Insurance cos failing to cover poor, allow NGOs in the sector: GoI-supported report

By Rajiv Shah 

In an unusual development, a Government of India (GoI)-supported report has favoured the NGO model for taking insurance to the poorer sections of the people, stating that since they are aligned with vulnerable communities they can take insurance to them if necessary policy changes are made in the desired direction. The report comes amidst the strong view among Indian NGOs that they have to operate in an “increasingly repressive” political environment.
Prepared by a committee set up by the Insurance Regulatory and Development Authority of India (IRDAI), a statutory body tasked with regulating and promoting the insurance and re-insurance industries in India, the report regrets, the poor outreach of the sector is there despite IRDAI mandate to existing insurance companies to sell policies to promote insurance coverage among the economically vulnerable sections.
Chaired by Mirai Chatterjee, director, social security team, Self-Employed Women’s Association (SEWA), an NGO registered as trade union in Ahmedabad, the committee says, in 2018-19 micro-insurance – meant to provide “protection” to low-income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved – was a poor 1.51 per cent for life and 1.46 per cent for general insurance.
The reasons, says the report, include limited sales of microinsurance policies because of the existing insurance companies’ lack of interest, their contention that microinsurance involves high transaction expenses and low profitability, failure to market products to those with limited understanding of insurance, and lack of documentation with the poor such as identification, proof of age and residence.
Pointing out that the Indian microinsurance sector has covered just about 14.7 per cent of the potential microinsurance market size as against Philippines and Thailand, where its coverage ratios are 20.6 per cent and 13.9 per cent, the report says, an estimating that around 500 million people “need to be covered by microinsurance”, insisting, “This large gap exists as most insurers in India have been focused on the low-hanging fruit which is the more affluent and urban segment.”
The NGOs which the committee interacted with included Annapurna Pariwar Vikas Samvardhan (APVS), BASIX, Development of Humane Action (DHAN) Foundation, Mandi Saksharta Evum Jan Vikas Samiti (MSJVS), National Insurance VimoSEWA Co-operatives Limited, Self Help Promotion For Health And Rural Development (SHEPHERD), Shri Kshetra Dharmasthala Rural Development Project (SKDRDP) and Uplift Mutuals.

Mirai Chatterjee

As of today, says the report, while most of these NGOs offer policies sold include life, accident, health and asset, they are “highly localized and do not work at scale”, and except for SKDRDP, “the coverage on life and health is modest.” It adds, “Despite the lack of scale, most of these NGOs are managing to run their businesses in a financially viable manner. This indicates that an organisation which has a strong rapport with the local community and presence at the grassroots level can run a successful microinsurance business.”
The committee particularly examined VimoSEWA, the insurance cooperative of SEWA, which has been one of the first to provide suitable microinsurance products to informal women workers and their families. A source in VimoSewa, which claims to have 1,00,000 policy-holders in five states, said, it “contributed its 25 years of experiences and data to the committee.”

Millions of Indians, especially in the informal sector, have lost their livelihoods during the pandemic, and are leading insecure lives

Insisting that India would need to “improve access for multiple players if it wants to break the pattern of low insurance penetration and poverty”, the report says, this is “all the more urgent in the current context of the Covid-19 pandemic when millions of Indians, especially in the informal sector, have lost their livelihoods, are now leading more insecure lives and are falling back into poverty.”
Recommending “dedicated standalone microinsurance institutions” to close this gap by making insurance affordable and available to low-income families, thereby providing a measure of risk mitigation and security”, the report asks the Government of India and IRDAI to offer license to microinsurance business so that it can cater to the low-income segment.
Insisting that entry-level capital requirement for standalone microinsurance entities “should be reduced to Rs 20 crore maximum from the current Rs. 100 crore”, the report suggests, NGOs could be allowed to float microinsurance companies so that they “act as composite insurers to transact both life and non-life business” of the poorer sections.
An important policy change recommended by the committee is amending the Insurance Act, 1938 “to bring the standalone microinsurance business under its purview” by defining microinsurance and microinsurers, and reducing the capital requirement and/or giving powers to IRDAI to decide on capital requirements.
Stating that these changes should be carried without depending on the giant insurance companies, the report says, “Waiting any longer for the existing insurers to lead this expansion will amount to missing out on an opportunity and the need to cover the vast majority of our citizens, more than 90 per cent of whom are engaged in the informal economy and also constitute the working poor of our country.”