lessons from innovation in microinsurance in india

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May 16 in Parallel Session 3A "Vulnerability & Volatility: Dealing with Local and National Shocks". Presented by Vijay Mahajan.

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  • 1.LessonsFromInnovationsinMicroinsuranceand InsuranceInstitutionsinIndia TalkattheIFPRIResilience2020Conference, AddisAbaba,16th May2014 VijayMahajan FounderandCEO,BASIXSocialEnterpriseGroup1996ongoing Member,InsuranceRegulatoryandDevelopmentAuthority (IRDA),India20052010 Chair,ConsultativeGrouptoAssistthePoor(CGAP)201113

2. RisksfacedbytheruralpoorinIndia arelargelyunmanaged UsuallytheyfacetwotypesofRisk Idiosyncratic suchasloweryield,diseaseinthefamily,theft Covariate droughtorfloodinthearea;epidemicdisease Prevalentformsofriskmanagement,thoughnotefficientenough,cannotbe ignored.Theydoproactiveriskmanagement Grainstorage,savings,andassetsaccumulationspeciallylivestock,loantoandfrom friendsandrelativesatnointerestetc. Thusthepoorarerationalwhentheyeschewbuyinginsurance Theirvulnerabilitytoshocksishigh,theirincomeislowandvariable,sotheycannotinvest muchinsecuringit Thepayoutofpremiumisforsure,butthebenefitofclaimsettlementisuncertain. 3. Thisslide courtesy MIC,Geneva, 2005 Welcome tothe Micro insurance champion ofthe World India! 4. InsuranceCoverage Microinsurance(MI)isasegmentofinsuranceproductsdesignedwith smallerpremiumsandlesscoveragetosupportlowincomepopulationsthat cannotaffordordonothaveaccesstotraditionalplans. Forexample,MIpremiumsinIndiacanbeaslowasINR30amonth(USD 0.50)andcoverlossesaroundINR2,500rupees(USD42.5).Butduethefact that100sofmillionarecovered,theMImarketsizenowexceeds$40billion, accordingtoSwissReandLloyds. Thenumberofpeopleinsuredbymicroinsurancehasincreasedfrom78 millionin2007to500million2012,accordingtoastudypublishedbythe InternationalLaborOrganizationandtheMunichReFoundation. TherehasbeensignificantincreaseininsuranceinclusioninIndiainthe decadesince2001.* *Source:JohnHui,TheRiseofMicroinsurance,RiskManagementMagazine,Mar2013 http://www.rmmagazine.com/2013/03/08/theriseofmicroinsurance/ 5. Significantincreaseininsurancecoveragesince2001. LifeinsurancedensityhasgoneupfromUSD9toUSD43percapita, andpenetrationincreasedbyover50%from2.15%to3.17%ofGDP in2012,inspiteofasetbacksince2010. NonlifedensitywentupfourfoldtoUSD10.5percapitaand penetrationincreasedbyabout42%from0.55%to0.78%ofGDP Astheopeningslideshowed,Indiaisthemicroinsurancechampionof theworld.Newbusinessin201213stoodat5.04millionlivesunder individualand13.9millionlivesundergrouplifeinsurancepolicieswith apremiumofRs318crores(USD53million). AllinsurancecompanieswerecompliantwithIRDAguidelinesfor numberofpoliciesunderruralandsocialobligations. 6. EffectofRuralandSocialObligationPolicy whichrequireslifeinsurancecostohavemin.20%ofpoliciesinruralareas, nonlifeinsurancecostohavemin.5%ofsumassuredinruralareasand bothtypesofcostohaveatleast25000livescoveredinthesocialsector. FY201112 Rural Social Total Life 14.0millionlives 14.5million 28.5million Nonlife 14.1%ofpremium 109.3millionpolicies NA FY201213 Rural Social Total Life 11.3millionlives 18.2million 29.5million Nonlife 12.6 %ofpremium 203.1 millionpolicies NA 7. Indiaprovided notonlythe largestever coveragebut alsoatthe lowestcost, andwiththe involvement ofprivate insurers