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The buzzword is Financial Inclusion

Source: Asia Insurance Review | Aug 2013

Prodded by the government, insurance companies in the country have started seriously looking at inclusive growth with a strategy of income redistribution in favour of the poor. Speakers at a recent seminar conducted by the National Insurance Academy (NIA) spoke on the critical role of insurers in achieving the government’s call for financial inclusion. 
By Jimmy John
It all started from the Finance Minister’s budget speech this year and financial inclusion is the buzzword everywhere in the country today. The need for financial protection is paramount for the underprivileged sections in India as these sections do not actually have any protective financial umbrella in an emergency situation. Insurance can address this need by providing cover to people across the country who need it the most. 
Insurance industry has a major role
With insurance penetration low in India at 4.1 for life and 0.7 for non-life, millions are outside the ambit of insurance cover and therefore the opportunity is immense. 
The Finance Minister in the Union Budget 2013-2014 had announced the need for having insurance offices in all towns of India having population of 10,000 or more; to offer group saving products, which are now being made available to homogenous non-employer-employee groups and to provide a common platform for settlement of insurance claims to bereaved families at the earliest. 
Speaking at a one day seminar on Financial inclusion organised by the NIA in Pune recently, Mr T S Vijayan, Chairman, IRDA, mentioned that the regulator has done away with the requirement of prior approval for insurance companies wanting to open new offices in places in tier-3 cities and below categories. This will help a speedy rollout of offices in the desired locations, he said. 
“Insurers should device products to suit the needs of the intended beneficiaries, identify cost-effective methods of delivery of products through long-term partnerships with distribution players,” he added.
Mr Arvind Kumar, Joint Secretary in the Ministry of Finance, Government of India, expressed concern at the low insurance penetration levels in comparison with developed countries. 
“The underprivileged of the country, like marginal farmers and rickshaw pullers set aside a part of their income for emergency situations but if they are offered proper insurance products, this income can flow into capital investments which will increase their productivity,” said Mr Kumar. 
Also speaking at the seminar, Mr Thomas Mathew, Chairman of the Life Insurance Corporation of India mentioned that LIC has already leapfrogged the process of creating its presence in the target locations by opening one-man offices. “In the last three months, LIC has opened 170 such offices and will continue the process,” he said.
Bottlenecks in implementation
Despite considerable progress over the past 40 years, India’s banking and insurance industry network has virtually bypassed the poor. 
For financial inclusion to succeed, appropriate delivery models and products need to be in place. Such a model has to be economically viable and sustainable in the long run. Mr Mathew felt that low income groups can also contribute small amounts towards insurance. 
“We need to enhance the process of insuring all uncovered people at an affordable cost, so the low-income groups can also contribute small amounts towards insurance,” he said. Mr Mathew went on to quote the famous management guru C K Prahlad, who said: “The future belongs to companies who treat the poor as their customers.” 
Another area that needs to be effectively tapped for financial inclusion is technology. Technology has been a game changer in India and today, most public related services can be accessed with a click of a mouse. 
Over 800 million Indians have a mobile phone whereas only 200 million people have access to a bank account. The reach the country is having with technological advancement, mobile-based insurance sales and claims settlement has the potential to emerge as a game changer in terms of costs, convenience, and speed of reach. 
Business models of insurance companies, telecom operators and other stakeholders need to converge. Till such time complete technology integration takes place on all fronts, there are bound to be areas where intermediate brick-and-mortar structures need to be in place. 
Mr Vijayan said: “In order to build a strong system, we must focus on improving persistent communication tools, improving premium policy renewal options, fostering long term distribution partner relations, optimum use of technology for providing services apart from the using brick-and-mortar structures, ensuring all financial needs can be addressed at one place.”
The roadmap ahead
Though insurers in India have not been making headlines as much as banks do, the insurance sector deserves credit for doing a lot more for financial inclusion. Latest figures show various mass insurance schemes in areas of weather and health reach out to over 50 million families at the bottom of the pyramid, touching over 100 million lives. 
For a population of over 1.2 billion this figure may still look small, but it’s a feat that can’t be ignored. A World Bank study estimated that hospitalisation accounts for 58% of per capita annual expenditure, pushing 2.2% of the population below the poverty line (BPL). 
The government-initiated Rashtriya Swasthya Bima Yojana is considered one of the largest mass health insurance programmes in the world as the scheme provides health insurance to five members of every BPL family in India at very nominal premiums. 
The Agriculture Insurance Company and a few private insurers are doing a commendable job in providing index-based weather and crop insurance schemes, as more than 80% of the farmers in the country depend on the annual monsoon for cultivation. 
For financial inclusion to be successful, it needs to be part of every insurer’s corporate strategy and they need to work closely with technology providers to develop joint mechanisms that will identify risks and rein in 


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