Private Sector Insurance

Industry and Its Role In

The New Millennium
Report Submitted to:
Prof. S.P.Das
Submitted By :
Preetipadma Sahoo
UM15158
Section-C
3/22/2016
 Contents
Executive Summary ...................................................................................................... 3

Introduction ................................................................................................................... 5

Market Size of Indian Insurance Industry......................................................... 6

Indian Life Insurance Industry ............................................................................... 8

Indian General Insurance Industry .......................................................................10

Micro Insurance ...........................................................................................................10

Insurance growth drivers in India .........................................................................13

Emerging trends ...........................................................................................................13

Life insurance: key challenges ................................................................................13

Non-life insurance: factors impacting growth ..................................................13

Major Investments in Indian Insurance Sector: ..............................................14

Government Initiatives in Indian Insurance Industry: ...................................15

Role of Insurance and the Private Sector in India: .......................................16

Conclusion .......................................................................................................................17

2
 Acknowledgement
I would like to extend our gratitude to all those who have helped me in completing the project and
preparing this report or have been associated with the project in any way which made it a worth-
while experience.

I would also like to thank my batch mates and seniors who shared their invaluable experiences and
helped us in every possible way to make this project a successful one.

Also, I would like to thank Prof. S.P.Das for having me the opportunity and his support for working
on this project and guiding it to successful completion.

3
Executive Summary

The Insurance business in Asian nation has undergone transformational changes over the
last twelve years. Liberalisation has helped to the entry of the most important insurance
firms within the world. The business has witnessed phases of rise in conjunction with spans
of growth moderation, thickening competition with each life and general insurance
segments having quite twenty competitor firms, and vital enlargement of the client base.

There have been ranges of product innovations and operational innovations necessitated by
accrued competition among the players. Changes within the regulative setting had path-
breaking impact on the event of the business. Whereas the life insurance business got
littered with the introduction of cap in charges, the overall insurance business got wedged
by value de-tariffication and Motor third party risk pooling arrangements. Whereas the
insurance business still struggles to manoeuvre out of the shadows concrete by the
challenges and uncertainties of the previous couple of years, the robust fundamentals of the
business augur well for a roadmap to be drawn for sustainable long term growth. However,
insurance firms would want to handle the key concern around losses that still be a retardant
on the capital and on the shareholders come back expectations.

Regulatory developments in the recent years show the focus on increasing flexibility in
competitive strategies such as niche focus, merger and acquisitions and on removing
structural anomalies in the products and operations. While these initiatives would enable
long term industry growth, the role of the regulator in providing an enabling environment to
achieve profitable growth in the near to medium term cannot be undermined.

In this report we are going to look into the various insurance industries in India and their
need followed by challenges faced by them.

4
Introduction

The insurance industry of India consists of 52 insurance companies. Out of that 24 are in life
insurance business and 28 are non-life insurers. Among the life insurers, Life Insurance
Corporation (LIC) is the sole public sector company.

Out of 28 non-life insurance companies, there are six public sector insurers, which include
two specialised insurers namely Agriculture Insurance Company Ltd for Crop Insurance and
Export Credit Guarantee Corporation of India for Credit Insurance. Moreover, there are 5
private sector insurers are registered to underwrite policies exclusively in Health, Personal
Accident and Travel insurance segments. They are
Star Health and Allied Insurance Company Ltd
Apollo Munich Health Insurance Company Ltd
Max Bupa Health Insurance Company Ltd
Religare Health Insurance Company Ltd
Cigna TTK Health Insurance Company Ltd.

In addition to 52 insurance companies, there is sole national re-insurer, namely, General

Insurance Corporation of India. Other stakeholders in Indian Insurance market include
approved insurance agents, licensed Corporate Agents, Brokers, Common Service Centres,
Web-Aggregators, Surveyors and Third Party Administrators servicing Health Insurance
claims.

Insurance Laws (Amendment) Act, 2015 provides for enhancement of the Foreign
Investment Cap in an Indian Insurance Company from 26% to an Explicitly Composite Limit
of 49% with the safeguard of Indian Ownership and Control.

