Govt’s Plan to Replicate Microfinance Model In Insurance Cheers Up Insurtech Players

Insurtech companies are upbeat about second-generation insurance reforms, including a reduction in the INR 100 Cr capital requirement, which the government may introduce soon.

The proposed reforms will have wide-ranging ramification on the insurance sector. Media reports said the government, after consultations with the Insurance Regulatory and Development Authority of India (IRDAI), may amend the Insurance Act to reinvigorate the sector.

Insurance Sector Is In For An Overhaul

According to reports, the government may accede to IRDAI’s request to reduce the INR 100-Cr capital requirement for entry into the insurance sector by amending the Insurance Act.

The idea is to pave the way for small companies in the insurance sector. The government is looking at replicating the successful microfinance model in insurance.

In the financial sector, microfinance institutions (MFIs) have been operating under regulatory supervision of the Reserve Bank of India. MFIs have been successful in achieving some degree of financial inclusion in the hinterlands, and the government’s initiative of JAM — Jan Dhan accounts, mobile number and Aadhaar number — is often given the credit for this success.

A big change that is being proposed is doing away with interlocutors, the traditional link between insurance companies and policyholders. The changes may require insurers to deal with customers directly.

The definition of life insurance and general life insurance may also change in the amended Insurance Act.

More Product Innovation, Greater Digitisation On The Cards

“As a consequence of the removal of the minimum entry capital requirement, sector or product-specific insurance companies, providing hyper-focused insurance offerings will blossom, in turn, offering relevant and competitive products to the stakeholders,” said Mayank Gupta, the co-founder and COO of Zopper, an API platform for insurance infrastructure.

Welcoming the proposed reforms, Sunil Padasala, the chief innovation & strategy officer at Assurekit, said the insurance protection gap in India is large. “Bringing in more players in the micro-insurance and specialist segment will definitely help in plugging this gap,” Padasala added.

Insurtech players are upbeat because new-age insurance providers, such as micro-insurers, are also a lot more likely to invest in digitisation, which will make customer onboarding much easier.

Assurekit believes a lower threshold will remove the entry barriers and encourage many players to set up shop, which, in turn, will help increase insurance penetration in the country.

“One can expect several micro-insurers with a much lower capital of INR 10 Cr or INR 15 Cr to establish themselves as insurance providers. With their ability to focus on smaller districts, such providers can prove instrumental in increasing insurance penetration in rural and remote areas of India,” Gupta said.

Further, the sector can expect more product innovation as a result of stiffer competition that is inevitable when micro-insurers emerge.

Padasala said the right incentives can help boost India’s position as a leader in specialist products, which can attract further capital investments into the country.

“Having more insurance companies in the sector can undoubtedly push everyone, including incumbents, out of their comfort zone. Such a push is bound to lead to innovation across all fronts, be it pricing, product, claim processes, or customer experience, eventually driving the overall evolution of the Indian insurance industry,” Gupta said.

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