IRDAI suggestions to encourage Micro insurance companies

Rajdeep Saini

18 Nov, 2020

As in this hard time when the low income families have been hit by the Covid-19 Pandemic the Insurance Regulatory and Development Authority of India (IRDAI) has formed a committee in the month of February 2020 to explore the options to ease up the rules regarding the setting up of the standalone micro insurance companies. The committee has suggested finding more ways to encourage the micro insurer which will facilitate them in simplifying and promoting products of insurance and further scale up go through across country and segments. However before going further, let’s understand more about a micro insurance company.

What is a micro insurance company?

Micro insurance corporate extends specified insurance products to the people who are unable to pay for traditional insurance. It can be managed in many numbers of ways—through community organizations, licensed insurance agents, non-governmental organizations, and micro-finance institutions.

Micro insurance has previously had some achievement in many poor countries as a way for low-income families to pay for insurance, mainly health coverage. It’s a very successful and popular option in many sections of the world including India, South Africa, Brazil and China.

Some examples of micro insurance products include:

• Insurance of crops
• Insurance for disability
• Insurance for natural disaster
• Insurance for Livestock
•   Insurance for Credit card
• Insurance for Burials

Some examples of life micro-insurance product are:

• A term insurance contract without or with the return of premium
•   The endowment insurance contract
• A contract of Health Insurance
• They can be without or with an accident advantage rider
• Moreover on group basis or an individual basis.

These policies are designed independently for the families and lower-income individuals could easily pick it up and decide according to their budget.

IRDAI committee on Micro insurance companies

The Insurance Regulatory and Development Authority of India^[1] (IRDAI) has formed a committee in the month of February 2020 to explore the options to ease up the rules regarding the setting up of the standalone micro insurance companies. The committee has suggested finding more ways to encourage the micro insurer and facilitate them in promoting products of insurance and further scale increase the benefits of micro-insurance across the country.

The IRDAI committee highlighted how the micro insurance business is tremendously small owing to the low ticket dimension of the business, high cost of acquisition, trust issues, and challenges in claim settlements. It was a very shocking discovery for the committee to know that the micro insurance only forms just 1.80% in the life segment sector and in the general insurance sector only 1.16%.

Recommendation of IRDAI committee on Micro insurance companies

• The recommendation put forward by the IRDAI committee was to decrease the minimum entry level capital from Rs 10 Crore to Rs 20 Crore and adding on, a single entity should be permitted to offer both non life and life insurance.
• The panel has recommended that it should be mandatory to create a separate micro insurance partition to fast track the product enable and approval to generate an offsite management and undertake the capacity-building of staff.
• The IRDAI panel also recommended the regulator to create a fund of corpus Micro insurance Development at a rate of Rs 50 Crores by the regulator/ Centre to support the players.
• For better transparency and oversight the panel has suggested a common IT platform for micro insurance companies comparable to what exists for mutual funds and it would support using more of digital adoption.
• It also suggested that the regulator should help out the reinsurance of micro insurance companies by existing reinsurance corporate and licensed insurance.
• The IRDAI committee has also suggested for implementation of paying premiums in the installments on a daily, fortnightly, monthly or quarterly basis.
• It was also proposed by the committee to amend the Insurance Act, 1938, to bring the micro insurance companies under the ambit of the Act, as the implementation of this proposal may take time, and meantime the union government may issue rules providing the IRDAI power to create a regulatory framework for the micro insurance companies.

Benefits to encourage micro insurance companies

Micro insurance is purposely intended for the safeguard of low income people, with reasonably priced products to help them cope with and recover from financial losses.

The government schemes and the liberalization of this sector have shaped new opportunities for micro insurance to reach the vast mass of the poor, such as those working in an informal sector,” says the panel.

Micro insurance facilitates more and more people to have at least some level of insurance to guard some of their most important assets. It can bring a sense of safety to families of low income who were beforehand not capable to afford the insurance.

Some other benefits include the ability to handle claims quickly and accurately and transparency. Research also suggests that when small entrepreneurs and farmers feel they are sheltered by insurance, they are eager to take more risks and spend more in new business ventures which is overall good for the Indian economy.

Conclusion

Read our article:Understanding the key aspects of Micro Insurance Regulations