NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, May 11, 2015

Prime Minister Narendra Modi and his team at the NDA government deserve their due share of credit for initiating efforts to bring a large segment of India’s population to insurance, pension cover at cheaper cost, even as the Congress is crying foul of repacking old UPA ideas.

The three social security schemes launched Saturday nationwide — two insurance and one pension — is a follow-up to the much publicised Jan Dhan Yojana — the ambitious scheme launched by the prime minister last year aimed at bringing the poor under the coverage of formal banking.

The schemes offer Rs 2 lakh life cover at a premium of Rs 330 per annum and accident cover for a similar amount for Rs 12 per annum, much cheaper than the comparable products available in the market. The third, a pension product, permits flexible premium pay and equal government contribution.

Like in the case of Jan Dhan, underwhich banks have already opened 15 crore accounts, bank staff was given huge targets in the run up to the launch of the latest round of social security schemes to meet the target, if not surpass them. Over five crores enrollments have been completed till the launch and the government has given a target to banks of 10 crore by May 31.

Making available a full range of financial products — insurance and pension schemes — are indeed a boon to Indians, since about half of them are still outside the formal financial system. For instance, insurance penetration in the country is still only 3.9 percent, much less than the world average of 6.3 percent. Same is the case with large segments of unorganised workers excluded from the benefit of pension.

Speaking to Firstpost, SBI chairperson Arundhati Bhattacharya said these schemes are good and will help improve insurance awareness and penetration. “Pricing may need adjustment depending on experience,” Bhattacharya said.