Microinsurance - Demand and Market Prospects. A Three-Country Study: India

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<ul><li><p>A L L I A N Z AG, GTZ A N D U N D P P U B L I C P R I V A T E P A R T N E R S H I P A U G U S T 2 0 0 6 </p><p>MICROINSURANCE DEMAND AND MARKET PROSPECTS </p><p> INDIA </p></li><li><p>Microinsurance: Demand and Market Prospects India </p><p>Allianz AG Allianz AG Group is one of the largest financial services providers in the world, with specialists in the fields of property and casualty insurance, life and health insurance, asset management and banking. Allianz AG is currently working with international help organizations to explore how insurance companies can contribute to reducing poverty by offering low premium protection in Asia. GTZ The Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GmbH is an international cooperation enterprise for sustainable development with worldwide operations. It provides viable, forward-looking solutions for political, economic, ecological and social development in a globalised world. GTZ works in almost 130 countries of Africa, Asia, Latin America, the Eastern European countries in transition and the New Independent States (NIS) and maintains its own offices in 67 countries. GTZ is a federal enterprise and the German Federal Ministry for Economic Cooperation and Development (BMZ) is its major client. The company also operates on behalf of other German ministries, partner-country governments and international clients, such as the European Commission, the United Nations and the World Bank, as well as on behalf of private enterprises. UNDP UNDP is the UN's global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. We are on the ground in 166 countries, working with them to strengthen their capacities and create their own solutions to global and national development challenges. 40 years of development experience Programmes in 166 countries 135 offices around the world __________________________ The information used in this study is based on both publicly accessible sources of information (publications, specialist articles, internet sites, conference papers etc.) and non-public papers (for example internal reports from promoting institutions), as well as personal interviews with experts. While all information relied on has been reviewed for authenticity as far as possible, errors cannot be ruled out. Allianz AG, GTZ and UNDP do not accept any liability or give any guarantee for the validity, accuracy and completeness of the information provided in this study. Allianz AG, GTZ and UNDP do not assume any legal liability resulting from the use of the information provided in this study. The views expressed in this study do not necessarily represent those of Allianz AG, GTZ and UNDP. The designations and terminology employed and the presentation of material do not imply any expression of opinion on the part of the partners concerning microinsurance. </p></li><li><p>Microinsurance: Demand and Market Prospects India </p><p>CONTENTS </p><p>CONTENTS .........................................................................................................................................................I </p><p>ABBREVIATIONS...........................................................................................................................................III </p><p>INTRODUCING MICROINSURANCE ........................................................................................................IV </p><p>EXECUTIVE SUMMARY ............................................................................................................................ VII </p><p>CHAPTER I. BACKGROUND......................................................................................................................... 1 1.1 MACROECONOMIC SNAPSHOT OF INDIA...................................................................................................... 1 1.2 HISTORY OF INSURANCE IN INDIA............................................................................................................... 2 1.3 INSURANCE INDUSTRY OVERVIEW .............................................................................................................. 3 1.4 WHAT IS MICROINSURANCE? ...................................................................................................................... 4 1.5 HISTORY AND CURRENT STATUS OF MICROINSURANCE REGULATION ......................................................... 4 </p><p>CHAPTER II. THE DEMAND FOR AND SUPPLY OF MICROINSURANCE......................................... 8 </p><p>CHAPTER II. THE DEMAND FOR AND SUPPLY OF MICROINSURANCE......................................... 8 2.1 METHODOLOGY OF THE STUDY................................................................................................................... 8 2.2 INTRODUCTION........................................................................................................................................... 9 2.3 SOCIOECONOMIC PROFILE OF MICROINSURANCE CLIENTS .......................................................................... 9 2.4 RISKS AND VULNERABILITIES ................................................................................................................... 10 2.5 FAMILIARITY WITH INSURANCE ................................................................................................................ 10 2.6 MARKETING STRATEGIES.......................................................................................................................... 11 2.7 GENDER AND THE DEMAND AND SUPPLY OF MICROINSURANCE................................................................. 12 2.8 DEMAND FOR HEALTH INSURANCE ........................................................................................................... 13 2.9 DEMAND FOR ASSET MICROINSURANCE.................................................................................................... 16 2.10 DEMAND FOR AGRICULTURAL INSURANCE ............................................................................................. 17 2.11 DEMAND FOR WEATHER INSURANCE ...................................................................................................... 18 2.12 DEMAND FOR LIFE AND DISABILITY INSURANCE..................................................................................... 19 </p><p>CHAPTER III. DISTRIBUTION CHANNELS............................................................................................. 25 3.1 PARTNERSHIP MODEL ............................................................................................................................... 25 3.2 AGENCY MODEL ....................................................................................................................................... 29 3.3 MICRO-AGENT MODEL.............................................................................................................................. 29 </p><p>CHAPTER IV. SOCIAL SECURITY IN INDIA: OVERVIEW AND ROLE OF MICROINSURANCE31 4.1 STRATEGIES TO MANAGE RISKS ................................................................................................................ 31 4.2 POLITICAL DEVELOPMENTS IN SOCIAL PROTECTION ................................................................................. 34 4.3 GAPS IN EXISTING SOCIAL SECURITY SCHEMES......................................................................................... 34 4.4 POSSIBLE MICROINSURANCE PARTNERSHIPS IN INDIA: DONOR AGENCIES................................................ 