Life Microinsurance Shows Strong Growth In India

Monday, 09 May 2011
By Susan Drury

Hot on the heels of India’s microfinance industry comes microinsurance, as insurers increasingly see the profitability of addressing the needs of those on very low incomes. From a base of six insurers in 2000 there are currently 48 in operation, and of these 36 are collaborations with foreign insurers. The life insurance market therefore is set for rapid growth according to a new report from Celent a Boston (US) based financial research and consulting firm.

India’s Insurance Regulatory & Development Authority (IRDA) has recognised the potential of microinsurance to address the needs of the poor for some time. IRDA issued microinsurance regulations in 2005, which has spurred insurers, both public sector and private, to develop a wide variety of microinsurance products.

A number of business models are currently in operation, these include service provider, partner-agent, delinked and direct marketing. Out of these the partner-agent and delinked models have been more successful due to their greater reach and the involvement of local institutions with close relationships with target customers.

Reaching these customers though in a country as large as India is not easy. Whilst urban areas are fairly easy to access, rural India with over 600,000 villages is more challenging. Technology also has its limitations, particularly due to low literacy rates in rural areas. A number of distribution channels are in use in rural areas aimed at reaching the greatest number of potential customers. These include public and private sector banks, rural and cooperative banks, NGOs, microfinance institutions, self-help groups, agents, post offices and internet kiosks.

Life insurance products often prove more popular than non-life insurance and this is the case in India, where non-life insurers are entering the sector at a slower rate. The number of new life policies has risen from 13.2 million in 2008 to 19.8 million in 2010 (of which 16.8 million were group insurance policies). India’s public sector Life Insurance Corporation, with its huge, well established network, sells the majority of these policies.

“India has a large population below and marginally above the poverty line,” said Anshuman Jaswal, Senior Analyst at Celent and author of the report, Life Insurance in India: Potential and Pitfalls. “Microinsurance can be a crucial medium to provide risk coverage to these people, and innovative channels should ensure that it remains a viable proposition for insurance firms.”

There are though a number of regulatory issues which still need addressing. The main one is that insurers should have more leeway in designing and pricing their microinsurance products. “If IRDA forces them to sell products, then the viability of the entire industry could be called into question,” considers Celent. Another issue is consumer protection, the regulator needs to show a greater level of enforcement regarding the boundaries insurers should respect when selling their microinsurance products.

For more information, visit the Celent website.

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