India is the only country with micro insurance regulation but much more needs to be done! The Centre for Insurance and Risk Management (CIRM), which operates under IFMR Foundation, has urged the Union Government and Insurance Regulatory & Development Authority (Irda) to make administrative and regulatory changes to enable penetration of micro insurance, especially in rural areas.
The role of Microinsurance is commonly less understood than microfinance mainly due to its late emergence relative to the idea of providing financial services to the bottom of the pyramid. India represents one of the largest untapped Microinsurance markets.
Rupalee Ruchismita, spokesperson of CIRM, said, “The perception that entering rural markets is expensive has been replaced by the possibility of making rural insurance not only commercially viable and sustainable but also profitable. This is provided questions about product design and models of delivering risk hedging products are innovatively addressed.”
Ruchismita urged the Union Government to take administrative measures for promotion of micro insurance. She said that data must be made available to insurance companies so that they can expand their activities in rural areas. While the Micro Insurance Act stipulates an upfront payment of premium for micro insurance policies, people in rural areas have low incomes and are incapable of paying a lumpsum amount upfront. Therefore, allowing them to pay the premium in monthly installments will help in stimulating demand for insurance products, she added.
Ruchismita noted that IRDA should allow more players in the sector while speaking on the sidelines of a seminar on “Indian Microinsurance: What Works?” organised by Microfinance Insights, IFMR Foundation and CIRM. Among the major players, LIC, ICICI Lombard, Agriculture Insurance Corporation, IFFCO-Tokio and Tata AIG are seeking ways to consolidate their presence in the sector. Also, MaxLife has launched Max Vijay to tap the micro-insurance potential.
The fact that these companies are focusing on micro insurance is crucial as traditionally insurance has never really expanded beyond urban geographies. This has been attributed to poor insurance literacy and awareness, high transaction costs, inadequate regulations, and inadequate understanding of client needs and expectations.
Incidentally, the Indian insurance industry is expected to witness a 500% growth and reach $60 billion in next four years. Insurance firms are keen to exploit this potential; in keeping, ING is planning its entry in India.
According to the UNDP Report, about 90% of the Indian population—some 950 million people—are not covered by insurance and signify an untapped market of nearly US$2 billion. Additionally, a survey conducted among 248 urban and rural below poverty line families by SKS (one of the leading MFIs) before it began offering health insurance showed that 67% of the respondents had used private medical facilities. On average, they spent INR 2,340 per family per annum on consultation, diagnosis, treatment and transportation. Approximately 45% of the families surveyed borrowed money to meet health emergencies. Nearly 94% of the families had borrowed less than INR 5,000 and only 3% had health insurance coverage. To maximize efficiencies, improve management, strengthen controls and scale-up outreach, the need to exchange information and instigate information symmetry in the Indian Microinsurance space has never been more important.
CIRM and IFMR Foundation have identified the need for frequent interaction between key microfinance stakeholders through events focused on issues relevant to the sector. This panel event, organized with Intellecap and “Microfinance Insights“ was a discussion among policy makers, micro insurance providers/intermediaries and technology enablers. Structured into three panels, the event sought to have rich insights from these interrelated themes in Microinsurance design and delivery.
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