Page 91 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 79

Consequently, they might fail to contribute adequately to economic development - by targeting the
creamy layer for business growth, distorting competition by limiting consumer choice, causing flight of
capital, and reducing domestic risk retention capacity. In many markets, it becomes a sensitive political issue,
and legislatures can question governments on their decision to allow foreign players to compete in domestic
markets. Regulators have to factor in these points and tread a fine line to establish a level playing field.

Data is a critical element when underwriting insurance. Most governments claim to have mortality
and meteorological data dating back to 50, 70, and at times, even 100 years. However, this data is not
granular enough to be used by insurance and reinsurance companies for modelling and pricing purposes.
This inadequacy leads to risk gaps where insurance companies are forced to add a risk loading while
determining the premium – making the insurance offering expensive. Governments must encourage the
growth of accredited risk information providers to offset these uncertainties.

In addition to all of the above, governments need to focus on building an ecosystem comprising
adequate accredited agencies and institutions to identify and certify losses. In a string of earthquakes that
rattled New Zealand between 2010 and 2011, insurers were caught off guard in managing over 400,000
claims and paying for losses. A large number of loss adjusters from Australia were eventually flown in to
assess the losses. Even today, adjusters are flown in from India and other foreign countries to assess large-
scale losses in countries such as Nepal, Bhutan, and Sri Lanka.

However, these insufficiencies have resulted in the development of innovative parametric products
where the insured is compensated based on the value of an objectively measured proxy for losses - a pre-
determined index such as precipitation level for losses resulting from weather or intensity of earthquake
for catastrophic events. These products help ascertain the magnitude of loss by triggering a claims payout
when a certain threshold is breached. Since an assessment of individual claims is not required, claims
settlement is faster and less expensive. But again, this needs data, and data is a big handicap.
“Proportionality” can be a guiding light in developing an inclusive insurance market. While developing
policies and regulations, regulators base their decisions on prescribing capital requirements by linking
insurance companies’ solvency or risk appetite so that they can fulfil their promises to policyholders and
are in a position to pay claims at all times.

The proportionality concept helps calibrate the capital requirement with the risk characteristics of
the insurance product. It means that you need similar regulatory treatment for the same risk, irrespective
of whether it is designed for a rich or a poor person. Premiums need to be risk-based and actuarially
priced. Lighter touch regulation can only be allowed if corresponding risks are low.

With the advent of insurtech and fintech, it has become easier and faster to buy certain types of insurance
and to pay for it. It is vital to tailor-make products to suit particular distribution channels. Regulators must
strongly consider this when specifying product development and distribution channel guidelines.

8. Inclusive solutions

Private insurance companies often overlook marginalized sections of society. Regulators must do
more to ensure that this huge segment - especially the emerging market consumers - is made aware of and