microinsurance final
TRANSCRIPT
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INTRODUCTION:
Micro-insurance is a financial arrangement to protect low-income people against specific perils in
exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.
According to Micro-insurance Regulations, issued in 2005 by the Indian Insurance Regulatory and
Development Authority (IRDA), micro refers to the small financial transaction that each insurance
policy generates and it is insurance with low premiums and low caps / coverage. It plays a vital role in the
economic development of the rural poor. Micro insurance in emerging economies and developing
countries means where people are often most vulnerable to risks such as natural disasters, illness and
disease and where there is little or no social security.[1]
REVIEW OF LITERATURE
Historical back ground of Micro- insurance
Government of India and certain insurance agencies started this scheme in 1980s,but
only after in the later years success has been obtained. Though the reach is been very limited among the 10 million
population the future is prone to yield high scope. The overall market is estimated to reach 250 billion.
TATA AIG was the first private player to enter into this market .This is followed by a number of
players like Birla Sun Life, SBI Life Insurance, Bajaj Allianz ,ICICI, Ing Vysya , MetLife etc. Most of these companies
focused upon the Life Insurance compared to the non-life insurances . They charged a nominal premium for the various
insurance schemes and are able to perform substantially well.
1] Demand of micro insurance
The inventory lists 51 schemes that are operational in India.
Most schemes are still very young , having started their operations in the last few years. Of the 39 schemes for which
this information is available, around 24 schemes came up during the last 4 years and about 7 schemes have operated for
a decade
43 schemes with available information cover 5.2 million people
66% micro insurance schemes are linked to micro finance services. 21% are implemented by community based
organizations and 12% by health care providers
Life and health based insurance are highly demanded. 59% and 57 5% on the overall respectively.
25 % out of the 37 % receive external funds to initiate the schemes, 20 out of the 32 schemes got technical external
assistance who manage the insurance activities. The other schemes kept relying on their regular staff while
recognizing them the additional responsibilities linked to the management of the scheme.
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2]Supply of Micro insurance
Out of 80 listed insurance products, 45 (55%) cover only a single risk. The other products covering of risks as a
package mostly focus on 2 (20%) or 3(18%) risks coverage.
The available products cover a wide range of risks. However, the broad majority of the insurance products
cover life (40 products or 52%) or accident-related risks. The health coverage remains very limited (12
products).
Most life insurance products (23 out of 42) are addressed to individuals. However, some products may be
bought both by individuals and groups.
Most life insurance products (55%) have been designed to cover an extended contract duration ranging from 3
to 20 years.
Out of 42 life insurance products, 23 are pure risk products. The other 19 products propose various types of
maturity benefits.
Out of the total 12 health products, 7 products propose the reimbursement of hospitalization expenses whilethe other 5 have chosen to narrow down the coverage to some specific critical illness.
3]Delivery Models:
One of the greatest challenges for micro-insurance is the actual delivery to clients. Methods and models
for doing so vary depending on the organization, institution, and provider involved. In general, there are
four main methods for offering micro-insurance the partner-agent model, the provider-driven model, the
full-service model, and the community-based model. Every model has its own advantage and
disadvantage.
Partner agent model: A partnership is formed between the micro-insurance scheme and an agent(insurance company, microfinance institution, donor, etc.), and in some cases a third-party
healthcare provider.
Full service model: The micro-insurance scheme is in charge of everything; both the design anddelivery of products to the clients, working with external healthcare providers to provide the
services.
Provider-driven model: The service provider and the insurer are the same, i.e., hospitals ordoctors offer policies to individuals or groups. The healthcare provider is the micro-insurance
scheme, and similar to the full-service model, is responsible for all operations, delivery, design,
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and service.
Community-based/mutual model: The policyholders or clients are in charge, managing andowning the operations, and working with external healthcare providers to offer services.
