By AP Singh
In the year 2000, foreign direct investment (FDI) was permitted in the insurance coverage sector with a cap of 26% stake in joint venture with Indian partners. In 2015, then finance minister Arun Jaitley improved the FDI limit from 26% to 49% and the existing finance minister Nirmala Sitharaman has additional improved the FDI limit to 74%.
The insurance coverage solutions penetration in the year 2001 was 2.71% and at the moment it is 3.71% ,which is way beneath the international typical of 7.31%. The prime cause stated to have been behind the selection to raise the FDI limit was to improve insurance coverage penetration in India which remains low even soon after rising the FDI limit from 24% to 49% in the year 2015.
The untapped rural industry
If we have to develop the penetration of insurance coverage, we have to have basic solutions which make worth considering the fact that 70% of the population nevertheless lives in rural places. There has been an enhancement in incomes and acquisition of assets that have to have protection amidst the rural population, making possibilities for exploration and expansion of insurance coverage company in the otherwise untapped rural industry. All the 57 insurance coverage businesses have a extremely powerful presence in urban and metro places but rural and semi-urban India need greater coverage in solutions and distribution. Insurance businesses can use the capital raised by FDI to expand in the rural places with the assistance of suitable technologies.
Workforce in unorganised sector
Nearly 90% of the workforce is in the informal sector with no minimum wages or any type of social safety and with extremely low disposable earnings. According to an ILO report, in India, more than 40 crore informal workers may perhaps get pushed into deeper poverty due to Covid-19 outbreak. Insurance is necessary by these folks the most. Insurance can stop these folks from finding entrapped in the vicious circle of poverty.
From push to nudge solution
While the Covid-19 pandemic has wreaked havoc across sectors, it has established to be a blessing in disguise for the life insurance coverage sector in common and, especially, well being insurance coverage. From becoming a push solution, insurance coverage has turn into a “nudge product” due to the uncertainties. People are more conscious about insurance coverage solutions, but affordability is an problem. The insurance coverage business have to look at giving sachet insurance coverage solutions to cover the requirements of this strata of the population.
Trust aspect
An typical Indian household holds 77% of its total assets in actual estate, 7% in other sturdy goods, 11% in gold, and the residual 5 %in economic assets (such as deposits and savings accounts, publicly traded shares, mutual funds, life insurance coverage, and retirement accounts).
India is amongst the least insured nations and as of 2019, the density of non-life (which consists of well being) insurance coverage in the nation was a mere 19%, and the largest cause for this is the lack of trust. Although digitalisation can be a way of cutting charges, replacing the human touch with technologies can have detrimental impact, in particular for extended term life and annuity contracts.
Way forward
Increase in FDI limit brings possibilities for the insurance coverage sector in terms of foreign capital infusion which is anticipated to be $3.5-4.5 billion as the Indian insurance coverage company needs large capital and deep pockets. Additional infusion of capital into the company could allow development of the business, but this cannot be deemed as the wonder drug to increase the insurance coverage penetration and density in India.
Especially for clients at the base of the financial pyramid, insurers have to implement new company models and solutions to provide and administer the danger mitigation options at scale that meet their requirements. This way the insurance coverage sector can assistance close the protection gap as effectively.
The writer is director, Amity School of Insurance, Banking & Actuarial Science, Amity University