Alternative Approaches to Insurance and Risk Management

The article compares insurance companies' two models/structures across a range of parameters. The two models/structures are Joint-stock Company and Mutual Organisation. While a joint-stock company assumes an insured's risk for an underlying premium, the mutual organisation chooses to retain the risk within the joint pool contributed by its members who are themselves the insured parties. The primary difference in the approach is that the former works on the principle of risk transfer, while the latter is based on the premise of risk retention among insured members. With low insurance penetration and density, how can India rapidly scale the insurance services for its vast uninsured population? The challenges are both on the demand as well as supply side. Like many other developed and developing economies, can India leverage the potential of both these models to rapidly increase the penetration as well as the density of insurance in the country? Is its single-pronged strategy sufficient, or does it need a multipronged approach? This article attempts to understand each model's pros and cons and whether they have a role to play in the underpenetrated insurance market in India.