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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