Using Regulation to promote Social Business: The case of IRDA

Livemint reports that India’s insurance companies (private and state-owned) are expanding rapidly in rural markets, and have topped the IRDA’s mandatory rural targets.

Insurance Regulatory and Development Authority (IRDA) is Government of India body set-up to regulate the insurance sector, which has gone through significant liberalization in the last decade. IRDA has continuously emphasized the importance of covering under-served markets, especially in rural areas and has established strict annual rural sales targets for companies. Turns out companies see this mandate as an opportunity:

An analysis of data from seven life insurers for 2007-08 (data from previous years was not made available by the companies) accounting for at least 80% of the market, reveals that all of them topped their individual targets laid down by Irda. The targets vary every year.

Significantly, insurance firms did even better in terms of their so-called social sector objectives. The “rural business“ of these firms includes policies sold to both rich and poor people in rural areas. “Social business” includes only the number of policies sold to poor and
economically backward people.

Clearly, access to insurance products would provide much needed economic stability to the rural poor. It can be argued that IRDA is a example of a unique model – using regulatory mechanisms to promote ‘social business’. The Telecom Regulatory Authority of India (TRAI) also has pursued a similar strategy, by mandating cellphone companies to focus on rural markets. Of course, we have covered the social impact of cellphones in this space before.

[Graphic Credit: Livemint]

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