Hyderabad:
A panel of experts, constituted by the insurance regulator IRDAI, has recommended setting up of stand alone micro insurance companies with a capital base of Rs 20 crore.
Among other issues,the panel headed by Mirai Chatterjee, director,SEWA and has members like Nachiket Mor, a banker, has suggested that the Insurance Act, 1938 should be amended to bring the standalone microinsurance business under the purview of the statute.This will include defining microinsurance, microinsurers, reducing the capital requirement and/or giving IRDAI powers to decide on capital requirements for Standalone Microinsurance Company (SAMI).
The insurance sector was opened up to the private participants in the year 2000. While the market has expanded, there has been limited impact on the lives of those from low- and middleincome economic backgrounds. This is despite the best intentions of the regulator and the insurers.There is a clear need for specialised microinsurance companies which will serve this section of our citizens, said panel in its report..
The panel, which was set up in February, has suggested that microinsurance companies (cooperatives and mutuals as well) should be allowed to act as composite insurers to transact both life and non-life business through a single entity.
By implementing changes to facilitate standalone microinsurance businesses with reduced capital requirement, over 500 million Indians will have the
opportunity of obtaining financial protection and security, enabling them to emerge from poverty and to move towards self-reliance.
The capital requirement for doing both types of business will have to be increased after assessing the size and nature of the business. Further, care should be taken to ensure that the microinsurance companies’ portfolios include a balanced mix of life and non-life business.
As use of end-to-end digital technology for transparency, accountability and monitoring will be an essential part of how microinsurance companies will do their business,a common IT platform for all microinsurance companies can be developed on the lines of the IT platform in place for mutual funds. This will not only reduce transaction costs but will also bring greater transparency and regulatory oversight.
As amendments may require time, the committee has suggested a two-step alternative to move forward:A captive cell model may be offered as a way for micro players to underwrite microinsurance businesses. As per this model, existing insurers and others can become cell owners by bringing in capital and can share the underwriting risk with SAMIs with a capital of no more than Rs 5 crore or such contribution as may be considered appropriate.
It has also suggested that the IRDAI may establish a Microinsurance Development Fund to support and promote the growth of the microinsurance business across the country.21 The fund could support human resource development, digital and financial literacy, IT infrastructure and product development. ,
The panel wanted its recommendations to be implemented at the earliest in order to increase the spread and outreach of microinsurance in India. This is especially urgent today given the current COVID-19 pandemic and the insecurity it has resulted in for India’s citizens, and especially the vulnerable, working poor, said the panel.
IRDA has asked for comments from all the stakeholders on the suggestions made by the Mirai Chatterjee panel