4]Distribution Channels:
The following approaches have emerged in India to provide insurance to low-income populations (only regulated
channels are included here, not in-house schemes):
Partnership model
Agency model
Micro-agent model
Partnership model
The partner-agent model:
As the name implies this model involves a partnership between an insurer and an
agent that provides some kind of financial service to large numbers of low-income people. This could be a
microfinance organization, an NGO, or a business that supplies precuts to large numbers of low-income people,
such as a fertilizer supplier. This party is an agent, selling insurance policies to the clients on behalf of the insurance
provider (usually) in exchange for a commission or fee. The insurance provider utilizes the established distribution
channels of this agent and its financial transactions with low-income groups, that would otherwise be too costly to
set up.
The partnership model uses the comparative advantage of each partner so that each can focus on its core business:
the insurance provider is responsible for designing and pricing the product, the final claims management, and theinvestment of reserves, and absorbs all the insurance risks. In addition to selling the policies, the agent offers its
infrastructure for product servicing such as marketing the product, premium collection, and assists in claims
management.
Pros and cons ofthe partnership model
Pros
The system works better than in-house because the synergies are maximized, enabling both organizations to
focus on their core business and expertise;
With a single partnership agreement it is possible to sell microinsurance to over a quarter of a million low-
income people;
Requires fewer skills for the agent than an in-house model;
Uses legally recognized insurance companies that have adequate reserves, adhere to capital requirements,
employ certified insurance professionals, and operate under the insurance law;
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Insurer has access to reinsurance;
The overhead costs of both the organizations, the agent and the insurance company, are reduced: the agent can
use its infrastructure for collecting premiums, etc.; the insurer provides the expertise on product development,
etc.;
It reduces the need to build the capacity of agents such as NGOs and MFIs to sell insurance because the insurer
can do some of this;
Cons
Because of the quota system, the most well-known agents are already taken and have existing relationships with
insurers. There are still many other organizations, however, that could act within a partnership;
The insurance provider is dependent on the quality of the agent;
NGOs in particular are often here today, gone tomorrow, relying on donor recognition and goodwill for their
survival;
Conflicts of interest may occur, especially when working with non-financial institutions. NGO or MFI staff ormanagement may develop sympathy for a client and be lax about underwriting or claims verification. It should be
noted that this is less likely to occur with an MFI partner that is used to financial discipline with its lending
activities.
Agency model
The agency model: How doesit work?
In this model the insurer uses its normal agency office and sells microinsurance products directly. The client comes
to the agency office for sales and servicing of the product. Insurers described this model but the authors could find
no examples of it operating in practice.
Pros and cons ofthe agency model:
Pros
Does not require much additional investment in infrastructure;
Better control of the quality of the agent than with the partnership model.
Cons
Difficult to reach large numbers especially in rural areas where clients may be unwilling to travel to the office;
Agents will need special training in dealing with low-income clients;
Offices may intimidate poor clients;
Individual policies only would be sold; generally such microinsurance policies have not proved commercially
viable.
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Micro-agent model
While the partnership model is relatively common, the micro-agent model described below is
unique. It is the invention of Tata-AIG, specifically an employee of Tata-AIG, Vijay Artherye. The central building
blocks of the model are Rural Community Insurance Groups (CRIGs) supervised by rural organizations such as
churches, NGOs or MFIs. CRIGs are a partnership firm formed of five women from a self-help group (SHG). The
leader of the CRIG is licensed as an agent. The CRIG is a de facto brokerage firm (in the technical, not the legal
sense of the term). All CRIGs in the same geographic area meet in a single centre, usually organized with the
assistance of the rural organization, and receive training and assistance from Tata-AIG. This practice reduces
training costs.
Pros and cons ofthe micro-agent model
Pros
The model creates an insurance distribution infrastructure in low-income neighbourhoods. In addition, it creates a
new profession, that of micro-agent, with new livelihood opportunities in his/her vicinity;
Sustainability: Because the position is a commercial one with financial incentives, Tata-AIG believes that it will
last in the long term, facilitating the sale of long-term products. As mentioned under the partner-agent model, NGOs
and MFIs are often dependent on the goodwill and public recognition of aid flows, and so their long-term existence
is precarious. Chances are good that CRIGs, being registered firms, will survive, in the event of a member or leader
dropping out. The leader could be replaced by another from the community, thus mitigating the risk of orphaned
policies;
In the event that a CRIG disbands, the orphaned policies can be taken over by another CRIG that operates under
the same NGO.
