RESEARCH
October 2015
Inclusion + Intermediation + Technology = Inflection
The Next Game In Insurance
A CRISIL-ASSOCHAM report
Contacts Details
CRISIL
ASSOCHAM
Jiju Vidyadharan
Director-Funds & Fixed Income Research
Email: [email protected]
Chandan Kumar
Joint Director, Department of Banking and
Financial Services
ASSOCHAM
Email: [email protected]
Tel: +91 99101 67130
Piyush Gupta
Associate Director-Funds & Fixed Income Research
Email: [email protected]
Prahlad Salian
Manager-Funds & Fixed Income Research
Email: [email protected]
Saloni Singh
Associate-Funds & Fixed Income Research
Email: [email protected]
Rajesh Kumar Singh
Assistant Director, Department of Banking and
Financial Services
ASSOCHAM,
Email: [email protected]
Tel: +91 99907 02689
Vivek Tiwari
Executive, Department of Banking and Financial
Services
ASSOCHAM
Email: [email protected]
Tel: +91 81308 49452
Kushagra Joshi
Executive Trainee, Department of Banking and
Financial Services
ASSOCHAM
Email: [email protected]
Tel: +91 94119 22291
Saurabh Singh
Executive Trainee, Department of Banking and
Financial Services
ASSOCHAM
Email: [email protected]
Tel: +91 98689 81404
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RESEARCH
Table of Contents
Message from ASSOCHAM........................................................................................................04
Message from CRISIL.................................................................................................................06
For insurers, inclusion initiatives can change the game........................................................07
Insurance penetration way short of global mark.....................................................................10
Role of intermediaries in bridging the gap...............................................................................18
Technology a key driver for distribution, financial inclusion.................................................24
Solvency margin: The next regime............................................................................................26
Annexure I – Recent important guidelines on financial inclusion.................................................29
Annexure II – Timeline of recent government initiatives..............................................................30
Annexure III – Major initiatives and regulations in the insurance industry...................................31
Annexure IV – Insurance statistics across India..........................................................................32
Annexure V – Life insurance agents statistics.............................................................................33
Annexure VI – Non-life insurance agents statistics......................................................................34
Annexure VII – Government’s technological strategy and milestones.........................................35
33
Message from ASSOCHAM
The insurance industry contributes to the financial sector of an economy and also provides
an important social security net in countries.
Rapid growth of the insurance sector over the past few decades has significantly
altered India’s financial landscape, affording millions of people some social security.
The number of insurance companies offering a diversified portfolio of products and services
has proliferated and penetration is on the rise, though it is still way short of the global average.
ASSOCHAM and CRISIL are jointly publishing this knowledge report, which
highlights the key challenges for the sector and the need for favourable regulatory
support and farsighted intervention to help realise its growth potential. ASSOCHAM
acknowledges the valuable contribution made by CRISIL’s experienced
research team and their untiring effort in preparing the in-depth ready reckoner.
I am sure the report will provide rich insight and very relevant knowledge to all stakeholders.
Your valuable suggestions/comments are welcome.
Shri D S Rawat
Secretary General, ASSOCHAM
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RESEARCH
Message from ASSOCHAM
The insurance industry in India is poised for great changes with the passing of the new
Insurance Act. Regulations are likely to undergo significant changes to bring in more
dynamism into the market and take the industry to the global level.
The major task before stakeholders is to ensure the benefits of insurance reach every citizen.
There is huge under-penetration in both urban and rural areas, and across segments of the
population. Also, there are regional disparities, with some states doing better than others.
The CRISIL report very vividly brings out the challenges facing the industry. The way things
stand, improving insurance inclusion will require deepening distribution, enhancing the
effectiveness of intermediaries, bringing simple, uniform products to reduce the perceived
complexity of insurance and leveraging technology efficiently.
The role of regulation as an enabler is also critical. The world is going through changes
such as the Solvency II regime and India needs to adapt quickly. The report rightly focuses
on all this and more.
Shri G Srinivasan
Chairman, ASSOCHAM National Council for Insurance
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Message from CRISIL
The number of insurance companies operating in India has increased to 52 since
liberalisation, but in terms of penetration, the country remains grossly underinsured at
just 3.9% -- most of it life cover -- compared with the global average of 6.3%. Further,
the annual insurance premium per capita (density) is abysmal at $52 or less than 1% of
annual income compared with 7% and 12% in the US and UK, respectively.
More than a fifth of India’s population falls below the poverty line, and hundreds of
millions have limited awareness and/or access to financial services. Increasing insurance
awareness in this segment, therefore, is a huge challenge but a necessary step. And
medical insurance will need to grow exponentially given rapidly rising medical costs and
awareness. The government’s recent thrust on financial inclusion can herald major change.
The announcement of affordable low-cost hybrid defined benefit (DB) insurance plan will
accelerate inclusion, especially of those from the lower income strata. Incentivisation of
private insurers, product simplification, increasing awareness and building access are
vital for greater adoption.
Technological intervention, so crucial to financially mainstreaming every citizen, is going to
see a sea-change because of the development of three mass access channels -- mobile,
Aadhar and Jan Dhan Yojana. And an overlay of innovations by the National Payment
Corporation of India -- such as Rupay cards, the Immediate Payment System (IMPS),
among others -- will substantially augment currency circulation through formal channels.
About 100 crore citizens are expected to be enrolled into Aadhar by March 2016 – which
is over 75% of India’s population. Authentication linkages, electronic KYC, and remittance
driven by technology will all be part of this orchestration of financial inclusion.
Technology will lower the cost of distribution, education and transaction processing.
Creating insurance awareness will be the key challenge to tackle. Being a push product,
insurance needs more effective on-the-ground distribution channels and personalised
interaction.
An Insurance Information Bureau report titled, ‘Spread of life insurance agents across
locations in India’ reveals that that 63 of the bottom 120 districts by way of agency
penetration were similarly placed at the bottom of CRISIL Inclusix. This establishes a
direct correlation between banking inclusion and insurance accessibility. The next logical
step, therefore, would be for key stakeholders to create an insurance index that provides
granular, national-to-district level perspectives to aid policy makers, regulators, bankers
and insurers alike to further penetration goals.
CRISIL estimates that the inclusion agenda, along with technology and
intermediation, can potentially grow the insurance industry over 2.5
times in the next five years. The ball has been set rolling in the right
direction. The challenge is to ensure that it sustains momentum.
Manish Jaiswal
Business head, CRISIL Research
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RESEARCH
For insurers, inclusion initiatives can change the
game
Historically, insurance in India has been targeted at the middle and the upper strata. But focused government
efforts to improve financial inclusion could prove both a catalyst and game-changer for the insurance industry.
CRISIL defines financial inclusion as “the extent of access by all sections of society to formal financial services,
such as credit, deposit, insurance and pension services.” For an economy to be financially inclusive, it should
be able to provide universal access to no-frill bank accounts, small loans, and basic insurance, to name
just a few. Financial inclusion is not just about creating a bank account, it is also about spreading financial
awareness and providing low-cost financial advisory and counselling. Ultimately, financial inclusion begets
social inclusion.
CRISIL Inclusix – an index to measure India’s progress on financial
inclusion
CRISIL Inclusix is India’s first comprehensive measure of financial inclusion, through an index. It is a pro bono
initiative, driven by CRISIL’s mission of ‘making markets function better’. With its ability to objectively analyse
and measure inclusion, CRISIL Inclusix could be a key enabler in taking financial services to the bottom of
the pyramid.
CRISIL Inclusix is statistically robust and transparent, yet uses an easy-to-understand methodology - similar
to one used in other leading global indices, like the UNDP’s ‘Human Development Index’. It is a relative
index on a scale of 0 to 100, and combines three critical parameters of basic financial services — branch
penetration (BP), deposit penetration (DP), and credit penetration (CP) —into one metric. The Index focusses
only on the number of people whose lives have been touched by various financial services, and not on
amounts deposited or loaned. As per CRISIL Inclusix, India’s financial inclusion score was 50.1 on a scale
of 100 in 2013.
