Regulation of Microinsurance in India

Publication Date: 19 Feb 2005
Published by: Hyderabad, India: Insurance Regulatory and Development Authority (IRDA)
Document Type: Presentation

View this Document   Email this Document

The role of regulation in improving microinsurance in India

This paper describes the regulatory environment for microinsurance in India. It explains the existing market environment for microinsurers as follows:

• Microinsurance units operate in areas with minimal presence of public or private sector;
• The market is volatile as there is an uncertainty in supply and demand of products;
• There is a lack of information on risks, costs and utilization levels.

The paper presents different types of incorporation for companies providing microinsurance services. It further examines the problems existing in draft regulation:

• Lack of regulation on code of conduct;
• Inflexibility in designing and bundling benefits;
• Absence of methodology for setting of premium;
• Arbitrarily set capital requirements.

The paper proposes a supportive concept by suggesting:

• Uniformity in technical platform;
• Enabling of diversity of players, products and prices;
• Linking capital requirements and premiums to the underwritten risks.

It then states the role of reinsurance in microinsurance including its ability to:

• Diversify risk;
• Reduce the cost of capital requirement;
• Transfer outlier risk exposure.

It highlights the following types of services provided by reinsurance:

• Surplus relief;
• Catastrophe protection;
• Stable loss experience.

The paper concludes by stating that:

• Regulation should not limit the market;
• Re-insurance should be treated as an important tool to stabilize microinsurers;
• Different regulations may be required for different forms of microinsurance incorporation;
• Regulation should set the technical platform for data collection, reporting and auditing.