The Insurance Regulatory and Development Authority (IRDA) estimates that the total life policies in force as of end of March ‘11 is about 25.32 crores. It means that majority of our population has no insurance cover of any kind. A significant section of this population base in vulnerable and there is a need to take life insurance services to them.
The Government of India, recognizing the need to cover various sections of the population for insurance launched two schemes in the life category - the Janashree Bima Yojana (JBY) and the Aam Admi Bima Yojana (AABY). However as of March ‘11, only 2.09 crore people have been covered under JBY and 1.77 crore under AABY. A substantial section of Indian population is involved in agriculture where distribution and awareness of insurance is very limited. Even in a government sponsored scheme like JBY, which was launched in 2000 targeting 45 occupational groups and where 50% of the premium is borne by the Government, 16 occupational groups had zero enrolments as of March ‘11.
Who needs it?
Clearly there is a need to extend the insurance cover to weaker sections of working population. These include farmers, small retail vendors, pushcart vendors, those employed in mills and factories on stipends, those working in construction sites and the many semi-permanent and permanent jobs. Also, in many small establishments, there are hidden contributors to the business, often family members of the owners who chip in to the success of the venture. Financial inclusion should not just be to banking or credit services but should also be to life insurance. Though the loss of life to a family is irreplaceable, every bit of monetary help the family gets will go a long way. It could mean the difference between the child in the family completing his/ her education or dropping out, an impending wedding taking place or getting cancelled
Insurance through cellphones
In the past decade, the wide adoption of mobile telecom has brought about a communication revolution in the country. There is a strong case to leverage this technology and its widespread adoption and reach to take life insurance to vulnerable section of population in an easy and seamless way. It starts with a government mandate to auto-enroll all citizens in one of its existing or new insurance scheme as soon as one becomes a mobile phone subscriber. The insurance company should introduce a simple scheme for the end customers (essentially term insurance) and agree with the telecom company that it can collect a small percentage of top-up mobile recharge amount as premium towards the policy in the scheme.
The government could ask LIC, or the participating private insurance companies and all telecom companies to collaborate and use the telecom company’s channels for insurance
The Aadhar way
The KYC setup of telecom companies is a good starting point while Aadhar initiative of the government is underway. When a citizen gets an Aadhar number it can get linked to a mobile connection. An Aadhar number will give a capability to be linked to multiple mobile phone connections belonging to the same person or while surrendering the mobile service. The Mobile number portability (MNP) service allows the insurance policy to be ported across if the subscriber decides to change the mobile service provider.
The auto-enrollment can ensure that every citizen via mobile phone subscription gets enrolled to the government mandated insurance scheme. And, a small percentage of topup recharge goes towards his premium contribution and therefore becomes something on the lines of the compulsory education cess that is levied in many transactions. This means the first time a customer buys a SIM card, an insurance policy will be subscribed with the insurance company and a specified small amount will be debited from/ billed to the connection that will serve as the initial seed premium for a policy. Every time a customer recharges the phone, a compulsory percentage (say 5 %) of the recharge amount will be deducted and transferred to their premium account. Assuming a person with an average monthly expense of Rs.100 for mobile services is made to contribute Rs 5 towards the insurance premium, it can offer a reasonable sum assured to the family in case of death.
The challenge for the insurance company is to introduce a product that can accept variable premiums and provides a lifetime cover, considering that their corpus widens significantly with auto-enrollment and growth of mobile phone usage. The Government’s and IRDA’s role is to enable the legislation and facilitate the compulsory deduction of premium and servicing of the policy and claims management.
The whole system will rely heavily on Information Technology (IT) and there are opportunities for various players to be part of the ecosystem. The insurance company generates a very significant new business while its operational costs to service the policy reduces considerably. The telecom company which serves as the channel for enrollment can get a small distribution fees or agent commissions, helping them to improve their ARPUs for the services they render. The government, for whom inclusiveness is an agenda, gets a way to reach out to various sections of the population through this if they enable the legal and regulatory changes needed for a system like this. And, this could allow millions of Indian lives to be insured. The communication revolution could well pave the wave for an insurance revolution.
(The writer is Managing Director, Logica India)