Image by Uplift Mutuals

In India setting up an insurance company is not easy with a blanket minimum capital requirement of INR 100 crores irrespective of risks or geographical coverage. We seem to have an undeclared policy of having a large number of insurance distributors and a small number of insurance manufacturers — India has only 70 insurance companies; in contrast US has 5,965 and Germany 528. Given the huge untapped potential in the high and middle-income segments in India, the current lot of insurance companies can grow without designing relevant products for the low-income groups.

An analogy with the state of medical education in India points to this mindset -the fewer the better. With high costs of setting up medical colleges, medical education becomes expensive and the preserve of the few and perhaps that is why it is not surprising to see a massive skew in concentration of doctors in a few places coupled with a very poor doctor-patient ratio.

But is the problem only due to a limited number of insurance companies OR does it also have to do with the kind of insurance companies that are allowed in India? Apart from commercial insurance companies, Mutual and Cooperative Insurance companies are another insurance model. Mutual and cooperative insurers (hereafter referred to as “mutuals”) are different from stock insurers; they are owned by, governed by and operated solely in the interests of their customers/members. Mutuals with a presence in 73 countries contribute to 26% of the insurance market globally and are recognized and regulated in most major economies except India.

Why does then a country as diverse as India not have multiple insurance business models? Why not have people-owned insurance companies?

Indian insurance history tells us that this was not always the case. Ironically, the first insurance company that was setup in India to cater to Indians[1] was the Bombay Mutual Life Assurance Society formed in 1870. One cannot but help noticing the words “Mutual Assurance”.

In fact, Mutuals did exist pre-independence. Mutuals and Cooperatives were defined in the erstwhile Insurance Act of 1938. Even when the Insurance Act of 1938 was amended via the Insurance Amendment Act 2002, it still mentioned four types of insurance providers viz.

(i) insurers registered under the Companies Act 1956,
(ii) provident societies,
(iii) mutuals providing insurance policies, and
(iv) cooperative societies.

Post-Independence, the only company that was not nationalised was the Calcutta Hospital and Nursing Home Benefits Association, a sustainable not-for-profit Mutual company that existed as a formal insurance business till the introduction of the Insurance Amendment Act in 2015, when the mention of Mutual was removed from the Act. The amended Act retains the provision for Cooperative societies to become insurance entities but unfortunately with the same capital requirement as other commercial insurers.

The emphasis on the capital requirement, whether an insurance company is a for-profit commercial entity or a cooperative society — underlines the fact that the regulator’s topmost concern remains solvency. However, the reason for imposing a fixed capital requirement irrespective of the risk or the market segment targeted, remains unclear.

In a country where hundreds of millions of people remain out of meaningful protection, and the majority of insured, remain underinsured, what are the possible approaches to improving this situation? We have been extremely innovative in Banking by creating multiple forms of agency, reducing substantially not just the capital[2] requirement but also improving upon the agency form — why not do something similar in insurance?

For a population as vast, and as diverse as India why not have public, private cooperative and mutual insurance companies and more …

What do you think? Should we not let a thousand flowers bloom…

References

[1] The Oriental Life Insurance Company that was the very first insurance company formed in India in 1818 to insure the British, Indians were excluded from the cover.
[2] The recent IRDA microinsurance committee recommended lowering capital for microinsurance
https://www.business-standard.com/article/economy-policy/irdai-s-committee-on-micro-insurance-suggests-ways-to-boost-segment-120013100082_1.html

This research was developed as part of the Bharat Inclusion Research Fellowship.