Cons
Training is costly, especially in relation to premium values;
The transaction costs of the sales agent are cheap at first but increase as soon as the agent has sold to all the
peoples/he knows and needs to sell to strangers, especially to those living far away;
In many cases in the partnership model, when a claim arises the MFI or NGO investigates the claim, pays the
benefit immediately, and then claims it back from the insurer. Immediate payment of claims helps maintain client
confidence, and this is not possible under the CRIG system;
This model is new, and much more experience is needed before it can be reasonably evaluated.
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5]MICROINSURANCEPLAYERS IN INDIA:
y SBI Life Insurance Co. Ltd.
y Allianz Bajaj Life Insurance Co. Ltd.
y Om Kotak Mahindra Life Insurance Co. Ltd.
y ICICI Prudential Life Insurance Co. Ltd.
y HDFC Standard Life Insurance Co. Ltd.
y Birla Sun Life Insurance Co. Ltd.
y ING Vysya Life Insurance Co. Ltd.
y Tata AIG Life Insurance Co. Ltd.
y MetLife India Insurance Co. Pvt. Ltd.
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y AMP Sanmar Assurance Co. Ltd.
y Dabur CGU Life Insurance Co. Pvt. Ltd. (AVIVA)
y Max New York Life Insurance Co. Ltd.
y Life Insurance Corporation of India
Bajaj Allianz Product : Alp NiveshYojana(Life) url:
Jana Vikas Yojana(Life) url:
Saral Suraksha Yojana(Life) url:
Birla Sun Life Product : Bima Suraksha Super (Life) url:
Bima KavachYojana(Life) url:
Bima Dhan Sanchay(Life) url:
SBI LIFEPRODUCT : Grameen Shakthi(Life) url:
Grameen Super Suraksha(Life) url:
TATAAIG PRODUCT : Ayushman Yojana(Life) url:
Navkalyan Yojana(Life) url:
Sampoorn Bima Yojana(Life) url:
Sumangal Bima Yojana(Life) url:
ICICI PRUDENTIALPRODUCT: Sarv Jana Suraksha(Life) url:
6]MICROINSURANCE PRODUCTS
Micro-insurance, like regular insurance, may be offered for a wide variety of risks. These include both
health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of microinsurance
products exist to address these risks.
The most frequent micro insurance products are:
* Life micro insurance (and retirement saving plans)
* Health micro insurance (hospitalization, primary health care, maternity, etc.)
* Weather micro insurance (natural disaster)
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* Disability micro insurance
* Crop micro insurance
* Property micro insurance assets, livestock, housing.
Life Micro insurance
Life Insurance covers the policy holder and his/her family on the event of death and disability. It is an
important measure of financial security for low-income households and the insurance product currently
most widely available. Of all insurance types, life cover is, relatively speaking, the least difficult to
provide, because:
It is one of the most demanded forms of cover.
It is relatively easy to price compared to other types of insurance.
It is mostly resistant to problems of fraud and moral hazard.
It is not dependent, unlike many types of health insurance, on the existence
and efficient functioning of other infrastructure like clinics or hospitals.
It is a relatively low-risk product for the provider.
Low-income people consistently find demand for risk management tools that could help them cope with
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financial issues related to the death of a breadwinner. In these cases, this market is looking for (1) funds to
help the remaining family carry on; (2) Funds to assist with the funeral and the related ceremonies and
customs; and (3) coverage for the outstanding balance of a loan, if indebted.
Life micro-insurance (and retirement savings plans) provides coverage against the financial consequences
of old age or of the death of a breadwinner.
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7.2 Health Micro insurance
Health micro-insurance provides coverage against the financial consequences of ill health and maternity.
