Rahul Gandhi Bats For Insurance Affordability: Are Regulatory Changes Making Insurance Unaffordable For Poor?

A debate has erupted over whether new insurance regulations, announced recently by the Insurance Regulatory and Development Authority of India (Irdai), are making policies more expensive and out of reach for the poor.

This dissension started with Congress leader Rahul Gandhi raising concerns about recent changes introduced by Irdai. He argued that these new rules could make insurance less affordable for marginalised communities and weaken the position of LIC agents - who are the bridge between insurance companies and policyholders. Soon after, the LIC chief issued a statement refuting these claims.

What Led To The Dispute?

The Leader of Opposition in Lok Sabha, Rahul Gandhi recently met with LIC insurance agents at the Parliament House complex. Post this meeting, Gandhi stated that he heard firsthand how recent regulatory changes were affecting the insurance industry. In a post on his WhatsApp channel, he said that LIC was originally founded in 1956 with the goal of providing affordable insurance to every Indian, particularly those who have no social security.

“I met a delegation of LIC agents from around the country at Parliament House. They spoke candidly about their concerns regarding recent changes in rules by Irdai and LIC, which make insurance less affordable for the poorest and most marginalised communities and weaken the position of agents,” Gandhi stated.

The Congress leader further pledged to bring up this issue in Parliament to ensure that the inclusive vision of LIC is not compromised.

What changes are we talking about here?

Last year, the insurance regulator announced some key changes related to Surrender Value Norms. The new rules mean that policyholders who want to exit their policies prematurely after paying only the first-year premiums receive a small payout, contrary to the previous rules where letting go of the policy early on meant forfeiting the entire premium.

However, these changes also impact the overall margins of insurers and mean commission adjustments that affect agents. The new norms are not specific to LIC but affect the whole of life insurance industry in India and policyholders as well.

What Did LIC Head Say?

In response to the concerns raised by Gandhi, LIC issued a statement defending its stance.

The life insurer stated that all of its products align with the new product regulations set by Irdai, which came into effect on October 1,2024. The management also reassured policyholders that their interests remain the top priority and that the company continues to focus on extending financial protection to every insurable individual at an affordable cost.

Siddhartha Mohanty, CEO and MD of LIC further clarified that these changes have not reduced agents’ commissions but have merely staggered them over time. He said that the LIC is working to increase insurance coverage in rural areas, particularly for economically backward sections.

Mohanty highlighted LIC’s commitment to accessibility and gave an example of the corporation’s ‘Micro Bachat’ plan. This scheme offers a minimum sum assured of Rs 1 lakh and is exempt from GST to ensure affordability for lower-income individuals.

Is insurance going to become unaffordable for the poor?

The issue here is whether the new regulatory changes will make insurance more expensive and difficult to access for the poorest segments of society.

On one hand, LIC hai maintained that it remains committed to inclusivity with its product changes. Gandhi, however, has pointed out that certain adjustments in product structures and commission payments might create hurdles for both policyholders and agents.

The issue noted by the opposition leader is that LIC agents serve as the first source of information and assistance for policyholders at the time of purchasing policies. By this logic, any disruption to their earnings could also impact how insurance reaches the masses.

The insurance penetration in India declined to 3.7 per cent in the financial year 2024, marking the second consecutive year of decline.

The discussion over these regulatory changes comes at a time when financial security is becoming increasingly critical for lower-income groups. With rising costs of living and limited access to alternative social security options, affordable insurance remains a key safety net.

At the bottom of this debate, the discussion is whether recent regulatory changes are making it harder for these groups to access coverage, as Gandhi suggests.

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