During a recent interaction with SHG women in Rajasthan, many women narrated their experience of dealing with insurance companies. Besides the mis-selling in most cases, some reported that even in accidental death cases, their claims were not approved. Some mentioned that only a partial amount of the claim was received.
One woman mentioned that though the amount was paid to the agent, she was not sure whether it was deposited as no information was being received from the insurance company. One of the women who was appointed as the insurance “agent” under the PM “Lakh Pati Didi” scheme mentioned that it was difficult to encourage rural folk to get insurance as their experience in claim settlement had not been very satisfactory.
There were a number of cases where discontinuation of a policy happened due to various reasons, and they lost the entire premium paid. All of them understood the importance of insurance to cover various risks of life, crops, animals, business etc, but due to the lack of proper awareness and poor quality of service, they seemed to have apprehensions about availing the same.
Recently, the Home Minister Amit Shah, who holds the portfolio of the Cooperative Ministry—a newly created ministry by the government in 2021—announced in Parliament the launch of an “insurance company in the cooperative sector” alongside a cooperative for car/taxi drivers (like Ola and Uber). These announcements were applauded across the political spectrum and considered to be game-changing in the Indian context.
The insurance sector is a highly regulated sector in India by the Insurance Regulatory and Development Authority (IRDAI). Presently, there are 67 insurance companies in India, out of which a few (6) are in the public sector and the remaining in the private sector.
The government has also announced 100% FDI in the insurance sector, subject to certain conditions, which provides an opportunity for more insurance companies in the private sector with international experience to start operations in India (a bill for the same is likely to be introduced in the ensuing Parliament session).
Despite so many insurance companies, why then is there a felt need to open the insurance sector to cooperatives, and does it have any potential in the current landscape of the insurance sector in India?
Generally speaking, cooperative institutions are member-owned entities that operate on the principles of mutual benefit for members and function through democratic control mechanisms (owned and managed by the members), unlike commercial companies that mainly focus on profit maximisation and are accountable to shareholders and not to other stakeholders (policyholders).
Companies will not like to operate or design products to meet the aspirations and requirements of the marginalised, rural population, and weaker sections of society (perceived to be more risky). They tend to operate in areas that are remunerative and considered less risky. The principle, motive, and methodology of operation of companies and cooperatives differ significantly.
Despite the existence of 67 insurance companies in India—out of which 24 are life insurance companies, 26 general insurance companies, 5 health insurance companies, and 12 reinsurance companies—the insurance penetration in India is still below the global average.
Though the diverse landscape of insurance companies does seem to offer a wide range of options for consumers to choose from, catering to various insurance needs across the country, the distribution of insurance products has been highly unequal/inequitable.
Some of the main players in India are LIC (government-owned), HDFC Life, SBI Life, ICICI Prudential etc (private) in the life insurance sector, while in the non-life sector, the key players are New India Assurance (government-owned), ICICI Lombard, HDFC Ergo, Tata AIG, and Bajaj Allianz.
A new entrant in the field is digital platforms like Policy Bazaar (an aggregator), Go Digit, Acko—and these, to some extent, have improved penetration by offering simple and online KYC for customers and a wide choice of selecting the agency for coverage.
The insurance penetration in India is around 3.7% of GDP, with life insurance contributing the majority (2.8%), while in the US, this is 12%. Though 70% of India’s population lives in rural areas, less than 20% of the rural population has health coverage, and life insurance coverage in rural India is less than 10%.
This is despite the fact that the Government of India has played a major role in promoting insurance penetration by designing specific schemes like PM Jeevan Jyoti, Fasal Bima Yojana, PM Suraksha Bima Yojana, and Ayushman Bharat. Government intervention is largely due to the fact that private insurance companies are reluctant and unwilling to cater to the rural population.
The existence of only a few public sector companies does have limitations and the bandwidth to address the magnitude of the problem faced by the public in accessing insurance products and services.