The financial consequences can take several forms: direct medical costs of prevention, care and cure (fees
for consultations, laboratory tests, medicines, hospitalization, delivery, etc.); direct non-medical costs such
as costs of transportation, food in case of hospitalization; and indirect costs (opportunity costs), as ill
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health and maternity usually entail a loss of productive time for both patients and caretakers. Health
micro-insurance schemes usually cover direct medical costs covering a predetermined list of risks (or
health services). Very few schemes provide cash benefits (income replacement) in case of ill health or
maternity. Health micro insurance offers the promise of helping communities pay for quality healthcare by
optimally pooling their own limited resources. Micro insurance schemes provide various levels of
coverage by design, to meet the needs and payment capacity of the policyholder
y Hospitalization only:
y Hospitalization and outpatient (comprehensive)y Limited outpatient/ community health services:y Chronic Illnessesy
HIV/AIDS
y Preventive health services
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7.3 Weather Micro insurance
The rural poor, economically dependent on agricultural production, face significant risks to their
livelihoods from catastrophic weather events that cause widespread crop failure, with implications not
only for the affected households, but for the whole rural economy. Weather or climate Insurance is an
agricultural insurance product and like crop insurance, often linked to index insurance. Index insurance is
an innovation that circumcision many of the fundamental problems that hamper the development of
insurance for weather risks in lower income areas.
7.4 Disability Micro insurance
Disability micro-insurance provides coverage against the financial consequences of disability, whether
temporary or permanent, depending on the contract. Disability is called temporary when the physical loss
is reversible and lasts for a limited period of time (generally up to three years) and is permanent when the
injury and loss cant be recovered.
7.5 Crop Micro insurance
Crop insurance is an agricultural insurance product and covers crops against perils such as hail or fire.
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Index instruments are often used for crop insurance to avoid moral hazard risks and is not connected to
one particular crop, but is based on the measurable occurrence of a specific Micro-insurance provides a
financial compensation in the case of crop failure generated by uncontrollable adverse events (e.g.,
drought, crop pest). peril.
7.6 Property Micro insurance
Property micro-insurance (assets, livestock, housing) provides coverage against the financial
consequences of the damage or loss of personal assets, work premises and tools (e.g. hut micro-insurance
against fire, theft of belongings, or death of livestock).Property and asset insurance covers against damage
of property and damage and/or loss of assets in the event of the covered perils.
Livestock insurance is an agricultural insurance and covers against loss of livestock owned by the policy
holder(s). Most livestock insurance schemes insure against a specific peril and can be paid out in the form
of a lump sum payment or livestock replacement.
Agricultural insurance aims to reduce the vulnerability of low-income households faced by natural
disasters like drought, flood or livestock affecting epidemics.
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7.7OtherInsuranceProducts
Micro insurance includes many specific products that are adapted to the needs and demands of lowincome
households and cover specific risks.
Insurance Company Rural Products
LIC Anmol jeevan, Jeevan aastha.
MetLife Met Vishwas
AVIVA Life Grameen Suraksha
TATA AIG Navkalyan Yojana, Ayushman Yojana, Sampoornabima, Sumangalbima.
Birla Sun life Insurance Bima Suraksha Super andBima Dhan Sanchay.
IFFCO TOKIO Janata bima Yojana, Mahila Suraksha Yojana, Jan
SwasthaBima and Jan Kalyan
Bima.
Max New York Life Max Suraksha, Easy term, Max mangal endowment,Max vriksha moneyback.
7]THEORETICALFRAMEWORK:
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NEED OF THE STUDY:
As we find that there is a huge potential of rural market which remains untapped, this
study will help the microinsurance companies(banks in particular) to understand the end to end aspect of rural
market and microinsurance products already in operation in India.This study will substantially help them topromote their products by using appropriate strategies for new markets & new products.
OBJECTIVE OF THE STUDY:
TO OBTAIN A CLEAR PICTURE OF PATHDOWN THE LINE ATTRIBUTE OF MICROINSURANCE IN
INDIA.