Aggregates 3 parameters to measure financial inclusion
Parameter
Branch penetration
Credit penetration
Deposit penetration
Measure
Interpretation
Number of bank branches/ lakh of
population
Access to banking services
Number of loan accounts/ lakh of
population
Access to loan products
Number of small borrower loan
accounts as defined by the RBI/ lakh
of population
Access to credit for small
borrowers
Number of agriculture advances/ lakh
of population
Access to credit for
farmers
Number of savings deposit accounts/
lakh of population
Access to savings
products
Higher the score, higher the level of financial inclusion
77
Need to measure insurance penetration
CRISIL Inclusix currently covers banking and microfinance institution (MFI) services. We believe adding
insurance in the index fold will help not only reduce poverty, but also ensure that those emerging from poverty
do not relapse.
The Insurance Information Bureau’s (IIB’s) report titled ‘Spread of life insurance agents across locations in
India’ used CRISIL Inclusix district scores to compare insurance reach with financial inclusion. It showed
more than 55 crore people in the country have very limited access to insurance. The bottom 120 districts in
terms of insurance penetration had an average agency penetration of 0.768 during 2012-13, compared with
an all-India average of 3.15. 63 of the bottom 120 districts in terms of agency penetration were also similarly
placed (at the bottom) in the CRISIL Inclusix. This indicated that districts suffering from a lack of agency
penetration also face a shortage of banking and financial services.
Table 1: Bottom 20 districts – agency penetration versus CRISIL Inclusix score
Count of
life agency
licenses
Agency
penetration
Rank as
per CRISIL
Inclusix
0
0.256
632
2
0
0.027
631
2,50,671
21
0
0.084
630
South Garo Hills
1,42,574
30
0
0.210
629
Manipur
Tamenglong
1,40,143
48
0
0.343
628
Manipur
Ukhrul
1,83,115
102
0
0.557
626
Nagaland
Longleng
50,593
2
0
0.040
623
Nagaland
Peren
94,954
13
0
0.137
622
Arunachal Pradesh
East Kameng
78,413
31
0
0.395
621
Nagaland
Tuensang
1,96,801
17
0
0.086
620
Madhya Pradesh
Alirajpur
7,28,677
67
0
0.092
619
Mizoram
Lawngtlai
1,17,444
15
0
0.128
618
Manipur
Churachandpur
2,71,274
203
1
0.748
617
Manipur
Chandel
1,44,028
113
0
0.785
615
Manipur
Senapati
3,54,972
160
0
0.451
613
Nagaland
Phek
1,63,294
66
0
0.404
612
Maharashtra
Nandurbar
16,46,177
1708
4
1.038
610
Bihar
Araria
28,06,200
2751
7
0.980
609
Madhya Pradesh
Sheopur
6,87,952
368
2
0.535
607
Nagaland
Zunhebotto
1,41,014
32
0
0.227
606
State/Union territory
District name
District
population
Arunachal Pradesh
Kurung Kumey
89,717
23
Nagaland
Kiphire
74,033
Nagaland
Mon
Meghalaya
Number
of insurer
offices
Source: IIB (2013); ranks for the districts mentioned in the table are as per CRISIL Inclusix 2011
Agency penetration is defined as the number of valid life insurance agency licenses per thousand population
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Including the insurance parameter within a measure like CRISIL Inclusix will provide a holistic view on extent
of financial under-penetration in India. Such an index could also be used by the Banking, financial sevices
and insurance (BFSI) sector and policy makers to improve financial inclusion and reach potential markets.
Further, CRISIL Inclusix’ scalable and modular architecture provides flexibility to add other services such
as insurance and pension, depending on availability of district-wise credible data. Insurance data points
required (at the district-level) would include:
--
Number of life insurance policies
--
Number of general insurance policies
--
Number of insurance agents
--
Number of insurance brokers
--
Number of other channel partners, if any
Benefits of a comprehensive financial inclusion index include:
--
Getting a pan-India perspective and ground-level insights on financial inclusion
--
Helping policy makers, regulators, and bankers in decision-making
-- Policy makers/government
--
o
Objectively measure financial inclusion at the national, state and district levels
o
Design tailor-made initiatives for areas with low financial inclusion
o
Prioritise financial education in districts with low financial inclusion
Regulators
o
Set differential prudential requirements for business generated from districts with low level of
inclusion
o
Consider priority-sector status to lending in areas with low levels of inclusion
o
IRDAI can formulate market entry strategy, based on insurance penetration
-- Bankers
--
o
Formulate and monitor financial inclusion plans with measurable outcomes
o
Create a focused business model that effectively integrates the financial inclusion objective
Insurers
o
o
Create/modify products and business models to incorporate financially-inclusive products in
bouquet
Develop distribution channels to expand reach in rural areas.
99
Insurance penetration way short of global mark
India’s insurance industry has come a long way since the reforms of the 1990s. As of July 2015, 52 insurance
companies were operating in the country, including 24 in life and 28 in non-life segments. Despite the sharp
increase in the number of insurers, the country remains grossly underinsured compared with advanced
economies in terms of penetration and density.
Insurance penetration (measured as a percentage of insurance premium to GDP) rose from 2.71% in 2001
to 5.20% in 2009, but has since declined to 3.9% in 2013-14, indicating the growth in insurance premium
is lower than the growth in national GDP. Moreover, India’s insurance penetration is far below the world
average of 6.3%, largely due to limited financial awareness and literacy among the masses. Further, while
India stands at 3.1% in terms of life insurance penetration versus a global average of 3.5%, it lags far behind
in non-life insurance where the penetration is a mere 0.8% compared to the world average of 2.8%.
Chart 1: India versus the world
Insurance Penetration (in %)
9
8
7
6
5
4
3
2
1
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
India
World
Source: Swiss Re, Sigma
India is also far behind advanced economies on insurance density, which is measured as a ratio of premium
to total population, unlike insurance penetration, which is a ratio of premium to GDP.
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Table 2: Insurance density ($)
Countries
2012**
2013**
Total
Life
Non-Life
Total
Life
Non-Life
United States
4,047
1,808
2,239
3,979
1,684
2,296
United Kingdom
4,350
3,256
1,094
4,561
3,474
1,087
France
3,544
2,239
1,304
3,736
2,391
1,345
Germany
2,805
1,299
1,505
2,977
1,392
1,585
Switzerland
7,522
4,121
3,401
7,701
4,211
3,490
Japan
5,168
4,143
1,025
4,207
3,346
861
Hong Kong
4,544
4,025
519
5,002
4,445
557
53
43
11
52
41
11
India#
China
179
103
76
201
110
91
Brazil
414
226
189
443
246
197
Russia
182
12
170
199
19
180
South Africa
World
1,081
882
199
1,025
844
181
656
373
283
652
366
285
Source: Swiss Re, Sigma Volumes 3/2013 and 3/2014
** Data pertains to the calendar year 2012 and 2013
# Data relates to financial year 2012-13 & 2013-14
Further, life insurance is largely sold as a tax-saving instrument rather than as a safety cushion for
contingencies. There is a considerable amount of misinformation about insurance in the mind of the average
Indian investor and hence a crying need to change people’s perception and outlook on insurance.
The recent launch of pocket-friendly insurance schemes by the government has brought renewed focus on
insurance. By providing insurance coverage at nominal rates, the government is advancing further towards
financial inclusion. Through the Pradhan Mantri Jan Dhan Yojana, more than 17 crore accounts have been
opened as of August 2015, each providing insurance cover as well as access to financial services.1
1
http://pmjdy.gov.in/account-statistics-country.aspx
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11
State wise life insurance penetration of
individual business
0.8%-1%
0.7%-0.8%
0.5%-0.7%
Less than 0.5%
Data not available
Source: IRDAI report, 2012-13
■■
The premium data pertains only to the individual business of life insurers.
■■
It does not cover any renewal premium of life and also any non-life insurance business.
