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Insurance, a must to sustain growth

A sustainable gross domestic product growth of over 7-8%, as targeted by Indian policy-makers, cannot be achieved unless the country has a strong social security system.

Pension, health or home insurance, which have direct impact on the common man’s living and economic status, therefore, need to be safeguarded to achieve economic and political stability.

The process to safeguard some of these basic elements generates a virtuous circle, making it a win-win proposition for both the state and citizens. While citizens would get compensation in times of calamities, the state would not have to bear the financial strain in providing support to the affected people.

But, why make home or health insurance mandatory? Shouldn’t the benefits make people automatically buy such cover? A fiat from the government, making both the covers mandatory will serve two purposes.

First, it will create awareness among citizens. Second, it will make insurers do certain business for social purposes. Though the element of profit will be there, it should not be the sole purpose.

State intervention to achieve some social objective is not uncommon in a developing economy. In fact, state intervention can act as a pro-active step to prevent defaults on the part of citizens as well as insurers. The idea is to avoid window-dressing by insurers to fulfill regulatory compliance without really benefiting the citizen. With an adequate system of pricing and delivery, we can have a mechanism that works successfully to the advantage of the common man.

Though India has suffered from many natural calamities generating phenomenal economic losses, nothing much has been done to take care of post-crisis management. The affected people consider such natural calamities as acts of God.

For insurance companies, these are another business. This is one reason why there is a huge gap between economic losses and insured losses.

In a pioneering step, the Brihanmumbai Municipal Corporation (BMC) has introduced a new scheme offering insurance cover to their over 12.5 lakh registered property taxpayers to boost tax collections. Property tax is the second largest source of revenue for it. BMC will pay the premium on properties where there are no tax arrears from the previous financial year.

The scheme would cover death and partial/permanent disability. Four members per family will be covered. The amount insured will be up to Rs 1 lakh per family and the premium to be paid by BMC is Rs 12 per family. In a bid to widen its tax kitty and mop revenue, BMC will cough up around Rs 1.5 crore to provide insurance cover as an incentive to property taxpayers through the National Insurance Company.

Lawmakers in Massachusetts, US, have passed an ambitious health care bill that would make it the first state to require nearly all residents to be insured or face penalties. The bill, which comes as traditional employer-based coverage is shrinking nationwide, will provide health care to about 95% of the state’s half-million uninsured residents.

Under the legislation, insurance agencies would expand health coverage by offering state-subsidised, low-cost insurance or no-cost plans with scaled back benefits. The policy holds both business and employees responsible for health care coverages. Business with over 10 employees that do not provide coverage for all staff must pay $295 fee annually per uninsured worker.

Many more examples can be found where governments are serious in taking mandatory measures to protect the interests of their citizens. Prime Minister Manmohan Singh recently launched the Public Health Foundation, a public-private initiative in the health sector. It seeks to establish world-class public health institutions to train professionals in the field. Obviously, the next issue will be to see how to universalise health care services. Here the role of mandatory health insurance cannot be ignored.

 

(www.financialexpress.com)

 
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