Thisslide courtesy MIC,Geneva, 2005 8. ExamplesofMicroInsurance Health RashtriyaSwasthyaBimaYojana(RSBY) LaunchedbyMinistryofLabourandEmploymentofGovtofIndiain2008 Objective shieldinglowincomehouseholdsfrommajorhealthexpenses. ProvideshospitalizationcoverofuptoINR30,000(USD500)perfamilypa Anetworkof8,686privateandpublicempanelledhospitals. Millionsofpoorfamilieshavebeeninsuredbynineinsurers,which includesfiveprivateandfourpublicsectorcompanies. TheannualpremiumperfamilyrangesfromINR331(USD7),toINR697 (USD16),withthebeneficiarypayinganominalfeeofINR30(USD0.67). Source:RSBYWorkingPaper,September,2011.PerformanceTrendsandPolicyRecommendations An EvaluationoftheMassHealthInsuranceSchemeofGovernmentofIndia http://www.rsby.gov.in/Documents.aspx?ID=14 9. RSBY Health InsuranceforthePoor Total Active Smart Cards Issued 37,191,843 Total Hospitalisation Cases 7,163,935 ason30th Apr2014 A2013evaluationbyGiZ shows 94% awareness levels 90% travelled less than 2 kms to get smart card Those without coverage spent Rs 17,000 pa (USD 283) http://www.rsby.gov.in/ 10. AgriculturalMicroInsuranceinIndia1 AgricultureisthemostimportantlivelihoodinIndia,asabout60%of workingpopulationworksinagriculture. Asonlyathirdofagricultureisirrigated,theyieldisveryriskprone duetoweather. IndiahashadtheNationalAgriculturalInsuranceScheme(NAIS), whichwasthetraditionalcropinsuranceinwhichclaimsweresettled onareayieldestimationbasis. NAISwaslargelygovernmentsubsidisedandmadelossesofbillions ofdollarsandyetfarmerswereunhappy. GoIintroducedanactuarialpricingbasedModifiedNAISsince2010. 11. AgriculturalMicroInsuranceinIndia Basixpioneeredtheconceptofweatherindexbasedcropinsurance,in2003 withsupportfromtheWorldBanksCommodityRiskManagementGroup. TheHarvardBusinsss Schoolwroteacasestudyonit. http://hbr.org/product/basix/an/207099PDFENG?Ntt=Shawn+Cole&Nao=10 ICICILombardofferedtocarrytheriskandSwissRereinsuredit.Theidea grewslowlyfromjust300farmertoafewthousandcovered Govt ofIndiaadoptedtheideain2007anddecidedtosubsidisethepremium. Sincethenithasspreadwidely,asseenbelow: InsuranceScheme Nooffarmers coveredinmillion Premiumin INR billion Claimsratio NAIS 15.63(avg palast12years) 19.00 80%150% ModifiedNAISpilot 0.59(201112) 1.45 73% Weatherbased 8.37(201112) 14.01 6090% http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=AR&mid=11.1 12. ReasonsforProgressinMicroInsuranceCoverageinIndia 1. OverallsizeandbuoyancyinIndianeconomysincethemid 1990shashelped! 2. AnewInsuranceLawwasenactedin1999 http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearLayout.aspx?page=PageNo108&flag=1 3. Anewgenerationregulator InsuranceRegulatoryand DevelopmentAuthority(IRDA) wasestablishedin2001 4. TheIRDAformulatedRuralandSocialSectorObligations http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearLayout.aspx?page=PageNo74&flag=1 rightatoutset,makingitcleartonewplayersthatinclusioniscentralto thepolicy. 13. ReasonsforProgressinMicroInsuranceCoverageinIndia 5. IRDAbecametheglobalpioneerinMicroInsurancebysettingoutMicro Insuranceregulationsin2005 http://www.irda.gov.in/ADMINCMS/cms/frmGeneral_NoYearList.aspx?DF=RL&mid=26.1 6. IRDAhasworkedoninclusioninpartnershipwithIndustry bothpublicand privateinsurers,ascanbeseenbythecompliancetorural/social. 