■■
State wise data on Gross Domestic Product (Current Prices) has been taken from Ministry of Statistics and Programme Implementation,
Government of India.
■■
The State wise population data has been taken from Census 2001 and Census 2011 and simple interpolations have been used for
intermediate years.
■■
Insurance penetration and insurance density have been computed based on the above approaches.
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Creation of new life insurance market through government initiative
The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), announced in Union Budget 2015, is a one-year
life insurance scheme, renewable from year to year, that offers coverage for death due to any reason and is
available to people in the 18-50 age group (life cover up to age 55) who have a savings bank account and who
give their consent to join and enable auto debit. For those who have enrolled, the risk cover commenced from
June 1, 2015. At a premium of Rs 330 per annum, one can avail a cover of Rs 2 lakh. One can exit and re-join
the scheme in future years by paying the annual premium and submitting a self-declaration of good health.
With the launch of insurance initiatives such as Pradhan Mantri Jeevan Jyoti Bima Yojana, Pradhan Mantri Suraksha
Bima Yojana (PMSBY), Rashtriya Swasthya Bima Yojana (RSBY), and Universal Health Insurance Scheme (UHIS)
the government has broadened the insurance market. By working towards inclusion, it has also not only brought the
lower strata of society into the financial system but has also initiated the process of financial literacy among them.
Though making premiums more affordable is a good step, equal emphasis should be placed on:
■■ Improving access in rural areas
■■ Creating insurance awareness
■■ Simplifying the products for masses
■■ Designing tailor-made products for different target audience
■■ Focussing on reviving and strengthening existing social security schemes such as RSBY rather than
launching new initiatives
India’s non-life segment
Given a growing economy, wealth creation in the country is considerable, but so is the risk and uncertainty
associated with life and wealth. Indeed, insurance needs are not restricted to life, but also to other possessions,
the most prominent being health.
Awareness and popularity of general insurance requirements is growing by leaps and bounds in India. The
country’s non-life insurance sector (in terms of gross domestic premium income) has grown at an annualised
16% from Rs 17,481 crore in 2004-05 to Rs 77,525 crore in 2013-14, compared with a 7% growth in the
economy (measured in terms of real GDP at factor cost). The number of policies issued has almost doubled
since 2006-07. The share of India’s non-life insurance premium to total insurance industry premium rose
to 20.9% in 2014 from 17.8% a decade ago. The industry has 29 players, including four public insurers, 17
private insurers and one reinsurer.
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13
Chart 2: Growth of non-life insurance
90000
Non-life gross domestic premium income
Non-life policies issued (in millions)
80000
140
70000
Annualised
growth of 16%
2013-14
2012-13
2011-12
2010-11
2009-10
2008-09
2007-08
2013-14
2012-13
2011-12
2010-11
0
2009-10
20
0
2008-09
40
10000
2007-08
60
20000
2006-07
80
30000
2005-06
100
40000
2006-07
120
50000
2004-05
Rs. Crore
60000
Source: General Insurance Council Yearbook, 2013-14
However, the growth in insurance premiums is not uniform across the nation. For instance, as per the Insurance
Regulatory and Development Authority of India (IRDAI) report (2013-14), four states – Maharashtra, Tamil
Nadu, Karnataka, and Delhi UT – accounted for 62% of the total health insurance premium, leaving the 32
other states/UTs to account for just 38%. Of these, again, the eight states in the northeast contributed a
meagre 0.6%. That’s how skewed the distribution and growth of health insurance has been.
India shares a tiny spot in the global non-life industry
Although India’s share of the global non-life industry is a minuscule 0.7%, growth in terms of premium is
higher than that in both advanced and emerging markets. However, India’s non-life insurance premium to
GDP ratio is a very low 0.8%compared with the global ratio of 2.8%.
Table 3: Non-life premium volume in USD (bn)
Region/Country
2014
2004
Advanced economies
1707
1247
Emerging markets
417
148
Asia
425
181
India
15
4
World
2124
1395
Source: Swiss Re Sigma, World Insurance Report
Motor insurance dominates the non-life segment in India
Due to the large number of accidents that causes fatalities and disability, the Motor Vehicles Act, 1988,
mandates (under section 146) that every vehicle should be compulsorily insured for third party risk.
Consequently, India’s non-life insurance industry is dominated by motor insurance (44%), followed by health
(25%). The motor insurance business consists of own damage (OD) and third party (TP) segments. Motor
OD premium has grown at 14.2% CAGR between 2006-07 and 2013-14, while motor TP premium has
grown at a higher CAGR of 24.2%. The premiums are expected to rise due to the expected growth in sales
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of domestic cars and utility vehicles (11-13% CAGR from 2014-15 to 2019-20, after recording 6% CAGR in
the last 5 years).
Chart 3: Segment wise share of non-life insurance in India
Segment-wise share (2013-14)
Other
12%
Property
13%
Liability
2%
Marin &
Aviation
5%
Motor
43%
Health &
accident
25%
Source: General Insurance Council Yearbook, 2013-14
Increasing awareness about health insurance
Healthcare costs have risen sharply in the country in the past couple of decades. Factors driving health
insurance include the increasing share of medical cost in expenditure, rise in nursing care for senior citizens
amid increasing nuclear family culture, growth of new diseases and health risks and inadequate government
healthcare schemes. Total health spending in India accounted for only 4% of GDP in 2012, less than half the
OECD average of 9.3%. India is also ranked the lowest among BRICS countries on this count.
But awareness is rising, slowly but surely. India’s health insurance segment (health and accident insurance)
has grown at 25.5% CAGR, with underwriting premium rising from Rs 3,999 crore in 2006-07 to Rs 19,677
crore in 2013-14, indicating the huge potential in the segment.
Government sponsored health insurance system – Indian and global view
The most common system of government-sponsored healthcare in the world is universal health coverage,
aimed at ensuring affordable healthcare for as much of the population as possible. Many countries, including
virtually all nations in Europe, besides Japan, Hong Kong, China and India, have their own universal
healthcare system.
Germany has the world's oldest national social health insurance system (since 1883). Approximately 92% of
its population is covered by a statutory health insurance plan that provides a standardised level of coverage
through any one of approximately 1,100 public or private sickness funds.
UK has a public-funded healthcare system known as National Health Service (NHS) that provides a
comprehensive range of health services, most of it free, to its residents.
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15
France has a system of universal healthcare, largely financed by the government through a system of national
health insurance. It is consistently ranked among the best in the world.
However, the US, the world’s largest economy, doesn’t have a universal health care system. What it has
is the Patient Protection and Affordable Care Act (commonly known as Obamacare) that seeks to increase
the quality and affordability of health insurance, lower the uninsured rate by expanding public and private
insurance coverage, and reduce healthcare costs for individuals and the government. The Act seeks to have
expanded insurance coverage to legal residents and implement federally mandated health insurance in the
country during 2010–2019.
In China, the second-largest economy, the healthcare system was largely privatised till the 1990s. However,
the Chinese government launched the New Rural Co-operative Medical Care System (NRCMCS) in 2005
to overhaul healthcare, with particular emphasis on making it more affordable for the rural poor. Under
NRCMCS, the annual cost of medical cover is 50 yuan per person. Of that, 20 yuan is paid in by the central
government, 20 yuan by the provincial government and a contribution of 10 yuan is made by the patient. As
of September 2007, around 80% of the country’s rural population had signed up (about 685 million people).
Back home, India’s health system is largely dominated by the private sector, with private health expenditure
accounting for 68% of the nation’s total health expenditure. Although there is a public healthcare system
that provides free healthcare to those below the poverty line, it lags far behind its developed counterparts. A
comparison of GDP spending on healthcare shows India is far behind both developed countries and BRICS
nations. India spends only 4% of its GDP on healthcare compared with 18% and 9%, respectively, in the
US and the UK. Only 17% of India’s total population is covered by health insurance, according to the latest
estimate released by IRDAI in 2014, compared with as high as 86% in developed countries such as the US.
