India is passing through an economic reformation led by demonetisation and e-monetisation. If 1969 bank nationalisation ushered in development banking, which was perhaps the very first step towards financial inclusion, Pradhan Mantri Jan Dhan Yojana (PMJDY) was the second step in that direction. Demonetisation will perhaps immediately catapult the nation into a new era of e-money, e-cash or cashless as it may be termed, marrying banking with digital transactions—a dream that was distant before 8 November 2016. The focus now needs to shift to insurance and mutual funds.
There will be sustainable growth in the financial sector, which includes insurance and mutual funds as well and for which newer products will have to be developed not just by banking but by insurance and mutual funds as well so that there will be more and more participation of people into these sectors and the growth can be sustained. Certainly, the industry, which may be ready, but can not move forward without support from the regulator.
Post-liberalisation the growth of insurance industry has been on an average 30 per cent CAGR barring a couple of years around 2010, when it dipped to a single digit. The growth can be attributed to opening up of the sector to private players, innovative products and aggressive expansion of distribution network. “Till about 2005, the focus was on banking and post-office services. In 2005, the first version of micro-insurance was introduced which was further revised in 2015. This is a segment, which was uncovered and this is where most of the Indian population belongs. But the challenge here is the high cost of distribution,” said Yogesh Gupta, Chief Financial Inclusion Officer, Bajaj Allianz Life Insurance (BALIC). It is here that the role of an intermediary becomes important. He added, “We started this segment in 2008 and since then we have been engaged with Regional Rural Banks (RRBs), Co-operative Banks, Common Services Centres (CSCs), dairy boards, milk federations and Microfinance Institutions (MFIs). We have more than 300 partners today, who are helping us spread the micro-insurance cover through rural landscape.”
To make it sustainable, volumes are important. While selling is one thing, renewals are another. Most importantly the claims settlement is something that gives people hope. Financial literacy, insurance literacy through pamphlets, streeplays, play way methods, comic characters, drum beating and holding focus group discussions involving local Panchayat become some of the important elements of awareness generation to reach out to the target audience. “We have simplified the proposal form as well as the claims settlement procedure using technology tools,” said Gupta.
The role of a regulator in a developing economy is different from the role of a regulator in a developed one. More of regulations are required in a developing economy because people are not used to working under rules and regulations. “Once they are habituated; once they know that this is how we have to conduct our business then the regulations move to self-regulatory environment and then the regulators may not be required and that is an ideal situation. Instead of viewing it with microscope as to how business is being conducted by the insurance companies, if a prescription is being given that you conduct business in this particular fashion and wherever there is a deviation you report; that will be the very model, ideal situation which I am sure going forward, will happen,” added Nilesh Sathe, Member (Life), IRDAI.
Insurance can be divided into two – compulsory and optional. Although, various state governments and central government have introduced health insurance schemes for people Below Poverty Line (BPL) families, these are optional. Pradhan Mantri Jeeven Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) under Pradhan Mantri Jan Dhan Yojana (PMJDY) are also optional. “To my mind, life and health insurance should be made compulsory for all,” said Suresh Kumar Shanmuganathan, Chairman, Pallavan Grama Bank.
He added saying, “But our experience has totally transformed on introduction of PMJJBY and PMSBY as earlier we used to talk of insurance with a sort of hesitation and explaining was difficult. We made it compulsory for all in the organisation. When my people understood the benefit of the schemes, they propagated it well. Our both—re-insurance rate and death claim settlement rate—are very high. So far we have settled about 190 cases—130 under accident and 60 under life.”
The basic principle of insurance is that higher number of insurance sale brings down premium costs. It essentially then becomes a volume game, the benefit of which is passed on to the consumer. The alliance between Canara Bank, Oriental Bank of Commerce and HSBC to form Canara HSBC Oriental Bank of Commerce Life Insurance Company has put together more than 10,000 branches spread across the country with over 10 crore as customers. “Given our customer base and reach, we have every reason to believe that we can take insurance business much deeper. Even if we are able to convert 1 per cent of our customers, we will emerge as a leader in the insurance sector,” said Mahesh Kumar Singh, General Manager, Canara Bank. Gone are the days when players mis-sold the insurance products, which has become almost zero. Insurance selling has become need-based and risk assessed. “Consumer has also become aware as a result of push by the government, particularly under PMJDY and regulator opening up the sector further. We have experienced cases wherein consumer has already done his homework using Internet and other technology tools and asks for a specific product or a product mix,” added Kumar. Not only this, the new emerging trend is that people are asking for multiple insurance products, life, health, accident, theft, calamity and disaster. This was not the case earlier, when a consumer was looking only for a life cover. Credit needs to be given to financial literacy. Now when crop insurance cover has been extended to cover even lower damage and variety of crops, the farmers need to be informed so that agriculture insurance can help farmers in distress, which will prevent suicides.
The application forms for PMJJBY, PMSBY and other micro-insurance products have been kept simple. Convincing people with zero literacy is a difficult task. Bankers agree that when people are sensitised about the annual cost of PMSBY equivalent to a cup of tea, everyone is ready to participate.
Insurance schemes under Jan Dhan have really changed the way insurance is being perceived at the ground level. “I had the privilege and opportunity of settling the first insurance claim. I decided to personally handover the insurance claim to the claimant in a remote village. The poor women did not know about the insurance that her husband had taken. When she was handed over a cheque of R4 lakh—he had taken both the policies—she had tears in her eyes. Although, I was with her in her moment of sorrow, but took solace in bringing her happiness that she could see in a secure future for herself and her children. I feel, insurance is not just a business or responsibility but also a social commitment to a cause. I am glad, we could live up to that,” added Singh.
As a result of easy operation and simplification of process, the Jan Dhan insurance schemes have become sustainable and in the second year, over 90 per cent have been renewed. “That is difficult in case of insurance, especially in case of term-insurance. It sees high lapsation. As a regulator, we are open to the industry seeking our support on products approval or giving directions on innovating products to suit and serve the market better,” concluded Sathe.