A committee of experts on insurance has recommended to IRDAI amendments in the current regulatory framework and relaxing the entry-level rules for standalone microinsurance entities, including co-operatives.

In the backdrop of the pandemic, experts have underlined the immediate need to expand the coverage of microinsurance sector on the lines of what small finance bank have done for financial inclusion – catering to the underprivileged low-income groups.

The Insurance Regulatory and Development Authority of India (IRDAI), in February, appointed an expert committee to come up with recommendations on feasibility of standalone microinsurance through co-operatives, mutual or companies.

Mirai Chatterjee was the Chairperson of the Committee, which recommended to the IRDAI and government to relax licensing for such businesses that can cater to the low-income segment and bring down entry-level capital requirement for standalone microinsurance entities to ₹20 crore from the current ₹100 crore

Coverage of microinsurance

Dr Nachiket Mor, who headed RBI committee on Comprehensive Financial Services for Small Businesses and Low Income households, expressed the need to expand the coverage of microinsurance, considering the devastating financial impact on the low-income groups due to the ongoing pandemic.

“We want as many players to come in as possible. They have to be community-focussed institutions and they need to be interested in serving micro communities. To make all these happen, first of all we need the amendments in the Act, which will facilitate more players to get into it,” commented Mor, a member in the IRDAI-committee on the recommendations.

On the lines of Small Finance Banks that provides banking and credit, microinsurance is a mechanism to protect low-income families from financial risks during sickness, accidents, death or loss of assets.

Despite IRDAI’s efforts to promote insurance for low-income families, the outreach by the insurance companies has remained very limited. Even the Centrally-supported, Pradhan Mantri Jeevan Jyoti Yojana and PM Suraksha Bima Yojana are found to have their own limitations on servicing, besides limited awareness among the beneficiaries for claims settlement.

“The data show that in last 6 years, these Central insurance products have not been able to make member education about the products. Second, there are gaps in servicing, and third, the premiums and claim settlement are not sustainable. But this microinsurance push will only facilitate and strengthen the overall purpose of bringing more and more people under insurance coverage,” Shreekant Kumar, CEO, of VimoSEWA told Businessline .

VimoSEWA – an insurance cooperative of the Self-Employed Women's Association (SEWA) – providesmicro-insurance to women in the informal sector. Having about 1 lakh policy-holders across five States, including Gujarat, Madhya Pradesh, Bihar, Delhi and Rajasthan, it is among the first and the largest microinsurance providers to underprivileged classes.

Data suggest that microinsurance accounted for less than 1.8 per cent for life and 1.16 per cent for general insurance in 2019-20. In its report, the committee found that while India’s population coverage under microinsurance in absolute terms is at 11.11 crore it covers only 9 per cent of the overall population. The potential market for microinsurance is 14.7 per cent of the population – about 50 crore in India. For other Asian countries such as Philippines and Thailand, this ratio stands at 20.6 per cent and 13.9 per cent, respectively.

The other recommendations include defining microinsurance and micro-insurers, providing end-to-end digital technology for transparency, accountability and monitoring, facilitating reinsurance of microinsurance through the existing licensed insurance/reinsurance companies, and setting up of an appropriate supervisory structure to enable fast-track product approvals, among others.

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