Insurance penetration of India i.e. Premium collected by Indian insurers is 3.30% of GDP in
FY 2014-15. Per capita premium underwritten i.e. insurance density in India during FY 2014-
15 is US$ 55.0.

5
Performance highlights of Indian Insurance industry can be found out from Exhibit 1.1 and
1.2.

Exhibit-1.1
Life Insurance Business Performance: 2014-2015 2014-2015 2013-2014 2013-2014
Public Private Public Private
Sector Sector Sector Sector
Premium Underwritten (Rs in Crores) 239667.65 88433.49 236942.3 77340.9
New Policies Issued (in Lakhs) 201.71 57.37 345.12 63.6
Number of Offices 4877 6156 4839 6193
Benefits Paid (Rs in Crores) 144125 67054 158081 58380
Individual Death Claims (Number of Policies) 755901 121927 760334 125027
Individual Death Claims Amount Paid (Rs in
Crores) 9055.18 2733.49 8475.26 2385.33
Group Death Claims (Number of lives) 273794 192989 267296 158682
Group Death Claims Amount Paid (Rs in Crores) 2037.27 1483.55 1882.83 1222.25
Individual Death Claims (Figures in per cent of
policies) 98.19 89.4 98.14 88.31
Group Death Claims (Figures in per cent of lives
covered) 99.64 91.2 99.65 90.45
No. of Grievances reported during the year 80944 198048 85284 289336
Grievances resolved during the year 80944 193119 85828 288836
Grievance Resolved (in percent) 100 97.51 100.64 99.83

Exhibit-1.2
Non-Life Insurance Business Performance: 2014-15 2014-15 2013-14 2013-14
Public Private Public Private
Sector Sector Sector Sector
Premium Underwritten (Rs in Crores) 42549.48 35090.09 38599.71 32010.3
New Policies Issued (in Lakhs) 677.82 504.97 600.06 424.47
Number of Offices 8207 2200 7869 2003
Net Incurred Claims (Rs in Crores) 31567.75 19430.46 27817.96 17874.11
Number of Grievances reported during the
year 15860 44828 17658 45677
Grievances Resolved During the Year 16105 43318 18083 45653
Grievance Resolved (in percent) 101.54 96.63 102.4 99.95

Market Size of Indian Insurance Industry

India's life insurance sector is the biggest in the world with about 360 million policies which
are expected to increase at a Compound Annual Growth Rate (CAGR) of 12-15 per cent over
the next five years. The insurance industry plans to hike penetration levels to five per cent
by 2020.The countrys insurance market is expected to quadruple in size over the next 10
years from its current size of US$ 60 billion. During this period, the life insurance market is
slated to cross US$ 160 billion.

6
The general insurance business in India is currently at Rs 78,000 crore (US$ 11.7 billion)
premium per annum industry and is growing at a healthy rate of 17 per cent.

The Indian insurance market is a huge business opportunity waiting to be harnessed. India
currently accounts for less than 1.5 per cent of the worlds total insurance premiums and
about 2 per cent of the worlds life insurance premiums despite being the second most
populous nation. The country is the fifteenth largest insurance market in the world in terms
of premium volume, and has the potential to grow exponentially in the coming years.

Break-up of non life-insurance Market in India(FY16*)

2.9% 11.7%
4.3% Motor

39.4% Health
Fire
14.0% Marine
Engineering
Others

27.8%

Source:IRDA Annual Report

16
Growth In Non-Life insurance Premium(US$ Billlion)
14

12

10 7.7
7.2
6.8 Public
8 6.7
Private
5.8 5.1
6
4.4 4.6
4.2
4 3.8
3.6 5.7 6.3
3.3 4.7 5.1
2 3.8 4.2
2.7 2.7 2.9
1.9
0.8 1.2 *Source:IRD
0 A Annual
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16*

7
Indian Life Insurance Industry

Since the opening of the sector in 2001, Indian life insurance industry has gone through two
cycles -- the first one being characterised by a period of high growth (CAGR of approx. 31
percent in new business premium between 2001-10) and a flat period (CAGR of around 2
percent in new business premium between 2010-12). During this period, there has been
increase in penetration (from 2.3 percent in FY01 to 3.4 percent in FY12), increased
coverage of lives, substantive growth through multiple channels (agency, banc-assurance,
broking, direct, corporate agency amongst others) and increased competitiveness of the
market (from four private players in FY01 to 23 private players in FY12).The sluggish period
being experienced today by the Indian life insurance companies brings to fore the big
challenge of profitability. The industrys participants have been struggling to achieve
profitability in the face of high operating losses primarily on account of distribution and
operating models. Cumulative losses for private life insurers are in excess of INR 187 billion
till March 2012, majority of which have gone towards funding losses rather than for meeting
solvency requirements.

