Ramesh Singh Summary: Insurance in India- 2 | Indian Economy for UPSC CSE PDF Download

Introduction

Insurance plays a pivotal role in mitigating financial risks and fostering economic stability. In the context of India, the insurance sector has undergone significant transformations, shaping the country's financial landscape. This brief introduction explores the evolution, regulatory frameworks, and the impact of insurance on the nation's economic resilience. Delving into historical perspectives and contemporary developments, the overview aims to shed light on the crucial role of insurance in India's financial architecture.

National Digital Health Mission

The Government launched the National Digital Health Mission in August 2020, aiming to provide accessible medical services to all citizens. The mission focuses on maintaining citizens' health records in a digital format, incorporating the following features:

• Unique Health ID assigned to citizens.
• Health Card issuance to citizens.
• Citizens can share their health data with a third party.

This voluntary healthcare program seeks to integrate doctors, hospitals, pharmacies, and insurance companies, establishing a digital health infrastructure. Citizens' health accounts will contain comprehensive details, revolutionizing healthcare and related sectors while aligning with the goal of universal healthcare as per the National Health Policy 2017.

Benefits and Impacts:

• Healthcare Sector: The mission streamlines healthcare services, allowing citizens to share their unique health identity number for quick access to their entire medical history. This accelerates service delivery, reduces errors, and supports tele-consultation and virtual consultation initiatives.
• Insurance Industry: Access to authentic medical history benefits the insurance industry by aiding in actuarial calculations and setting premiums. This transparency reduces the burden on both insurers and insured individuals, leading to fairer premium rates.
• Lifestyle Improvement: Knowing citizens' health data enables customized measures for lifestyle improvement, reducing the incidence of diseases and associated productivity losses. Insurers can provide wellness services to policyholders, aligning with efforts to promote a healthier lifestyle.

The mission is expected to enhance operational transparency in the insurance sector, positively impact lifestyle, and contribute to the broader objectives of public health.

Third-Party Insurance

• Third-party insurance is offered by insurance companies for vehicles. It covers risks other than those related to the car and its owner. In the event of an insurance claim, it deals with the legal responsibilities of the insured party for third-party losses, such as death, disability, or property damage.
• This type of insurance is commonly known as "act only" or "third-party cover." In India, it is compulsory for all vehicles to have third-party insurance, as mandated by the Motor Vehicles Amendment Act of 2019.
• Comprehensive insurance coverage is much costlier than third-party insurance since it covers damages to the insured's vehicle as well. Previously, the Insurance Regulatory and Development Authority of India (IRDAI) used to set the rates for this insurance segment based on vehicle categories. However, in recent years, the IRDAI has implemented measures to enhance this sector of non-life insurance.
• By early 2020, the IRDAI introduced a market-linked adjustment in the insurance premiums for third-party insurance. Additionally, they imposed a stricter regulatory framework to expedite the settlement process for third-party claims.

New Policy Steps

The Government's recent focus on increasing insurance penetration and ensuring broader social security has led to the implementation of various initiatives. Key policy steps taken in April 2022 include:

• PMSBY (Pradhan Mantri Suraksha Bima Yojana): This offers an annual accidental-death-cum-disability cover to all subscribing bank account holders aged 18 to 70. The premium is ₹12 per subscriber, providing risk coverage of ₹2 lakh for accidental death and permanent total disability, and ₹1 lakh for permanent partial disability for a one-year period between June 1 and May 31.

• PMJJBY (Pradhan Mantri Jeevan Jyoti Bima Yojana): This scheme provides a renewable one-year term life cover of ₹2 lakh to subscribing bank account holders in the age group of 18 to 50.
• NHPS (National Health Protection Scheme): Launched in September 2008 under Ayushman Bharat, NHPS aims to provide coverage for up to ₹5 lakh to over 50 crore vulnerable families. The scheme is anticipated to increase health insurance penetration from 34% to 30%.

• ANANDA: In November 2020, LIC of India introduced the ANANDA application (Atmanirbhar Agents New Business Digital App) to facilitate the onboarding process through agents/brokers for paperless life insurance policy issuance. Over 120 digital insurance platforms are actively operating in the country.

These initiatives underscore the government's commitment to expanding insurance coverage and fostering social security for citizens.