As per the existing legal position, cooperative institutions cannot function as insurance companies in India. In fact, Section 2C of the Insurance Act, 1938 clearly specifies that “No person shall be eligible to carry on insurance business in India unless it is—a company (as defined in the Companies Act), a statutory body established by an Act of Parliament, or a foreign company engaged in reinsurance through a branch office (subject to IRDAI approval).
This excludes cooperative societies, partnerships, or sole proprietorships from entering the insurance business in India. However, cooperative societies can act as insurance intermediaries—brokers (e.g., agents, micro-insurance agents, corporate agents).
Presently, there are a few cooperative societies and mutual benefit institutions offering informal insurance products, but these lack formal regulatory backing. Similarly, IFFCO, which is a successful cooperative, has launched an insurance company—IFFCO-Tokio—but its reach was limited and could not really cater to the principle of a cooperative (every policyholder becoming a member).
The IRDAI Act 1938 (pre-IRDAI 2000) did allow cooperatives to get a licence for insurance; however, there is no explicit provision in the present Act. Nevertheless, cooperatives can invest or be a partner in an insurance company (like IFFCO-Tokio). Cooperatives are not given licences as per the Act due to financial, legal and structural issues.
Cooperatives are regulated under various state laws and thus pose a challenge for centralised supervision. Besides governance issues, most of them are unable to meet the prescribed capital requirement (Rs 100 crore).
Barring a few success stories, most cooperatives in India have been reported to suffer from mismanagement, political interference and lack of transparency. Therefore, regulators, in order to prevent any systemic risk or consumer exploitation, have been hesitant to allow them into the tightly regulated insurance domain.
Regulators have discouraged these to prevent fraud, underinsurance, or loss of public trust. In the absence of formal recognition, some cooperatives have offered informal insurance-like schemes, especially in rural areas. These often lack reinsurance backing, claims processes, or legal safeguards.
It is believed that in order to address the issue of inclusiveness, equity, and service quality, cooperative institutions are well-positioned to extend insurance, especially in rural India. Given their local connections, acceptance, and trust within communities, cooperatives can design insurance products tailored to the needs of farmers, artisans, small entrepreneurs, local youth, and women SHGs.
Crop insurance, livestock insurance, and health insurance for rural populations are some of the key areas of opportunity for growth and expansion. Existing cooperative banks and societies can be leveraged as distribution channels for faster penetration.
Further, the adoption of digital tools, mobile banking, and Aadhaar-based services, UPI etc, will enable cooperative insurers to efficiently manage operations, process claims, and reduce fraud. This technological enablement is essential for scalability and sustainability, besides meeting the compliance requirements for the regulator.
Globally, cooperative and mutual insurance institutions have played a significant role in promoting inclusive, affordable, and community-based insurance services. These institutions, often rooted in social solidarity and trust, have been particularly effective in addressing the needs of underserved populations, especially the weaker sections. These institutions often reinvest profits into member services, reduce premiums, or enhance coverage rather than pay dividends to shareholders.
France, Germany and the Netherlands have long traditions of mutual and cooperative insurance. The Co-operators Group is a well-known example in Canada. In countries like Kenya, Uganda, and Ghana, cooperative and mutual insurers have stepped in to offer micro-insurance to rural populations. In Brazil, Unimed, originally a cooperative of physicians, also offers health insurance services on a large scale.
Community trust, a strong regulatory framework, the use of digital tools, and strong financials by following prudent risk management policies are some of the key parameters for their successful model. The learning from global experience establishes that the cooperative model for insurance does provide support to the government in enabling universal coverage.
India can draw lessons from these global models to build a robust cooperative insurance ecosystem by formalising cooperative insurance under a clear regulatory structure (as seen in Europe and Japan). This will require amendments to the IRDAI Act.
There will be a requirement for capacity-building support and access to reinsurance. However, the capital requirement and other regulatory provisions, including prudential norms, shall not be diluted.
