Context:
- The Insurance Regulatory and Development Authority of India (IRDAI) claims that the proposed Bima Sugam is a “game changer” and a “UPI moment” for the insurance segment.
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About Bima Sugam:
- It’s an online platform where customers can choose a suitable scheme from multiple options given by various companies.
- Budgetary Outlay: The overall budget for Bima Sugam has been hiked to Rs 200 crore from around Rs 85 crore.
Key Features:
- Single Window: The proposed platform would act as a single window for the policyholder to manage his/her insurance coverage.
- Provides End to End Solutions: It will provide end-to-end solutions for customers’ insurance needs i.e., purchase, service, and settlement in a seamless manner.
- Ease in Settlement: This platform will help in the settlement of claims, whether it’s health coverage or death claims, in a paperless manner on the basis of policy numbers.
- Real-Time Data Access for Insurance Companies: It will facilitate insurance companies to access the validated and authentic data from various touch points on a real-time basis.
- Intermediary and Agent Interface for Policy Sales and Services: The platform will interface for the intermediaries and agents to sell policies and provide services to policyholders.
Benefits:
- Reduced Policy Costs: Commissions on policies are expected to come down, benefiting the customers. The cost of buying policies will come down.
- Simplified Policy Selection: Bima Sugam will enable customers to identify a suitable scheme for the customers in a single platform.
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- The Insurance Regulatory and Development Authority of India (IRDAI) has formed a steering committee to act as the apex decision-making body for the creation of its ambitious ‘Bima Sugam’ online platform.
- The service providers will be the technological partners for creating and running a platform to provide all the services in one place.
Evolution of the Insurance industry:
- Nationalization of General Insurance Companies during 1972, where in 107 insurers were grouped and amalgamated into four Companies – National Insurance Co. Ltd., The New India Assurance Co. Ltd., The Oriental Insurance Co. Ltd. and United India Insurance Co. Ltd
- IRDAI opened the market for private insurance companies in the year 2000, that helped boost insurance penetration in the country
- Introduction & licensing of standalone health insurance companies by IRDA in the year 2006.
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What is Insurance?
An insurance is a legal agreement between an insurer (insurance company) and an insured (individual), in which an insured receives financial protection from an insurer for the losses he may suffer under specific circumstances.
- Under an insurance policy, the insured needs to pay a regular amount of premiums to the insurer.
Potential of Insurance Sector:
- According to a recent research report by Swiss Re, the Indian insurance industry is poised to become the sixth largest market by 2032.
- The Indian Insurance market is expected to reach $200 BN by 2027.
- India is 9th largest Life Insurance Market globally.
Favorable Factors for growth of Insurance Sector in India:
- Insurable Population: 68% of India’s population is young and 55% of its population is in the age group of 20-59 (working population) in the year 2020 and is estimated to reach 56% of the total population by 2025.
- Wide middle-class expansion: By 2030, India will add 140 Mn middle-income and 21 Mn high-income households which will drive the demand and growth of the Indian insurance sector.
- Digital behavior patterns: Customers are now starting to prefer digital modes for their insurance needs – 73%/62% of customers preferred the online mode for GI/HI products (2020).
- Pandemic-related shift in demand patterns: The pandemic increased the insurance penetration rate and triggered awareness on insurance and demand for protection products, especially health insurance.
- Increasing disposable income: India has experienced significant economic growth in recent years, with per capita income rising by around 8% annually. As a result, more people are able to afford life insurance premiums and are actively seeking out coverage.
Government Initiatives:
- Ayushman Bharat (Pradhan Mantri Jan Arogya Yojana) aims at providing a health cover of Rs. 5 lakh (US$ 6,075) per family per year for secondary and tertiary care hospitalization.
- The General Insurance Business Amendment bill (August 2021) allows the privatization of the public sector insurance companies regulated under the 1972 Act.
- In 2015, the Indian government increased the Foreign Direct Investment (FDI) limit in the insurance sector from 26% to 49%, which has attracted foreign investment and expertise into the industry.
Challenge:
- Low Penetration: Low insurance penetration and density rates prevail in India. Rural participation of insurers remains deficient, and life insurers, especially private ones, gravitate towards the urban population, to the detriment of the rural population
- For Example: The insurance penetration (ratio of total premium to GDP [gross domestic product]) and density (ratio of total premium to population) stood at 3.69% and US$ 73, respectively for FY18 (fiscal year 2017-18), which is low in comparison with global levels.
- Lack of Capital: Insurers in India lack sufficient capital, and their financial health, particularly that of the public-sector insurers, is in a precarious state.
- For Example: Among the public-sector general insurers, the financial situation of the ailing National Insurance Company is a cause for concern.
- Identification of prospective customers: As insurance is a ‘push’ rather than a ‘pull’ product, it is a big challenge for the companies to make their products meaningful to prospective customers.
- Lengthy Process of Settlement: In general insurance, for instance, many customers are discouraged from buying insurance due to the anticipated complexity involved in settlement of claims
- Limited Awareness and Education: Many Indians lack awareness and education about the importance and benefits of life insurance, which can make it challenging for insurers to penetrate the market.
Way Forward:
- De-jargonaise insurance products: Companies should simplify and de-jargonaise insurance products and design the benefits so as to suit the specific needs of policyholders.
- Transparency: A higher degree of transparency on policy terms will ensure that the customer understands the product and its benefits, minimizing fears of being cheated.
- Adoption of Digital Technology: Another area that necessitates regulatory scrutiny is that of application of technology in insurance.
- For example: The emergence of ‘InsurTech’, designed to make the claim process simpler and more comprehensible.
- Embracing Phygital Way: Despite the technological advancements, there is still a requirement for the human touch in the insurance industry.
- It is very evident that Phygital is the way forward as, in spite of technological advancements, the human interface will continue to play a big role in the penetration of insurance in the country.
News Source: The Indian Express
September 20, 2023