IRDAI proposes lower capital, liberal norms to float micro-insurance companies
Mumbai: At a time when millions of Indians, especially in the informal sector have lost their livelihoods to Covid 19 pandemic, a panel set up by the insurance regulator has recommended reducing the entry level capital requirement for floating a standalone microinsurance company
to Rs 20 crore from the current requirement of Rs 100 crore to help accelerate the expansion of the microinsurance market.
Stating that India too would need to improve access for multiple players (like other countries) if it wants to substantially increase insurance penetration, the panel has suggested that microinsurance companies (as well as cooperatives and mutuals) should be allowed to act as composite insurers to transact both life and non-life business through a single entity. “Their portfolios should have a balance of both life and non-life business,” said the panel.
However, the changes would require amendments to the Insurance Act, 1938 to bring the standalone microinsurance business under its purview. This will include defining microinsurance, microinsurers, reducing the capital requirement and/or giving powers to insurance regulators to decide on capital requirements for standalone microinsurance companies. However, amending the Insurance Act, 1938 may require time.
In the immediate term, the central government may be approached to issue rules under Section 24(2)(c) read with Section 14(2)(q) of IRDA Act, 1999 giving the IRDAI powers to put in place a regulatory framework for floating micro insurers. Such an approach was adopted by the government to allow insurers in special economic zones (SEZs) when there was no specific power with the IRDAI for regulating entities in SEZs said the Committee in its report.
“India too will need to improve access for multiple players if it wants to substantially increase insurance penetration. This is all the more urgent in the current context of the COVID-19 pandemic when millions of Indians, especially in the informal sector, have lost their livelihoods, are now leading more insecure lives and are falling back into poverty,” said the report.
The committee has also suggested that a Risk-based capital (RBC) approach should be adopted to enable the progressive growth of the microinsurance business while maintaining the highest prudential standards.
Referring to the low insurance penetration, the report said, “Dedicated standalone microinsurance institutions can close this gap by making insurance affordable and available to low-income families, thereby providing a measure of risk mitigation and security. The committee therefore recommends that the government and the Insurance Regulatory and Development Authority of India (IRDAI) license such businesses which can cater to the low-income segment.”
IRDAI had constituted the committee in February 2020 consisting of members from NGOs, independent consultants and experts working in financial inclusion and regulatory fields, to study the concept of standalone micro-insurance companies.
