ALARMING STATE OF UNINSURANCE IN INDIA

Many people buying insurance don’t have the experience or understanding of their potential financial risks. Insurance is a modern day blessing and quite naturally one would expect the general public to embrace this gift. However, the numbers reveal a startling fact about uninsurance and low penetration in India. Sometimes people know they need to buy insurance protection, but don’t trust that the insurance company will fairly pay claims. Maybe they have had a bad experience with insurance companies or didn’t understand a claim outcome in the past. Surprisingly only about 0.2 percent of the total population have health insurance policies in India. While the insurance rates in the urban areas are promising, very few people living in the rural areas have their own insurance policies. The insurance sector is a rapidly growing in India. Around Rs 77,538 crores was collected as general insurance premium in 2013-14. However, number of facts show that a vast number of people in India do not have insurance. Only about 25 percent of the people have general insurance cover. Moreover most of the people who have insurance are either over-insured or have inadequate amounts of coverage! Nearly 70 percent two-wheelers and 30-35 percent of four wheelers are uninsured. It is clearly a challenge to society as victims of accidents caused by these vehicles do not get adequate compensation. The condition of health insurance in India is pathetic. 85% of Indian population does not use health insurance to finance their medical expenditure.  Health insurance coverage is also needs to be stepped up immensely as more than 70 per cent of healthcare expenses in India are self funded. The reality is that most people in India are not insured and more than 70 per cent of healthcare expenses are self funded. Even in other poor and developing countries the ratio is not this high. In developed countries, the ratios are much lower. Beyond a policy document, insurance is an intangible product. It is a conditional contract with a promise of potential future financial benefit, not an automobile or box of chocolates. Any insurance other than life insurance falls under the general insurance category. These are Property, Health, Motor, Travel, Cargo and Personal accidents.  The main reason to insure is to protect one’s assets against any unforeseen financial loss. The law also states that it is compulsory to insure against certain liabilities. If we cause a loss to another person, the person is entitled to compensation, and to be sure that we can afford to pay that compensation, the law requires one to purchase liability insurance to transfer the responsibility of paying the compensation to an insurance company.  The amount one insures for is called the assured sum. Normally a policy must cover the market value of the asset or the cost of replacing the asset if it is destroyed, lost or stolen. The premium is calculated based on the sum assured.  People buy general insurance to protect their assets against losses due to fire, theft etc. An individual can insure his or his dependant’s health and well being through personal accident and hospitalization policies. Most general policies available in the market are issued on a yearly basis, but some policies are valid till longer periods, like fire insurance for business premises, certain policies are valid for a shorter time span like insurance for cargo transportation or for medical treatment during traveling abroad. Today many health policies have, that cover hospitalization costs, also offer a cashless settlement of claims. In such cases, the Insurance company has a Third Party Administrator, who pact directly with the hospitals and directly pay for your treatment as per the terms and conditions of the said policy. Any general insurance policy is not meant to be that for savings or investment returns, its only purpose is protection. This is not the correct approach as there is a price to pay or protecting assets worth of lakhs for just a few hundred rupees. UNINSURED VEHICLES: Uninsured vehicles is one of the structural issues faced by the non-life industry in writing motor-third party insurance as nearly 70% of two wheelers and 35% of four wheelers are uninsured. Legally no vehicle is allowed to be driven on the road without a valid insurance. It is a compulsory requirement for any person who uses vehicle to be used on a road to have correct and valid insurance against third party risks. However based on statistics provided by the insurance company’s one – third of the cars and two – third of the two wheeler vehicles run on the roads without compulsory third party liability insurance. The base of this statistical data is by the number of vehicles registered to the total number of policies issued.  