IRDAI Report on Microinsurance Company, Suggested Recommendations

Insurance Regulatory and Development Authority of India (IRDAI) on Thursday by a notification invited comments from all the stakeholders regarding the committee report for development of a concept paper on standalone microinsurance companies. This report provides for allowing ‘Standalone or Exclusive Micro Insurance Companies’ to improve micro-insurance penetration in India. This committee report is available on the IRDAI website for public viewing.

IRDAI is taking steps to provide insurance to low-income groups. There is a need for low-income families to have insurance. Thus IRDAI emphasises that providing insurance to these low-income families is a vital part of India’s financial inclusion plan. The workforce of informal or unorganised sectors are the low-income segment of our population, and they need to be covered by microinsurance.

Microinsurance institutions make insurance affordable and available to low-income families, thus providing a measure of risk mitigation and security. The committee report recommends that the government and the IRDAI license microinsurance businesses which can cater to the low-income segment. The report proposes many recommendations after extensive discussions with organisations that have been providing microinsurance, national and international experts.

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The report recommends for the entry-level capital requirement for standalone microinsurance entities to be reduced to Rs.20 crores maximum from the current Rs.100 crores. There should be the adoption of a risk-based capital approach to enable a progressive growth of the microinsurance business while also maintaining the highest prudential standards. The Insurance Act, 1938 should be amended to bring the standalone microinsurance business under its purview. 

The standalone microinsurance companies require reinsurance. IRDAI can facilitate this reinsurance through the existing licenced insurance or reinsurance companies. The essential part of how microinsurance companies will do their business depends on the use of end-to-end digital technology for transparency, monitoring and accountability. For providing an end-to-end technology, there is a need to develop a common information and technology (IT) platform for all microinsurance companies.

The report recommends IRDAI to develop an appropriate supervisory structure to fast track product approvals and enable offsite supervision of standalone microinsurance company. IRDAI or the Central Government can establish a Microinsurance Development Fund for supporting and promoting the growth of this business across the country.

A cell captive model may be offered to micro players for underwriting the microinsurance business. As per this cell captive model, the existing insurers and others can become cell owners by bringing capital and sharing the underwriting risk with these businesses with a capital of not more than Rs 5 crore or such contribution as may be considered appropriate.

The recommendations of the committee report suggest for easing rules to encourage standalone microinsurance companies. It provides liberal norms for floating microinsurance companies. The low-income families face a lot of calamities such as illnesses, accidents, death or the loss of assets which often have significant financial consequences. These events push these families deeper into poverty as their meagre resources get depleted. Providing insurance to these families is more urgent now due to the pandemic situation. 

Millions of Indians, especially those from the informal sector, have lost their livelihoods due to COVID-19 situation and are leading more insecure lives and are falling back into poverty. In such times, the standalone microinsurance companies can provide relief to these families. Thus, it becomes essential to provide relaxation in the rules and make amendments to the legal framework relating to standalone microinsurance companies for their better functioning. 

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@cleartax.in