Distribution of Micro Insurance Products In India

K. Muralidhara RaoGeneral Manager, micro Credit Innovations

Department, NABARD, Mumbai

Presentation Outline…

Introduction IRDA’s Initiatives in Micro Insurance Micro Insurance Models Challenges in Micro Insurance

Penetration Distribution Channels Conclusion

IRDA’s Initiatives…

Definition of micro insurance Introduce the concept of “micro insurance

product” and “micro insurance agent Recognition of wide network of

intermediaries in rural and social sectors Offer alternative strategic entry points for

intermediaries  

IRDA’s Initatives (contd)

Recognition that procedures and services should be set by the insurers rather than

the regulator Permitting an insurer to workout

mechanism to provide life as well as general insurance products

Review of existing definition of rural area

Micro Insurance Models

Direct Marketing by the insurance company

Partner-agent model De-linked model Service Provider Model

Direct Marketing by the insurance company

Identification of clients, selling of policies, collection of premium, receipts of claims and settlement of claims etc., all are done by the insurance companies

Outreach to provide micro insurance to poor through this model has been very limited

Partner-agent model

Approved intermediary organisations act as insurance agents.

Identify the customers, negotiate with insurance companies about the adequacy of products and premium rates to be paid, collect the premium

Assist in clients in claim processing and settlement

Dominant model

De-linked model Community based insurance facility

where NGO/MFI or federation of the groups act as insurer

Coverage of risk remains with the insurer Sum insured, design and pricing of

products, adverse selection, collection, claim verification and settlement data collection and maintenance, assessing client satisfaction etc are undertaken internally by the insurer

Service Provider Model

NGOs generally provide basic health care facilities to the rural population since necessary amenities were simply not present in their area of operation. Instead of premium, the service providers charge a membership fees to partly cover their costs

Challenges in Micro Insurance Penetration Designing of products suiting the

rural market Using the right distribution channel

mix to reach the potential customer

Intermediaries being able to build personal credibility with the clients

Distribution Channels Agents Formal Banks Regional Rural Banks Cooperative Banks SHGs & their Federations NGOs & MFIs Post Offices Internet & Rural Kiosks & Rural

Knowledge Centers

Agents Prime channel for insurance distribution

in urban areas Trust of the company & customer must Knowledge of different products Postman,School teacher, shopkeeper,

gram sevikas, gram sahayaks Training & educating poses a challenge Not an optimum channel as 42 % of

600,000 villages have population of less than 500

Formal Banks

27 PSBs have19, 104 rural branches and 30 Pvt.SBs 1,111

Private banks are constrained by their lack of reach and meager branch strength

Banking sector has shown propensity towards the larger size accounts

Within the foreseeable future they will normally not be able to fully serve that market

Regional Rural Banks 177 RRBs together with14,150 branches

cover 516 districts and serve a client base of close to 62.70 million

RBI has permitted RRBs to undertake insurance business as corporate agent without risk participation

Chitradurga Gramin Bank has -in close cooperation with the NABARD GTZ-Project- introduced a new deposit scheme for SHGs called “Rakshith” Savings Bank Scheme in tie up with LIC and UIICo. Ltd

Cooperative Banks ST structure comprises of 30 SCBs, 367

DCCBs and over 112,309 PACS RBI has allowed scheduled licensed SCBs

and licensed DCCBs having a networth of Rs. 500 million to undertake insurance business as corporate agents without risk participation

Given their poor governance structures it is unlikely that they would emerge as efficient distribution channels

SHGs & their Federations 1.6 million SHGs comprising 24.1 million

families are linked to banks Rapidly growing year after year Many SHG promoters have formed

federations Federations provide both financial and

non financial services Federations promoted by DHAN

Foundation are participating in Mutual Insurance Scheme as well as intermediary

NGOs and MFIs Large number of NGOs and MFIs are

involved in social as well as financial services intermediation

Out of 61 sample MFIs studied by Sa-Dhan 34 were providing insurance services

While all 34 MFIs provided life insurance products, only 9 facilitated non life insurance products

The most significant range in amount of cover was in the category of Rs.10,000 and above

Challenges faced by NGO & MFIs

Many of them are working as pure service provider particularly in health insurance, private insurer, intermediary

Poor live for the present and do not plan for the future. Given their fatalistic attitude, it is difficult to explain the concept of insurance to poor

Given this mindset, premium is seen as additional expenditure rather than risk cover

Without the availability of basic health infrastructure in rural areas, health insurance is difficult to sell

Challenges faced by NGO & MFIs

Cooperation with the insurance company has not proved successful. Limited motivation on both sides to improve the cooperation

Delays in settling claims and complicated formalities

Challenge to pick up the necessary insurance techniques and adjust them to the needs of their members

No legal status as a private insurer. This complicates the matter further when it comes to reinsurance

Post Offices There are about 129,000 rural post

offices. Post Office itself is offering

insurance products to the poor Its efficacy as an intermediary

channel needs to be explored

Internet, Rural kiosks & Knowledge

Centers

Using net for transactions has been catching up in urban areas. Many banks provide online banking

Most of the insurance companies have product information and/or illustrative tools on the web

In rural areas too rural knowledge centers are being set up to bring information close to the people. The insurance companies can use these centers to create awareness about insurance

Can only be enablers for the human channels

Conclusion

micro Finance sector is in evolving phase Innovations are required at all stages for

products, in pricing policy and in delivery channels

Success of marketing micro insurance depends on understanding the social and cultural needs of the target population

Clients should also receive price differentials for using different channels

Groups & their promoters can provide ideal platform to kick start the micro insurance

Thank you