Table 4: India’s healthcare expenditure vis-à-vis other developed and emerging economies
Country
Brazil
Total
expenditure
on health
as %
of gross
domestic
product
General
government
expenditure
on health as
% of total
expenditure
on health
Private
expenditure
on health
as %
of total
expenditure
on health
General
government
expenditure
on health as
% of total
government
expenditure
External
resources
for health
as %
of total
expenditure
on health
Social
security
expenditure
on health as
% of general
government
expenditure
on health
Out-ofpocket
expenditure
as % of
private
expenditure
on health
Private
prepaid
plans
as % of
private
expenditure
on health
10
48
52
7
0
n.a.
58
40
Canada
11
70
30
19
n.a.
2
50
41
France
12
78
23
16
n.a.
95
33
59
Germany
11
77
23
19
n.a.
89
56
40
India
4
32
68
5
1
6
86
5
Indonesia
3
39
61
7
1
18
75
3
Japan
10
82
18
20
n.a.
87
80
14
United
Kingdom
9
84
17
16
n.a.
0
56
17
United
States of
America
18
48
52
20
n.a.
86
22
n.a
Source: World Health Organisation (2013)
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Table 5: Per capita health expenditure in India vis-à-vis other developed and emerging economies
Per capita total
expenditure on
ealth at average
exchange rate (US$)
Per capita total
expenditure on health
at Purchasing power
capacity international
dollar rate
Per capita
government
expenditure on ealth
at average exchange
rate (US$)
Brazil
1,085
1,454
523
701
Canada
5,718
4,759
3,991
3,322
France
4,864
4,334
3,771
3,360
Germany
Country
Per capita government
expenditure on health at
PPP international dollar
rate
5,006
4,812
3,846
3,696
India
61
215
20
69
Indonesia
107
293
42
114
Japan
3,966
3,741
3,255
3,071
United
Kingdom
3,598
3,311
3,006
2,766
United
States of
America
9,146
9,146
4,307
4,307
Source: World Health Organization (2013)
India’s initiatives to boost universal health coverage
Listed below are government initiatives to enhance healthcare coverage of the country’s population.
Universal Health Insurance Scheme (UHIS) - In 2003, the government introduced UHIS to provide health
insurance to the informal sector. UHIS is a hospitalisation-indemnity product voluntarily purchased from
any state-owned insurer at a subsidised price. The four public sector general insurance companies have
been implementing UHIS to improve the access of poor families to healthcare. The scheme provides
for reimbursement of medical expenses of the entire family up to Rs 30,000, cover for death due to
accident of Rs 25,000 to the earning head of the family and compensation due to loss of earning of the
earning member of Rs 50 per day up to a maximum of 15 days. UHIS has been redesigned to target
only below poverty line families. The premium subsidy has been enhanced from Rs 100 to Rs 200 for an
individual, Rs 300 for a family of five and Rs 400 for a family of seven, without any reduction in benefits.
Rashtriya Swasthya Bima Yojana (RSBY) – RSBY is a government-run health insurance scheme that
provides for cashless insurance for hospitalisation in public as well as private hospitals. The scheme started
enrolling on April 1, 2008 and has been implemented in 25 states of India. A total of 36 million families have
been enrolled as of February 2014.
Pradhan Mantri Suraksha Bima Yojana (PMSBY) - In May 2015, the government announced PMSBY, an
affordable accident insurance cover plan. The plan is aimed at covering the uncovered population at an
affordable premium of just Rs 12 per year. The scheme will be available to people in the age group 18 to 70
years with a savings bank account, who give their consent to join and enable auto debit on or before May 31
for the coverage period June 1 to May 31 on an annual renewal basis. PMSBY will offer a renewable oneyear accidental death-cum-disability cover of Rs 2 lakh (Rs 1 lakh for partial permanent disability).
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17
Role of intermediaries in bridging the gap
The key to enhancing insurance penetration is distribution. Distributors play a key role in educating and
advising clients on the need and suitability of investment products. According to a report by IIB, insurer offices
and number of policies have a very high correlation of about 0.97. Further, agency licences and new business
premium also have a high correlation of 0.96.
The report projects that with a potential increment in agency licences of 81,683 in Uttar Pradesh, the new
business premium in the state alone could rise by more than Rs 1,100 crore. As shown in the table below,
new business premium could potentially rise by more than Rs 3,000 crore provided there is an increase in
the number of agency licences.
Table 6: Projection of state-wise potential for number of agency licences
State/Union
territory
Projected
number
of agency
licences
Actual number
of agency
licences
Incremental
potential
(Number of
agency licences)
New business
premium of the
state (2011-12), in
Rs crore
Potential for
additional new
business premium
for the state due to
increase in agency
licences, in Rs crore
Uttar
Pradesh
4,84,582
4,02,899
81,683
5,791
1,174
Bihar
2,10,758
1,63,374
47,384
2,226
646
West Bengal
2,94,355
2,67,137
27,218
5,890
600
Chhattisgarh
73,776
47,442
26,334
601
333
Madhya
Pradesh
1,75,668
1,58,888
16,780
2,558
270
Jammu &
Kashmir
34,190
23,486
10,704
450
205
Meghalaya
8,439
4,768
3,671
63
49
Arunachal
Pradesh
4,136
2,986
1,150
57
22
Mizoram
2,912
1,981
931
27
13
12,88,816
10,73,291
2,15,855
17,663
3,312
Total
Source: Insurance Information Bureau
Individual agents and corporate agents are the main players in insurance distribution, though the direct
channel is also steadily gaining momentum.
Channels of
insurance
distribution
Individial agents
*includes bancassurance
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18
Corporate agents*
Brokers
Direct selling
RESEARCH
To expand financial inclusion and tap new markets, the channels of insurance distribution are evolving
steadily. Online aggregators are becoming increasingly popular among the financially aware.
Table 7: Total new business premium income in life insurance (inclusive of LIC)
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
Individual agents
65%
61%
54%
47%
46%
41%
Banks
8%
8%
10%
11%
11%
9%
Corporate agents - others
4%
4%
3%
2%
2%
1%
Brokers
1%
1%
1%
1%
1%
1%
Direct selling
21%
26%
32%
39%
40%
48%
As Table 7 indicates, individual agents’ market share has declined in the past five years, while there has been
a simultaneous surge in the popularity of the direct channel.
However, a closer look at life insurance sold at the individual level suggests the segment continues to be
dominated by individual agents, followed by banks.
Chart 4: Individual Insurance (New business premium in %)
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009-10
Individual
2010-11
Banks
2011-12
Others*
Brokers
2012-13
Direct
2013-14
Referrals
Source: IRDAI
That’s because at an individual level, the average investor requires a considerable amount of handholding
through the investment process. An agent is able to form a bond with the client and suggest products specific
to his or her needs. It is also due to Life Insurance Corporation (LIC) and its vast network of agents.
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19
The new kids on the block called IMFs
Insurance marketing firms (IMFs) are entities authorised to distribute insurance as well as other financial
products such as mutual funds and pension products. These entities are mandated to employ individuals
licensed to market, distribute and service these products. This category of distributors, created in 2015, could
be in the form of a private limited company, LLP, co-operative society, or any individual recognised by the
IRDAI.
Under this entity, two kinds of licensed individuals exist: an insurance sales person who is responsible for
selling insurance and a financial service executive who distributes other financial products. An insurance
marketing firm is not restricted to distributing the products of a specific company, but rather to a specific region
in order to ensure better penetration and customer service. Introduction of this concept could see insurers
lose agents and revenue margins, though they will have more opportunities to distribute their products.
Ironically, a player should have a net worth of at least Rs 10 lakh to be an insurance marketing firm. Managing
these contradictions would be a big challenge for the industry.
Promising potential- incentive for intermediaries and insurers
As per the FIAI-CRISIL report on India’s financial distribution industry, penetration could make a significant
difference in terms of future growth of the industry.
