Irdai eases capital requirement for insurers to offer PMJJBY schemes

The Insurance Regulatory and Development Authority of India (Irdai) has reduced the capital required by insurance companies offering policies under Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) by almost 50 per cent.

This is to enable insurers to offer more policies under the scheme, and provide financial security to the bottom-of-the-pyramid segment in India.

This is, perhaps, one of the first times that the insurance regulator is providing such a dispensation to insurance companies.

“In order to facilitate more participation of insurers under PMJJBY, Irdai has reduced the capital required to be held by insurers offering PMJJBY, by almost 50 per cent,” Irdai said in a statement.

The easing of capital requirements by Irdai will accelerate the penetration of life insurance in India. It will support the life insurers in achieving their target set by the government, the regulator further said.

PMJJBY provides life insurance cover worth Rs 2 lakh to all account holders aged 18-50 years. According to government data, the number of active subscribers enrolled under PMJJBY as of March 31, 2022, is 64 million. The claims ratio (percentage of amount of claims paid to premium earned) for PMJJBY was 145.24 per cent as of March 31, 2022. About Rs 9,737 crore has been collected as premium under the scheme while claims of Rs 14,144 crore have been paid.

Earlier this week, the Centre increased the premium rates for PMJJBY and Pradhan Mantri Suraksha Bima Yojana (PMSBY), for the first time in seven years due to “long-standing adverse claims experience”, and to make them economically viable.

The premium for PMJJBY would increase from Rs 330 to Rs 436 a year effective June 1, and the PMSBY premium would rise from Rs 12 to Rs 20.

“The PMJJBY has been a loss-making scheme for most life insurance companies. The revision of premium rates is a welcome move and makes PMJJBY a lot more viable. Earlier, life insurance companies earned Rs 289 (net of commission) for renewals pertaining to PMJJBY. Post revision in premiums, companies will earn Rs 425 from renewals.

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Also, reinsurance support for PMJJBY was muted. Thus, the entire risk was on the life insurance companies’ balance sheet. Now, with Irdai reducing the requirement for this scheme, it will free up capital for life insurance companies,” said Rushabh Gandhi, Deputy chief executive officer (deputy CEO), IndiaFirst Life Insurance.

The move to reduce capital under PMJJBY is going to free up capital to the tune of over Rs 500 crore for the insurance companies, experts pointed out.

According to an expert, for PMJJBY policies, the required solvency margin (RSM) is a sum of 0.1 per cent of sum at risk plus 1 per cent of mathematical reserves. The sum at risk factor has been brought down to 0.05 per cent now.

“The premium increase for PMJJBY will bring the much-needed relief to insurance companies because the mortality experience has been on the higher side. This is especially in the last two years because of Covid.

Now, with Irdai reducing the capital requirement, it will free up some capital for the insurers. This is because we do not have to block as much capital as we had to earlier,” said Vighnesh Shahane, managing director (MD) & chief executive officer (CEO), Ageas Federal Life Insurance.

According to Nilesh Sathe, former Irdai member (life), “The increase in premium will help the insurance companies in reducing their losses under PMJJBY. This is because out of Rs 330 collected by banks, the amount reaching insurance companies was Rs 289 for offering insurance coverage of Rs 2 lakh.

The premium was just not enough and insurance companies were bleeding. The relaxation in capital requirement will mean that some of the capital of insurance companies will get freed up and the pressure on solvency will also go down.”

“It is unlikely that these products will be marketed aggressively by insurance companies because the sale of these products depends on the banks. Insurance companies, which are promoted by banks or which have tie ups with banks, are only selling PMJJBY policies. So, the government should encourage the banks to aggressively sell this product since the buyers of PMJJBY are essentially bank customers,” he added.

Experts said that Life Insurance Corporation (LIC), SBI Life and IndiaFirst Life Insurance are some big players offering policies under the PMJJBY scheme.

LENDING SUPPORT

• Easing of capital requirement will enable insurers to offer more policies under PMJJBY

• It is expected to accelerate insurance penetration in the country

• PMJJBY has continued to be a loss-making scheme for most life insurance companies

• Mortality experience of PMJJBY has also been on the higher side