Innovating with New Models

In times where it is important to conserve capital and allocate capital to resources that will
deliver sustainable returns, no insurer can remain rigid in their distribution or operating
model. Changing lifestyles and buying preferences will constantly dictate the future models
of distribution. However, life insurers would also need to decide on the resources that need
to be deployed to build these future models. While the urban market today might be
comfortable buying online insurance products, they might not resist the warm smile of a
life insurance agent. There are also successful models in other financial and non-financial
services business that can be adapted to distribute life insurance products. It would be
useful to examine some of them from an ideating perspective.

Peer-to-peer (P2P) insurance or social insurance:

This draws its influence from P2P lending which is the practice of lending money to
unrelated individuals or peers without going through the traditional financial intermediary
such as a bank or other traditional financial institution. The lending takes place online on
peer-to-peer lending companies websites using various lending platforms and credit
checking tools. Many such platforms exist today in the United Kingdom and United States
with the first one in India being the Bangalore-based DhanaX. There are now P2P lenders
that are even using provision funds to safeguard lenders against borrower defaults.
Following the success of these P2P lenders, this idea is currently being extended to
insurance in Germany as insurance is essentially a social network to share risk. Users of the
service invite their friends to cover a small portion of any claims that are made and the rest
of the claims are paid by a conventional insurance policy. This service, as claimed by the

8
company, prevents insurance fraud and misconduct via means of social control and reduces
sales costs, discourages small claims and cuts administrative overhead.

Direct delivery model

This is inspired by the Amway success of multi level marketing. The direct-to-customer
approach means that the life insurance companies have to focus on four key levers

I. Customer segmentation and analytics for targeted approach to marketing

II. Multi-channel strategy that creates value for the direct customer
III. Product offerings need to be simple and easy to understand; most importantly easy
to explain
IV. After sales support that should be technology-driven in order to remain cost-
effective Customer data analytics based marketing strategy relies not on experience
or gut-feel but on an understanding of customer preferences and price sensitivity.

This enables insurers to interact with customers to maximise the retention

(improvement in persistency ratios) and also identify cross sell opportunities. These
interactions also provide a degree of comfort to the customers and builds confidence in
the insurer and their own purchase decisions. Further, the acquisition cost should be
kept variable as far as possible to make the model a success.

Mobile-based insurance model

Extending the business capabilities to mobile devices has quickly become a fundamental
requirement for companies. Customers increasingly expect it and business partners and
employees have become more comfortable with communicating and sharing information
anywhere, through any device. In a recent IBM Insurance Global CIO study10, it was found
that there is huge potential to leverage the mobile platform for investments. In the same
manner in which banks had taken to mobile banking applications a few years back and
offering a mobile proposition, insurers might have to do the same. Till date, insurers have
restricted themselves to creating applications for quote generation and simple affinity-
based product sales. However, with the growth in mobile applications and smart phone
usage, applications to assist in the sales process for agents/brokers are being developed.
Several insurance companies in India have pilot tested the use of smart phones for the initial
product information and filling of application forms to reduce policy issuance time. Further,
applications are being developed for agents to access their training modules and their
performance to date on the smart phones. As mobile users are already KYC11 compliant,
and with Aadhaar-enabled bank accounts, piggy-backing on the mobile wallet, mobile
banking platform to offer insurance solutions is a cost-effective method to tap a large
market.