Besides the low penetration of insurance in India, there are other issues of concern, such as rural coverage being very low, service quality, forced selling or mis-selling, and other unhealthy practices not in the interest of policyholders, non-coverage of the elderly, very high premium rates, and lack of sufficient awareness and trust.
There are also not enough new products designed to cater to the emerging needs of society. There are products for catering to all employees of a company/corporate but not to cover every person/family in a panchayat or a municipal ward.
There has been an emphasis on promoting the cooperative spirit after the formation of the new ministry, and new areas of social and financial inclusion are being explored. Greater insurance penetration will definitely empower communities to mitigate various risks and promote a healthy and inclusive society.
Are cooperative models successful in India in other areas like banking etc? There are presently 1,888 cooperative banks in India, out of which 1,463 are urban cooperative banks. About 430 of such banks have failed, and some were involved in major scams like the Harshad Mehta scam. Their performance, as compared to other public sector or private banks, has not been very encouraging.
Even small finance banks seem to have done better than cooperative banks. There are, of course, successful cooperative models in other sectors, like Amul (milk and related products), IFFCO, Kribhco (fertilisers), and Shri Mahila Griha Udyog Lijjat Papad in Gujarat (for products through women), sugar cooperatives, NAFED etc. One of the learnings is that one needs a “culture of cooperation” amongst the members for them to become successful.
That is why most cooperatives are successful in Gujarat and Maharashtra, and there are very limited or almost negligible success stories in North Indian states. It is also true that the success of cooperatives depends on leadership, passion, and commitment—Kurien for Amul, Awasthi for IFFCO, Popat for Lijjat Papad.
More than one lakh PACS (recently announced to be increased to 2.5 lakh) have not been able to inculcate the true spirit of cooperation within the community, and despite huge government support, there are hardly any PACS which can be considered a model of grassroots cooperative institutions in India.
Under such circumstances, to expect cooperatives in insurance to be a panacea for all the problems of the sector—both in terms of penetration and service quality—will be expecting too much, at least in the short run. Conceptually, no one can dispute the advantages of a cooperative insurance institution, as it will be driven by the motto of members’ benefit rather than profit as the motive.
However, this will need an institutional framework that keeps an arm’s length from the government (otherwise, government agencies are likely to interfere in management), establishes leadership that is committed and passionate, and has the ability to convince citizens (build trust) across the country to become members and extend the benefits of insurance to enable them to mitigate various risks in life, family, business etc.
A few legends in this space who can really deliver are Vishakha—ex-MD India First, Subhash Khuntia—ex-IRDAI chairman, and Debashish Panda, also ex-IRDAI chairman. Such people with impeccable integrity, understanding of ground-level issues, and a passion to promote inclusiveness in the insurance sector can provide the desired leadership to the proposed cooperative insurance institution.
The government shall also not subscribe to the shareholding of the proposed institution and shall only make the secretary of the cooperative department one of the ex-officio governing board members. The initial capital required for getting the licence shall come from existing successful cooperative institutions like Amul, IFFCO, Kribhco, NABARD, and some banks.
An organisational structure like the one for ONDC, where the government has no equity subscribed but provides support otherwise, along with a professional governing board with committed and passionate leaders, can definitely meet the expectations of the government to build an institution which redefines the delivery and service quality of insurance in India, besides promoting inclusiveness.
The future of cooperative insurance institutions in India under the present dispensation holds promise, especially as the country aims for inclusive growth and social security for all. With appropriate regulatory reforms, financial support, and capacity-building efforts, cooperative insurers could emerge as vital players in India’s insurance ecosystem.
They have the potential to democratise insurance access, foster community resilience, and contribute significantly to the financial well-being of underserved populations, improve service quality, and address the issues which insurers presently encounter.
The author is 1981-batch IAS officer (Rtd) and former Managing Director, CSC e-Governance Services India. Views are personal.
