Economy

Small-ticket insurance policies to protect low-income groups in the offing

Updated : January 30, 2020 05:47 PM IST

A working committee appointed by Irdai has submitted its recommendations.

The panel has recommended the introduction of index-based products in the crop insurance space.

A working committee appointed by the Insurance Regulatory and Development Authority of India (Irdai) has submitted its recommendations on micro-insurance policies and the related regulatory framework. The policies are intended to protect the low-income group with affordable insurance products to help them cope with financial losses.

The panel in its recommendations has touched upon various aspects including product design, underwriting, distribution, awareness creation, easy premium payment system, simple claims processing and use of technology in the micro-insurance market.

Some of the important recommendations made by the committee on microinsurance are as follows:

LONG-TERM POLICIES

As per the recommendations, the product benefits need to be simple and should be agnostic to individual or group platform. Long term policies should be allowed while keeping reserving challenges into consideration. To ensure longer tenure covers to mitigate the loss of renewals due to covered events not happening within the one-year duration, the committee has recommended introducing long-term policies for a period of up to five years.

INCREASE MAXIMUM COVER

Due to rising inflation impact, the committee has recommended an increase in maximum cover under micro-insurance policies to Rs 5 lakh from the current Rs 2 lakh.

INDEX-BASED PRODUCTS FOR CROP INSURANCE

The committee has recommended the introduction of index-based products in the crop insurance space along the lines of what is being done in Africa where satellite imagery data is used to predict the loss in forage and vegetation in the drought-prone arid and semi-arid regions. Payouts are made as soon as the satellite imagery data falls below a strike level which indicates the incidence of drought.

The committee also mooted the introduction of goal-based savings products in life insurance space and insurance schemes for chit funds registered with their respective states.

PRICING

On the pricing front, the committee has recommended a relaxation of capital reserve requirement for micro-insurance products to make them financially viable. To mitigate risks of incorrect pricing, the committee has also asked Irdai to give insurance companies the freedom to change prices of micro-insurance products within one year. Also, a waiver on stamp duty on life insurance policies has also been recommended.

PAY PREMIUM IN INSTALLMENTS

To improve product proposition for the end consumer, the

regulator-appointed committee has recommended payment of premium in installments (weekly, fortnightly, etc.)

PROCESS AND TECHNOLOGY

E-KYC process should be mandated to reduce cost and ensure smooth on-boarding and claim settlement process. Digital signatures should be encouraged for micro-insurance business. Cooperatives /self-help groups should be allowed to take on certain onboarding and claims-related processes for the schemes where they are a partner. A simple one-page proposal form and digital policy document should be applicable to all insurers. The claim pay-out can be linked to the goal of the target segment e.g. If they are saving for the child, the claim pay-out should be linked to the school fee of their kids.

The panel has recommended the introduction of enabling provisions for registration of specialised micro-insurance companies through an Insurance Cooperative Society. As the ticket size of premium for micro-insurance policies will be very small, It further has recommended that Irdai may consider a reduction in requirement of present equity capital of Rs 100 crore for micro-insurance companies.