9
Indian General Insurance Industry

The overall general insurance industry growth has kept pace with the GDP growth in the
country and general insurance penetration has varied in a narrow band. After liberalisation
of the Indian insurance industry in the year 1999-2000, the Indian general insurance
industry has witnessed rapid growth. The industry, in terms of gross direct premium, has
grown from INR 11,446 crore in FY02 to INR 57,964 crore in FY12, which corresponds to a
compounded annual growth rate (CAGR) of 17.6 percent. Insurance density, which is
defined as the ratio of premium underwritten in a given year to the total population, has
increased from USD 2.4 in 2001 to USD 10 in 2011. The growth in the general insurance
industry has kept pace with the nominal GDP growth rate resulting in general insurance
penetration remaining stable in the range of 0.55% to 0.75% over the last 10 years.

General insurance industry in India presents significant headroom for growth while the
Indian general insurance industry has evolved significantly over the past decade or so, the
insurance penetration and insurance density levels are significantly lower than the
developed as well as comparable developing countries. The under-penetration is driven by
lack of overall financial awareness, lack of understanding of general insurance products, low
perceived benefits, and propensity to purchase insurance based on reactive drivers such as
insistence by financers, statutory requirements, etc.

Micro Insurance

Micro insurance refers to insurance products which are designed to provide risk cover for
low-income people. Generally, these products are focused towards providing adequate
coverage to this customer segment with flexible payment schedules for the lower
premiums. Although there are various benchmarks to distinguish micro insurance from
insurance, product design (size of premium and risk cover) and access are key differentiators
for micro insurance products. Simple products which are easily accessible through an
efficient distribution process to keep the overall cost of products low are qualified under
micro insurance.

The last decade witnessed strong growth in the micro insurance sector worldwide with
emergence of three strong growth regions Asia, Latin America and Africa. The growth in
Asia, which accounts for roughly 80 percent of the global micro insurance market, is driven
by large and dense populations, interest from public and private insurers, penetration of
distribution channels and active government initiatives. While India and

China have been at the forefront, other Asian countries, such as Bangladesh, the Philippines
and Indonesia are also witnessing rapid growth in microinsurance.1 Latin America and
Africa, which account for 15 percent and 5 percent of the global microinsurance,
respectively, are other promising growth markets for the sector. The following table depicts
the growth of the micro insurance sector during the last decade.

10
The micro insurance business took its roots in India with a few schemes launched by non
government organizations (NGOs), micro finance institutions (MFIs), trade unions, hospitals
and cooperatives to create an insurance fund against a specific peril. These schemes were
outside the ambit of the regulations and operated more on good faith of these institutions.
The micro insurance landscape changed with the first set of regulations published in 2002
entitled the Obligations of Insurers to Rural Social Sectors. The regulations essentially
promulgated a quota system to force new private sector insurers to sell a percentage of
their insurance policies to de facto low-income clients. The Government of India formed a
consultative group on micro insurance in 2003 to look into the issues faced by the micro
insurance sector. The group highlighted the apathy of insurance companies towards micro
insurance business, non-viability of standalone micro insurance programmes and huge
potential of alternative channels amongst others. The Reserve Bank of India allowed
regional rural banks (RRBs), which have good distribution reach in rural areas, to sell
insurance as corporate agent, in 2004. In order to support the development and facilitate
the growth of the sector, the insurance regulator Insurance Regulatory Development
Authority (IRDA) came up with the micro insurance regulation in 2005. It was a pioneering
approach which put India among the few countries to draft and implement specific micro
insurance regulations. While the micro insurance regulations had a relatively narrow scope,
focussing only on the partner-agent model, it nonetheless relaxed some of the conditions to
facilitate distribution efficiency and perpetrated the view to extend micro insurance from a
social perspective to a commercial business opportunity.

11
Growth in different product segments may be driven by segment specific drivers while the
overall macro-economic and socio-demographic factors would enable growth across the
industry, each of the industry segments would have specific growth drivers with respect to
the increase in the underlying assets of risks, market penetration and potential increase in
the premium rate.s

Increase in third party premium rates and focus on CV OD business

Impact of the declined risk pool are expected to be the key drivers for this segment
Resumption of growth trend in automobiles sales

Motor Increased penetration in the renewal business

Emergence of large organized collaborators

Increased penetration in tier II and III cities

Substitution of out-of-pocket expenditure by health insurance spends
Increasing urbanization, demographic shifts and medical inflation
Health Expected to see innovative products being offered by insurers like wellness management,
managed healthcare etc

Higher penetration into the SME segment

Moderate increase in premium rates
The growth in gross capital formation, including in the infrastructure sector, would
Fire continue to drive growth in this segment in the long term.