TO IDENTIFY THE PROS & CONS OF THE VARIOUS MICROINSURANCE PRODUCTS
TO IDENTIFY THE CHALLENGES & TO PROVIDE SUGGESTIONS FOR THE VARIOUS
MICROINSURANCE SCHEMES IN INDIA.
LIMTATIONS OF THE STUDY:
The time taken to complete this study is very less.
Since it is a secondary research, the data obtained through online & Journals are a little older(by 1 year).
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RESEARCH METHODOLOGY:
Research Methodology is a way to systematically solve the research problem, why the research has been
undertaken, how the research problem has been defined, what data has been adopted, why a particular technique
of analysis for data has been used.
RESEARCH DESIGN: Exploratory Research is undertaken.This research enables the insurance companiesto understand why the growth of microinsurance is a bit slow when compared to the urban insurance schemes
SAMPLE DESIGN:The sample design adopted for the study is Non Probability Sampling Design.
AREA OF STUDY:INDIA
POPULATION: Rural People
DATACOLLECTION METHOD:
SecondaryD
ata Collected through internet, journals,magazines, books and one on one discussion withMr.Shanmuganathan, Reliance Territory Manager .
UTILITY OR SIGNIFICANCE OF STUDY
The research study is a comprehensive MARKET OPPORTUNTITY
ANALYSIS(MOA).It analyses all the typical attributes of microinsurance & its features in India. The Research
enables the existing microinsurance players to understand the current market scenario & to design newer
products accordingly & to modify the existing products according to the market needs. It provides a prominent
base for the new entrants since the market is still in the Blue Ocean.
The rural market is a vast potential area and it could be of immense advantage if it is rightly
tapped. An almost same scenario existed before 3 decades & the appropriate utilization of the markets enabled
the Grameen Bank & a number of microfinance institutions to flourish. The first step over promotion of
microinsurance (To make the rural people understand the significance of microinsurance) is quite a difficulttask. But once the first step is crossed, the other steps are a smooth fall. This study provides substantial evidence
for the huge potential associated with the rural market in India.
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ANALYSIS & INTERPRETATION:
PERFORMANCE STATISTICS OF MICROINSURANCE:
Year
Group
2007-08 2008-09
Premium (INR Mn) 2012.75 2059.53
Growth rate 1.2% 2%
Propotn of tot New prem Income 1.70% 1.50%
Number of Policies 12.2 Mn 12.5 Mn
Growth rate 1.5% 3%
Proportions of New lives covered 42.67% 36.65%
YearNo. ofProd
approved
2006-07 5
2007-08 11
2008-09 6
2009-10 1
Total 23
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NEWPRODUCTS REGISTERED:
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The statistical data indicates that the growth of individual microinsurance is
quite significant while the growth of group microinsurance is comparatively low. This shows that themicroinsurance companies can particularly target individual consumers since group insurance requires complex
monitoring procedures.More of private microinsurance companies are entering the market every year which is a
good sign of liberalization.The claims ratio shows that the claims are manageable with the premiums collected
from customers.
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MICROINSURANCEPERFORMANCEBY DIFFERENTCOMPANIES:
2001-02
BajajAllianz
IngVys
ya
RelianceL
ife
SBILife
TATAAIG
HDFC
Standard
ICICIPrudentia
l
BirlaSunLife
Aviva
KotakMahindra
MaxNew
York
Metlife
LIC
Target
Achieved
0
2
4
6
8
10
12
14
16
18
20
Value (Rs. in Mn)
Target
Achieved
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2008 - 09
BajajAllianz
IngVysya
R
elianceLife
SBILife
T
ATAAIG
HDFC
Standard
ICICIP
rudential
Birla
SunLife
Aviva
KotakMahindra
MaxNew
York
Me
tlife
LIC
TargetAchieved
0
5
10
15
20
25
30
35
40
Value(Rs.in Mn)
Target
Achieved
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2001-02
2008-09
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P
a
g
e
Royal Sundaram
TATA AIG
Reliance
IFFCO TOKIO
ICICI Lombard
Bajaj Allianz
New India
National
United India
Oriental
Health Insurers
Star Health
Apollo DKV
Target
Achieved
0 1 23 4 5
6 7
ValueinMn(Rs)
RuralSectorBusin
ess(non-life)2001-02
Target
Achieved
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P
a
g
e
Royal Sundar
TATA AIG
Reliance
IFFCO TOKIO
ICICI Lombard
Bajaj Allianz
New India
National
United India
Oriental
Health Insurers
Star Health
Apollo DKV
Target
Achieved
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2001-02(PRIVATEPLAYERS)
2001- 02 (PUBLICPLAYERS)
2008-09(PRIVATEPLAYERS)
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2008-09(PRIVATEPLAYERS)
Challenges in marketing of micro insurance products:
THE MAIN CHALLENGE IS THE COVER UP THESE TO BASE DRAWBACKS AND CATER TO THIS SEGMENT OF
INDIA.
