Government's pro-poor schemes are bleeding insurers' books

Government-sponsored insurance schemes -- Rashtriya Swasthya Bima Yojana (RSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (term insurance) and Pradhan Mantri Suraksha Bima Yojana (personal accident insurance) -- have led to heavy losses for the insurance companies. M Saraswathy (more) Special Correspondent, Moneycontrol | Government-sponsored insurance schemes -- Rashtriya Swasthya Bima Yojana (RSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (term insurance) and Pradhan Mantri Suraksha Bima Yojana (personal accident insurance) -- have led to heavy losses for the insurance companies. These schemes, which are pro-poor, have low premiums with a disproportionately high claim payout. As a result, they have resulted in huge losses sometimes exceeding 100 percent over and above the premium collected. For every Rs 100 collected as premium, claims of more than Rs 100 are paid. This leads to losses referred to as underwriting losses in a product portfolio. Jan Suraksha insurance schemes are loaded with an annual premium of only Rs 300 and Rs 12 for its term insurance and the personal accident cover, respectively. 

 The insurance company which sells this scheme gets a very small sum from the premium since administrative charges for the banks are also paid out of this premium. Both the products have a cover of Rs 2 lakh each which is payable on death or due to any permanent disability. G Srinivasan, Chairman and Managing Director of New India Assurance said that the losses from the personal accident cover have touched 250 percent. He added that they have sought a hike in the insurance premium from the next financial year. The Centre had fixed low premiums for these products since they wanted it to be a policy for the masses. Even in the beginning of the financial year when the insurers had sought a revision in premium, no such hike was approved. RSBY scheme, which has a premium of Rs 30 for a cover of Rs 30,000 per annum, is finding fewer takers to sell it. The lowest bidder in a tender floated by the government wins the RSBY contract to sell it in a district for one year. 

The chief executive of a standalone health insurer said that very low prices are being quoted in the bids, which makes it unviable to compete with industry players. Several insurers have either reduced their exposure or are not bidding in some tender processes. In the Jan Suraksha insurance schemes, there have been fraudulent claims  the insured person was already dead before policy inception or fake medical certificates are produced to make a natural death look like an accident. Many such claims have also been rejected. Underwriting ratios have exceeded 100 percent in these product segments for almost all the insurance players participating in the schemes. Due to this, several private sector insurers are taking a wait-and-watch approach before entering the schemes. The Jan Suraksha insurance schemes have been made mandatory for the public sector insurers.

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