How India Can Achieve ‘Insurance For All’ By 2047

The National Insurance Academy, Pune aspires to do high-quality research to support policymakers in decisions for the expansion of the insurance sector, says BC Patnaik, the new Director of the Academy. Patnaik has rich experience as a member - Life, IRDAI and MD, LIC of India.

Talking to Bizz Buzz, Patnaik said that National Insurance Academy is a well-known institution in Pune that contributes to research in insurance and allied areas. He further mentioned that for the past two decades, an NIA faculty member Dr Archana Singh has been conducting research on insurance inclusion and microinsurance.

In her recent book chapter ‘adoption of microinsurance by microfinance institutions in India’ in the book ‘Financial Markets, Climate Risk and Renewables’ published by Springer Singapore, she attempts to understand the causes for the low uptake of microinsurance and evaluate the experiences of MFIs in extending insurance to their clients. Dr Singh observes that microfinance has allowed millions of people in developing and underdeveloped countries to receive microloans without collateral and build up assets.

The microfinance sector serves 140 billion borrowers annually worldwide, of which 81 per cent are women as per Impact Finance Barometer. India has more than 250 MFIs operating in different parts of the country as per Bharat Micro Finance Report. They have reached out to 162 million households, through 13.4 million SHGs. The 72.6 million unique active borrowers have micro savings worth Rs 589 billion as per a study by NABARD. However, lack of active participation of MFIs in promoting insurance inclusion impacts the accessibility and expansion of insurance for the low-income population.

By international standards, India is lagging in insurance protection compared to the global average. Global insurance penetration (ratio of premium to GDP) is 7 and density (per capita insurance premium) is Rs 77,017 ($889). Whereas the insurance penetration of India is 3.7 and density is Rs 8,230 ($95). The insurance density of China is Rs 33,267 ($384), which is more than five times that of India, and penetration is 3.9 as per a report by Swiss Re.

Dr Singh says, “However, these two indicators do not represent access to insurance in emerging markets of India, where a substantial percentage of households and individuals are covered under some kind of insurance. Insurance coverage (percentage of the population covered by insurance) is a better metric for capturing access to insurance in India, which has improved significantly over the last decade.”

India has come a long way in covering households under life insurance. The data reveals that LIC has 19 crore individual policyholders, in addition, 3.3 crore people are registered under PMJJBY. Hence, out of 29.34 crore households as per MoSPI, 76 per cent of households (HHs) have access to at least one life insurance policy. This number is significant as the primary purpose of a life insurance policy is the replacement of the income of the breadwinner of the household.

Under General Insurance, 54.4 crore beneficiaries are covered under Personal Accident (PA) insurance for a sum insured up to Rs 2 lakhs. Additionally, 45.9 crore individuals are covered in PMSBY. If we consider the population above the age of 14 years as 106 crore people as per SBI Research, roughly 94.6 per cent population is covered under PA policy. The population covered under commercial health insurance is 57 crores as per IRDAI, and 36.5 crore households are covered under Ayushman Bharat as per NHA. Together, the population covered under health insurance is 67 per cent.

However, when considering the adequacy of coverage in terms of under-insurance, there is ample opportunity for improvement. Insurance inclusion is expected to bring the next big leap in inclusive finance. The government, insurance regulator, and LIC of India are taking several steps to realise the call by the regulator, ‘Insurance for All by 2047’. Initiatives like Bima Trinity, and Bima Sakhi are expected to play important roles in this direction. IRDAI has issued a master circular on rural, social sector, and motor third party obligations in 2024. It is expected that regulatory space will be made more inclusive for microinsurance institutions by reducing entry barriers.

It is envisaged that MFIs/ NBFCs and other microfinance entities would become vehicles for insurance inclusion. However, data indicates that microfinance institutions cover only the credit risk of their customers through life insurance and uptake of other insurance products has remained low. Dr Singh's analysis came to the conclusion that supply-side and demand constraints are the causes of the MFIs' poor insurance uptake. Operational issues, lack of trust, low awareness and low demands in the target population, low professional skills among the field personnel and high cost of insurance were a few reasons for the low uptake of insurance through MFIs. The recommendations presented in the study have policy implications. The findings of the study are relevant in the light of the new initiative of the IRDAI to achieve ‘Insurance for All by 2047’.

The book is edited by Sandeep Mohapatra (a Professor at the Department of Resource Economics & Environmental Sociology, University of Alberta, Edmonton, Canada), Puja Padhi (a Professor at the Department of Economics, IIT-B) and Vijeta Singh who is working as an Assistant Professor at the Ramcharan School of Leadership, MIT World Peace University, Pune.

The book offers a comprehensive examination of how innovative financial strategies can address critical environmental and social challenges around the world. Organized around five key themes—financial institutions fostering financial stability; volatility in financial markets; inclusive development: MSMEs, and microfinance; financial innovation for sustainability: ESG and climate finance; and fintech - it presents pioneering studies that provide deep insights into the intersection of finance and sustainable development.

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