The Insure India 2047 plan may need a few tweaks to achieve its aim

The sector’s regulator aims to achieve its objective of complete coverage by 2047 through the insurance trinity of Bima Sugam, Vistar and Vahak. 

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Bima Sugam is a one-stop digital  marketplace for the seamless sale and purchase of insurance. Bima Vistar is a comprehensive policy incorporating life, health, property and accident cover, with defined benefits for each category of risk to ensure quick settlement of claims without validation by third-parties (like surveyors). Bima Vahak is a proposed women-centric network of distributors at the Gram Sabha level. The role of a ‘bima vahak’ or distributor will be to educate and convince women in particular about the benefits of comprehensive insurance.

Insurance continues to be a push product. Notwithstanding increasing awareness of financial products, the significance of human intervention has not diminished. Even pure digital insurance companies have had to hire ‘feet on the street’ to sign up customers. This is an abstract product—a promise that is redeemable on the occurrence of a specified event (or ‘moment of truth’) and so it requires careful marketing. 

Insurance penetration in India is low. Opening the industry to private participation does not seem to have made much of a difference. In 2006, total premiums as a proportion of GDP reached 4.8% (life 4.1% and non-life 0.6%), but in 2021, life policies were down to 3.2% and non-life up marginally to 1%. Since then, the life segment has declined to 2.8% of GDP and non-life has stayed flat at 1%. By this measure of penetration, coverage has shrunk.

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Insure India has been in the works for nearly three years. The first phase of Bima Sugam is expected to be launched shortly. It would, however, be a good idea to pause and think if a special ‘push product’ like insurance can be promoted like in any other business. 

India’s avowed objective of financial inclusion began former prime minister Manmohan Singh, but it did not take  off until the ministry of finance and Reserve Bank of India (RBI) under Prime Minister Narendra Modi’s regime launched the revised Banking Correspondence (BC) model for the opening of bank accounts. Over 1 million BCs across the country have helped widen out people’s access to banking, direct benefit transfers and credit. This model has already demonstrated its viability in servicing millions under the Pradhan Mantri Suraksha Bima Yojana (PMSBY) and Pradhan Mantri Jeevan Jyoti Bima Yojana. Leveraging this human network and the public trust created can be of great help. 

As for bima vahaks, a commission of ₹10-15 per policy under the proposed model will be inadequate to secure the desired results, as this compensation is too low for a push product that requires specialized salesmanship. Even under the PMSBY, a premium of ₹436 yields ₹32 as commission. 

The National Pension System (NPS) was a non-starter until the intermediation fee was enhanced. For deeper penetration of services, we need a ‘low margin, high volume’ model. Asking BCs to take on NPS and insurance sign-ups will allow a viable cross-selling proposition that keeps distribution costs low. Allowing corporate bima vahaks can help reach out and achieve volumes too. 

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Further, having one insurer per state runs the risk of monopolistic dominance, reduced service quality and even low penetration. The Pradhan Mantri Jan Dhan Yojana’s ‘sub-service area’ model uses multiple service providers, which creates healthy competition, enhances outreach and assures better accountability. It has fared well and needs to be followed.

The country has over 1.3 billion bank account holders with know-your-customer norms met and verified through Aadhaar, PAN or other RBI-approved identities. This should be used, rather than repeating KYC verification. 

Whereas a single fixed premium limit has merit, its validity is questionable, given the variation in risk profiles. The pricing of a policy must correspond to the risk covered. Else, Peter would be financing Paul. If limits are necessary, it may be better to use a range of risk-based premium brackets, with bima vahaks trained to use risk-profile guidelines. While retaining simplicity, it will bring down cross-subsidization.

The need to enhance insurance coverage is urgent. It calls for a massive awareness campaign with innovative approaches. Media advertising alone may not yield the desired results. Roadshows with well-aimed short films  and engaging NGOs, self-help groups, schools and colleges would help. Since a window for tweaking India’s approach is still open, the IRDAI should consider these suggestions on merit. Well begun is half done, as goes the saying.

The author is former chairman, Life Insurance Corporation of India and Securities and Exchange Board of India.