With over 422 million lives and properties covered, India leads microinsurance scale in Asia, but despite impressive microinsurance growth rates overall insurance penetration levels remain low at just 3.44% and non-life penetration have been nearly static, rising by just 0.5 -0.8% over the last ten years.
The first ever report published on mutual and cooperative microinsurance in India – found that mutuals, cooperative, and community-based organisations (MCCOs) are the most effective drivers of insurance penetration and carry the promise of being able to lift low-income sectors out of poverty in coming years.
The study was issued as a joint report by the International Cooperative and Mutual Insurance Federation (ICMIF) and Insurance Institute of India (III).
To support expansion of MCCO microinsurance programmes, the report recommended changes to India’s regulatory environment, combined with support and collaboration of international organisations and re/insurers.
The Alternative Risk Management (ARM) model, where mutuals and cooperatives provide solutions along with provision of services including health, education, and negotiated services in affordable hospitals and funeral support, was highlighted by the study as being the only key model with a proven track record of expanding penetration while alleviating poverty.
Mutual and cooperative insurers are ‘market openers’ – they are different in that they are owned, governed, and operated solely in the interests of their members, they educate their members on how insurance works and build resilience through providing community services beyond insurance products.
They also help to reduce the regulatory burden placed on insurers for insuring the poor.
To scale up these models to a point where they can cover large-sections of society in India, the report put forward a three-pronged action approach including introducing changes to the India’s regulatory environment, creating models of self-regulatory organisations with robust MCCO governance systems, and establishing an interface for cooperation between international expertise and standards and community organisations.
Community-based organisations should be allowed to directly leverage commercial reinsurance with global risk diversification providing the most competitive pricing to provide MCCOs with capacity needed for sustainable growth, according to the report.
Government could help promote ARM growth by creating specific enabling legislation to recognise MCCOs as viable ARM mechanisms.
In addition, broad models of self-regulatory organisations could govern, regulate, and hold accountable MCCOs as they expand their reach.
These internal governance systems would provide an interface between governmental regulatory bodies, and international organisations to introduce international best practices.
They’d also provide the global reinsurance industry the stability and structure needed for expanded cooperation with MCCOs.
Dr George E Thomas, Professor at the College of Insurance of III, said; “We are hoping for a change in the regulatory environment to enable the expansion of those programmes focusing on the low-income segment.”
The report recommends international bodies such as the ICMIF become an integral part of microinsurance expansion, assisting MCCOs in organisation to enable collective and effective action, it added this would “provide for indirect operational supervision by making reinsurance mandatory above specific thresholds of risk exposure, in terms of numbers and/or amounts.
“Another solution would be creating a specific company (or a pool/wing under the national reinsurer) which would provide insurance cover to MCCOs and all the rural and microinsurance programmes in the country, covering life, credit, cattle, crop, poultry, agricultural pumps, beehives, bicycles, agricultural implements etc.
Currently, there are only 13 MCCOs throughout India, collectively insuring just 1 million people, so the potential for developing mutuals with Alternative Risk Models and increasing penetration is huge, and well worth pursuing with the potential to boost the re/insurance industry with large-scale new demand, while simultaneously driving global development goals forwards and pulling millions out of poverty.
For global re/insurers operating in India, the challenges of driving business in a protectionist regulatory environment that gives Indian re/insurers first market picks present obstacles just as large as the opportunities at hand.
These microinsurance programmes are no exception to the international industries’ Indian dilemma.
However, Indian government officials have already begun voicing concerns that the national Indian reinsurer, GIC Re is coming under strain as primary provider of capacity for India’s fast expanding crop insurance scheme, and with less than 10% of the Indian population currently being insured, the scale of the potential demand clearly entails a global response.
As penetration levels expand further, there is no question that to retain this growth, the expertise, capacity and risk diversification offers of the global capital markets will need to become an integral part of India’s fast-track development.
