Page 90 - India Insurance Report 2023- BIMTECH

78 India Insurance Report - Series II

6. Shock-Responsive Social Protection

Governments are well positioned to support the introduction of insurance products in public-private
partnerships for providing shock-responsive social protection schemes and ensuring that coverage is
provided to large population segments.

However, this coverage is capped for a small share of catastrophic risks. Suppose the government
considers offering a “social protection floor” where all citizens are insured up to a certain amount,
regardless of their socioeconomic status. The public-private partnership arrangement of risk sharing will
constitute the next layer, where the government contributes a part of the premium, and the individual
contributes the rest. In the third layer, the individual will contribute to the entire premium.

Such an arrangement can protect the most impoverished people who cannot afford insurance by
providing minimum coverage, and the low-income population slightly higher coverage. But this is a
bare minimum arrangement, and the purchase of any additional coverage will depend solely on each
individual’s spending capacity.

The predictability of upfront payment of insurance premiums - coupled with proportionate
contributions from local governments, businesses and households that reflect their actual risk exposure
- can help offer cost-effective and sustainable insurance coverage. Transparency in risk pricing likewise
contributes to improving the risk landscape by spending more on loss mitigation and structuring a
portfolio of diversified risks across geography, portfolio, and time.

7. Crafting the Enabling Environment

Insurance plays two important roles in society. First, it provides risk protection. Second, it inculcates
developing behaviours that reduce risk. The insurance ecosystem is, to a large extent, dependent on
governments as they develop policies and regulations that control the insurance market.

In recent times, the government’s role in the insurance market has grown significantly due to the
increasing number and types of risks confronting the world.

Most governments worldwide are on a path to liberalize their finance and insurance sectors - pushing
for inclusivity and availability of insurance and to reduce the protection gap - by mobilizing contractual
savings, complementing social security programs, facilitating trade and commerce, and protecting assets,
lives and income.

Governments need to create an enabling environment for private insurance players to participate to
achieve this. They will need to ensure that their domestic insurance market meets international regulatory
standards and practices to attract global insurance providers to their markets.

Insurance regulators play a crucial role here, ensuring that the processes and structures that are put in
place protect policyholders and foster competition among private insurance companies while maintaining
the integrity and stability of the financial system. This is an ideal scenario, but situations on the ground
point in another direction. Governments usually hesitate to fully open the market to international insurance
operators, as they fear this can lead to foreign companies taking control of the domestic market.