Assuming penetration levels remain the same as today, the insurance industry is estimated to log a nonetoo-inspiring growth rate. In case of life insurance, total premium is expected to increase from Rs 3.14 lakh to
Rs 7.41 lakh crore by 2020, while in the non-life segment premiums could grow to around Rs 1.38 lakh crore
from Rs 0.71 lakh crore.
However, with an increase in penetration, the number of investors could increase significantly as players
go deeper into the countryside. Insurance has been a historically significant product for investors and its
popularity is likely to grow exponentially as more investors realise its importance. Total premium in the life
insurance segment is estimated to nearly treble from Rs 3.14 lakh crore in 2014 to Rs. 8.98 lakh crore in
2020, even as the non-life insurance segment goes from Rs 0.71 lakh crore to Rs 1.83 lakh crore.
in Rs. lakh crore
Chart 5: Optimistic case - Total premium with higher penetration
10
9
8
7
6
5
4
3
2
1
0
8.97
3.14
1.83
0.71
2014
Life insurance premium
2020
Non-life premium
Premium projections of life and non-life are based on the maximum penetration in the last 10 years (for optimistic case)
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RESEARCH
Challenges in distribution
Issues in selling practices
Currently, insurance products are often marketed as investment avenues rather than as contingency
cushions. This is creating a distorted image of insurance among investors. Mis-selling has existed in the
insurance sector for a long time, and though the number of complaints has risen by the year, resolution rates
have also risen significantly. The complaint resolution rate in life insurance increased from 86.41% in 2009-10
to 99.69% in 2013-14 and in the non-life segment from 79.63% in 2009-10 to 98.71% in 2013-14.
Investors are often sold more than four-five policies without being aware of their purpose.
In a bid to correct wrong practices, the recent insurance amendment has included high penalties for misselling, misrepresentation and other such violations. It disallows mis-selling through multi-level marketing of
insurance products.
No. of complaints
Chart 6: Life insurance investor grievances
16%
400,000
14%
350,000
12%
300,000
10%
250,000
8%
200,000
6%
150,000
4%
100,000
2%
50,000
0%
2009-10
2010-11
2011-12
Pending complaints (% of total) (LHS)
2012-13
2013-14
0
No. of complaints (RHS)
Source: IRDAI
Lack of financial literacy and awareness
Financial literacy in India is very low, which restricts investors to traditional assets such as gold and real
estate. Awareness of more evolved financial products is conspicuous by its absence. The rural populace is
not even familiar with modern technology such as ATMs and debit cards. Educating them on the same is an
expensive proposition for banks.
Insurance distributors can help here.
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21
High administrative costs
Insurers have had to revamp their portfolios due to changes in product guidelines and regulations.
Consequently, administration costs, including product pricing, approvals and revision of compliance systems,
have shot up, as has re-training of sales staff. As per the Towers Watson-CII Survey 2015, the average
expense ratio of Indian life insurers was 19% in 2013-14, between 4% and 12% in developed markets and
between 25% and 50% in emerging markets.
As mentioned, rural areas and small towns have limited access to financial services and telecommunication.
Here, a branch-led model works best, but high set-up costs and staff training expenses make it unviable for
most players. Again, distribution would seem to be the solution.
Making flexible insurance products
Low savings rate amongst the lower strata solicit tailor-made products with flexible premium terms. This
would be a challenge especially for private insurers already facing thin profit margins. Given the potentially
higher mortality risk posed by this section of the society, providing a cost-effective insurance product is far
from easy.
The government’s initiatives at providing universal insurance coverage have raised questions on how the risk
will be covered at a token amount of premium. Further, since insurers would have to face sizeable risk despite
the subsidy component, premiums could potentially fluctuate in the future if policy lapsation increases with a
simultaneous decline in enrolment.
Threat of rising fraudulent claims
Given the massive scale at which initiatives have been executed, fraudulent claims could rise. To prevent
this, the government has made bank accounts and identification proof compulsory for opening insurance
policies. Know your customer (KYC) norms need to be watertight to avoid duplicate accounts.
Potential solutions for the distribution conundrum
Cross-selling and up-selling insurance products
Insurers could cross-sell or market complementary insurance products to their existing clientele, especially
those from the middle class. By doing so, the insurer could offset any loss arising from government schemes.
Increase the age limit on insurance products
The age limit on insurance products could be raised with a simultaneous increase in premiums. Further, some
discretionary criteria could be added such as health and monetary status in order to discern the mortality risk
of the individual. This way, insurers could increase revenues while taking on a nominal mortality risk. This
would also help reduce the burden on the younger generation, which faces burgeoning expenses of its own.
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RESEARCH
Development of technology and infrastructure
Government intervention in the form of infrastructure development, especially in remote areas, is imperative
for financial inclusion. Without sustainable infrastructure, financial accessibility would be a challenge.
Further, technological innovation in the form of standardised platforms and software across branches and
electronic devices could potentially increase financial literacy and distribution. Making these programmes
available in vernacular languages could also give it the common touch required by individual clients.
The current government has undertaken several financial inclusion initiatives through use of technology.
Postal insurance: Under-tapped potential?
With more than 1.5 lakh post offices, of which almost 90% are in rural areas, India’s postal network is the
largest in the world. It offers a bouquet of services - from logistics to insurance and savings.
It offers two kinds of insurance - Postal Life Insurance (PLI) and Rural Postal Life Insurance (RPLI). While PLI
is open only to public sector employees, RPLI is for all (especially the rural population).
Over 2013-14, PLI and RPLI had a combined business premium income of Rs 7,312 crore and 2 crore-plus
policies. Over 2014-15, the number of policies increased to almost 3 crore. The combined number of policies
has grown at an annualised rate of about 17% in the past seven years.
However, number of policies to population ratio of less than 2.5% indicates there is tremendous potential
in this distribution channel. The government could focus on developing the channel further as a part of its
financial inclusion agenda.
Table 8: Combined statistics of PLI and RPLI
Year
No. of policies in force
Sum assured (Rs cr)
Corpus (Rs cr)
97,18,012
73,305.09
15,085.49
2007-2008
2008-2009
1,11,97,985
91,475.10
18,146.95
2009-2010
1,42,08,405
1,10,782.50
22,180.71
2010-2011
1,68,89,590
1,30,209.23
26,409.70
2011-2012
1,85,53,415
1,46,345.50
32,151.98
2012-2013
1,98,83,976
1,64,051.02
37,519.54
2013-2014
2,04,20,407
1,81,742.51
46,068.27
2014-2015
2,99,75,468
2,35,949.79
52,540.44
Source: www.postallifeinsurance.gov.in
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23
Technology a key driver for distribution, financial
inclusion
Investors are becoming more tech savvy with simplification of technological integration. Initiatives such as
mobile banking and trading, and tablet-based investments have furthered financial inclusion, including in the
insurance field. Whether technological platforms are created in-house or via third party platforms, overall
efficiency and decline in costs can be attained through the adoption of better technological processes.
In terms of utilisation, technology can largely be studied across three perspectives:
■■ Insurer
■■ Distributor
■■ Customer
Insurer
Distributor
■■ Reduction in administrative costs
■■ Innovation and customisation of insurance products while
maintaining cost efficiency
■■ Reduction in client acquisition and servicing costs
■■ Simplification of compliance procedures such as KYC norms
Customer
■■ Enhanced accessibility
■■ Ability to compare and purchase products conveniently
In 2014, there were more than 240 million internet users in India (about 19% of the population2), confirming
that technology is a key driver of financial inclusion.
In the current scenario, the banking segment is a stellar example of how technology has been combined with
existing client bases and available databases to provide significant value addition to customers. Banks, due
to large-scale operations, are able to easily enter untapped markets. This is especially true for public sector
banks. Banks, as distributors, are able to help their clients analyse their risk appetite, investment portfolio
and assist in decision-enabling factors. Due to economies of scale, banks are able to adopt technology
and provide additional features - making convenience and relationship management their top selling points.
The one-stop-shop model of providing multiple services through the optimum utilisation of technology is
sustainable.
