The Insurance Regulatory and Development Authority of India (IRDAI) is working on a novel concept called ‘Model Insurance Village (MIV)’ to enhance insurance penetration in India’s rural areas. The Economic Survey for 2020-21 reveals that although India’s insurance penetration has gradually risen from 2.71% in 2001 to 3.76% in 2019, it remains significantly below the global average of 7.23%.
Recent Developments in the Insurance Sector
The Parliament recently passed the Insurance Amendment Bill 2021, thereby increasing the foreign direct investment limit in the insurance sector from 49% to 74%. This move will likely lead to a larger inflow of foreign capital into the Indian insurance market, providing a solid financial base for initiatives like the proposed Model Insurance Village.
The Concept of Model Insurance Village (MIV)
The driving idea behind MIV is to provide comprehensive insurance coverage to all significant insurable risks confronting villagers, at an affordable or subsidised rate. To keep premiums low, various sources of financial support will be explored, including funds from NABARD, CSR activities, government backing, and reinsurance companies.
The IRDAI plans to implement the MIV scheme in at least 500 villages across different districts in its first year, expanding to 1000 villages within two years. It seeks participation from every general and reinsurance company doing business and having offices in India for pilot testing this initiative.
Possible Offerings Under MIV
Among the potential offerings are weather index products and mixed products offering both weather index and indemnity-based insurance protection for crops not covered under the Pradhan Mantri Fasal Bima Yojna. Comprehensive farm insurance packages could cater to the needs of crop cultivation, livestock, farmers, and farm tools. There could be separate insurance products for high value agriculture, contract farming, and corporate farming communities. Large, complex risks arising from natural disasters and affecting the agricultural ecosystem and rural economy could be covered by state-level macro insurance.
Challenges in Expanding Insurance to Rural Areas
Key barriers to growing rural insurance business include lack of awareness, limited access to insurance products, opaque and non-user-friendly claim settlement processes, and a weak network of insurance companies in rural areas.
About the Insurance Regulatory and Development Authority of India (IRDAI)
The IRDAI was established as an autonomous body in 1999, following the recommendations of the Malhotra Committee report. It was legislated into existence in April 2000. The IRDAI’s primary objectives include promoting competition to increase consumer satisfaction through increased choice and lower premiums, while ensuring the financial stability of the insurance market. Its headquarters is in Hyderabad.
Reinsurance: Insurance for Insurance Companies
Reinsurance involves one entity taking on all or part of the risk covered under a policy issued by an insurance company, in exchange for a premium payment. It essentially acts as an insurance cover for insurance companies; a layer of financial security ensuring that insurance companies are capable of meeting their commitments to their policyholders.