Near term: Drivers for the marine segment would continue to be the growth in GDP
leading to increased international trade.
Medium term:Improvement in surface transport infrastructure of the country is also
expected to have a positive impact on this segment through increased opportunity for
long distance goods transport within the country.
Marine This segment might also be impacted by the implementation of GST across states which
could lead to shift in the strategy to locate manufacturing centres and warehouses.

Expected to grow in the near term on the back of increased penetration, especially in non-
metro markets
Growth in the gross capital formation of the country.

Other In the long term, increased market maturity would lead to the emergence of niche
customer segments leading to new product introductions to suit their requirements.

12
Insurance growth drivers in India

The demand for insurance products is likely to increase due to the exponential growth of
household savings, purchasing power, the middle class and the countrys working
population. Listed below, are the various underlying growth drivers for Indias insurance
industry:

Growing of the financial industry as a whole

Growth of life and non-life industry
Promoting innovation and removing inefficiency
Competition and orderly growth
Growth of specific insurance segments such as motor insurance

Emerging trends in India

Multi-distribution i.e. increasing penetration through new modes of distribution such

as the internet, direct and telemarketing and NGOs
Product innovation i.e. increased levels of customization through product innovation
Claims management i.e. timely and efficient management of claims to prevent
delays which can increase the claims cost
Profitable growth i.e. expanding product range, developing innovative products and
expanding distribution channels
Regulatory trends i.e. mandated regulatory changes by the IRDA to promote a
competitive environment in both the life and non-life insurance sectors

Life insurance in India: key challenges

In FY12, the life insurance industry witnessed a decline in the first year premium collected
which dropped from INR1, 258 billion in FY11 to INR1, 142 billion, a drop of approximately
10%. This was owing to the following challenges that the industry faced in

Products strategy and design

Cost
Taxation
Distribution
Prospects and challenges of various channels
Compensation
Customer service
Governance and regulatory issues

Non-life insurance: factors impacting growth

The non-life insurance industry has been growing in excess of 20% over the last two years
however the penetration was as low as 0.7% of the GDP in FY10. The key factors for growth
include:

Product pricing, innovation and simplicity

13
 Distribution
Compensation
Micro-insurance in non-life widening reach
Governance and regulatory changes
Health insurance
Innovative products to counter the competition
Improved fraud control mechanisms
Standardization to reduce claims loss
Reducing inefficiencies by revisiting third party administrator (TPA) agreements

Major Investments in Indian Insurance Sector

The following are some of the major investments and developments in the Indian insurance
sector.

Foreign Direct Investment in the insurance sector stood at US$ 341 million in March-
September, 2015, showing a growth of 152 per cent compared to the same period
last year.
Insurance firm AIA Group Ltd has decided to increase its stake in Tata AIA Life
Insurance Co Ltd, a joint venture owned by Tata Sons Ltd and AIA Group from 26 per
cent to 49 per cent.
Canada-based Sun Life Financial Inc plans to increase its stake from 26 per cent to 49
per cent in Birla Sun Life Insurance Co Ltd, a joint venture with Aditya Birla Nuvo Ltd,
through buying of shares worth Rs 1,664 crore (US$ 249 million).
Nippon Life Insurance, Japan's second largest life insurance company, has signed
definitive agreements to invest Rs 2,265 crore (US$ 348 million) in order to increase
its stake in Reliance Life Insurance from 26 per cent to 49 per cent.
The Central Government is planning to launch an all-in-one insurance scheme for
farmers called the Unified Package Insurance Scheme (Bhartiya Krishi Bima Yojana).
The proposed scheme will have various features like crop insurance, health cover,
personal accident insurance, live stock insurance, insurance cover for agriculture
implements like tractors and pump sets, student safety insurance and life insurance.
Government launched a special enrolment drive, Suraksha Bandhan Drive
comprising of sale of gift cheques and launch of deposit schemes in bank branches,
to facilitate enrolment under Pradhan Mantri Suraksha Bima Yojana (PMSBY) and
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY).
To increase the subscriber base and ensure wider reach, the Central Government has
eased several norms for its flagship insurance scheme Atal Pension Yojana (APY),in
terms of more options for periodical contributions, voluntary and premature exits
and simplified penalty for payment delays.
Bennett Coleman and Co. Ltd (BCCL), the media conglomerate with multiple
publications in several languages across India, is set to buy Religare Enterprises Ltds
entire 44 per cent stake in life insurance joint venture Aegon Religare Life Insurance
Co. Ltd. The foreign partner Aegon is set to increase its stake in the joint venture
from 26 per cent to 49 per cent, following governments reform measure allowing
the increase in stake holding by foreign companies in the insurance sector.

