Among many resolutions at the political level, there is a consequential resolve to see India become a developed country by 2047. The insurance regulator, too, has conscionably resolved for ‘Insurance for All by 2047’. The important underpinning is the global character of insurance, based on spreading of risks, and this can add transformational dimensions to the Indian market through the adoption of global best governance standards.
There are humongous challenges though. Only 14 per cent of individuals in the country have a life cover (30 per cent in urban areas, and 5 per cent in rural India). Similarly, only 9 per cent of women are covered, against 18 per cent in the case of men. The protection gap is high in India at around 83 per cent, with under-protection of life estimated to be around $16.5 trillion. India has one of the lowest sums assured-to-gross domestic product (GDP) ratios globally. Similarly, only 12 per cent of retail households in India have taken insurance. Not surprisingly, the Indian insurance penetration – ratio of premium collected to GDP – is way below the global average of 7%.
These challenges are being planned to be met through variety of ways. One approach is achieving successfully the three pillars by around 2025 that include: adoption of a risk-based capital approach, convergence to International Financial Reporting Standards (IFRS) and transitioning from a rule-based approach to a principle-based one. The other is to amend the Insurance Act to focus on expanding insurance coverage to smaller towns – rural and semi-urban areas – to both physical and digital limits, phygital as might be called, involving multiple stakeholders.
A similar development is the BIMA Trinity, which includes BIMA VISTAAR (simple welfare-based product) to be distributed by BIMA VAHAK (a localized women-centric insurance distribution network) and BIMA SUGAM (an e-marketplace to help in streamlining the insurance processes by offering end-to-end solutions for policyholders, access to real-time data, and a platform for intermediary activities). The Insurance Regulatory and Development Authority of India (IRDAI) has also cleared the intent to move towards 100 per cent cashless for health claims. But a regulated industry can only pay a valid claim, whereas the provider is not regulated (efforts are on in this direction!).
The quintessential fact about insurance is that it de-risks governments, business, and communities. The ‘Insurance for all by 2047’ agenda should, therefore, be all about transforming the Indian Insurance Industry. In this, the government and the regulators, as the Transformational Agents, have to ensure desired outcomes. An action plan on ONE Insurance Vision (Single non-hierarchical Ownership without siloes) at the top having unity of command across all disciplines requires whole-of-the government approach, and a committed political capital.
The ‘Ease of Doing Insurance Business’ (EoDIB) is the biggest tool. This requires Single-Window-Ownership from the Insurance Regulators providing solution-led supply-chains through globally benchmarked, and progressive policies and regulations. This will help set up a holistic framework for applying the behavioral economics of “nudging”. This institutional set-up should insist on Development with Inclusion, and Supervision with Fairness whilst ensuring a Level-Playing field for a fair competition that drives efficiency, which in turn drives growth (G-20 endorses this approach by discouraging protectionism and market-distorting practices!).
The “Insurance for All by 2047” agenda requires an enabling framework: Principle-based primary legislations that align the objectives across all inter-related streams, prudently avoiding being overly specific in the primary legislations; Strategic approach to set directions, and empowering regulator with adequate powers to conduct insurance supervision through principle-based secondary legislations / regulations to respond to the dynamic supervisory environment; Regulatory Accountability to promote an effective and globally consistent supervision to develop and maintain a fair, safe, and stable insurance market.
The principle-based approach is the best ally for an overarching entrepreneurial business environment. Few illustrations will help support this point: The insurance regulator must become the biggest transformational agent in creating the right eco-system, getting guided by the Insurance Core Principles (ICPs), Standards, Guidance and Assessment Methodology from International Association of Insurance Supervisors that provide a globally accepted framework for the supervision of the insurance sector; ‘Protection of Policyholders’ Interests’ requires a paradigm shift which fulcrums on ‘contract certainty’ (pre-sale) and ‘effective dispute resolution’ mechanisms (post-sales);
The Self-regulatory organizations (SROs) of the Technical Clusters (Insurers / Reinsurers / Intermediaries / Insurtech / Surveyors / Insurance Information Bureau) for the Technical Clusters, and by the Technical Clusters must be made responsible to regulate themselves (i.e. taking over “standards of conduct” functions from the Regulator); The mutual and cooperative sector is one sector that can change the face of deprived and destitute in India by putting people before profit as in the paradigm of developmental work, the ‘pooling’ and ‘community’ deliver best results; An exhaustive “Insurance Contracts Code” is required for laws relating to the fundamental principles of insurance contracts; The Public Liability (PL) Act, after its enactment in the year 1991 following Bhopal disaster, hasn’t been updated / changed to reflect societal obligations to better protect the Indian consumers; An improved Ombudsman Scheme – Grievance Redressal Mechanism for ‘Personal Line’ insurances should handle the entire traffic of grievances as an adjudicative process as there are overseas markets, too, where the provisions of Consumer Act relating to Unfair Contract Terms have not been extended to the Insurance Contracts; It is vital that Motor Third Party liabilities are allowed to be managed as First Party Claims administration, without taking away the right to Third Party adjudication, rendering timely and fair justice to third party road victims (India suffers 19 deaths every hour due to road accidents, and the cost of a road accident is borne by the economy as a whole!).