Covid-19 Cover

Amidst the COVID-19 pandemic, health insurance firms, particularly those focusing on health coverage, faced uncertainties due to the increasing number of coronavirus cases and potential claims. In response to this, the IRDAI, by early June 2020, urged the General Insurance Council to develop a reasonable and standardized cost structure for COVID-19 coverage. Subsequently, on June 5, 2020, based on feedback from the council, the authority introduced a standard COVID-19 health insurance product with the following key features:

• The policy duration is one year, available on an individual or family floater basis, with a minimum entry age of 18 years and a maximum of 65 years, allowing renewability. The sum insured ranges from ₹50,000 to ₹15 lakh.
• The base coverage is provided on an indemnity basis, while add-ons are available on a benefit basis.
• Coverage includes pre-hospitalization medical expenses (including diagnostics) for 30 days before hospitalization and post-hospitalization medical expenses for 60 days after discharge.

• The plan covers comprehensive care unit (CCU) expenses up to 5% of the sum insured, capped at ₹10,000 per day; room charges up to 2.5%, capped at ₹15,000; capped expenses for road ambulance up to ₹2,000 per hospitalization; and day care treatment with a maximum sum insured of ₹15 lakh.
• For add-on covers, if an individual is quarantined due to diagnosis or suspected infection, the company pays 1% of the sum insured per day, up to ₹3,000 per day. In the case of daily hospital cash, the company pays 0.5% of the sum insured per day for every 24 hours of hospitalization on a positive diagnosis of COVID-19.
• Expenses incurred on hospitalization under AYUSH (Ayushman Bharat) are covered without sub-limits.
• Compliance with portability and premium payment provisions on a monthly, quarterly, half-yearly, and yearly basis (premium to be pan-India with no geographical or zone-based pricing).
• These provisions apply to all existing health insurance policies covering hospitalization charges

To simplify insurance coverage during the pandemic, the IRDAI implemented regulatory measures:

• KYC processes were simplified, conducted in a paperless mode through Aadhaar.
• Short-term health insurance policies for COVID-19 were allowed until March 31, 2021, with guidelines including a policy term of a minimum of 3 months and a maximum of 11 months.

These regulatory measures aimed to address challenges posed by the pandemic and facilitate accessible and comprehensive insurance coverage.

Insurance Industry Today

The insurance industry in India is expected to play a crucial role in the country's economic landscape. Private players, both domestic and international, have made significant contributions to the sector. The key features of the insurance industry's current status are outlined below:

• The insurance sector is anticipated to have a considerable impact on India's economic growth and development.
• Private entities, both domestic and international, have actively participated in shaping the insurance landscape in India, contributing to its growth and dynamism.
• India is witnessing a notable increase in the insurance sector's share in the global financial market, with an expected growth rate of 20%.

• Comparing this growth rate to the global average (around 2%), it signifies India's robust performance in the insurance industry.
• Business associated with the insurance sector is linked to 130 countries, with a significant share in the global market, outperforming the global growth rate.
• India's premium collection growth rate in the insurance sector stands at 7%, surpassing the global average of 0.2%.
• On a global scale, the insurance business is ranked 130th among 195 countries, demonstrating its substantial presence in the international arena.
• Despite challenges faced by the global economy, India's insurance sector has maintained steady growth.
• The market share of private players in the insurance sector has grown from 2% in 2000 to 68% in 2020, showcasing their increasing influence.

These observations reflect the current state and significant developments in India's insurance industry, indicating its growing prominence on the global stage.

Way Forward

Despite several positive steps taken by the Government to strengthen and advance the insurance sector, there are still certain challenges that need attention for sustained growth:

• Enhancing insurance penetration and expanding coverage remain crucial goals, especially in reaching the rural and underserved populations.
• Addressing challenges related to capital requirements is essential for insurance companies, particularly private ones, to remain focused on providing affordable and accessible insurance solutions to the diverse population.
• Ensuring a robust regulatory framework is imperative to maintain the financial stability of insurance companies and build trust among policyholders.

• The government's initiatives, such as Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), and National Health Protection Scheme (NHPS), need continuous evaluation and refinement to achieve their intended objectives effectively.
• Encouraging digitization and leveraging technology, including the National Digital Health Mission, can significantly contribute to overcoming challenges in underwriting risks, enhancing efficiency, and streamlining insurance processes.
• India's insurance sector has demonstrated remarkable growth, ranking among the top global insurance markets. However, ongoing efforts are needed to address evolving challenges, ensure sustainability, and foster innovation in the industry.

The Swiss Reinstitute World Insurance highlights India as one of the fastest-growing insurance markets globally, projecting it to become one of the top six insurance markets worldwide by 2032.