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Atmanirbharta in Health Insurance

 

With the insurance protection gap among the highest in Asia, Indians are vulnerable to health and economic shocks. The insurance Regulatory and Development Authority of India (IRDAI) estimates the protection gap to be around USD 400 billion. While India is a lower-middle-income country (LMIC), it's spending on healthcare is lesser than in lower-income countries. As of 2019, the penetration of non-life insurance is a mere 0.94 percent of the GDP and the density is USD19, which is far lower than its Asian peers. Covid-19 has brought attention and urgency to healthcare and health insurance, both among the public and the policymakers alike. India will need to rapidly increase the scale and penetration of insurance to achieve sizeable insurance coverage commensurate to its growing economy. While the technology has enabled newer models of distribution and increased the reach but similar progress is lacking in capital infusion in insurance firms, newer product development, and actuarial science among others, which continues to remain a challenge.

How can India rapidly increase the penetration of insurance? Is India missing an armour up its sleeves? The first ever-Indian insurance company established in 1870 (Bombay Mutual Life Assurance Society) worked on the principles of mutuality and cooperation among policyholders. The policies were built bottom-up to suit the needs and requirements of the members, unlike the standard top-down policy approach of existing insurance firms, which has been documented by various studies as a deterrent in the uptake of insurance policies. Numerous studies have documented the presence of mutuals and cooperatives in the country and offering insurance services to its members ranging from health to life to livestock. However, their growth and progress remain muted and potential untapped.

Can India can leverage the strength of its cooperative sector to provide a much-needed impetus to the insurance sector? The country boasts a wide network of cooperatives spanning across the length and breadth of the country. The country has over 8.5 lakh cooperatives with a cumulative membership of approximately 290 million. Cooperatives have played a critical role in not only filling the vacuum but also the way people exercise control over their economic livelihoods. From white revolution and agricultural credit to core banking, cooperatives have now branched into real estate, tourism, healthcare, insurance among others while retaining their core. Cooperatives have existed in India for over a century but their potential remains untapped.

To date, cooperatives have only been involved in the distribution of existing insurance products and services when the IRDAI Act allows them to be insurers themselves. So what is deterring them from offering their insurance products? One of the major deterrents for cooperatives and non-profit/social organisations from offering mutual/cooperative insurance services has been the minimum capital requirement of Rs.100 crore coupled with the stringent capital adequacy norms. Barring few large cooperatives, raising this capital will be impossible and it defeats the very purpose of affordability for members.

A recent study by an IRDAI committee on insurance has recommended lowering the capital requirement to Rs. 25 crore for mutuals and cooperatives to enable them to start operations. While there remain challenges beyond the minimum capital threshold for starting operations. The governance and transparency in operations of these organisations and the protection of policyholders remain the utmost priority for the regulator and its scepticism in granting permission en masse is justified.

Can IRDAI borrow a leaf or two from the playbook of its senior-most peer, the Reserve Bank of India (RBI) on how it allowed different banking models to develop and used differentiated regulatory standards to govern and monitor them without losing its focus on the very purpose of their existence? What it calls governance with a light touch: just enough to monitor them but at the same allowing them the liberty to function. Not imposing the same rules as compared to their more senior and established peers. Today, not only has banking penetrated the length and breadth of the country, but also some of these smaller organizations are moving up the ladder and becoming more established players like small finance banks, non-banking finance companies (NBFCs), and full-service or universal banks. There have been pitfalls and setbacks on the way but the positives have far outweighed them.

By empowering cooperatives to offer insurance products for their members depending on their needs and requirements, the IRDAI will not only make them more resilient to external shocks but shall also help in deepening the insurance penetration in the country, without having to rely too much on external capital for market expansion. Yet, scale up faster. A truly self-reliant or Atmanirbhar approach to risk management and nation-building.

P.S.: Courtesy of all the foreign aid to help support the country in its Covid-19 fight, Atmanirbhar today is probably one of the most derided words. But if there is one area where we have the potential to be truly Atmanirbhar, it's this.

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