The Insurance Act also need changes to allow for the establishment of Insurance Linked Securities to cater to the alternative disaster risk financing mechanisms. The ongoing changes around composite/captive licenses will have natural traction as well. Moreover, the social objectives, with its set of mandates and penalties, under a commercial dispensation, are an anachronism and have the potential to impede efficiency which in turn impacts growth.
The Regulatory offices must seriously reflect on their own ‘Corporate Governance’ standards as well as those evolved for the ‘market’ they supervise. Hierarchy driven set-ups are antidotes to functional specialisms; flatter bodies with specialism and accountable ownerships are the norms now. For a high performing culture, the Board, the Insurance Advisory Committee, and the Executive Management must have the best of Indian and Global financial / (re)insurance leadership, along with sectoral experts. The Regulators must also pursue ‘market oversight’ granularly for ensuring sustainable profitable growth where R&D could play a circulatory role from profits to risk mitigation, and vice versa (There is no insurance R&D currently in India from a risk mitigation perspective). India has rightfully decided to follow the Sendai Framework for Disaster Risk Reduction (2015-2030), which recognizes that the state has the primary role to reduce disaster risk but that responsibility should be shared with other stakeholders, including the private sector. Establishing a PPP model on country risk management (ex-ante), including mitigating the impacts of climate change, should have been a logical regulatory step. The necessary regulatory changes need to be put in motion around (re) insurance regulations, and workable linkages with taxation and the capital markets.
The Regulatory management must entail a clear understanding of the ‘Prudential’ and ‘Conduct’ standards. The current insistence on “insurance being a subject matter of solicitation” is rooted in the theory where insurance was considered only “buying”. ‘Seller beware’ might be an idea whose time has come. It is crucial that the IRDAI, with the active support of the Government and International Financial Services Centre Authority (IFSCA), leads India become a Global insurance Centre at Mumbai, and a Global Reinsurance Hub at IFSC GIFT City. This will be in line with the global experience of ‘Hub and Spoke’ architecture where “Insurance Clusters” churn out capacities and specialism that lead to “spread” (‘penetration’). A consistent, stable and simple tax environment is essential for setting up an internationally competitive insurance market place in India (The market is struggling with lots of ‘Direct’ and ‘Indirect’ taxation issues). The other tools should include letting India become a global hub for Alternative Dispute Resolutions (ADR) involving insurance contracts. It is equally a serious mandate for the Regulator to improve the governance of the PSU insurers, a lot of whom are in poor financial health at the expense of the tax payers.
An evaluation of the mechanisms to attain the goal of ‘Insurance for All by 2047’ reveals the goal itself to be delightfully distant, short on granular detailing and goal-posts, and lacking in visible functional accountabilities. This is unlikely to help deepen penetration, as resolved. The IRDAI Report 2022-23 highlights that India’s overall insurance penetration got reduced to 4 per cent in 2022-23 from 4.2 per cent in 2021-22, indicating a developmental slowdown.
The insurance industry must, therefore, double down on One Insurance Vision and Single-Window-Ownership tools, without getting into demand-side management. Until this happens, all roads will not lead to Insurance for All. It will also dent Viksit Bharat efforts since, as per global research, 1% rise in insurance penetration translates into a 13% reduction in uninsured losses – a 22% reduction in the taxpayers’ contribution following a disaster – and increased investment equivalent to 2% of national GDP.
Arun Agarwal is an author, columnist, teacher and ex-CEO. He is currently a Professor of Practice at Rizvi Institute of Management Studies and Research, Mumbai.