14
 GIC Re and 11 other non-life insurers have jointly formed the India Nuclear Insurance
Pool with a capacity of Rs 1,500 crore (US$ 226 million) and will provide the risk
transfer mechanism to the operators and suppliers under the CLND Act.
State Bank of India has announced that BNP Paribas Cardif is keen to increase its
stake in SBI Life Insurance from 26 per cent to 36 per cent. Once the foreign joint
venture partner increases its stake to 36 per cent, SBIs stake in SBI Life will get
diluted to 64 per cent.
Bangladesh has granted permission to the Life Insurance Corporation of India (LIC) to
run its business, making it the second foreign insurance company to operate in the
country.
Reliance Life Insurance Company (RLIC) today said it will add 20,000 agents across
India in this financial year as part of its expansion plans. It will increase their agency
force by 20 per cent which now stands at 100,000.

Government Initiatives in Indian Insurance Industry

The Government of India has taken a number of initiatives to boost the insurance industry.
Some of them are as follows:

The Insurance Regulatory and Development Authority (IRDA) of India has formed
two committees to explore and suggest ways to promote e-commerce in the sector
in order to increase insurance penetration and bring financial inclusion.
IRDA has formulated a draft regulation, IRDAI (Obligations of Insures to Rural and
Social Sectors) Regulations, 2015, in pursuance of the amendments brought about
under section 32 B of the Insurance Laws (Amendment) Act, 2015. These regulations
impose obligations on insurers towards providing insurance cover to the rural and
economically weaker sections of the population.
The Government of India has launched two insurance schemes as announced in
Union Budget 2015-16. The first is Pradhan Mantri Suraksha Bima Yojana (PMSBY),
which is a Personal Accident Insurance Scheme. The second is Pradhan Mantri
Jeevan Jyoti Bima Yojana (PMJJBY), which is the governments Life Insurance
Scheme. Both the schemes offer basic insurance at minimal rates and can be easily
availed of through various government agencies and private sector outlets.
The Uttar Pradesh government has launched a first of its kind banking and insurance
services helpline for farmers where individuals can lodge their complaints on a toll
free number.
The select committee of the Rajya Sabha gave its approval to increase stake of
foreign investors to 49 per cent equity investment in insurance companies.
Government of India has launched an insurance pool to the tune of Rs 1,500 crore
(US$ 226 million) which is mandatory under the Civil Liability for Nuclear Damage Act
(CLND) in a bid to offset financial burden of foreign nuclear suppliers.

