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The Insurance Vacuum

Indians are still under-insured even though it has been a decade since the sector has been opened up and insurers are not really helping

Over the last few weeks, we have seen a sharpening of what could be described as turf war between two financial regulators, the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory Authority of India (IRDA). SEBI has issued notices to a whole host of insurance companies claiming that some of their products are actually 'collective investment schemes' and that they should be regulated by SEBI. Predictably, the IRDA has come out strongly against SEBI's action.

This is but the latest chapter in the soap opera of insurance regulation that has been going on for some months now. The previous installment was the news, just a few days back, that the ‘lapse rate’ of some companies’ insurance policies has reached a horrendous 50 per cent. And this is just for non-unit-linked insurance policies (ULIPs)-amazingly, the lapse rate data for ULIPs doesn't exist because as per IRDA's norms, ULIPs don't lapse. They just go into something called 'premium-awaited' status.

However, I believe that this whole debate about lapse rates and costs and commission structures is actually helping obfuscate the only question that matters - how much insurance is being provided to Indians. For close to a decade, the opening up and the regulation of the Indian insurance industry has been driven by the fact that Indians are under-insured. In the absence of any social security mechanism, financial hardship generally strikes any family whose bread winner dies. We need a huge increase of insurance coverage to make sure that this hardship is reduced or alleviated.

Which begs the question, what has been the quantum of increase in the life cover available to Indians over the last decade, and how much are they paying for it? How many Indians' lives are covered, and at what cost? The central purpose of the insurance business is insurance. That is what was missing, and that is the gap that the opening of the insurance business was supposed to fill. And if any one is interested, then it's pretty easy to measure the insurance industry's achievement on this count.

Actually, it's pretty easy to measure achievement on the other service that insurers provide - investment. From stocks to bonds, to bank deposits, to mutual funds - every form of investment available to mankind is amenable to a straightforward calculation of the rate of return that the investor got. Calculating this rate of return is not rocket science - the only inputs needed are what the investor puts into the investment and what he gets out of it.

If anyone's interested, that's the way to measure the utility and performance of the insurance industry - by evaluating what customers are giving versus what they are getting. Currently, we seem to be getting by only the first part - the industry's chosen growth statistic is the amount of premium that is being collected from customers.