A committee under Suresh Mathur, executive director, IRDAI has has proposed various technologically supported solutions which can help in not only increasing microinsurance penetration, real time policy servicing support but also help in overall cost reduction to make it a viable business model in long run.
The committee has suggested Index Based Products that are utilized by other developing countries like Kenya in Africa for insuring against calamities like drought.
The panel has focused on “Goal Based Savings Product’’ where product benefits need to be simple so that they could be easily conveyed by the distributor and understood by the customer. It should clearly spelt out in terms of Gives & Gets for the customer i.e. What customer gives and what customer gets.
The committee went through various national and international papers apart from utilising the experience of the committee members in micro lending and insurance space and has not only given recommendations on possible legal and regulatory modifications but has also suggested unique product & distribution options which can assist in improving growth and penetration of microinsurance in India.
The committee has observed that product benefits of micro insurance products need to be simple so that they could be easily conveyed by the distributor and understood by the customer. It should clearly be spelt out in terms of “What customer gives and what customer gets.
The committee has favoured an agnostic benefit structure where product benefit and remuneration structure should be agnostic to individual or group platform. Considering the customer segment being addressed, unit or banded rates with appropriate commissions should be allowed.
On cover levels, the committee has said quantum of coverage should be appropriate for the needs of section targeted with broad range to cover all type of sections.
`Return of premium appears to be one of the coveted features in an insurance product for the targeted segment.The general Insurance policies need to be allowed for longer term while keeping reserving challenges into consideration. Making cooperatives or self-help groups as a partner in providing insurance solution will go a long way in improving penetration of micro insurance products, said the committee.
It is essential to permit pricing flexibility where insurer should be given an option to revise the pricing within reasonable range on positive and negative side within one year from the date of launch of a product (without change in UIN).The product designing to have an element which allows insurer to opt for reasonable pricing flexibility, added the Mathur panel..
On distribution, the panel has said a strong business case has to be made out and demonstrated to get good and productive intermediaries on board. Case studies of successful microinsurance intermediaries explaining their model need to be documented and promoted among other intermediaries. The social impact of insurance on poverty in general needs to be highlighted alongside the revenue angle. This will help in motivating the potential intermediaries in a better way. Insurers need to thoroughly study the core activities of microinsurance intermediaries and come out with products and processes that can be seamlessly integrated with the intermediary’s core activities without incurring additional cost.
Recommending that the Master Policyholders to be treated as Microinsurance Agents, the committee has said MFIs who are master policyholders, currently, need to become corporate agents if they want to earn commission on the credit life business procured by them. This principle needs to be extended to Microinsurance (MI) agency as well. All credit life policies confirming to the limits of sum insured under MI Regulations should be deemed to be MI products and all MFIs who are also master policyholders should be deemed to MI agents. This will enable MFIs to better manage their microinsurance portfolio and will also encourage them to takeup voluntary distribution of insurance products in addition to the credit life products.
However, it is to be ensured that the commission to MI agent will not cause additional increase in premium and thereby causing burden to the policyholder.