LIC shying away from insuring the poor

Gyanendra Keshri, Executive Editor, INCLUSION

Until 31st December 2013, LIC had 54 products in its portfolio. The number has now come down to almost 10.

The government-run Life Insurance Corporation (LIC) that controls more than two-thirds of the life insurance business in the country, has shown unwillingness to bear the cost of the proposed Rs 30,000 life cover under the Pradhan Mantri Jan Dhan Yojana.

The Jan Dhan Yojana - the most ambitious financial inclusion exercise - is unlikely to achieve the desired results without pro-active participation from the state-run insurer.
Being controlled by the government it is supposed to be inclusive and more focused on the poor, however LIC, which enjoys near monopoly in the Indian life insurance market has historically not been very receptive to the idea of providing insurance cover to the poor.

Its focus has largely been on maximizing premiums from the rich. A look at the product portfolio of LIC clearly shows that it is unaffordable for the poor. Until 31st December 2013, LIC had 54 products in its portfolio. The number has now come down to almost 10. Although, it had a couple of plans focused on the weaker sections of society, there was hardly any focus on such products.

Under the government’s diktat, LIC had introduced micro insurance products like an endowment assurance plan called Jeevan Madhur and Jeevan Deep and a term assurance plan Jeevan Mangal during the mid-2000s. However, the push was clearly missing, as such plans do not offer lucrative returns. Agents, which are the main driver of the life insurance business, had little interest in pushing forward the micro-insurance products because the commission was not that good.

LIC’s apathy towards financial inclusion plans remains a big drag on the insurance penetration in the country. India’s insurance penetration remains among the lowest in the world.

Only 3.1 per cent of over 1.25 billion Indians have life insurance. In case of non-life insurances, the situation is even worse. Just 0.8 per cent of the total population has non-life insurance cover.

Considering a vast un-insured population and a growing middle class, India’s insurance industry has a huge potential for growth. However, the recent data is even more disappointing. Insurance premiums as well as the penetration have come down and the ledgers of most of private insurers are in the red. The aggregated first year premium of life insurance dropped to Rs 1,142 billion in financial year 2012-13, nearly 10 percent down from the previous year Rs 1,258 billion. Insurance premium as proportion to the country’s gross domestic product (GDP) fell to 3.9 per cent in 2013-14 from 4 per cent in the previous year.

The Pradhan Mantri Jan Dhan Yojana is, no doubt, ambitious and can substantially bolster the insurance penetration in the country. The target is to provide at least one bank account to all nearly 75 million un-banked households in the country by 26th January 2015. Over 15 million accounts were opened on 28th August 2014 - the very first day of the scheme being launched.

All the account holders will get a RuPay debit card and an accident insurance cover of Rs 100,000 with an overdraft facility of Rs 5,000, once the account is in operation for at least six months. On the launch day, Prime Minister Narendra Modi announced that the beneficiaries would also be provided a life insurance cover of Rs 30,000.

While the cost of the accident insurance cover will be borne by National Payments Corporation of India (NPCI) that runs the RuPay card, confusion persists on the life insurance cover premiums and mode of settlement. NPCI is expected to tie-up with HDFC Ergo to provide the accidental insurance service.

The government-run insurer must rise to the occasion and make the programme a success. Providing insurance to the poor should not be seen as a liability. Increased penetration will help the company and the overall industry on the one hand and will lift the poor from poverty on the other.

The premium for the life insurance cover could be paid partly by the beneficiaries themselves and the claim settlements could be through the Aam Aadmi Bima Yojana, the social security scheme administered by LIC.

(Gyanendra Keshri can be reached at gyanendra@skoch.in)

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