Further with the help of latest technologies it has been observed that, to make the matter worse, many companies have found forged motor insurance policies in circulation.  With the innovation in printing technology, it is possible for fraudsters to reproduce policies of the insurance companies. Also the insurers are of the view that due to fake policies in circulation large number of vehicles remains uninsured.  Second reason for such a large number of vehicles remaining uninsured is that vehicle owners in small cities and villages do not face any inspection of their documents. It is clearly a challenge to society as victims of accidents caused by these vehicles do not get adequate compensation. The other issues are rigid prices and tendency of court awards to go up in keeping with inflation. To control this issue, the insurer has issued the guidelines to provide long term policies. However, issuance of long term motor vehicle policy is a challenge because it is difficult to estimate the future income and inflation over a long period. So far the long-term insurance policy is for two wheelers only which may be filed with the regulator for approval shortly. However in many cases third party proposal comes after a break in insurance and hence in such cases underwriting must be more strict which is difficult to put into action online.  In some markets in Europe and USA, insurers issue only six month policies. LOW PENETRATION RATE: Apart from uninsurance, the other problem that plagues the sector is low penetration. Penetration of insurance is calculated as the ratio of insurance premium to the GDP. In urban areas penetration of life insurance in the mass market is about 65 percent, and it is considerably less in the low-income unbanked segment. One of the main reasons for this is the mis-selling of insurance products. The most of the grievances registered with them were regarding mis-selling of insurance policies. There also is a need to design insurance products in a more customer-friendly manner; that would appeal to the general public The above mentioned facts clearly highlight the shocking state of affairs in the seemingly successful insurance sector. While the figures in urban India are promising, insurers cannot rely simply on them and ignore the rural sector. There is an urgent need to revamp the insurance products in general to attract more customers. There is also a need to educate people about the need and benefits of insurance. Only then can the issues of uninsurance and low penetration be tackled. A robust and vibrant distribution model too is imperative for deeper proliferation so that the general insurers can reach even the remote areas. The changing regulatory environment and opening up of new channels of distribution like bancassurance will also propel the growth of the sector. The problem in a country like India is that a large percent of people are uninsured. These people do not have health insurance that could offer them help in paying off medical expenses. Thus, when they come across any medical emergency in their life, they are left with no solution, other than to face financial hardships. A person should buy health insurance, as it is the only tool that can help them in seeking quality medical treatment. AWARENESS SURVEY: Insurance Regulatory and Development Authority (IRDA) engaged the National Council of Applied Economic Research (NCAER) to carry out a pan-India survey to assess the levels of insurance awareness in the country. The survey was undertaken in 29 states/union territories. The survey has brought out various findings from the information it gathered relating to the socio-economic profiles of the insured and the uninsured in both rural and urban areas and correlating it to various life and general insurance parameters. The survey shows that most of the insured are salaried, regular wage earners or self-employed.  Insured households possess a high level of education as opposed to uninsured households which are mostly illiterate.

