In a significant development for India's financial sector, a comprehensive report prepared by experts from the Indian Institute of Management-Kozhikode (IIM-K) has presented a bold roadmap for transforming the country's insurance landscape. The report, submitted to the Insurance Regulatory and Development Authority of India (IRDAI), the general and life insurance councils, and the central government, advocates for sweeping reforms including the divestment of public sector general insurance companies and a major restructuring of the Life Insurance Corporation of India (LIC).
Key Recommendations for Public Sector Insurers and LIC
The report, which emerged from deliberations held on August 23-24, 2024, organized by the general and life insurance councils and attended by the IRDAI chairman, suggests that the government should include provisions in the forthcoming Union budget to either divest state ownership or recapitalize three struggling public sector general insurers: National Insurance Company, Oriental Insurance Company, and United India Insurance Company. These companies are currently running negative insolvency ratios, indicating financial distress.
Regarding the behemoth LIC, the report notes that it enjoys a virtual monopoly in the life insurance segment. The authors argue there is a prima facie case for splitting (demerger), divestment, or unbundling of LIC's business to foster competition and efficiency. The report explicitly states, "Govt can engage professional merchant banker advisory services to work out the best way for splitting and unbundling its activities to generate efficient and value-creating competitive units. This alone will spur enhanced interests of fresh investments in the sector."
The Vision: Insurance for All by 2047
The expert panel, comprising IIM-K Director Debashis Chatterjee, Mridul Saggar (Head of the Centre for Macroeconomics, Banking & Finance), Rudra Sensarma, and Shubhasis Dey, asserts that the national vision of "Insurance for All by 2047" is achievable. However, they emphasize that this goal must be pursued as a dedicated national mission rather than a market-driven afterthought. The path forward, according to the report, requires four critical pillars: regulatory clarity, technological leapfrogging, capital deepening, and institutional trust.
Addressing India's Insurance Gap
The report highlights a paradox: despite India being the world's fourth-largest economy, its insurance penetration remains modest at nearly 3.7% of GDP. Significant coverage gaps exist in health, property, catastrophe, and small-ticket non-life insurance segments. On insurance density, India lags behind peers at $95 per capita, a figure that reflects low per capita GDP but also indicates substantial room for growth in the coming years.
Identifying affordability as the primary constraint for insurance expansion, the report calls for the creation of low-cost basic insurance products. These could be facilitated through innovative micro-payment models like daily or weekly premiums, especially targeting informal sector workers who often lack access to traditional insurance.
Embracing Technology and Restructuring
To fully harness the potential of digital transformation, the report advocates for a massive restructuring of India's insurance sector through mergers and acquisitions. This activity would enable the industry to reap the benefits of "creative destruction," leveraging advancements in digital technology, various forms of artificial intelligence, machine learning, and deep learning models to improve efficiency, customer service, and product innovation.
The IIM-Kozhikode report serves as a crucial policy document, urging stakeholders to undertake decisive structural reforms. By addressing capital issues, fostering competition, and leveraging technology, India can bridge its insurance gap and move decisively towards the inclusive goal of Insurance for All by 2047.