Further, with the recent regulation of allowing 49% foreign direct investment (FDI) in the Indian insurance
sector, operating costs could reduce. Insurers would be able to invest more in product development, customer
servicing, and sales and distribution. The objective of financial inclusion could also be kept in mind. Large2
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http://www.internetlivestats.com/internet-users-by-country/
RESEARCH
scale, low cost products could be developed and distributed through electronic correspondence.
The direct channel could be tapped though it is difficult to sell insurance through this mode. The online
channel in particular has great potential to take off.
■■ Processes such as purchase of insurance products, transfer of premium amounts and filing of claims can
be carried out through remote devices such as tablets and mobiles.
■■ Applications (apps) can be developed or modified to spread financial literacy, which could be especially
effective in small towns and rural areas.
■■ Opportunities for tie-ups could emerge between mobile phone operators or third party payment portals,
and insurers, to market insurance products and to simplify client processes.
■■ By making the insurance process paperless, clients in remote areas can be saved from the worry of
maintaining physical documentation. Further, premium payments can also be made effortlessly through
mobile wallets.
Common service centres
The Department of Electronics and Information Technology, Government of India implemented the common
service centre (CSC) project on a public-private-partnership model, as a part of the National e-Governance
Plan. CSCs have been designed as the front-end distribution points for government, private and social sector
services to citizens of India. Transfer of services through the CSC network is enabled through a special
purpose vehicle - CSC e-Governance Services India Limited.
IRDAI has issued guidelines to permit life and non-life insurers in India to market certain categories of retail
insurance policies and services through M/s CSC e-Governance Services India Limited and its common
service centre network. IRDAI had a pilot launch of this on August 6, 2014 in Hyderabad. At present there are
696 functional common service centres running across India.
By offering services such as banking and insurance, CSCs are a huge step towards digital and financial
inclusion.
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25
Solvency margin: The next regime
Solvency is the ability of an insurer to meet all due liabilities. It is represented by the excess of insurer's
assets over liabilities.
The life insurance business is exposed to long-term risks. Since risk is the probability of something happening,
access to capital is vital when an incident occurs.
Insurers with inadequate capital are a major concern for regulators and policyholders. A company’s
shareholders too want to ensure capital is used efficiently and profitability is maintained. The company is
required to be solvent and have adequate capital.
The regulators' primary role is to protect policyholders' interests. They have to ensure that insurers always
have sufficient funds to meet the policyholders' dues even under extreme circumstances.
Solvency ratio = available solvency margin / required solvency margin
(a)
Available solvency margin is the excess of value of assets (furnished in IRDAI-Form-AA) over
the value of life insurance liabilities (furnished in Form H as specified in Regulation 4 of IRDAI
(Actuarial Report and Abstract) Regulations, 2000) and other liabilities of policyholders' and
shareholders' funds.
(b)
Required solvency margin is based on mathematical reserves and sum at risk, and the assets
of the policyholders’ fund.
a.
The numerator of the ratio represents items such as:
b.
i.
Capital or funds
ii.
Various reserve that include price fluctuation reserve
iii.
A portion of unrealised profits obtained from real estate and stocks
The denominator of the ratio belongs to risks such as:
i.
Underwriting risks: Risk of miscalculating premiums and technical provisions.
ii.
Risks on the expected interest rated: It is considered to be a key contributor to the
insolvency of an insurance company.
iii.
Risks related to asset management: Growth risk arising out of exercise growth not
matched by sufficient resources due to wrong selection or wrong pricing of products.
IRDAI has prescribed methods of valuation of assets and liabilities of life insurance.
Minimum required solvency margin of life insurers
For life insurers, the required solvency margin is higher of Rs 500 million (Rs 1 billion in case of re-insurers) or
the aggregate sum arrived at based on a formula given in the Insurance Act, 1938. Life insurance companies
may have to inject additional capital to maintain the minimum required solvency margin as per regulatory
requirements.
IRDAI has set a minimum solvency ratio (ratio of actual solvency margin to the required solvency margin)
of 1.5 for all life insurers. They are required under the IRDAI (Assets, Liabilities and Solvency Margin of
Insurers) Regulations, 2000, to prepare a statement of solvency margin in accordance with Schedule III-A [4].
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RESEARCH
Table 9: Global solvency margin requirements
Country
India
Current regulatory
minimum solvency
ratio requirement*
150% = (available solvency margin) / (required
solvency margin)
Type
Riskbased
formula
Solvency-II
type regulation
effective date
Solvency
margin
No
No
Solvency capital requirement (SCR) is calibrated
to a 99.5% value at risk
confidence level over
one year. The minimum
capital requirement
(MCR) is intended to
UK
correspond to an 85%
probability of adequacy
over a one-year period
and is bounded between
25% and 45% of the
SCR
Eurozone
US
Yes
Yes
Yes
01/01/2015
01/01/2016
01/01/2016
Consistency
with
Regulator
Solvency-II
and Basel III
No
IRDAI
Yes
National
Association of
Insurers
Commissioners
(NAIC)
Yes
The
Prudential
Regulation
Authority
(PRA)
Yes
European
Insurance
and Occupational
Pensions
Authority
Yes
The
Australian
Prudential
Regulation
Authority
(APRA)
and the
Australian
Securities
and Investments
Commission
(ASIC)
Yes
Financial
Services
Agency
(FSA)
Riskbased
capital
Australia
Japan
>Prudential capital
requirement + minimum
capital requirement. An
internal model should
produce a minimum
default risk of 0.5% over
a one-year period
(Total amount of solvency margin) / (total
amount of risks x 1/2)
Yes
Yes
No
No
* Also referred to as solvency capital requirement (SCR)
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27
What’s Solvency-II?
■■ Solvency-II is a European Union (EU) legislative programme to be implemented in all 28 EU member
states.
■■ It introduces a new, harmonised EU-wide insurance regulatory regime.
■■ Its key objective is to have a uniform policyholder protection across countries through a robust system.
■■ It comprises a three-pillar structure (illustrated below) and largely focuses on risk in the context of
quantitative requirements, governance, and transparency and disclosure.
Harmonised EU-wide requirements
Pillar 1
Quantitative
requirements
Pillar 2
Governance
and supervision
Pillar 3
Disclosure and
transparency
Solvency capital
requirements
Minimum capital
requirements
Investment rules
Identification,
assessment, and
management of risks
Own risk and solvency
assessment (ORSA)
Supervisory review,
assessment, and
intervention
Financial disclosure
and solvency
Detailed public
discolusures
Supervisory reporting
Solvency-II and India
Solvency-II norms, which call for risk-based capital in insurance, will take longer than expected to be
implemented in India as some players are not yet ready for a solvency mechanism based solely on risk.
In 2013, IRDAI had proposed a lower solvency margin for insurers — at 145% against 150% currently
— including a risk charge. Earlier, in a proposal on the risk-based solvency approach, the regulator had
constituted an expert committee to suggest the roadmap to move to Solvency-II norms.
By moving towards a risk-based approach, the insurance industry would be able to manage its capital
more efficiently. Further, adoption of Solvency-II globally would create a level-playing field across markets.
The main drawback of Solvency-II for Indian insurers would primarily be high cost of implementation and
compliance. However, with the rise in FDI to 49% in the insurance sector, domestic insurers facing margin
pressures could potentially look at tie-ups with their foreign counterparts to move towards a more efficient
capital and risk management structure.
IRDAI is contemplating taking small steps towards international solvency norms. Even a gradual approach
can help the Indian insurance industry grow significantly. By moving towards a risk-based approach, insurers
could maintain capital as per their individual circumstances.
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RESEARCH
Annexure I – Recent important guidelines
on financial inclusion
Year
2006
Guidelines
■■
■■
2008
■■
■■
2009
■■
■■
2010
■■
■■
■■
■■
2011
■■
■■
2012
■■
■■
2013
2014
Banks were allowed to enlist non-profit Bank Mitra (business correspondent or BC) as agents
for delivery of financial services as part of a `last-mile infrastructure'.
