The Insurance Regulatory and Development Authority of India (IRDAI), published through its offi...
In developed countries, Insurance is an essential part of life, but its access has been highly inadequate in developing countries. The poor sections of people are mainly left out of the insurance coverage. The Insurance Regulatory and Development Authority of India took cognizance of this matter and has emphasized the importance of Micro Insurance. In this article, we shall cover the Micro Insurance regulations.
Micro-Insurance refers to providing insurance to low-income families. It envisages the protection of a poor section of people against debt traps that can adversely affect their livelihood and even their lives. Unlike generic products, micro insurance helps in bringing the cost down for consumers by putting in innovative constraints on coverage, time or usage.
The main objectives of Micro-Insurance are as follows:
The main features of micro insurance include providing financial protection to the people of low-income households and particularly those with an income of less than approximately Rs. 250 per day. It has been designed primarily for lower valued assets and compensation for ill health, injury or death.
The IRDAI Micro Insurance Regulations of 2015 defines micro insurance as a life insurance policy with a maximum assured amount of Rs. two lakhs or less. The coverage amount begins with Rs. 5,000 to Rs. 10,000 for a small period. It provides a fully guaranteed benefit or variable insurance benefit and has a simplified and less complex product design.
It may be noted that micro insurance products can be distributed by micro insurance agents, and they cannot distribute any other insurance product. For distribution of the General Micro Insurance products, a General insurance company can appoint a micro insurance agent to Micro Enterprises or Small Enterprises or Medium Enterprises or for all sectors.
The General Insurance Company can appoint such agents for various lines of business, and it may appoint either in the Manufacturing sector and or in the Service sector.
The Micro insurance regulations provide for the appointment of agents by an insurer by entering into an agreement that lays down the terms and conditions, including the duties and the responsibilities of the agent and the insurer.
Such an agent can work with one life insurance Company and one general insurance company. Further such agent can also work with agricultural Insurance Company of India Ltd. and with any one of the Health Insurance Company registered with the authority.
Every insurer must carry out due diligence before appointing a micro insurance agent with respect to the status, track record and the ability to function as per the regulations.
As per the regulations, every insurer shall be subject to the file and use procedure with regard to the filing of micro insurance products with the authority. The product that is cleared by the authority shall carry the caption of “Micro Insurance Product”.
As per the regulations, the insurer issuing the insurance contract to the individual policyholder must issue in the language recognized in the constitution of India. Every insurer is required to issue insurance contracts to the group micro-insurance policy holder in an unalterable form and issue a separate certificate to each individual, providing the proof of insurance containing all the relevant details.
The regulations provide for payment of remuneration to the micro insurance agent for all the functions rendered by him and commission by an insurer, and it shall not exceed the limits as prescribed below:
If the agreement between the insurer and the agent is terminated for any reason, no future remuneration or commission shall be payable. For group insurance products, the insurer can decide the commission depending upon the overall limit.
The remuneration payable under micro insurance products to registered insurance intermediaries other than the agents shall be as per the provisions of the applicable regulations or provisions of the Insurance Act of 1938.
Under the provisions of regulations 13 (1), every insurer must ensure that all transactions with regard to the micro insurance business are as per the provisions of the Act amended from time to time, the Insurance Regulatory and Development Act (IRDA) 1999 and the rules and regulations made thereunder.
Notwithstanding the provisions under the regulation 13(1)-
The provisions of IRDA (Standard Proposal Form for Life Insurance) Regulations, 2013 shall not apply to Life Micro Insurance Products approved as per these regulations.
Under the provisions of regulations 14 (1) all micro insurance policies can be reckoned with a purpose of fulfilling social obligations by an insurer pursuant to the provision of the Act as amended from time to time and the regulations made thereunder.
It may be noted that where a micro insurance policy is issued in the rural area and which falls under the definition of the social sector then such policy can be reckoned for both under rural and social obligations separately.
The regulations for the handling of complaints and grievances under Micro Insurance Regulations specify that it shall be the responsibility of the insurer to handle and dispose of any complaints against a Micro insurance agent promptly.
An insurer is required to send a quarterly report to the authority concerning the handling of complaints or grievances, if any, against such agents.
If deemed necessary the authority may cause an inspection of the office and the records of such agent at any time.
Every insurer is required to furnish information with regards to the micro insurance business in a form and manner prescribed, as may be required from the authority from time to time.
For the purpose of forwarding of business/claims data on Micro Insurance business in accordance to these regulations, the business/ claims figures pertaining to social security schemes of Central or State Government and administered on behalf of any government will be excluded.
It is essential to know that where there is any doubt regarding the interpretation of micro insurance regulations, the chairperson of the authority has the power to remove such difficulties or doubts and issue clarifications.
Retail insurance products are based on time and not on usage. A time-based insurance product assumes that a customer is vulnerable to the same level of risk during the whole year. For instance- if a car remains in the garage for 100 days in a year, then why a customer requires buying own damage insurance for the entire year. A micro insurance product that tracks the usage of an asset would be more beneficial to customers.
Customers may prefer buying insurance before engaging in a specific event. Designing a micro insurance product that covers an event risk specifically, reduces the price and increases acceptability among customers.
Insuring an entire house may not be ideal while insuring a brand new home theatre system may. Therefore identifying the specific needs to a particular profile of a customer reduces the cost of insurance.