Irdai's Committee on micro insurance suggests ways to boost segment

The insurance regulator’s committee on micro insurance has suggested such policies be allowed up to Rs 5 lakh, from the current level of Rs 2 lakh, and that even general insurance or health products have return of premium as an option.


“It appears return of premium is one feature which holds greater value for this section of customers,” the committee said in its recommendations.  Also, that general insurance policies, typically renewed annually, be allowed for a longer term.


Micro insurance is specifically intended for protection of low income people, with affordable products to help them cope with and recover from financial loss.


“Liberalisation of the sector and government schemes has created new opportunities for micro insurance to reach the vast majority of the poor, including those working in the informal sector,” says the panel. One big problems is hesitation among the poor to pay now for a future event that might or might not happen, when they face a problem in meeting even daily needs. Also, regular payment of premium for cover continuity is an issue, due to absence of any certainty of income.


The poor also do not perceive many of the existing insurance products to be useful, with the servicing of poor quality. Among other recommendations, the committee has said there is a requirement for waiver of stamp duty on micro insurance, especially for life policies. The stamp duty on a Rs 289 premium of the Pradhan Mantri Jeevan Jyoti Bima Yojana, for instance, is Rs 40 or 14 per cent.


Also, a relaxation in capital reserve requirement on micro products for general and health insurers. Plus, pricing flexibility for insurers, wherein they be allowed to revise their pricing within a reasonable range within a year from the date of launch of a product.


The committee has also advocated for paying premiums in daily, fortnightly, monthly or quarterly instalments. “We should also explore possibility of allowing the premium to be a defined percentage of a daily wage, with the savings benefit depending on the amount of contribution,” it has said. 


On the distribution front, it says micro finance institutions which are master policyholders need to become corporate agents if they want to earn commissions on the credit life business procured by them.


Also, that there is a need for micro insurance products to be simple, so that these could be easily conveyed by the distributor and understood by the customer. Consultations should be held with potential customers at the product design stage. And, that micro insurance be available through small shop owners or business correspondents, to increase the penetration.

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