Position Paper on the IRDA "Concept Paper on Need for Developing Micro-Insurance in India"

This paper discusses the regulation of micro-insurance in India. It lists three reasons for the regulation of insurance:

• To keep insurers solvent;
• To establish the rules of this business and the technical standards ensuring compliance;
• To protect the clients from the arbitrary behavior of the insurer.

The paper discusses:

• Micro-insurance units;
• Four distinct types of incorporation:
  • The "partner-agent" model;
  • The "friendly society" model;
  • The "mutual/cooperative" model;
  • Provider-driven micro-insurers.
• The market environment for micro-insurers;
• Issues for regulation;
• Specific issues in the draft IRDA that call for comments;
• Healthcare providers.

The paper concludes that:

• Regulation of micro-insurance needs to reconcile the needs of embryonic "insurers" with the tried-and-tested experience of regulating insurance activity;
• Clients must be protected against the risk of the insurer's inability to meet its obligations;
• Micro-insurers operate several models of incorporation;
• It is necessary to create different regulations for the four forms of micro-insurance activity;
• The most appropriate method to determine capital requirements should be risk-based;
• The regulator should retain its reputation as a neutral agent;
• Reinsurance should be considered in providing insurers with technical and financial support.