Grassroots insurance

SLBC-like forum could be a useful step

Insurance Regulatory and Development Authority of India (Irdai) Chairman Debasish Panda’s announcement that the regulator was exploring the possibility of creating a state insurance plan similar to the state-level bankers’ committees (SLBCs) could be a useful step towards bringing larger numbers of Indians within the purview of the insurance industry. The SLBC concept, introduced in 1977 under the aegis of the Reserve Bank of India (RBI), is an inter-institutional forum at state level to enable coordination between the government and banks on issues concerning banking development. These apex inter-institutional forums meet every quarter and are chaired by the chairperson or executive director of a designated lead bank and co-chaired by the additional chief secretary or the development commissioner of each state concerned. The SLBCs have recently played a key role in achieving financial inclusion by identifying and expanding the number of banking touchpoints accessible to citizens under the Pradhan Mantri Jan Dhan Yojana (PMJDY). Today, fewer than 143 villages lack banking touchpoints within a 5-km radius, down from 11,278 in 2019. For the insurance regulator, gains such as this make a compelling case for SLBC-like institutions.

Although India is the world’s tenth-largest insurance market, the average Indian is significantly underinsured. The overall penetration of life insurance alone, for instance, is just 3.2 per cent, principally because of a limited distribution reach. Of the rural population, less than 10 per cent have life insurance cover, and for health insurance, it is less than 20 per cent. And even this is principally on account of an Irdai mandate. Overall, according to a study by Swiss Re, there is a huge mortality protection gap — the difference between the resources needed and those available — of Rs 1,320 trillion, suggesting that the vulnerability of the average Indian is at almost catastrophic levels. In that respect, institutions modelled on SLBCs could be a game-changer. That said, the success of SLBCs depends largely on the political will at the Centre and within state governments. The SLBCs’ success in expanding the reach of banking touchpoints in rural India has largely been driven by the momentum of the PMJDY programme, which was launched in August 2014. But within states, the width and depth of banking access remain uneven. In Kerala, for instance, the SLBC played a key role in the state’s Total Banking programme, which was driven and enabled by the bureaucracy. In contrast is Jharkhand, where the venal moneylender still dominates.

Much will depend also on the insurance companies. When the SLBC model was introduced in India, government-owned banks dominated the scene and could be directed to achieve goals that might not necessarily be compatible with profitability. There are 57 insurance companies, including 23 life insurers and 33 non-life insurers, of which seven are government-owned. Life Insurance Corporation is the sole state-controlled life insurer and still dominates the business with a 58.5 per cent share. But its share has been steadily falling, and its listing in 2022 makes it difficult for the government to compel it to expand into less profitable markets. Private insurers operate on thin margins, which are unlikely to encourage them towards grassroots insurance. These are issues that Irdai needs to address. Managing this process successfully could be the key not just for increasing insurance penetration but also for mobilising savings in the economy.