Promoting Financial Inclusion - United Nations Development ...

4.3 MICRO-INSURANCE
REGULATIONS 14 – ENABLING
IF NOT ADVENTUROUS
The insurance sector in India is regulated
under the Insurance Act, 1938 and the
IRDA Act, 1999. The Insurance Act, 1938
defines four categories of insurance – life,
fire, marine and miscellaneous. In general,
two categories of insurers are licensed – life
and general (covering the last three product
categories). Insurers are not allowed to
offer life and general insurance together
(although this requirement has been relaxed
to some extent for the micro-insurance
environment).The evolution of the microinsurance
business in India has occurred
through a sequence of measures:
i. The government’s concern about the
inadequate emphasis on covering the
disadvantaged, low income population,
especially those living in rural areas
that led to the nationalization of life
insurance in 1956 and general insurance
in 1973.
ii. Post liberalization in the late 1990s, the
IRDA regulations declared in 2002 made
it necessary for new private insurance
companies to procure insurance business
on a quota basis from pre-defined rural
areas 15 and social sectors, 16 failing which
they could be penalized.
iii. Specific regulations for micro-insurance
were announced in 2005 to enable the
design and easier distribution of products
appropriate to the needs of low income
families.
14
Excerpt from M-CRIL, 2008, “Micro insurance
regulation in the Indian landscape”.
15
Rural areas are defined by the Census of India
as places having a minimum population of 5000,
at least 25% of male working population engaged
in agricultural economic pursuits and a population
density of at least 400 per square kilometre.
16
The social sectors are defined as “unorganized
workers, economically vulnerable or backward classes
in urban and rural areas”.
The requirements are that new insurance
companies must place in rural areas, 5-16%
of all life insurance policies from years 1-5
of operations and 18-20% from years 6-10
of operations, and 2-5% of the total gross
premium of general insurance underwritten
in years 1-5 and 5-7% from years 6-10.The
social sector obligation requires each insurer
to maintain at least 5,000 policies in the
first year rising to 20,000 in the fifth year
and up to 25-55,000 in the tenth year , for
both life and general insurance, regardless
of the size of operations in the social sector.
Until recently, it was these , rural and social
sector obligations that motivated insurance
companies to go down-market and provide
services to the financially excluded.
The micro-insurance (MI) regulations
promote extensive use of intermediaries
(called micro-insurance agents) by the
insurers for selling and servicing various
micro-insurance products. The regulations
clearly defined who could be the microinsurance
agents (NGOs, community
organizations, SHGs). Such agents had to
undergo compulsory training of 25 hours
at the expense of the insurer. Later, in 2008,
IRDA also allowed Section 25 companies
to act as MI agents. The regulations
also attempted to manage the cost of
intermediation by fixing commission caps
for the MI agents, which seemed to be
more liberal than the normal commission
rates to encourage participation.
The insurance sector filed 12 microinsurance
products (3 life and 9 non-life)
from 6 insurers in 2004–05, which grew
to 20 products (12 life and 8 non-life)
from 10 in November 2007. However, the
sector does not seem to have sustained this
growth as by November 2009 there were
just 23 micro-insurance products offered
by 13 insurance companies. The insurance
study [M-CRIL, 2008] shows that rural
and social sector obligations have not been
sufficient to ensure outreach to the target
PROMOTING FINANCIAL INCLUSION 21