15
Role of Insurance and the Private Sector in India

India is highly vulnerable to the effects of climate change due to its long coastline,
dependence on agriculture and reliance on the annual monsoon, and is in need of
comprehensive climate change adaptation planning. Climate change adaptation,
often regarded as the poor relative of climate mitigation, is now an accepted part of
climate policy. Developing a response to actual or expected impacts of climatic
change has so far largely involved public actors such as governments and
international agencies. However, there is an increasing focus on the potential role of
private sector organisations both as implementers of climate change adaptation
policies but also as funders of adaptation measures.
This engagement of the private sector has become a growing paradigm, particularly
in a time of constrained public finances. Despite the widespread enthusiasm for
private sector involvement, the terms on which the private sector could play a role in
managing climate risks remain unclear. Insurance is one example of a possible
adaptive response to climate change that has a long history of private sector
involvement; it therefore offers an insight into the potential role of private actors in
climate change adaptation in the future.
In India, as elsewhere, agriculture is a crucial sector that will be affected by climate
change; two-thirds of the Indian population is dependent on agriculture as their
main source of livelihood with 70 per cent of the farming community described as
small and marginal farmers. These farmers are particularly at risk from unexpected
changes in the climate and are likely to benefit from robust crop insurance regimes.
Crop insurance is an important tool for risk transfer in the current climate. Insurance
risk transfer has been used for centuries as a tool to manage the risk of uncertain
losses. In its most basic form, insurance is a mechanism by which risks, or part of a
risk, are transferred from the insured to the insurer in return for a premium
payment. This reduction in uncertainty is widely seen as an important mechanism
driving our economic systems: without insurance, many activities and processes
would be deemed too risky and would not be undertaken, and those affected by a
loss might struggle to recover.
Crop insurance in India has existed in some form since the 1970s. The National
Agricultural Insurance Scheme (NAIS) is currently the largest crop insurance scheme
in the world, insuring 25 million farmers. Crop insurance schemes are subsidised for
small and marginal farmers and are usually compulsory if the farmer takes out a loan
to buy seeds etc. The main public schemes running today are NAIS, modified NAIS,
and the Weather-Based Crop Insurance Scheme (WBCIS). Since 2003, private players
have also been able to develop and provide crop insurance in India and run pilots in
conjunction with NGOs and private companies. More recently, the Indian
government has also allowed private companies to become involved in delivering
some of the large public insurance schemes.
Crop insurance has clearly played an important role in supporting Indian farmers
through the losses incurred during drought years. But whether insurance is in fact an
adaptation measure remains an open question, not just in India. Having insurance
does not necessarily reduce the physical risk that a farmer facesit simply transfers
the risk of financial loss. A global survey of 123 insurance schemes in low and

16
 middle-income countries (the Climate wise Compendium) shows that the full
potential for using risk transfer for adaptation is far from exhausted.
Very few of those schemes show a direct link between risk transfer and risk
reduction and only one has explicitly taken into account the impact of climate
change on risk levels. For those schemes where a direct link between risk transfer
and risk reduction is recorded, the public sector plays a larger role than in those
schemes without risk reduction linkage, suggesting a degree of disconnect between
the private sector insurance business model and risk reduction.
Although private insurance companies are playing an increasing role within crop
insurance, their activities remain limited. These limitations must be taken into
account when considering the possible future role for private players in climate
change adaptation. In keeping with the survey results, private companies working
within government schemes in India found it difficult to incorporate risk reduction
measures in their policies. The manner in which risk reduction is incorporated into
risk transfer mechanisms is crucial for determining if, and how, climate change
adaptation can be achieved through public-private partnerships.
Moreover, issues of viability must be fully addressed if private companies are to be
significant players in this field. Despite enthusiasm in the National Action Plan on
Climate Change for private sector involvement in crop insurance, commercial
viability remains a major constraint for many private actors.
Lastly, mere involvement does not necessarily utilise all the skills and expertise that
the private sector has to offer. The current model of engagement between private
and public actors in India does not provide the private insurers the governance space
to harness the theoretical advantages of private sector involvement. For example,
there has been limited innovation and competition between actors. And although
the liability has been transferred to the private sector a key government objective
there is still limited evidence that this model of engagement has created better
products that reduce as well as transfer risk. The public-private relationship dynamic
as well as surrounding transnational and national governance frameworks will be key
to the success of future private sector involvement in climate change adaptation.

Conclusion

For India to reach its rightful place as a developed nation, it must financially empower its
entire population. A key element of this empowerment is a base risk cover that covers
elements of life, disability and health. This empowerment can only be achieved through the
collaborative efforts of the government, regulators and private enterprises, which must be
able to build commercially viable and scalable models for financial inclusion. The key issues
and challenges impending growth of micro insurance in India from the perspective of the
key stakeholders - the un-insured customer, the distribution intermediary and the insurance
company, can be addressed by way of structural regulatory and policy changes coupled with
extensive leverage of emerging technologies. Regulatory and structural changes should
encourage further capital deployment and enable operational flexibility resulting in
reduction in customer acquisition and policy management costs.

17