. For instance, the premium paid for a personal accident cover of Rs 2 lakh usually is Rs 100-200. But the PMSBY is offered at almost a fraction of this price as insurers are happy with the volume of business under this scheme.

After the scheme was rolled out in May 2015, Bajaj Allianz General Insurance, for instance, saw a growth of over 150 per cent in its personal accident portfolio. The company has been able to enrol over 14 lakh customers from across the country and has settled close to 70 claims under this scheme.

Other insurers that are tied with various banks to offer this scheme are National Insurance, United India Insurance, ICICI Lombard, Cholamandalam MS, New India Assurance, Universal Sompo and Reliance General Insurance.

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