It was mandated that BCs should be located within 15 km from the nearest bank branch to
ensure suitable supervision. This heavily restricted the expansion of this model.
The Reserve Bank of India (RBI) issued operative guidelines for mobile banking and amended
the same in December 2009 to ease the various transaction limits and security norms.
Individual for profits were allowed to participate as BCs, and this category included kirana
stores, gas stations, PCOs, etc. Further, BCs could operate up to 30 km from the nearest
bank branches.
Banks were allowed to apply 'reasonable' service charges from customers to ensure viability
of the BC model, and to pay a 'reasonable' commission/fee to the BCs to incentivise them.
In June, the RBI and Telecom Regulatory Authority of India (TRAI) were able to reach an
initial agreement regarding the rollout of mobile banking, whereby TRAI would deal with all
interconnection issues and the RBI would handle the banking aspects such as KYC checks,
transaction limits, etc.
In September, all companies listed under the Companies Act (1956) were allowed to act as
BCs, with the exception of non-bank financial companies (NBFCs).
The same directive determined that the distance rule was open to and optional relaxation in
certain cases, based on the decision of the State Level Bankers' Committees.
However, document verification falls under the domain of the banks, to ensure adherence to
KYC norms. This slows down the account opening process.
In January, TRAI announced its intent to fix mobile tariffs for financial services as against
their current market pricing to ensure affordability.
The RBI issued guidelines for opening Aadhaar enabled bank accounts to facilitate routing
of MGNREGA wages and other social benefits in to the accounts using electronic benefit
transfer.
The RBI permitted Aadhaar letter as a proof of both identity and address for the purpose of
opening bank accounts.
The Government of India (GoI) introduced the sub service area (SSA) approach for opening
banking outlets and for direct cash transfer.
Aadhaar Payment Bridge System (APBS) was introduced for centralised credit of social
benefits.
■■
To ease the account opening process, the RBI permitted the use of e-KYC.
■■
TRAI issued guidelines on USSD-based mobile banking services for financial inclusion.
■■
The RBI issued guidelines for scaling up the BC model.
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29
Annexure II – Timeline of recent government
initiatives
Scheme name
Launch date
Details
Indemnity product voluntarily purchased from any state-owned
insurer at a subsidised price.
Universal Health
Insurance Scheme
(UHIS)
2003
Provides for reimbursement of medical expenses up to Rs 30,000
towards hospitalisation for the entire family, death cover due to
an accident at Rs 25,000 to the earning head of the family and
compensation due to loss of earning of the earning member at Rs
50 per day up to maximum of 15 days.
Has been redesigned targeting families below the poverty line.
Rashtriya
Swasthya Bima
Yojana (RSBY)
2008
Provides for cashless insurance for hospitalisation in public and
private hospitals.
An affordable accidental insurance cover plan aimed at covering the
uncovered population at a premium of just Rs 12 per year.
Pradhan Mantri
Suraksha Bima
Yojana (PMSBY)
2015
Available to people in the age group of 18 to 70 years with a savings
bank account; premium will be auto-debited from the account
annually.
Offers a renewable one-year accidental death cum disability cover
of Rs 2 lakh (Rs 1 lakh for partial permanent disability).
One-year life insurance scheme, renewable from year to year,
offering coverage for death due to any reason.
Pradhan Mantri
Jeevan Jyoti Bima
Yojana (PMJJBY)
2015
Available to people in the age group of 18 to 50 years (life cover up
to age 55), having a savings bank account, who give their consent
to join and enable auto-debit.
At a premium of Rs 330 per annum, one can avail coverage of Rs
2 lakh.
Available to people in the age group of 18 to 40 years with bank
accounts.
Atal Pension
Yojana
30
30
2015
Age of exit and start of pension would be 60 years.
The GoI would co-contribute 50% of the total contribution or Rs
1,000 per annum, whichever is lower, to each eligible subscriber
account, for five years.
RESEARCH
Annexure III – Major initiatives and
regulations in the insurance industry
Year
IRDAI (Microinsurance) Regulations
(2005)
Guidelines
■■
■■
■■
Regulation on pension
products (2010)
■■
A first-time move in India to formally draft and implement regulations
regarding the creation and distribution of micro-insurance products.
In addition to the obligations for rural and social sector businesses to be
done by all insurers on an annual basis.
In September 2010, IRDAI mandated a minimum annual guarantee of
4.5% on pension products.
IRDAI later amended the guidelines on unit-linked pension plans whereby
insurers now had to guarantee an assured benefit in the form of a rate of
return that would have to be disclosed upfront.
The customer at the time of renewal can switch:Portability of health
insurance (2011)
a.
From one insurance company to another of choice; or
b.
From one insurance plan to another with the same insurance company.
■■
IRDAI (Microinsurance) Regulations
(2015)
■■
■■
■■
■■
Insurance Laws
(Amendment) Act, 2015
■■
■■
■■
Has expanded the variety of players in micro-insurance to include
intermediaries such as the RBI-regulated NBFCs and BCs appointed as
per the RBI’s financial inclusion guidelines.
Mandates additional and refresher training for micro insurance agents.
Has increased the limit of risk coverage levels of various products (which
ranged from Rs 5,000 to Rs 50,000) to Rs 2.5 lakh. This could help to
cover the lower middle income strata which was previously uninsured due
to lower limit and poor accessibility.
Increased FDI limit from 26% to 49%.
Penalisation for mis-selling, misrepresentation and other such violations
now include higher penalties for intermediaries and/or insurance companies.
Disallows mis-selling through multi-level marketing of insurance products.
Permits foreign re-insurers to open branches only for the re-insurance
business.
Gives more power to IRDAI to take charge of key aspects such as solvency,
expenses and commissions, and proposes to extend the insurance
industry’s reach to under-served areas.
