'India needs insurers catering to niche sectors like NBFCs, MFIs'

India has a huge untapped population which doesn’t have facilities for financial aid and insurance, and it is perhaps plausible to look at the option of having niche players catering to smaller sectors akin to non-banks and microfinance institutions in lending, said Rakesh Joshi, member (Finance & Investment), Insurance Regulatory and Development Authority of India (Irdai).

Speaking at the Business Standard BFSI Insight Summit, Joshi said, “Today, most of our insurance companies operate at a national level. There is arguably a case for having differentiated operations, which cater to niche sectors the same way we have non-banking financial companies (NBFC) and microfinance institutions in lending.”

“The capital requirement for niche players may not be as large as those having national ambitions.

"Enabling these niche players, which require lower capital, will enhance the penetration in areas which hitherto had not seen traction from large players,” he said.

According to Joshi, the development of the insurance sector is not complete without reaching out to all sections of the population.

The exclusion of those at the bottom and targeting the upper income strata would result in development objectives going askew in the long run.

India has a huge protection gap of 83 per cent.

Further, almost 50 per cent of the vehicles running on the road are uninsured.

The coverage of property insurance is miniscule.

And, micro, small & medium enterprises (MSMEs) are not adequately covered.

“This huge protection gap needs to be bridged as we march towards our vision for India@100 with the goal of insurance for all, wherein every citizen should have adequate insurance cover,” Joshi said.

To enhance the insurance force, the regulator is contemplating the concept of Bima Vahak, whereby each gram panchayat will be tasked with selling simple, parametric, bundled insurance products – Bima Vistaar – covering health, property, life, and personal accident. This bundled product can be bought in units of sum insured.

According to data shared by Joshi, the insurance industry has covered more than 290 million lives in FY22.

Another 500 million were covered under Ayushman Bharat.

In addition, around 140 million have been estimated to be covered under the social insurance schemes, such as ESIC and CGHS.

“Today, we are the tenth largest insurance market and also one of the fastest-growing markets in the world. India is projected to be the sixth largest insurance market by 2032, ahead of Germany, Canada, Italy, and South Korea.

"This growth is based on the expectation of strong economy, rising levels of disposable income, young population and demographic dividend, increased awareness, digital penetration, and regulatory developments," Joshi said.

Referring to the investments insurers, make-in-government securities, and state developed loans, Joshi said, “The sector has a very important role to play in nation building and it has till now not been recognised as so.”

“Apart from providing financial relief, insurers invest their resources in nation building by way of investments in central government securities and state development loans," he said.

As of March 31, the insurance sector’s investment in government securities stood at around Rs 22 trillion, which is about 25.8 per cent of the total outstanding securities.

This is second to the investment made by the banking sector, which was at 37.55 per cent.

With respect to the state G-Secs, the sector’s share of investment was Rs 12.53 trillion, which is 28.42 per cent of the outstanding state G-Secs, second to the banking sector, which was at 38.4 per cent.

The insurance regulator has made a slew of changes in the past few months and has moved to a more principle-based regulation from entity-based regulations.

“More flexibility and autonomy is being provided to the boards for taking business and operational decisions.

"Investment landscape is being rebuilt to attract more investments into the sector and also grievance redressal systems are being made more responsive, empathetic, and tech-enabled.

"The distribution framework is also moving towards open architecture,” Joshi said.

The sector has earned a premium income to the tune of more than Rs 9 trillion in FY22 and had assets under management (AUM) of Rs 54 trillion.

It has registered 20 per cent year-on-year growth till October 2022, which is a quantum jump when compared with the last five years CAGR of around 11 per cent.