By Bhagwat Karad

From the risk of the spread of diseases globally to events such as floods and famines, India needs to have a definitive approach to building a resilient framework for its people. As India enters Amrit Kaal, 25 years leading up to India @100, every Indian must possess the insurance trifecta: life, health, and general insurance.

Recently, PM Narendra Modi set a target for making India a developed nation by 2047. A crucial element of this is an Insured India@100. Insurance is more than financial security for an individual, family, or society. It is a crucial way in which we ease the impact of certain eventualities and contingencies in our lives. Not to mention, it helps maintain a continuity that we all strive to maintain—continuity of health, lifestyle, security, and mental peace. This is what our government has actively been working to realise.

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A historic issue plaguing the Indian insurance sector has been a misalignment of tariffs and mis-categorisations. This mismanagement stemmed from the piecemeal development of the market spanning various eras of regulatory and political dispositions and catered to insurance needs arising therefrom.

The need for insuring life versus material possessions was characteristic of Independent India. Hence, more people insured lives over material possessions. The government, too, regulated the sector for the huge liquidity that could fund development. The focus thus remained on the voluminous life insurance space, whereas other insurances became “miscellaneous”. This continued up to 1991, when there was little focus on proper categorisation, the viability of tariffs, etc. To address these issues, in 1999, the RN Malhotra Committee recommended changes, including re-opening the sector to private participation and forming a regulatory body, namely the Insurance Regulatory and Development Authority, to regulate, promote and ensure orderly growth of all segments within the Insurance industry.

Perception shift: Development of all segments of insurance, i.e., the trifecta- health, life, and property, would first need a cultural shift in perception towards insurance. This means giving due importance to every segment of insurance in terms of regulation and promotion.

Currently, insurance penetration in India, measured by the share of insurance premiums in the GDP, is very low compared to competing economies. Overall insurance penetration is reported at 4.2% vis-à-vis global levels of 7.2%, with non-life insurance share of merely 1%.

It is important to create awareness about the benefits of insurance in times of need. The government has been actively working on it alongside IRDAI, which launched the “Bima Bemissal” initiative for consumer education on “promoting insurance and protecting the insured”.

Pure insurance products: The consumers must be educated to understand the difference between insurance for consumer protection versus insurance for investment. Over 2002-2009, private companies increasingly sold unit-linked products, marketing their investment returns. The lack of simultaneous growth in pure insurance products threatened customer protection, sustainability, and efficacy of the sector. At that time, IRDAI increased the monitoring of private players through regulatory restrictions on ULIPs. To avoid such pitfalls, consumer awareness about the actual benefits of different products available in the market is critical.

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Creating partnerships: There are two aspects of creating a partnership ecosystem. One is strategic partnerships between financial institutions. For example, bancassurance, wherein the bank acts as a distribution agent for insurance products, has a 56% share in the insurance distribution business in India. Insurance companies need to develop integrated digital capabilities with other financial institutions incorporating speed and cost-efficiency in their services.

The second aspect is public-private partnership. InsurTechs have leveraged emerging technologies and micro-insurance policies to gain market share. In tandem, the government has proactively issued regulations to position the sector to embrace innovative solutions such as automated insurance death claim settlement and efficient premium pricing, maximising value for the consumer.

Government impetus: Since 2014, the government has created a strong public social security system, through initiatives such as Atal Pension Yojana, Pradhanmantri Suraksha Bima Yojana (PMSBY), and Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY). These have ensured insurance penetration to the remotest and most deprived persons through low-cost policies across insurance lines. Currently, Atal Pension Yojana has a subscriber base of 4.01 crore. PMJJBY and PMSBY have 13 crore and 25 crore subscribers, respectively. Fasal Bima Yojana, a crop insurance policy, protects farmers from the perils of nature.

Regulatory ease: There has been a shift in our attitude as a regulator from rule-based legislation to principle-based legislation. There is an increasing focus on strengthening financial and reporting norms for insurance companies akin to banks for sustainable growth of the industry. IRDAI is actively working on revamping institutional set-ups such as Insurance Information Bureau and Life and General Insurance Councils.

Ease of doing business: Reforms ensuring ease of doing business in the sector encourage investments and business opportunities for the insurance trifecta. Recently, the regulator permitted the launch of standardised group and health insurance products without prior approval.

Development of strong regulatory market: Ease of doing business ensures benefits go beyond the insurance trifecta. For instance, IRDAI eased norms for reinsurance companies, which offer “insurance for insurers”, by exempting disclosure of underwriting profits and filing stewardship returns. Reinsurance firms protect the balance sheets of insurance firms and reduce their earnings volatility.

India can benefit immensely from a strong reinsurance ecosystem, by offering insurance for a gamut of risks, ranging from earthquake and cyclone risks to drought risks. The existence of advanced financial structures, such as reinsurance companies, will also support insurance of niche risks in the industry, such as cyber risks and pandemics.

Increasing use of global best practices such as retrocession, wherein reinsurer passes on some risk to another reinsurer or capital markets through securitisation, would also help maintain stability in the reinsurance business.

Integrated ecosystem approach: Today, global insurance companies increasingly consider the impact of climate change and sustainability on their investments and underwriting portfolios. Indian insurers can also adopt the ecosystem approach entailing digital integration of insurance providers from different industries having different customer bases. For example, a Swiss-based joint venture “Well Network,” integrates insurance, pharma, and telemedicine businesses, enabling them to tap into a quarter of Switzerland’s population.

An approach of having lighter, transparent regulations coupled with targeted reforms in the insurance industry is going to be transformational for the insurance industry. I truly believe that our government would leave no stone unturned to achieve our aim of “Insurance for all” for India@ 100.

Bhagwat Karad is Minister of state for finance.