New Delhi, Sept. 25: The Insurance and Regulatory Development Authority (IRDA) has finally buckled to pressure from insurance companies and agreed to adopt the broader definition of the rural sector set by the census.
The decision removes a major straitjacket that was placed on insurance companies by a narrow definition of the rural sector by the insurance regulator which had set rigid targets for risk coverage.
“I am happy to announce that the insurance advisory committee along with members of the authority have considered it necessary to revise the definition of rural sector. There will be no clash between the definitions contained in the census and the IRDA regulations,” said IRDA chairman N. Rangachary while addressing the seventh international conference on insurance organised by Ficci in the capital today.
Rangachary also said, “We are also introducing a new definition for the term informal sector, though we had indicated this as social and informal sector in our existing definition.”
The new ruling is significant as this means small towns in semi-urban India will also form part of the defined rural area from where private insurers have to compulsorily sell 5-10 per cent of their policies.
The census has defined urban population as ‘at least 75 per cent of male workers engaged in non-agricultural pursuits’. IRDA had originally defined rural areas as a place where at least 75 per cent of the male population was engaged in farming or allied activities even though traditionally LIC on the basis of the Census definition, has been defining rural areas as those where more than 25 per cent of the people are engaged in farming.
Life Insurance Corporation in the early days collected approximately 30 -40 per cent of its total premium from the rural market. With the coming in of IRDA and its revised definition of the rural market, LIC’s rural business dropped to nearly 18 per cent, which was still comfortably above the required 10 per cent stipulation.
However, new private sector insurers found the cost of penetration in rural are as very high and had consequently been lobbying for a change in the rules.
Asked whether the revised definition of rural sector by IRDA would help insurers scale up their premium from rural India, LIC chairman Sunil Behari Mathur said, “We are not sure of this; we will have to look into the accounts.”
Speaking on the issue of raising the foreign direct investment cap from the existing 26 per cent to proposed 49 per cent, Rangachary said, “26 per cent is not such a disabling factor which should stop people from coming to India . Nonetheless, the implementation on such decision has to come from the government, IRDA has nothing to do with it.”
Touching on the issue of the necessity to broadbase intermediaries and brokers to be introduced in the Indian market, Rangachary said, “Consequent of the Insurance Amendment Act 2002 having been passed in parliament and assented to by the President. I am told that this Act will be implemented by either September 23 or 24. A notification on these lines will be issued by the government shortly. We have now a legal base for making regulations.”