7. Useofnewdistributionchannelswasencouragedforreachingthepoorand theexcluded MicrofinanceInstitutions,SelfHelpGroups,MicroInsurance Agents(17,000+) 8. Useofgovernmentsubsidiesandcrosssubsidies particularlyincrop insuranceandinthirdpartymotorinsurance. 14. Areasneedingimprovement 1. Preinsuranceriskmitigation forhealth,cropandlivestock 2. Improvingdatagatheringandanalytics,toreducepremiums 3. Servicelevels loweringmissellingandlapsation rates(policies requiringpremiumpaymentovermultipleyearslapseifpremium paymentisstopped) 4. Claimsettlement increasingawareness,loweringdelaysand repudiationrates(whenaninsurancecodeclaresclaiminvalid). 5. Morejudicioususeofsubsidies suchasincropinsurance 6. Consumerprotection overhaulofOmbudsmansystem 15. Lessonsforotherdevelopingcountries Itispossibletobothliberalisetheinsurancesectorandattractmultinational companiesandyetmeetnationalsocialgoalsthroughRuralandSocial Obligations. TheRuralandSocialObligationspolicyoftheIRDAIndiahasmanagedtoensure coveragetoalargenumberoftargetgroupascomparedtothemicroinsurance policy. MIoutreachhasbeenlimitedastheremunerationlevels(@20%ofpremium) areinadequatetomeetthemarketingandtransactioncosts. Thenaturaldistributors microfinanceinstitutions(MFIs) werenotpermitted byIRDAtobemicroinsuranceagents. SoMFIsweredistributingaffordableinsurancepoliciesundergroupinsurance schemes,actingasgroupadministrators.In2013,IRDAimposedseverelimits onwhatgroupadministratorscouldchargetogroupcustomersandalsoopened anewchannel(CSCs ITKiosks)foronlineissuingofMIpolicies.Thiswill perhapschangethegameinfavourofMI. Regulatingpricesandlimitingforeigncapitalparticipationleadstosetbacks 16. RoleplayedbyBASIXinInsuranceInclusioninIndia 1. PioneerinMicroInsurance beganin2002,threeyearsbefore IRDAlaidoutMicroInsuranceRegulations.Atpeak,covered3.8 millionlives,andalsohospitalisationcashforthem,plus200,000 othersforcrop,livestockandmicroenterpriseassets. 2. HelpedformulateIRDAMicroInsuranceRegulations,2005through aworkinggroup. 3. PlayedanactiveroleintheIRDA BASIXgroupCEOVijayMahajan wasparttimeMember,IRDAfrom200510andalsomemberof ConsumerProtectionCommitteewhichoverhauledthegrievance redressalsystem(setuptollfree155255andalsocomplaints@irda.gov.in) 17. RoleplayedbyBASIXinInsuranceCoverageinIndia 3.Product,channelandserviceinnovation pioneeredtheuseofmicrocredit borrowersgroupsformasslifeandhospitalisationinsurance;pioneeredthe conceptofweatherindexbasedcropinsurancesince2003 4.Establishedlongtermstablepartnerships withAvivaforlife,Royal SundaramforHospitalisationandforLivestockandwithICICILombardfor weather/crop;andjointlysetstandardsforagenttrainingandclaimsettlement 5.PolicyactivisminIndiaandglobally BASIXhasworkedwithGoIandtheAIC toencourageweatherindexbasedcropinsurance.Hasspreadtheideaof weatherinsuranceindevelopingcountriesthroughpolicyconsultancies. 6.WorkingondesignofriskcoverinfaceofClimateChangeRisks. 18. BasixConsultingsPartnersinInsuranceWork AvivaLifeInsuranceCoLtd,India RoyalSundram GeneralInsuranceCoLtd,India ICICILombardGeneralInsuranceCoLtd,India AgriculturalInsuranceCoofIndiaLtd. WeatherRiskManagementServicesPvtLtd,Indiawww.weatherrisk.com/ MicroEnsure,UKandworldwidewww.microensure.com MicroInsuranceAcademy,Indiahttps://www.microinsuranceacademy.org/ BasixConsulting http://www.basixconsulting.com/index.php/practiceareas/microinsuranceservices 19. ThankYou vijaymahajan@basixindia.com

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