Removing the minimum cap for entry into the insurance industry will increase insurance penetration many-fold


India’s insurance penetration rate was pegged at just 4.2% in FY 2021, with life insurance penetration at 3.2% and non-life insurance penetration at 1.0%. What can be understood from this figure is that insurance penetration is still quite low in the country and there is a huge underserved market waiting to be tapped. The insurance regulator wants to facilitate the entry of several players such as standalone microinsurers and niche players by eliminating the minimum entry capital requirement of Rs 100 crore for starting an insurance business.

The expanded view is that every Indian should have life insurance coverage; every household should have health insurance. Also, everyone at the bottom of the pyramid should have home insurance. There should be one-stop insurance solutions for small businesses. In fact, there should be income security for the aging population through annuity and retirement products.

Developed countries and many developing countries with high insurance density. India has an extremely low insurance penetration compared to the global average and other comparable countries. Lack of education among consumers, general belief that insurance is a cost rather than a long term asset, heavy paperwork, complicated policy do not help the cause. Simple policies with benefits rather than allowances could also contribute to deeper penetration.

In the United States there are over 6000 insurance companies, while in India we only have around 50. The insurance regulation initiative will push the boundaries of the insurance industry including incumbents, and will drive innovation on all fronts – whether it’s pricing, product builds, claims processes or customer experience.

The importance of this movement

Insurance is no longer just a matter of temporary plans, endowment plans, or car insurance plans. Use cases for insurance can be found in every industry and at every stage of a customer’s transaction. While on the one hand, there is a demand for consumer-oriented plans such as travel insurance, cyber insurance, smartphone insurance and pet insurance; on the other hand, there are requirements for parametric weather insurance for farmers, trade credit insurance for agricultural trades, several other hyper-targeted insurance offerings.

All of these eponymous insurance plans require a keen understanding of the nuances of the domain and industry, as well as a very specific and innovative method of underwriting. With the removal of the minimum entry capital requirement, sector-specific or product-specific insurance companies with expertise in one or more of these areas will flourish, in turn offering relevant and competitive products to stakeholders.

Additionally, with the removal of the minimum entry capital mandate, several microinsurers with a much lower capital of ?10 Cr or ?15 Cr can be expected to establish themselves as providers of assurance. With their ability to focus on smaller districts, these providers can be instrumental in increasing insurance penetration in rural and remote areas of the country. As new-age insurance providers, these microinsurers are also much more likely to invest in digitalization, helping to increase insurance awareness, ease customer onboarding due to reducing red tape and finding easier ways to educate the Indian population about the benefits of insurance.

The future prospects of this movement

Undoubtedly, IRDAI’s initiative to remove the 100 crore entry capital may prove to be an important step for all new players looking to enter the insurance space. But this is not the only perspective it will open up.

India has a massive population of young, middle-class workers who have the ability and finances to invest in insurance products, and with the entry of new insurance players, this population will certainly be exploited. Most of these new insurance players are said to have a technology-driven mindset, making it even easier for them to appeal to the modern customer base who knows what they want and appreciates a highly digitized customer experience.

This move will also make the insurance industry much more inclusive for smaller players. Plus, having more insurance companies in the business can undoubtedly push everyone, including cardholders, out of their comfort zone. Such a push is sure to lead to innovation on all fronts, be it pricing, products, claims processes or customer experience, ultimately driving the overall evolution of the industry. indian insurance.

The intention of this decision is to ensure that every Indian is insured, be it through life, health or motor insurance, or any other specific type of insurance that one might seek. Activated with a more flexible vision of regulation, without removing it completely, and technology-based supervision, the IRDAI initiative looks promising and has the potential to lead to a complete and positive overhaul of the functioning of the sector. ‘assurance .



The opinions expressed above are those of the author.



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