35 </p><p>CHAPTER V. SUMMARY RECOMMENDATIONS.................................................................................. 37 5.1 ISSUES IN PRODUCT DESIGN ...................................................................................................................... 37 5.2 MARKETING MICROINSURANCE ................................................................................................................ 37 5.3 DISTRIBUTION CHANNELS......................................................................................................................... 38 5.4 CONSUMER PROTECTION .......................................................................................................................... 38 5.5 PROMOTE MICROINSURANCE REGULATION............................................................................................... 38 5.6 EXPANDING THE INDUSTRY ...................................................................................................................... 39 5.7 SUPPORTING MICROINSURANCE INNOVATION........................................................................................... 39 </p><p>i </p></li><li><p>Microinsurance: Demand and Market Prospects India </p><p>5.8 GENDER AND MICROINSURANCE............................................................................................................... 39 5.9 CAPACITY BUILDING................................................................................................................................. 40 5.10 WORKING WITH COMMUNITY-BASED INSURANCE MODELS..................................................................... 40 5.11 PROSPECTS FOR REINSURANCE ............................................................................................................... 40 5.12 BUILDING ON THE LIMITED DEMAND STUDIES ........................................................................................ 41 5.13 POLICY WORK/ENGAGING THE STATE .................................................................................................... 41 5.14 DATA COLLECTION ................................................................................................................................. 41 5.15 MICROINSURANCE AWARENESS.............................................................................................................. 41 5.16 THE ROLE OF SUBSIDIES IN MICROINSURANCE ........................................................................................ 42 5.17 ESTABLISHMENT OF A MICROINSURANCE COUNCIL ................................................................................ 42 </p><p>APPENDICES................................................................................................................................................... 43 APPENDIX I. LIST OF PEOPLE MET DURING THE VISIT....................................................................................... 43 APPENDIX II. ONGOING CAPITAL REQUIREMENTS FOR AN INSURANCE COMPANY IN INDIA ............................. 44 APPENDIX III. OBLIGATIONS TO THE RURAL AND SOCIAL SECTORS................................................................. 46 APPENDIX IV. POSSIBLE MFI AGENTS ............................................................................................................ 49 APPENDIX V. STATE SOCIAL SECURITY SCHEMES .......................................................................................... 68 APPENDIX VI: TERMS OF REFERENCE ............................................................................................................. 72 </p><p> Tables 1. Key indicators: India ........................................................................................................................................ 1 2. Insurance industry issues and observations ...................................................................................................... 3 3. Summary of healthcare expenditure figures by low-income households ....................................................... 15 4. Examples of low-premium products in India.................................................................................................. 15 5. Hut and possession insurance ......................................................................................................................... 17 6. Livestock insurance ........................................................................................................................................ 19 7. Life microinsurance products ......................................................................................................................... 21 8. Profitability based on estimated mortality rate ............................................................................................... 25 9. Measures for risk management .................................................................................................... 33 </p><p>ii </p></li><li><p>Microinsurance: Demand and Market Prospects India </p><p>ABBREVIATIONS </p><p>AIG American International Group (U.S.) ASA Activists for Social Alternatives (India) BPL Below poverty line CEO Chief Executive Officer CGAP Consultative Group to Assist the Poor CRIG Community Rural Insurance Group (India) DFID Department for International Development (U.K.) EPF Employees Provident Fund ESI Employees State Insurance ESI Employees State Insurance (India) FDCF Financial Deepening Challenge Fund GDP Gross domestic product GIC General Insurance Corporation (India) GTZ Deutsche Gesellschaft fr Technische Zusammenarbeit GmbH (Germany) ILO International Labour Organization IRDA Insurance Regulatory and Development Authority (India) LIC Life Insurance Corporation (India) MFI Microfinance institution NABARD National Bank of Agriculture and Rural Development (India) NGO Non-governmental organization NSAP National Social Assistance Programme (India) PRI Panchayati Raj Institutions local government bodies (India) SHG Self-help group (India) UNDP United Nations Development Programme USAID United States Agency for International Development </p><p>iii </p></li><li><p>Microinsurance: Demand and Market Prospects India </p><p>INTRODUCING MICROINSURANCE A public private partnership using a market-based mechanism to reduce poverty What happens when a poor familys breadwinner dies, when a child in a disadvantaged household is hospitalized, or the home of a vulnerable family is destroyed by fire or natural disaster? Every serious illness, every accident and every natural disaster threatens the very existence of poor people and usually leads to deeper poverty. Thats where microinsurance comes in. </p><p> Microinsurance is specifically designed for the protection of low-income people, with </p><p>affordable insurance products to help them cope with and recover from common risks. It is a market-based mechanism that promises to support sustainable livelihoods by empowering people to adapt and withstand stress. Two-thirds of human beings suffering in the most extreme poverty are women. Often living within $1 per day, they are the most vulnerable. </p><p> But will microinsurance actually help those living in poverty by contributing to sustainable </p><p>livelihoods? We believe it can, and we decided to test the hypothesis in the real world. UNDP approached Allianz AG about working together on a market potential study to analyze the demand, acceptability and affordability o...</p></li></ul>

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