Case for having insurers cater to niche sectors: Irdai's Rakesh Joshi

There is a huge unserved population in the country, which is without financial aid and insurance. It is possible to look at the option of having niche players catering to niche sectors, akin to non-banking financial companies (NBFCs) and microfinance institutions (MFIs) in lending, said Rakesh Joshi, member (Finance & Investment), Insurance Regulatory and Development Authority of India (Irdai).
 
Speaking at the Business Standard BFSI Insight Summit in late December, Joshi said, “Today, most of our insurance companies operate at the national level. There is arguably a case for having differentiated operations, which cater to niche sectors just as we have NBFCs and microfinance institutions in lending.”
 
He added: “The capital requirement for niche players may not be as large as those having national ambitions. Enabling these niche players, which require less capital, will enhance penetration in areas which hitherto had not seen traction from large players.”
 
According to Joshi, excluding those at the bottom of the pyramid and targeting only the upper-income strata would result in development objectives going askew in the long run.
 
India has a huge protection gap of 83 per cent. Further, almost 50 per cent of the vehicles on the country’s road are uninsured. The coverage of property insurance is miniscule. And MSMEs (micro, small and medium enterprises) are not adequately covered.
 
“This huge protection gap needs to be bridged as we march towards our vision for India@100 with the goal of insurance for all, where every citizen should have adequate insurance cover,” Joshi said.
 
In order to enhance the insurance force, the regulator is contemplating the concept of Bima Vahak, whereby each gram panchayat will have a Bima Vahak, who will be tasked with selling simple, parametric, bundled insurance products — Bima Vistaar — covering health, property, life, and personal accident. This bundled product can be bought in units of sum insured.
 
According to data shared by Joshi, the insurance industry covered more than 290 million lives in FY22. Another 500 million lives were covered under the government flagship programme Ayushman Bharat. In addition, around 140 million lives are estimated to be covered under social insurance schemes such as ESIC (Employees’ State Insurance Corporation) and CGHS (Central Government Health Scheme).
 
“Today, we are the tenth-largest insurance market, and also one of the fastest-growing markets in the world. India is projected to be the sixth-largest insurance market by 2032, ahead of Germany, Canada, Italy, and South Korea. This growth is based on the expectation of a strong economy, rising levels of disposable income, a young population and the demographic dividend, increased awareness, digital penetration, and regulatory developments,” Joshi said.
 
That there is enormous opportunity in the insurance sector is evident from the fact that 19 applications are under process at Irdai for setting up new insurance companies.
 
Apart from providing financial relief, insurance companies invest their resources in nation-building through investments in central government securities, state development loans and in infrastructure housing. They are also key players in the development of the corporate bond market, he said.
 

As of March 31, 2022, the insurance sector’s investment in central government securities was around Rs 22 trillion, which is about 25.8 per cent of the total central government securities outstanding. This is second to the investment made by the banking sector, which was 37.55 per cent. In respect of state government securities, the insurance sector’s share of investment was Rs 12.53 trillion, which is 28.42 per cent of the outstanding state government securities, second to the banking sector, which was 38.4 per cent.
 
The government proposes to amend the Insurance Act 1938, and this will be a game-changer, Joshi said. The insurance regulator has made a slew of changes in the last few months and has moved to principle-based regulation, from entity-based regulation. 
“More flexibility and autonomy are being provided to boards for taking business and operational decisions. The investment landscape is being rebuilt to attract more investments into the sector, and grievance redress systems are being made more responsive, empathetic, and tech-enabled. The distribution framework is also moving towards open architecture,” Joshi said.