31
31
Annexure IV – Insurance statistics across India
State/UT
Maharashtra
% share of
all-India
NBP
% share of
India's
Population
16.58
9.29
% share
of India's
GDP
% share of
all-India
licences
% share
of all-India
offices
% share in
all-India NoP
13.59
12.48
10.22
11.71
West Bengal
9.10
7.55
7.26
7.07
6.25
8.91
Uttar Pradesh
8.94
16.50
8.93
10.67
10.01
10.51
Andhra Pradesh
7.79
7.00
8.93
8.46
9.03
8.64
Tamil Nadu
7.53
5.96
8.38
7.53
8.30
7.68
Gujarat
7.32
4.99
6.78
6.05
6.09
4.68
Karnataka
6.16
5.05
6.15
5.56
5.84
6.75
NCT of Delhi
5.30
1.39
4.15
3.86
2.42
3.09
Kerala
4.30
2.76
4.31
5.01
6.04
5.05
Madhya Pradesh
3.95
6.00
3.43
4.21
5.04
4.39
Rajasthan
3.64
5.67
4.27
4.75
4.81
4.40
Bihar
3.44
8.58
3.46
4.33
3.76
6.05
Punjab
2.38
2.29
3.43
3.12
4.07
2.39
Odisha
2.32
3.47
2.99
3.71
3.30
3.15
Haryana
1.92
2.10
4.08
3.08
3.08
1.79
Assam
1.87
2.58
1.52
2.59
2.31
2.46
Jharkhand
1.86
2.73
1.58
1.96
2.26
2.05
Uttarakhand
1.10
0.84
1.15
0.94
1.33
1.26
Chhattisgarh
0.93
2.11
1.79
1.26
1.61
1.93
Himachal Pradesh
0.78
0.57
0.83
0.99
1.11
1.07
Chandigarh
0.74
0.09
0.27
0.28
0.41
0.28
Jammu & Kashmir
0.69
1.04
0.82
0.62
0.91
0.58
Goa
0.49
0.12
0.59
0.34
0.51
0.31
Tripura
0.18
0.30
0.26
0.31
0.30
0.33
Nagaland
0.16
0.16
0.16
0.14
0.11
0.05
Puducherry
0.12
0.10
0.18
0.16
0.23
0.10
Manipur
0.11
0.23
0.13
0.19
0.10
0.22
Meghalaya
0.10
0.25
0.23
0.13
0.21
0.04
Arunachal Pradesh
0.09
0.11
0.12
0.08
0.12
0.03
Sikkim
0.06
0.05
0.07
0.06
0.12
0.03
Andaman & Nicobar Islands
0.04
0.03
0.06
0.03
0.04
0.03
Mizoram
0.04
0.09
0.08
0.05
0.08
0.02
Source: IIB Report 2012-13, NoP = number of policies, NBP= new business premium
32
32
RESEARCH
Annexure V – Life insurance agents statistics
Life Insurers- Individual and corporate agents
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
IA - private
IA - LIC
CA - private
CA - LIC
3000
2500
2000
1500
1000
500
2009
1,592,579
1,344,856
2091
415
2010
1,575,476
1,402,807
2420
510
IA - private
2011
1,302,328
1,337,064
1870
295
IA - LIC
2012
1,080,651
1,278,234
642
240
2013
949,774
1,172,983
532
207
CA - private
2014
992,584
1,195,916
540
149
0
CA - LIC
Average new business premium for individual and corporate agents (in Rs. lakh)
1800
1600
1400
1200
1000
800
600
400
200
0
CA - Private
CA - LIC
IA - Private
IA - LIC
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
2009
443.79
232.84
1.10
3.10
2010
492.56
235.62
1.01
3.59
CA - Private
2011
594.82
313.42
0.99
3.75
CA - LIC
2012
816.29
444.9
0.81
3.14
IA - Private
2013
1699.61
619.65
0.79
3.28
0.00
IA - LIC
33
33
Annexure VI – Non-life insurance agents statistics
Channel wise distribution of health insurance policies (in %)
2009-10
2010-11
2011-12
2012-13
2013-14
Individual agents
37%
32%
32%
34%
36%
Others
2%
3%
2%
2%
4%
Banks
5%
2%
5%
6%
4%
Brokers
17%
23%
22%
22%
24%
Direct business
39%
40%
38%
36%
33%
Channel Wise Distribution of Health Insurance Policies (in %)
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2009-10
2010-11
Individual agents
Motor insurance (premium in Rs cr)
Individual agents
2011-12
Others
Banks
2012-13
Brokers
2013-14
Direct Business
2009-10
2010-11
2011-12
2012-13
7,221
7,557
12,138
14,459
Others
628
115
615
1,064
Banks
2,096
971
1,007
1,342
Brokers
1,477
2,790
2,964
6,723
Total
11,422
11,433
16,724
23,588
Motor Insurance Premium (in Rs. crore)
16000
14000
12000
10000
8000
6000
4000
2000
0
2009-10
Individual agents
34
34
2010-11
Others
2011-12
Banks
Brokers
2012-13
Direct Business
RESEARCH
Annexure VII – Government’s technological
strategy and milestones
Under the e-KYC process, on the customer’s explicit consent and after his or her biometric
authentication from the Unique Identification Authority of India (UIDAI) database, individual
data comprising name, age, gender and photograph can be shared electronically with
authorised users such as banks.
e-KYC
This process is paperless and has made the account opening process much easier for those
with Aadhaar cards. Most banks have either adopted this process or are in the advanced
stage of making the system live. The e-KYC process would be used at a large-scale for
opening accounts in the future.
Subscribers can approach a retailer of mobile network for withdrawal/deposit of money and
transact using SMS.
Transaction
through
mobile
banking
Mobile banking is generally available on smartphones through a java application. Banking
services such as fund transfer, immediate payment services, enquiry services (balance
enquiry/ mini statement), demat account services, and request for cheque book, bill
payments, etc. can be carried out through mobile banking. Though there are transaction
limits for mobile banking, these services are free of charge.
Mobile wallet-based banking was launched in 2012. Mobile telephony and prepaid wallets
will also be used for expanding financial inclusion.
IMPS was launched by National Payments Corporation of India (NPCI) on November 22,
2010.
Immediate
Payment
System
(IMPS)
It offers a constant interbank electronic fund transfer service through mobile phones as well
as internet banking and ATMs.
In the process of remittances across the bank there are four stakeholders - (i) remitter
(sender), (ii) beneficiary (receiver), (iii) banks and (iv) National Financial Switch - NPCI. In
order to remit funds through IMPS, the sender should use mobile banking, while ensuring
that the receiver’s mobile number is registered with his bank. The money is then credited to
the receiver’s account instantly.
Micro ATMs are biometric authentication enabled hand-held devices. In order to make the
ATMs viable at rural / semi-urban centers, low cost micro ATMs would be deployed at each
of the Bank Mitra location. One can instantly transact regardless of the bank associated with
a particular Bank Mitra / BC.
Micro ATMs
This device will be based on a mobile phone connection and would be made available to
every Bank Mitra / BC. The money will come from the cash drawer of the Bank Mitra /BC.
After verifying the authenticity of the customer using unique identification (UID), the BC will
act as the banking service point for the client. The basic transaction types to be supported
by micro ATMs are deposit, withdrawal, fund transfer and balance enquiry.
35
35
National
Unified
USSD
A major problem with mobile banking apps is that these need to be downloaded and installed
on the mobile phone. Less than 40% of Indian users have compatible J2ME handsets and
GPRS connection on their mobile phone, as required by this system. To resolve this issue,
a USSD platform is available.
Customers can avail the service through any mobile phone on the GSM network, irrespective
of the phone’s make and model.
Platform
(NUUP)
This does not require an application to be downloaded on the customer's mobile phone
and GPRS connectivity. USSD is user-friendly and it alleviates the need for application
download and is more secure than the SMS channel.
Banking customers can use this service by dialling *99#, a common number across all
telecom service providers (TSPs), on their mobile and transact through an interactive menu
displayed on the mobile screen. Customers will be able to access financial (fund transfer)
and non-financial services (balance enquiry and mini statement of bank account) at their
convenience by dialling *99#. A notable inclusion in the NUUP service is a new addition
in the form of Query Service on Aadhaar Mapper (QSAM). Under this feature, a user can
get an update on his/her Aadhaar seeding status with the banks, a service that will find
tremendous utility for the government's direct subsidy disbursals programme.
RuPay is a card payment scheme launched by the National Payments Corporation of India
(NPCI) to offer a domestic, open-loop and multilateral system. It will allow all Indian banks
and financial institutions to participate in electronic payments. The main features are:
RuPay Debit
cards
Aadhaar
Enabled
Payment
System
(AEPS)
Aadhaar
Payments
Bridge
System
(APBS)
■■
Lower cost and affordability
■■
Customised product offering
■■
Protection of information related to consumers
■■
Provides electronic product options to the untapped/unexplored consumer segment
AEPS is a banking product which allows online transaction at micro ATMs or kiosk banking
through the BC of any bank using the Aadhaar authentication. At present, four Aadhaar
enabled basic types of banking transactions are available i.e. (i) balance enquiry, (ii) cash
withdrawal, (iii) cash deposit (iv) Aadhaar to Aadhaar funds transfer. For undertaking AEPS
transaction by customer, two inputs - Issuer Identification Number (IIN) (identifying the
client’s bank) and Aadhaar number - are required.
APBS enables transfer of payments from government and government institutions to
Aadhaar-enabled accounts of beneficiaries at banks and post offices. Every government
department or institution that sends EBT (Electronic Benefit Transfer) and Direct Benefit
Transfer (DBT)/Direct Benefit Transfer for LPG (DBTL) payments to individuals needs to
prepare a file containing the Aadhaar number and amount, and submit it to their accredited
bank. The accredited bank processes the file through an interoperable Aadhaar payments
bridge and funds are credited into the accounts of beneficiaries. On receiving funds, the
beneficiary's bank will notify the account holder through SMS or any other communication
channel that is established between the bank and the customer.
Source: PMJDY brochure
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RESEARCH
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RESEARCH
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