IRDA Offers 50% Rebate on Reinsurance to Curb Losses on Pradhan Mantri Jeevan Jyoti Yojana

In a step to provide some respite to insurers, sector regulator Insurance Regulatory & Development Authority of India (IRDAI) has offered 50% rebate on reinsurance rate on Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) which offers Rs 2 lakh life cover for a measly sum of Rs 330 a year. 
 

Insurers welcome IRDAI's decision which they longed for ever since the scheme hit the market in early May but they say that the scheme may still remain unviable. 
 

"It's a welcome relief to insurance companies," said Vighnesh Shahane, chief executive of IDBI Federal Life Insurance Co. He said the long term viability of the scheme would depend on death claims and the issue has to be seen in conjunction with the section 45 rule. 
 

The Section 45 in the new Insurance bill says that no claim can be rejected after three years of the policy being in force, even if a fraud is spotted. "It's a great scheme for giving impetus to financial inclusion and insurance penetration but there would always be the risk of anti-selection with such schemes," Shahane said. The insurance industry has never done anything of this scale previously. 
 

According to calculations done by insurance companies, they would get just about Rs 248 out of Rs 330 paid as premium annually, after taking bank commission and stamp duty into consideration. The reinsurance rate comes to be around Rs 180 before concession. 

 

Around 2.85 crore people have been enrolled under it as on November 2 with over half of them coming from rural areas. About 37% of the total people enrolled are women. Out of 24 life insurance companies, 10 insurers having bancassurance tie-ups joined this national programme. All savings bank account holders in the age 18 to 50 years in participating banks are entitled to join it. 
 

The rebate on reinsurance was one of the few demands that the life insurance companies were making to improve viability of the scheme. 

The Life Insurance Council has made a pitch with several state governments to waive the stamp duty of Rs 40 for selling the product. V Manickam, secretary general of the council told ET that it had recently moved the Government of Maharashtra for a waiver. 
 

"The stamp duty waiver would be crucial for the viability of the scheme," Manickam said, adding that the council would also approach the state governments in Delhi, Andhra Pradesh, and Karnataka with similar demand.