The Insurance Regulatory and Development Authority (Irda)’s exposure draft on a standard insurance product for the rural and social sectors has not found favour with insurance companies. These companies feel the draft guidelines would be difficult to implement, as it would be unviable to sell products in rural areas at nominal costs.
In the draft, Irda said in rural regions, insurers would not be allowed to market any product other than the proposed standard product that meets the social and rural sector obligations. Insurers usually sell products that offer either lower benefits on premiums for the standard product, or higher premiums for products whose benefits are less compared to the standard product.
The regulator said that for distribution, two general insurers and two life insurers would be responsible for offering the standard product in each state. It added insurers responsible for a particular state would be termed the lead insurer for that state. It was also proposed that insurers would have to meet at least 75 per cent of their rural and social sector obligations from such allotted state(s), while other states would account for the remaining 25 per cent obligations.
Recently, Irda Chairman J Hari Narayan had said it was important that insurance companies fulfil rural and social sector obligations. “We are examining a way to have a lead insurer for each state/geography, so that it would bring greater stability in insurance for these regions,” he had said.
Amitabh Chaudhry, managing director and chief executive of HDFC Life Insurance, said that though it was a good initiative, many questions remained unanswered.
“It has envisaged the premium for the base plan, with all the add-ons/riders, shall not exceed Rs 1,000-7,500 a year. Given that the target group is a low-income group from rural and social sectors, its affordability is a question mark,” he said.
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Given the extent of benefits to be offered under the composite package and the limitations on expenses, it was challenging for insurance companies to design and distribute such products, he said, adding: “Operational feasibility to service such a group of customers is also a challenge that needs to be addressed.”
Insurance companies also feel adopting the banking model of a lead insurer for each state may not work, as the network of insurance players is not as strong as that of banks.
The chief executive officer of a private life insurance company said that in under-penetrated areas, where companies had minimal presence, it would be difficult to collect premium.
“If an insurance player is allotted to a northeastern state, it would not be viable for the company to establish physical presence there to collect premium. If it is mandated, the costs of premium collection would also shoot up, which is not a scenario favoured by Irda,” the executive said, requesting anonymity.
A senior executive of a private sector general insurer said it would be unfair to expect players to cater to the entire rural population of a state, as they did not have the reach like that of Life Insurance Corp of India. The executive, who also did not want to be named, added banks were able to achieve this since they offered only two basic product structures — credit and deposit.
Insurance companies have sought clarity on the product structure and the distribution mechanism from the regulator. They feel existing networks in rural areas, including channels like kirana stores, should be adopted more effectively, instead of companies setting up branches in these areas.