In March 2006, the Government of India established the National Export Insurance Account (NEIA) to promote medium- and long-term export by providing credit insurance support in cases where the ECGC was unable to provide credit cover due to purely commercial reasons:
- The corpus given to the account was Rs.66 crore, raised to Rs.246 crore by 2007-08, and was enhanced to Rs.2,000 crore in the Eleventh Plan (2007-12).
- Resources of the NEIA will be the corpus, the premium income, interest income, and recovery of all the claims paid.
- As per the provision, an exposure equal to ten times corpus can be taken by the NEIA. The NEIA can cover projects which fulfill the following criteria:
- The project by itself should be commercially viable;
- The project should be strategically important for India, with regard to the economic and political relationship of India with the importing country; and
- The exporter should be capable of executing the contract, as evident from his previous track record.
Beneficiaries must be informed about the NEIA’s application and advantages. Currently, numerous export projects pertaining to Indonesia, Vietnam, Iran, and Sudan, among others, are in progress. As expected, the NEIA will facilitate potential project exporters’ entry into the international trade area. In the age of globalization, it has been hailed as a positive development by both experts and businesspeople.
The Challenge Ahead
Since the opening of the insurance sector in 2000, the number of insurers operating in the life, non-life, and reinsurance segments has increased from seven (including the Life Insurance Corporation of India [LIG], four public-sector general insurers, one specialized insurer, and the General Insurance Corporation as the national re-insurer) to 52 (as of 30 September 2012) in the insurance industry (including specialized insurers, namely the Export Credit Guarantee Corporation and Agricultural Insurance Company [AIC]).
Four general insurance companies, namely Star Health and Alliance Insurance Company, Apollo Munich Health Insurance Company, Max BUPA Health Insurance Company, and Religare Health Insurance Company, operate independently as health insurance providers. Twenty-one of the twenty-three insurance companies that have established operations in the life segment since the sector’s liberalization is joint ventures with foreign partners. Eighteen of the twenty-one private insurers that have begun operations in the non-life segment are working with foreign partners.
IRDA has played a crucial role in the development and expansion of the insurance industry
Without a doubt, the Insurance Regulatory and Development Authority (IRDA) has played a crucial role in the development and expansion of the insurance industry since the end of the state monopoly and the introduction of private players. However, the industry still faces a number of obstacles that, if effectively addressed, would allow one to assert that insurance serves the interests of both insurers and policyholders. According to the aforementioned experts, the Indian insurance industry is currently facing the following significant obstacles.
According to various estimates, only 20% of the insurable Indian population is life-insured; India’s share of the global life insurance market is only 0.6%; and life insurance penetration is 2.5% (2004) in the country. The message of life insurance must be disseminated throughout the population, particularly in rural areas. Moreover, social security programs should be expanded to include the poor masses who lack the ability to pay premiums.
Experts believe that health insurance could become one of the most important factors in enhancing human development in the country if it is expanded in a targeted manner and through the implementation of an action plan. An estimated 15% of the Indian population is covered by some form of prepayment for healthcare, including employees and beneficiaries covered by ESIS, CGHS, Armed forces, Central Police organizations, Railways, employer self-funded schemes, the PSUs, and pensions covered by health insurance.
India’s out-of-pocket expenses are as high as 70%
As India’s out-of-pocket expenses are as high as 70%, it is believed that the country’s health insurance industry requires a strong presence. According to the National Sample Survey Organization (2015), coverage of government-funded health insurance schemes is 13.1% in rural areas and 12.0% in urban areas (Economic Survey 2015-16).
After the general insurance industry was opened to the private sector in 2000, positive results have been observed. Its growth is comparable to that of many other emerging markets and is consistent with the global benchmark of two to three times the growth in GDP. As the economy is on a strong growth trajectory and the planned capital expenditure across industries is estimated to exceed Rs. 9,00,000 crore over the next four to five years, there is likely to be a greater opportunity for the expansion of general insurance.
Positive trends are reflected in the growth of both commercial and personal lines of the general insurance business. Along with organized financial services, general insurance companies are expanding into India’s rural areas, which are home to over 70 percent of the country’s population.
This is especially true of India’s poor masses. Experts suggested the provision of microinsurance for this reason. Microinsurance, a relatively new concept, is now offered to microfinance recipients to cover the loan amount, reducing the risk for both the clients and the microfinance institutions (MFIs). To promote microfinance, the private insurance company Aviva Life Insurance (in partnership with MFIs) has developed the concept of microinsurance and formed alliances with banks such as Canara Bank, P&SB, RRBs, and 23 cooperatives, etc.
Micro insurance has grown in countries such as Sri Lanka and the Philippines over the past decade, as a result of two decades of research in microfinance. Here, non-governmental organizations and people’s organizations are permitted to register as microinsurance providers. As they cover the risk themselves, they are permitted to reinsure with one of the world’s largest insurers, such as Swiss Re or Munich Re. The same model is proposed for India, but drastic changes to the current insurance regulations are necessary for this to occur.
Numerous experts believe that the insurance industry should benefit insurers, reinsurers, and insured parties. It is never commendable for the social purpose of the insurance sector to be marginalised by corporate interests (domestic or foreign), at least not in India, which requires a robust social safety net.
Almost every private insurance company in India has demanded that the government-owned insurance companies (LIC and the four general insurance companies) be converted into private sector companies. In comparison to government-owned insurance companies, private insurance companies are always prepared with highly attractive and lucrative insurance plans, but they have not been able to attract customers. As a result, private insurance companies have been incurring enormous operational losses due to a lack of expansion and excessive overhead expenses.