The need for loss of income cover: The missing piece of social security net

In the wake of societal progress, the imperative to uplift a growing population above the poverty threshold becomes paramount. A responsible government takes the initiative to provide its citizens with fundamental social protections, whether through innovative policy directives, fiscal allocation, or both. As a nation, India has demonstrated commendable strides in incorporating these imperatives into its state fabric.

Through a well-calibrated, phased approach, the government has instituted a series of measures to materialize this objective. Initiatives such as Jan Dhan Yojana, Direct Benefit Transfer, Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Yojana, Ayushman Bharat, Pradhan Mantri Fasal Bima Yojana, and PM Kisan are indicative of the comprehensive expansion of the social safety net.

However, within the contours of this augmented social security matrix, a visible and increasing gap remains – one that pertains to insulating individuals against income loss, a concept often erroneously conflated with the idea of a universal unemployment allowance. Apprehensions surrounding labour disincentives and the considerable fiscal ramifications for taxpayers render the notion of a universal unemployment allowance impracticable, particularly within the evolving context of a nation like India.

Within India's ground realities, it is essential to acknowledge the dominant presence of the informal sector, where a considerable demographic derives sustenance from daily wage employment. It is precisely within this demographic landscape that an income protection mechanism becomes indispensable, particularly in the face of adversities such as illness and natural calamities. Evidential documentation underscores the adverse financial impact of such circumstances on the financial resilience of daily wage labourers, frequently precipitating their regression below the poverty threshold.

To establish this safeguard, creating complex new insurance products is unnecessary; instead, a hospicash can be employed. This entails the provision of daily compensation to an individual during hospitalization. Add to this a parametric loss of income coverage against natural catastrophes like excessive rainfall leading to floods or landslides, earthquakes, cyclones, and the like. Notably, the simplicity of this coverage lies in its straightforward and expeditious claims process triggered by predefined parameters.

This encompassing coverage could be systematically introduced nationwide through a mission-oriented strategy under the purview of the Ministry of Finance. This could be achieved by crafting the product and engaging insurance companies to offer it through banks, including rural and cooperative institutions, akin to the rollout of personal accident and life insurance. While the government should serve as the driving force behind this program, its role need not be solely confined to funding. Avenues for financial support could include government funds, corporate social responsibility (CSR) funds, philanthropic contributions, and charitable donations.

Consider the scenario where an individual confronts hospitalization – a hospicash provision could significantly alleviate the ensuing financial burden. Likewise, should illness or a calamity curtail their ability to work, the loss of income coverage could ensure the receipt of a minimum wage. When extended on a large scale, this comprehensive coverage has the potential to be a boon for the masses, concurrently fostering novel prospects within the Indian insurance landscape. The successful execution of this initiative hinges on a dedicated mission mode, necessitating insurers to proactively address the challenge and offer this protection at economically viable rates. This initiative also promises to become a significant business opportunity for the insurance sector. Ensuring the product's sustainability requires entrusting pricing decisions to individual insurance companies.

The proposed coverage bears the potential to play a pivotal role in shattering the chains of poverty while catalyzing economic advancement, thereby igniting a ripple effect that reverberates throughout the entirety of the Indian economy and society. The ramifications are extensive – spanning the augmentation of financial resilience within vulnerable communities to the facilitation of comprehensive economic progress.

In envisaging a future where financial security ceases to be a privilege but rather evolves into an inherent entitlement, the clarion call for comprehensive income coverage gains resonance within the Indian context. This initiative encapsulates the ethos of a progressive nation – one unified in its unwavering pursuit of shared prosperity.

The article has been authored by Ankur Nijhawan is an Insurance and Reinsurance expert and former CEO of AXA France Vie India Reinsurance Branch and Hannover Re India Branch