Insurers can't take shortcuts in countryside

KOLKATA: Insurers will no longer be able to get away with selling low-value, low-premium covers to rural folk to meet their social and rural obligations. Insurance Regulatory & Development Authority (Irda) has decided to clamp down on insurers and define rural and social insurance products in terms of minimum and maximum sum assured. The regulator also intends to include micro-insurance under its definition. In a communique to insurers, Irda has said: “With a view to aligning rural and social sector obligations with micro-insurance regulations amendments, it is now decided to define the rural and social sector products for compliance with statutory obligations.” According to the letter, rural products will have to offer a minimum sum assured of Rs 5,000 for general and life insurance policies. However, health insurance for family and personal accident per person will have to be a minimum of Rs 10,000. There will, however, be no upper limit on the sum assured. Social products, on the other hand, cannot offer a sum assured beyond Rs 30,000 for general insurance covers and health cover for individual and family floaters. For term insurance and personal accident, the maximum will be Rs 50,000 per person if it’s a social policy. Insurers will also have to adhere to the minimum requirements stipulated for rural policies. Irda intends to make a formal notification soon and it is likely to be made effective from the current fiscal. The letter also says micro-insurance will now be considered a part of rural/social policies. Interestingly, Irda has now asked insurers to keep it updated about the number of policies sold. Currently, life insurance companies are required to sell 7%, 9%, 12%, 14% and 16% of their policies in rural areas in the first, second, third, fourth and fifth financial years, respectively. Non-life insurers need to earn 5% of their gross written premium from rural areas after the third year of operation. Both life and non-life insurers have to insure 20,000 lives from the social sector in the fifth year of operation. The social sector includes the informal and unorganised sector, and economically vulnerable and backward classes from the rural and urban areas. “The idea of rural and social insurance is to shield the rural poor and socially backward classes from unforeseen mishaps. It is being defeated as insurers are either selling policies to rich rural folk or are keeping them under-insured with covers that provide meagre value on sum assured,” said a senior insurance official. “A policy with a sum assured of Rs 5 lakh, if sold to someone staying in rural India, is termed rural cover and is accounted under rural/social insurance under the current norms. Similarly, insurers also sold covers with sum assured values of as low as Rs 1,000 or Rs 2,000 to meet their obligations,” the official said. On micro-insurance, Irda said in its letter: “The authority observes that there is considerable scope for using the platform of micro-insurance to qualitatively enhance the level of compliance with the rural and social sector obligation.... All micro-insurance policies may be reckoned for the purpose of fulfilment of social obligations by an insurer.” These new rules, according to Irda, will be useful in benchmarking the performance of insurers in meeting obligations of rural and social sector against the minimum requirements stipulated under regulations. “This would also check attempts to meet the quantitative requirements through low-value/low-premium policies,” the letter mentioned.

Source: Times News Network