Micro Insurance, Macro Problems
Monday, September 30, 2013
Even as rural banking obligations for new bank hopefuls are in the limelight, it may be time to take a look at similar obligations for insurance companies and how they are being implemented.
There are today 27 general insurance and 24 life insurance companies in India.
Keeping in mind concerns that a competitive, open environment could lead to the neglect of the rural and weaker sections of India, the Insurance Regulatory and Development Authority of India (IRDA) passed the IRDA (Obligation of Insurers to Rural or Social Sectors) Regulations Act in 2002. After that, every insurance company was required to engage with the rural and social sectors by complying with mandatory obligations.
The IRDA regulations set rural insurance targets for each company. These require that 7 per cent of all life insurance business should be generated from the rural social sector in the first financial year, and this should increase annually to reach 18 per cent by the sixth financial year.
For general insurance, 2 per cent of insured premium in the first financial year should be from rural social business, increasing annually to 5 per cent in the sixth year.
The definition of micro insurance in India is primarily a product-based, monetary one. The regulation sets the boundaries of the cost and coverage of the product and provides clarity about distribution mechanisms.