Its been seen that most of the companies dont get involved in the micro-insurance because they feel that
poor would not be able to afford and also the margin being involved. There had been many possible solutions
given to the government IRDA to make these companies in the micro-insurance. One of the suggestions may
be imposing in these companies if they dont to this section of the society.
There are many companies who have taken this obligation by IRDA positive spirit and have made one attempt
to cater to this content of the society. There had been many companies who have not come to the idea that
they are very margins in the rural section of the society and they have actually in out ways to cater to these
have been able to reach huge margins.
The challenges in Marketing of Insurance in the present scenario may be perceived:
Poor comprehension of insurance in terms of the key benefit and the process.
Lack of promotion, education, and information in our rural sector.
Weak distribution channels, inaccessibility of the agent, cost of reaching individual client may be relatively
high compared to the existing commission structure.
Cumbersome Processes.
Stoic belief in fate coupled with apathetic attitude and language barriers.
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Inclusive growth is now recognized as a necessary condition to ensure long term sustainability of growth in
India. Bringing in financial inclusion for the poor, rural and socially disadvantaged sections of the society is
now a major thrust area for policy interventions. The vulnerability of this category of households is very high
to various risks related to their lives and livelihood activities. Therefore, making insurance services available to
them becomes a key strategy to ensue ensure that sustainable social protection is offered to these
households.
The rural and social sector obligations and the micro-insurance regulations from IRDA are definitely the
important steps in the direction of ensuring financial inclusion and social protection for the poor. While
enabling regulations are in place and several insurance companies are in operations in India, there is still a
need for innovation in products and distribution system/channels for ensuring the penetration of micro-
insurance to the masses that need it. And along the way, there is also the challenge of educating the vast
majority of population on insurance that has to be addressed.
BASIX has already taken some initiatives in improving the access to micro-insurance for the poor. BASIX, a
livelihood promotion institute was set up long back in 1996, provided both financial and technical assistance
services to about half a million households spread over eight states in India. In October 2002, it began its
initiative to provide life insurance cover to customers who took micro credit. BASIX took a group policy called
Credit Plus from AVIVA which covered its borrower for 1.5 times the loan amount taken by him/her during the
loan tenor. In the absence of any past experience of mortality for the customer profile served by BASIX, the
insurance company priced the product conservatively at Rs. 8.62 per thousand sum insured.
By October 2004, an experience of covering more than 50,000 person years was completed. Now the positive
performance of product by this stage allowed the insurance company to lower the premium rate to Rs.6.89
per thousand sum insured. That has given a boom year later in 2005, over 100,000 person years were
covered cumulatively. The claims experience gained till then allowed the insurance company to reduce the
premium rate to Rs. 3.98 per thousand sum insured. Based on actual performance of the product, BASIX &
AVIVA could reduce the premium rate by more than 50% in a three year period.
This further allowed BASIX to extend cover to the spouses of the borrowers, and also add a limited health
insurance cover from Royal Sundaram as the premium was much more affordable now. This experience
proved that a sustainable approach to pricing of micro-insurance, combined with proper administration of the
products, allows in the long run adding more value to the small premiums paid by its customers. Another
unique feature which was introduced in this group product was that it provided the borrowers the
convenience to pay the insurance premium in small monthly installments to the insurance company along
with their loan repayments.
