Microinsurance in India: Outreach and Performance

Poor people are the most vulnerable to shocks arising from sickness, accidents, death or loss of assets due to natural calamities and riots, etc. With barely any risk-management tools such as savings or insurance; they are compelled to borrow from informal markets at very high rates of interest, getting trapped in the vicious cycle of poverty. It is surprising that despite such compelling needs of risk management, the poor do not seek insurance coverage. In India, 90% of the population does not have any kind of social security, and insurance still remains a 'to be sold' rather than a 'to be bought' product. With the liberalization of the Indian economy in the 1990s, and the government's stance of inclusive growth, the Insurance Regulatory and Development Authority Act was passed in 1999, and the insurance sector was opened for the private sector. Subsequently, microinsurance regulations were introduced in 2005. With these government initiatives to provide risk coverage to the poor, there has been a significant increase in insurance penetration and density in India. These regulatory measures have not only brought positive changes in the provision of social security to the poor, but have also brought a paradigm shift in the attitude of insurance providers. Earlier, the insurance providers had to provide microinsurance products to meet mandatory social sector obligations imposed by the regulator; now, it is seen as a profitable opportunity. This paper presents a review of various studies on different aspects of microinsurance - demand, supply, constraints and issues concerning product design, pricing and the Government's policy on microinsurance.