IRDA mandates rural play for insurance cos

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Insurance regulator IRDAI has taken a big decision to meet the needs of people in rural areas.  IRDA has issued a circular asking insurance companies to provide insurance cover in selected gram panchayats. About two-thirds of the population in India lives in villages. There are a total of 2.55 lakh gram panchayats in the country. IRDAI has suggested a formula regarding which insurance company will cover how many gram panchayats.

Under this formula, the Insurance Council will hold a meeting with the Ministry of Panchayat Raj. After this, each insurance company will be given a target to cover minimum gram panchayat. The market share of the insurance company can be used as the basis for this target. Once the number of Gram Panchayats is decided, insurance companies will be able to choose the state of their choice to fulfill their rural and social responsibilities.

Under the scheme, insurance companies will have to maintain complete details of how many people, vehicles and houses and shops are covered in the selected gram panchayats. A mechanism will have to be created to exchange information related to insurance cover. The regulator has said that to meet the target of insurance at the Panchayat level, insurance companies will have to work together with the village sarpanch and the secretary. These rules related to insurance will be applicable in the current financial year only.

Under IRDAI’s planning, life insurance companies will have to cover at least 30 percent of the people in every gram panchayat. This target will have to be achieved in at least 25,000 gram panchayats in the first year. With this, about 40 percent people and 50,000 gram panchayats will have to be brought under the ambit of insurance in the next year. In the third year, 50 percent people and 75,000 gram panchayats will have to be covered. General insurance companies will have to cover 25,000 gram panchayats in the first year. Insurance cover will have to be provided to 30 percent of houses, shops and vehicles in every panchayat.

In fact, IRDA has set a target to provide all types of insurance to every household in the country by the year 2047. However, in the year 2022-23, insurance penetration i.e. the reach of insurance has come down to 4% as compared to 4.2 percent last year. Insurance penetration means the contribution of total insurance premiums to the country’s GDP. Concerned about this figure, IRDA is taking immediate decisions to increase the reach of insurance in the country.

Personal finance expert Jitendra Solanki says that people are buying insurance in cities but the demand for it is very less in villages. Both IRDAI and the government are together moving towards the goal of providing insurance to every household by the year 2047. To achieve this goal, IRDA has implemented new rules for insurance companies.

Some experts feel that it is not easy to achieve the goal of insurance in rural areas.

Rajesh Bansal, MD, Midas Finserve, says that IRDA’s initiative to increase the reach of insurance in the country is good but implementing the new rules is a big challenge. The main objective of purchasing an insurance cover is to provide financial security in times of crisis. Although incidents of fraud over claims after paying insurance premium in villages are not hidden from anyone. In this situation, it is highly doubtful whether insurance companies will be able to survive in villages.

Rural folk need insurance but will buy it only if they get it at a cheaper premium. In such a situation, to increase the reach of insurance in the country, IRDAI will have to promote cheap products according to the needs of the villagers. Also, people will have to be made aware about insurance. Without this it is difficult to achieve the goal of insurance.