Life insurers upbeat on micro-markets despite rise in fraudulent claims

The rise in instances of fraudulent claims notwithstanding, life insurance companies are betting big on Aadhaar-based eKYC and the likely adoption of open architecture model by more banks to grow their micro-insurance business.

If industry sources are to be believed, fraudulent claims account for nearly 10-20 per cent (or sometimes even more) of total claims in micro-insurance business.

Even while a majority of fraudulent claims often get rejected by insurers, it may so happen that some such frauds may be difficult to ascertain as most of these policies are issued to people in remote corners of the country.

According to P Nandagopal, Founder and CEO, Insurance Inbox (an insurance advisory company), the issuance of such policies (to people mostly in remote areas) are not backed by very strong KYC (know your customer) and are based on more “liberal underwriting”. Hence, the risk of fraudulent practices is higher.

“Though the proportion of frauds may not be very big now, frauds are contagious and need to be prevented,” Nandagopal told BusinessLine .

Micro insurance, which basically caters to the low-income group, is a low-price and high-volume business and can be viable only if the transaction cost is kept low.

Insurers are, therefore, banking on Aadhaar-based eKYC to get requisite data for underwriting of such policies. The open architecture model, which allows a bank to have tie-ups with up to three insurers — in each of life, non-life and health segments — would also help tap the rural and semi-urban markets for such products.

A combination of these two would help address the issue of cost, manage claims better and make the business viable, sources said. “Micro insurance is a huge market and offers good potential for growth. The biggest challenge for an insurer is to tap these markets and find viable ways of underwriting these policies,” Karni Singh Arha, Chief Financial Officer of Aviva Life Insurance, said.

Aviva Life is exploring the possibility of tying up with public sector banks for tapping the segment. According to the annual report of Insurance Regulatory and Development Authority of India (IRDAI), the group business premium amounted to ₹460 crore covering 3.22 crore lives, a 52 per cent jump from ₹302 crore (covering 2.92 lives) in 2015-16.

The individual new business premium under the micro-insurance segment in FY17 stood at ₹38 crore under 9.56 lakh new policies, as against ₹32 crore under 9.1 lakh new policies in FY16.

The segment is likely to witness a spurt in growth with a number of non-banking finance companies and housing finance companies tapping the rural market through loan offerings in a big way.

Bajaj Allianz Life has covered more than 20 crore lives since its inception in 2008 in the rural insurance market, Yogesh Gupta, Chief Financial Inclusion Officer, said.

For Aviva Life, nearly 20 per cent of its 35,000 policies written last year came from micro insurance. In terms of premium, however, the share of micro insurance to total premium is small (around 3-5 per cent) because of the small ticket size of such policies, Arha said.

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