• Geographic Analysis: The report contains a geographical analysis of the parameters and it is interesting to study the patterns in various states. (this requires more info from the survey or we can drop it in this position)
• Purpose of insurance: A higher percentage of insured households, as compared to uninsured households, are aware that the purpose of insurance is to compensate for losses due to unforeseen events.
• Source of Information: The major source of any information for both the insured and uninsured is television. But when it comes to insurance the major source is insurance agents.
• Relevance of Insurance: The fear of accidents and untimely death makes them think of insurance.  Among those who did not think that insurance is relevant, the attitude is that they would rather enjoy the present than think of securing the future. There is a general feeling that insurance simply takes away hard-earned money. Of the insured households 97% feel that insurance is relevant for them. Even among the uninsured, 57% feel that insurance is relevant for them.
• Perceptions of Insurance: More than half of the insured households think that insurance is both a savings and a protection tool.
• Decision to take insurance: The decision is majorly influenced by agents, friends and relatives. There are certain regional variations as to whose influence predominates and this is brought out in the report.
• Life and Non-life Insurance: For purposes of identifying the universe of insured, the survey considered those who held life insurance. Among them, it was noted that only 31% had motor insurance and 6% health insurance.

REGULATORY STEPS: It is the time to review the steps taken by IRDA in fulfilling its twin mandates of Policyholders’ protection and development of insurance industry. Imparting financial literacy is very important for improving financial inclusion and individuals’ financial well being which directly impacts the financial stability. The insurers should realize that providing for an effective mechanism to enable consumers to voice their grievances and ensuring that the grievances are acknowledged, examined and resolved expeditiously, will inspire confidence in the consumers, facilitating greater insurance inclusion. There are various issues concerning one of the fastest growing segments of insurance sector in India i.e. health insurance. Out of 28 non-life insurance companies, 5 private sector insurers are registered to underwrite policies exclusively in Health, Personal Accident and Travel insurance segments. Health insurance plays a very significant role in reducing the severity of impact that ill-health and cost of treatment could have on personal finances. Ensuring policyholder servicing and protection through an appropriate service delivery framework and putting in place systems for fraud management were the issues highlighted during this session, which if focused upon can serve both business and social purposes. Other significant steps taken by the IRDA are as follow:

1. Film for General Awareness:

In order to sensitize general public about IRDA, its role and initiatives in insurance sector regulation and development as well as policyholder protection and welfare, a documentary film has been prepared for extensive use and launched by IRDA. This documentary film not only disseminates generic information about insurance but also highlights various initiatives taken by IRDA in the field of educating customers and redressal of grievances. The awareness is must for healthy and sustainable growth of the insurance sector and also to strengthen trust and faith of the policyholders in the insurance framework of the country.

2. Bima Bemisaal:

‘Bima Bemisaal’  is the brand name for IRDA’s insurance awareness campaign. It is a consumer education initiative and has the tagline “Promoting Insurance, Protecting Insured.” Bima Bemisaal educates policyholders about their rights and obligations and informs them about the complaints resolution methods available to them. It also creates awareness about insurance among the general public. The Bima Bemisaal campaign uses various media like print, radio and television. This website is also part of the Bima Bemisaal initiative.

3. Product Detail:

In order to ensure that the insurance products offered by the insurers are of value to the policyholder and that their pricing is appropriate and fair between the insurer and the insured, IRDA insists on the requirements of filing of insurance products under File & Use guidelines before selling any life/general insurance product in the Indian market. As per the File & Use guidelines, the insurer needs to justify the rates, terms and conditions of insurance policy to be offered while filing the product with IRDA. The insurer is not permitted to offer any product for sale until IRDA confirms in writing that it has no further queries in respect of that product. Here is the list of products offered by various insurance companies that were given clearance under File & Use procedures by IRDA

4.  Grievance redressal:

For unhappy policyholders with the insurance company, the Regulator has introduced the following procedure:

• Approach the Grievance Redressal Officer of its branch or any other office that you deal with. The contact details of Grievance Redressal Officers, GRO, of all insurance companies is also provided on the website.
• Give your complaint in writing along with the necessary support documents
• Take a written acknowledgement of your complaint with the date.
• The insurance company should deal with your complaint within 15 days.
• If that does not happen or if you are unhappy with their solution you can: Approach the Grievance Redressal Cell of the Consumer Affairs Department of IRDA: Call Toll Free Number 155255 (or) 1800 4254 732 or Send an e-mail to [email protected] or to Make use of the Integrated Grievance Management System:

