Accident insurance cover for masses: A tough road ahead

Ayikudi, a town panchayat in Tirunelveli district in Tamil Nadu, has a few bank branches, apart from a handful of state-owned insurance company offices.

At a time when people in this region have begun to understand the nuances of pure-term insurance and bank accounts, accident insurance is a new product they are getting familiar with.

The Pradhan Mantri Jan Dhan Yojana, announced by Prime Minister Narendra Modi as part of the larger financial inclusion agenda, will provide accident insurance of Rs 100,000 to all people who open bank accounts under this scheme.

While this would provide financial aid to families in case of any unforeseen eventualities, insurance company officials are wondering if it is as easy as it looks.

“Accident insurance is predominantly an urban phenomenon.

"People in the rural areas are still comfortable with only life insurance policies.

"The new inclusion scheme requires additional manpower to reach out to the villagers to provide this facility,” said an executive in an Ayikudi-based general insurance company branch.

Under the Jan Dhan Yojana, Modi had said individuals who open a bank account will get a debit card and an accident insurance cover of Rs 1-lakh. However, it was not clear whether this insurance would be valid only for a year and, if extended, who would bear the cost.

“At present, several insurers offer accident insurance when individuals open a bank account after the payment of a nominal amount.

"But this is valid for one year, after which they have an option of renewing it at their own cost.

"If the insurance under Jan Dhan Yojana is valid for more than a year, some costs will have to be passed-on to customers,” said the underwriting head of a large public general insurer.

The Cabinet has already cleared the two-phase financial inclusion scheme under which bank accounts will be opened for 150 million poor persons with an overdraft facility of Rs 5,000 and accident insurance of Rs 100,000.

Each of the 75 million identified families

would have two bank accounts.

Insurance executives are of the view that while this scheme will help boost insurance penetration in the non-life segment, additional costs will be incurred if a physical presence is to be established in smaller towns.

At present, non-life insurance penetration (premium as percentage of gross domestic product) stands at 0.8 per cent compared to the world average of 2.8 per cent, according to the recent study by global re-insurer Swiss Re.

The general manager (Western region) in a state-owned general insurer said that even if the insurance cover is in-built, some servicing will have to be offered locally.

“Be it claims settlement or policy documentation, having a presence locally is vital.

"While state-owned insurers have several micro-offices across as directed by the previous government, there are still several villages where we have no presence.

Setting up offices there would be a huge cost,” he added.

It is understood that while bank accounts would be opened in the first stage, insurance will come in the second phase.

Although public general insurers will provide accident insurance in the initial phases, insurance executives said it would be opened up to private general insurers after a certain period.

The previous Congress-led regime, too, had put the onus on public sector insurers to increase penetration.

Former finance minister P Chidambaram had proposed that all towns with a population of 10,000 or more have an office of Life Insurance Corporation of India and at least one public-sector general insurance company by March 2014.

After this announcement, all public insurers put together had opened more than 3,000 offices in FY14 in smaller towns to meet the insurance needs of the local populations.

These offices are smaller establishments with one or two people.

Banking correspondents, according to the managing director of a public general insurer, would provide the vital link between insured and insurer in un-insured areas.

However, he said that with low rates of remuneration, it is a difficult business environment for these distributors to operate in.