Micro-insurance products may be overhauled

Better remuneration to distributors and policies with bigger ticket-size could boost sale

Micro-insurance products are set to witness an overhaul with respect to their structure and product features, once the insurance regulator brings out the final guidelines for these policies. Insurance companies have sought better incentives to distributors such as banking correspondents apart from having ticket-size of products of up to Rs 1 lakh in order to generate better interest to sell the products.

Earlier this year, the Insurance Regulatory and Development Authority (Irda) had brought out a revised draft on micro-insurance products. The regulator had said partial withdrawals might be permitted from the second policy year onwards, subject to ensuring maintenance of minimum balance equivalent to one annual premium in the policy account.

Micro-insurance products, which offer coverage to low-income households, are a tool for insurers to penetrate rural areas. Micro insurance is a general or life insurance policy with a sum assured of Rs 50,000 or less. However, the average ticket size ranges from Rs 2,000 to Rs 4,000 per policy.

In a communication to Irda and ministry officials, insurers have sought better remuneration for distributors of micro-insurance, including banking correspondents, so that many more such institutions are incentivised to sell products where commissions are capped.

Further, companies have also sought a ticket-size of Rs 1 lakh or above so that distributors can earn higher commissions from the products that they sell in this segment.

Officials said Irda is in the process of bringing out the final guideline for these products, and the same is expected to be released in the next few weeks. Industry suggestions are likely to be incorporated in the guidelines.

“For insurers, unless these products are sold in huge volumes, it is not a big business proposition. So unless the ticket-size goes up, companies may not make a big investment into this segment,” said the chief distribution officer of a private general insurer.

In its draft, Irda has said that an insurer may enter into a deed of agreement with a person or entity whose micro-insurance agency agreement was terminated (other than on the grounds of fraud / misconduct) after the expiry of three months from the date of termination of the agreement. No Insurer will be allowed to re-appoint a micro-insurance agent, who was terminated on grounds of fraud or misconduct.

For distribution of micro-insurance products, Irda has said that regional rural banks, micro-finance institutions, district cooperative banks, non-governmental organisations, self-help groups, urban cooperative banks, banking correspondents and individual owners of kirana stores, public call offices, petrol bunks and fair-price shops in rural areas will be allowed to sell these products.

The regulator has proposed that all micro-variable life insurance products shall have a lock-in period of five years from the date of inception of the policy, during which period surrenders are not allowed, but partial withdrawals may be permitted.

Micro insurance agents may work with one life insurance company and one general insurance company. They may also work with Agriculture Insurance Company of India for distributing micro-insurance products of crop insurance and with any one of the stand-alone life insurance companies for distribution of their health insurance products.