Policy & Regulatory Environment for Mutuals

- The Indian Scenario

Arman OzaVimoSEWA, India

General Policy Environment for Financial Services

Banks MutualFunds

Insurers

General Policy Environment for Financial Services

Manufacturer• High capital requirement• Tough entry and exit norms• Hands-on regulation

Distributors• Low or no capital requirement• Easy entry and exit• Hands-off regulation.

Manufacturers Distributors

REGULAT

ED

UNREGU

LATED

Regulatory Approach Towards Mutuals / Cooperatives – As Risk

Carriers

LEGAL SITUATION CURRENT STATUS / CHALLENGES

A cooperative can become a licensed insurer

No cooperative insurer as on date

No upfront relaxations on capital requirement, etc.

Raising initial and follow-on capital is difficult for cooperatives.

Regulator empowered to exempt a cooperative from any or all provisions.

No exemptions granted so far.

There is no concept of a ‘micro-insurer’.

Becoming a small / localised insurer is not possible.

No separate legislation for mutuals (like savings cooperatives)

Can’ carry risk unless you are a licensed insurer.

Regulatory Approach Towards Mutuals / Cooperatives – As

Distributors

LEGAL SITUATION CURRENT STATUS / CHALLENGES

A cooperative can become a corporate agent or broker

No cooperative broker as on date

Cooperatives, NGOs, Trusts, etc. can also become Microinsurance Agents.

Can deal with only one life and one non-life insurer.

An agent / broker cannot appoint a sub-intermediary.

Cannot expand beyond its captive catchment.

The commission structure is flat and not progressive

Cannot expand beyond a geography.

No incentive for insurers to file Microinsurance Products

Very few Microinsurance Products filed so far.

So We Need to Decide

Can the mainstream

insurers

• Achieve the desired penetration?• Discover the right business model for this

market segment?• Develop & control the huge agency force

required to achieve numbers?

Can we think of

• Mutuals / Copperatives filling in the space?• A micro-insurer concept?• A multi-layer intermediary structure?• A progressive compensation structure for

intermediaries?

What Has VimoSEWA Done?

Objective•To promote the mutuality factor within the current regulatory framework

Actions•Multi-state Cooperative•Microinsurance Agent•All policyholders as shareholders.

Implication•Geographic expansion.•Work with cost constraints.•Limited choice of products.•Organic growth.

Summing-Up

• Regulation does play a critical role in a developing insurance market.

• Risks associated with enabling regulation have to be addressed.

• Mutual model offers a good opportunity to balance conflicting interests of insurers and policyholders.

• Growth will require adherence to core insurance principles and management capabilities.

THANK YOU