Micro Insurance Cover Needed for India's Poor to Prevent Covid 19 Economic Debacle

The misery unleashed by the Covid 19 outbreak and the subsequent lockdown on India’s poor has been well documented by now. The events that have unfolded have brought to the fore the need to provide some sort of a social security net for millions of toiling masses. In a country where most of the workforce is in the unorganized sector and there is need to provide relief to around 500 million (50 crore) people, the Covid 19 experience has exposed the hollowness of the social security claims by governments over decades.

A committee of experts set up in February has called for large scale expansion of the micro insurance sector. The ‘Report of the Committee on Standalone Micro Insurance Company’ submitted to the Insurance Regulatory and Development Authority of India (IRDAI) points out, “For low-income families, calamities such as illnesses, accidents, death or the loss of assets often have very grave financial consequences. Such events can push these families deeper into poverty as their meager resources get depleted. Many get drawn into debt traps as they borrow beyond their means, sell productive assets, take children out of school or put them to work, compromise on food, or leave sickness untreated. The need for low-income families to take insurance, therefore, cannot be emphasized enough, and must be a vital part of India’s financial inclusion plan.”

Replying to a question by this reporter on what difference would it have made if India’s poor were covered under such an initiative at the time of the Covid 19 outbreak, Mirai Chatterjee who was the chairperson of the committee said, “It would have made a huge difference. But still it is ‘Jab jaago tab savera’ (Better late than never).”

Director of prominent Self Employed Women’s Association (SEWA) in Ahmedabad, Chatterjee pointed that the poor need to be given complete cover as a single entity (life, health and others). The Covid 19 fallout has highlighted that the poor have no employment, no money and no security.

While India is said to be ahead of several other countries in terms of micro insurance outreach in terms of numbers, products offered and providers, the fact also remains Indian micro insurance sector has only covered 9 % of the overall population and 14.7 % of the potential micro insurance market size in the country.

The committee has underlined, “The minimum capital requirement of Rs 100 crore stipulated under the Insurance Act has acted as the biggest impediment to the expansion of the micro insurance market.”

The experts have called for bringing this down to Rs 20 crore while pointing that the Act needs to be amended by the Parliament at the earliest.

The report points out that the insurance sector was opened up to private participants in 2000. While the market has expanded, there has been limited impact on the lives of those from low- and middle-income economic backgrounds despite the best intentions of the regulator and the insurers.

The report has pointed out that waiting any longer for the existing insurers to lead this expansion will amount to missing an opportunity. There is clear need for specialized micro insurance companies which will serve low-income people.

The report says, “If 500 million low-and middle-income individuals and families are to obtain insurance, the market will have to be expanded urgently. This can be done by allowing the entry of new participants who work with, and have an understanding of, the low-income market.”

Former executive director of Life Insurance Corporation of India Tirath Raj Mendiratta pointed, “Non Governmental Organizations (NGOs), Self Help Groups (SHGs), microfinance co-operatives and regional rural banks can play a role in this.”

VimoSEWA, a multi-state cooperative working in Gujarat, Madhya Pradesh, Bihar, Delhi and Rajasthan is one such example that has covered more than 85,000 people till now. One of its top functionaries Shreekant Kumar disclosed, “In the last six months of Covid 19, Rs 60 lakh have been disbursed against 360 claims. These include Rs 7 lakh of Covid claims disbursed for hospitalization and deaths.”

One of the VimoSEWA fieldworkers Asha Ajmeri said, “Since the Covid outbreak people have understood uncertainty. They understand why insurance is important and it does not take much effort to persuade them.”

Dr. Nachiket Mor, an economist and expert on health systems design, pointed that there is a need for dedicated institutions to work on providing micro insurance cover to the masses that have no other distractions. He pointed out, “Covid 19 has exposed several fault lines. We need the Act to change. The question right now is whether the government would agree to the recommendations.” He pointed that while there is a need for new players, there are many existing institutions that can take the initiative forward.

To ensure that the initiative takes off in the right direction, the experts have recommended the Risk-based capital (RBC) approach to enable the progressive growth of the micro insurance business while maintaining the highest prudential standards.

They have stated, “Micro insurance companies (cooperatives and mutuals as well) should be allowed to act as composite insurers to transact both life and non-life business through a single entity. Use of end-to-end digital technology for transparency, accountability and monitoring will be an essential part of how micro insurance companies will do their business. A common information technology (IT) platform for all micro insurance companies should be developed.”

The report has further recommended, “Regulations for oversight should be developed with the highest prudential standards. These should be developed in consultation with those already undertaking micro insurance as intermediaries (co-operatives, mutuals and NGOs) as well as other stake-holders. In addition, micro insurance companies and organizations will also focus on developing self-regulatory mechanisms.”

Another pertinent suggestion is that IRDAI may establish a Micro insurance Development Fund to support and promote the growth of the micro insurance business across the country.

It has been emphasized that spread and outreach of micro insurance needs to be urgently increased given the current COVID-19 pandemic and the insecurity it has resulted in for India’s citizens, and especially the vulnerable, working poor. “By implementing changes to facilitate standalone micro-insurance businesses with reduced capital requirement, over 500 million Indians will have the opportunity of obtaining financial protection and security, enabling them to emerge from poverty and move towards and self-reliance,” the report says.