Financial inclusion in India and micro-insurance, the new buzz word

‘Greater financial inclusion’ figures prominently on the economic development agenda set by the Indian government in recent times. The much-talked-about UID project which aims to provide unique identity numbers to all Indian citizens, and links the number up with a compulsory bank account is indeed a bold step towards realizing that goal. The recent buzz word, however, in discussions on financial inclusion seems to be micro-insurance. The Finance Minister, in his recent address at the Global Insurance Summit, stressed on the need for popularizing micro-insurance in semi-urban and rural areas of the country. The attention on micro-insurance seems to have come at a right time, when the success of several government sponsored welfare schemes for the rural poor in India like the National Rural Employment Guarantee Scheme (NREGS) depends quite a lot on the ability of the financial system to mitigate the risks arising out of unforeseeable natural calamities and other disasters. In this context, the increasing efforts of insurance companies in tapping semi-urban and rural markets are an encouraging sign. Insuring the vast rural population against losses from disasters is indeed a big challenge for the Indian insurance industry, when at the same time it is important to ensure that premiums remain affordable. IRDA, the Indian insurance regulator, has in a recent exposure draft on a standard insurance product suggested that the premiums will be decided by the regulator and insurers might not get any leeway in this regard. The regulator’s goal of promoting financial inclusion is laudable, but greater freedom to insurance companies to design products and price them might be more desirable. The regulator has also proposed that insurers will have to mandatorily offer the standard product. The draft also talks about placing restrictions on selling other products with higher premium and lower benefits. Overall, it could be surmised that the regulator is concerned about insurance agents pushing expensive endowment products to the poor, which is a very valid concern. It would be interesting to monitor developments in this area for the next few months, as IRDA is also considering a proposal to allow cross-selling of micro-insurance products which would essentially provide insurance companies access to the large network of public sector banks for selling their products. The banks would benefit too as it would enable them to enlarge their portfolio of products.

It’s A Small World After All

It was in 1964 that Walt Disney first told us in song that “it’s a small world, after all.” As we apply the concept to insurance in 2010, it is clear that Walt was well ahead of his time. The opportunities and challenges for today’s insurers around the globe seem to transcend time zone and cultural differences. I recently spent a week in Tokyo, in part for the Celent Insurance Roundtable. (No, I did not go to Tokyo Disney.) To be successful, a trip like this has to include some very fresh sushi, and a flurry of fresh perspectives. Thankfully, I found both. In our roundtable discussion and in my conversations with Japanese clients I was struck by how similar Japanese insurer concerns are compared to those of North American insurers. Common themes included finding the right levers to drive company-level growth despite flat industry-level demand, concerns over outdated IT approaches, and the challenges associated with optimizing short- and long-term strategies simultaneously. Comparing Tokyo consumers to their counterparts in North American cities of similar size is also interesting. Looking around a Tokyo Starbucks, I saw that same curious mix of eccentric 20-somethings and 40-something professionals that I see in New York. Most were on laptops or smart phones, enjoying high speed connectivity to stay in touch with friends or to crank out emails from their virtual offices. The Japanese may still have more affection for their keitai (cell phones) than do North Americans, but the gap is clearly closing. Another symptom of our rapidly shrinking planet (where is Al Gore when you need him?) is that global competition is no longer limited to the manufacturing sector. Looking at the names on Tokyo buildings tells the story. IT services firms are aggressively building out their presence in new geos. Insurers are buying companies halfway around the world. Software vendors that got their start in one country are now reaching critical mass in others. While I typically preach focus for any firm that haven’t mastered its “home” domain, I think that expanding the vision to new countries is essential for successful firms that have high growth ambitions. Good ideas, powerful tools, and game-changing strategies are welcome visitors to just about any country. As a futurist and as an entrepreneur, Walt Disney dreamed big dreams. We may not be commuting to work by personal jet pack (yet), but otherwise Walt had it about right. It’s a small world, indeed.

Green Initiatives in the Japanese Insurance Industry: On the Starting Line

Interest in green initiatives is on the rise worldwide, and Japan is no exception. Even though the Japanese insurance industry is just at the starting line of green initiatives, Celent research has found that the industry is seriously considering this area. One of the reasons why they show a sincere attitude to green initiatives might be that the insurance companies accept that they “waste” a lot of paper throughout the policy process. The target of a 25% reduction in greenhouse gas emissions touted by the administration of Yukio Hatoyama and the general swell of interest in environmental issues make it a safe bet that more and more insurance companies will actively take part in green initiatives. In addition to the conventional activities such as tree-planting projects, which have been common among companies looking to contribute to society, green IT is gathering momentum and attention. The insurance industry, which uses massive quantities of paper, is expected to increasingly shift to electronic files. In conjunction with this, companies will no doubt have to tackle the topics of introducing applications for document and content management to shore up their systems. Although the initial costs to establish such systems raise the specter of a jump in IT costs over the short term, the decreased use of paper will ultimately translate into reduced costs over the long term.