Authors:
1. Introduction
Life insurance can serve as a critical product in the portfolio of low-income households (LIHs) to tide over adverse income shocks. Events such as loss of life or accident of the primary income earner of the family, combined with insufficiency and unpredictability in cashflows can have a huge negative impact on the financial stability of these households. Therefore, helping low-income households manage and recover from shocks is an important policy mandate. With this agenda in mind, the Government of India launched the Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and the Pradhan Mantri Suraksha Bima Yojana (PMSBY) in May 2015 as part of the Jan-Dhan Se Jan Suraksha program. PMJJBY offers a subsidized life insurance cover of up to ₹2 lakhs for a premium of ₹436 (paid annually) for individuals in the age group of 18 to 50 years.[3] PMSBY offers accidental death and disability coverage of up to ₹2 lakhs for accidental death and full disability and ₹1 lakh for partial disability for a premium of ₹20 per annum, for individuals in the age group of 18 to 70 years.[4] PMJJBY and PMSBY are offered by Life Insurance Corporation and public sector general insurance companies, respectively, along with other insurance companies willing to provide the products on terms mandated by the Government, with necessary approvals and tie-ups with banks (Inclusive Finance Report, 2021).[5]
The affordable and accessible nature of these insurance products makes them relevant to the needs of low-income households. Yet, the take-up of these schemes remains low. According to the 2019 All-India Debt and Investment Survey (AIDIS),[6] less than 5% of Indian households have PMJJBY and PMSBY accounts, with the ownership being less than 1% for low-income households.[7]
This research brief aims to synthesize existing evidence on the performance of PMJJBY and PMSBY since their inception, the reasons for low participation in these schemes, and the barriers to their successful implementation. We do this by focusing on the supply-side issues that give rise to customer protection concerns and that reduce the effectiveness of these schemes. We break down and evaluate each step of the customer journey- from access and ownership of accounts to claims settlement and the mechanisms available for grievance redress. We also briefly describe the demand-side factors that have a bearing on the take-up of these schemes, such as the customer’s context and preferences and attitudes towards insurance.[8]
We rely on existing datasets to evaluate the penetration of these products and speak to sector experts from grassroots organisations, think tanks, and the financial industry to furnish a holistic perspective on the effectiveness of these schemes in meeting their objectives.
We find that the customer journey in purchasing and availing the benefits of PMJJBY and PMSBY is marred by numerous process-level inefficiencies. These inefficiencies result in customer harms and give rise to various customer protection concerns. These concerns relate to practices adopted by Financial Service Providers (FSPs) in the sale and servicing of these products that put the customer’s interest and wellbeing at risk and therefore fail to ‘protect’ the customer.
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[1] We are grateful to the Gates Foundation for funding this project as part of Dvara Research’s Customer Protection Program (CPP). We thank the advisory committee members of CPP and in particular Pawan Bakhshi, India Country Lead at BMGF. We thank Indradeep Ghosh, Executive Director and Deepti George, Head of Strategy and Deputy Executive Director at Dvara Research for their feedback and inputs throughout the course of the study. We also thank Shreya Tiwari who interned with us on this project from April to May 2022. Finally, we would like to thank several industry experts we spoke to in order to build our understanding of the challenges in delivering the insurance schemes under the Jan Suraksha program.
[2] Niyati Agrawal, Research Associate, Household Finance Research Initiative, Dvara Research (niyati.agrawal@dvara.com); Misha Sharma, Practice Head, Household Finance Research Initiative, Dvara Research (misha.sharma@dvara.com)
[3] The premium amount of PMJJBY was increased from an annual amount of ₹330 to ₹436 in May 2022.
[4] The premium amount of PMSBY was increased from the initial ₹12 per annum to ₹20 per annum in May 2022.
[5] Inclusive Finance India Report, 2021- https://www.indiaspend.com/uploads/2021/12/19/IFI_Report_2021.pdf
[6] Insights from the AIDIS 2019- https://www.dvara.com/research/wp-content/uploads/2022/02/AIDIS-Slide-Deck.pdf
[7] To study the distribution of policyholders by household wealth, we also calculated the net worth of households by estimating the difference between their value of assets and liabilities. We found that 75% to 80% of PMSBY and PMJJBY account ownership comes from households that fall in the top 60% of net worth distribution, whereas the bottom 40% of households own only 20% to 25% of the total pie. These numbers indicate that the coverage of these schemes remains inadequate among low-income households.
[8] Several of these factors are, however, intricate and are more complex than what they seem on the surface. Therefore, a neat bifurcation of demand versus supply side issues might not always be possible. However, it is important to discuss these factors as they influence the uptake of these schemes. Moreover, several of the ‘demand-side factors’ are also a result of the current distribution realities of insurance products among low-income households, particularly in rural settings. For example, lack of awareness could be viewed as both a supply and a demand side issue. One could argue that FSPs have not made enough effort to educate and inform potential customers, especially among low-income, rural communities, about a variety of insurance products available in the market. This could be a reason for the lack of demand for term life insurance products among low-income households. At the same time, one could also argue that limited exposure to the formal financial system and low levels of education of LIHs hinders their knowledge about the formal insurance markets at large.
Cite this brief:
APA
Agrawal, N., & Sharma, M. (2023). Challenges in the delivery of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY). Retrieved from Dvara Research.
MLA
Agrawal, Niyati and Misha Sharma. “Challenges in the delivery of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY).” 2023. Dvara Research.
Chicago
Agrawal, Niyati, and Misha Sharma. 2023. “Challenges in the delivery of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY).” Dvara Research.