NEED TO IMPART FINANCIAL LITERACY: Insurance must be mandate in most of the social and political gatherings and it must be the priority in economic development during parliamentary sessions. Now, with the proposed plan of opening windows to 49% FDI, the regulatory framework can be more open to technology, compliance and global competition. The insurance penetration will certainly increase if people of India can be made aware of the various risks associated with their life, business and the internal and external environment. Nevertheless, insurance business is the art of selling promise and providing economic security which is the need of the hour to every individual is being cautiously provided through insurance, thereby strengthening the Nation’s economy and growth. Insurance is available for unpredictable events such as death, accidents, sickness, loss or damage to property. A common person needs life insurance, accident insurance, health insurance and insurance for property like – motor vehicle, house and so on. There are more complicated risks like legal liability and various risks that commercial enterprises face. For these too there are various special policies available. While life insurance and some types of accident and health insurance are offered by life insurance companies, property insurance, health and accident insurance are offered by non-life insurance companies (also known as general insurance companies).  The insurance policy that a policyholder buys must meet his requirements. This means one must identify what his needs are first. As a man of ordinary prudence one should also join a health insurance scheme while young and to renew it continuously. While third party insurance for motor vehicle is statutory, that is, it is required under the law, it would be wise to buy a comprehensive policy that covers the vehicle against own damage as well. Protecting the house and contents against the risks of fire and flood will secure the hard-earned savings. The use of technology and innovation through technology was the need of the hour to capture the eyeballs and imagination of the people, especially the young, for imparting financial literacy. Several innovative ways in which technology can be leveraged for consumer education were discussed. There is a need to increase the number of insured individuals in India. Working in this direction, every individual, every medical care provider and every health insurance company should play an active role. It is only then possible that people would be able to avail quality healthcare in times of medical emergency. Insurers have designed plans, but people should be encouraged to buy them so that the overall condition of medical care insurance in the country can be improved.  The Government should educate people about the rise of medical costs and the importance of these products. Regulators should bring change in the guidelines, allowing only the right players to enter the health insurance market. Health insurance providers should design products, according to health needs of target customers and encourage people to buy them. The combined efforts of all these bodies will surely bring some improvement. The industry is going through a difficult time, but insurers have to rely on diversified growth on the back of segments like health and weather insurance, which has improved the market share. Private sector general insurers gained their combined market share to 44% in FY14 despite the depressed economic scenario, at the cost of the state-owned insurers. Private sector general insurers had a combined market share in terms of gross premium collection at 44% in FY14, up from 42.77%, while public sector companies’ share declined to 55.84%, from 57.04%, according to the data. The combined ratio which determines the profitability is a crucial parameter to be monitored among the race for market share. The combined ratio in FY14 for the industry was over 110%. People are risking their lives and property instead of paying a small amount of premium. The tendency is alarming as the number of road accidents in India have never gone down in the past several decades. In this scenario, uninsured vehicles on the street are the biggest risk in multiple ways. More than one third private four wheel vehicles in India are not insured, as per estimates. This figure goes to above three fourth when we talk about two wheelers. These numbers are astounding. With the reforms in the insurance market in India and the entry of private insurance companies, premium for vehicle insurance has gone down considerably. Companies are competing with each other in a healthy manner and ready to offer better and better deals. But regretfully, despite the availability of cheap insurance plans, people are still ignoring them at their sweet will and taking risks of life and assets. The Regulator has empowered insurance companies to open branches in Tier-II cities. Rashtriya Swasthya Bima Yojana needs to be extended to other categories such as rickshaw, auto-rickshaw and taxi drivers, sanitation workers, rag pickers and mine workers. A comprehensive social security package is to be evolved for unorganized sector by facilitating convergence among different schemes. The drives run by traffic police reveal such deviations on an ongoing basis. Millions of people pay a penalty for not renewing their vehicle insurance plans, but the number of non-renewal is not decreasing. The vehicle insurance industry, at the other end, has accepted that most of their business would come from either sale of brand new vehicles or vehicles which are 1-5 years old. Insurers should innovate in producing simple, standardized, reasonably priced and easily comprehensible products. They should take steps to curb fraud in health insurance as this has an adverse impact on the cost of taking health insurance for consumers. Honoring a claim is not a favour done by the insurer to the insured but a contractual obligation. Innovations in product and service offerings along with focus on quality of service have helped us build a reputation and grow as a business. All insurers should come together along with the life and general insurance councils to spread insurance literacy among all sections of the society. References:

1. Web portal of irda.gov.in
2. http://www.policyholder.gov.in/Indian_Insurance_Market.aspx
3. http://www.gicouncil.in/Feature/feature-of-the-month
4. http://www.gicouncil.in/Feature

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Author

SHWETA RANA

Asstt. Professor (IT), 71/143-A, Opp. K.V. NO: 5 Mansarovar, Jaipur-20

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