By the end of September, 2007, BASIX insured over 500,000 individuals under this micro-insurance policy and
its to cover over one million lives within the next one year. In partnership with insurance companies, BASIX
today offers a wide range of micro-insurance products covering life & health risks and also various assets in
rural areas like livestock, agriculture, and non-farm enterprises. In the past five years it has settled claims to
over 13,000 households amounting to over Rs.50 million. More than any other marketing effort, it is the
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demonstration effect created by the settlement of these claims that helps BASIX to enroll more number of
customers for micro-insurance.
Suggestions:How to overcome the challenges:
It indicated that micro-insurance initiatives can definitely alter the picture of low insurance penetration in
rural areas in India in immediate future but obviously there are certain challenges to be overcome to achieve
sustainable and scalable micro-insurance, rather than searching for actuarial data for gathering micro-insurance started.
Most poor have not had access to insurance in the past as in the present. This translates into absence of data
regarding frequencies of various risks faced by them. In the absence of this data, insurance companies are
often constrained to offer products as the availability of historical data is critical to the design of insurance
products. This perpetuates the problem of making available insurance products to the poor. To break this
deadlock, insurance companies should be willing to introduce products even in the absence of adequate
actuarial data. The incentives for doing in this would be:
It would help to build data on various risks for this segment of the market which is huge. This data and coupledwith it, the experience in administrating micro-insurance policies would save as an asset for the insurance
companies to expand their market in the huge and untapped rural market.
The marginal error in pricing micro-insurance policies in the absence of historical data would not seriously
affect the insurance companies as the financial value of the risk in micro-insurance policies is very marginal
compared to the traditional high value insurance companies. This marginal risk too can be mitigated by taking
a conservative approach to pricing of the micro-insurance policies in the inception years and in reviewing the
price, based in actual claims experience in subsequent years.
Reinsures are also beginning to recognize the potential of micro-insurance, in order to expand the overallinsurance market size. Munich Re and Swiss Re and GUC of India are examples of reinsures who have been
actively studying and promoting micro-insurance in the Indian insurance market. The willingness and the
interest of these reinsurers provide an opportunity to local insurance companies to enter into the micro-
insurance market, by ceding a portion of micro-insurance risks to global reinsurers. Reinsurers would be in a
position to absorb the risks in micro-insurance programs is still in a nascent stage.
Main Challenges:
1. Market research of the risks faced by the poor has to be done so that the actual demand of the insurance
can be assessed. This not only will spread the awareness about various insurance schemes available but
will also help the insurers to actually know the kind of risks these people are facing.
2. If rural people are already using some of the insurance products then the insurers should also try to
know the satisfaction level of the existing products they are using.
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3. The insurers should try to make products according to the demand of customers (low income group),
if it is not so then the new product will not attract them.
4. The amount of premium to be paid should be set according to the income these people receive or the
mode of premium payment should match their mode of receiving income.
indiastat.com MarchApril, 2009 8 socio - economic imprint
5. Panchayts and local groups should be involved at the time of claim payment as well as in educating
people.
6. Claim cheques should be distributed at publicly held functions to create awareness of insurance.
7. The schemes and advertisements should be displayed on the village walls that too in local language.
8. Insurance companies should tie up with rural retail chain distributors for the distribution of insurance
products. For e.g.: MetLife has tied up withH
yderabad based Vishwas retail distributor for the easy
ad fast distribution of products.
MICRO INSURANCEBENEFITS:
Following are the broad benefits of micro insurance
I. Simplicity
II. Basket coverage
III. Benefits in cash or in kind
IV. Cash- Back Benefits
I. Simplicity
Micro insurance benefits are kept simple for the following reasons:
a. Premiums are to be kept low and administrative cost should also be kept low so that the beneficiaries of the
schemes may reap the benefits of scheme.
b. Since, target population is often illiterate/uneducated and there is lack of awareness about insurance,
hence most of the micro insurance schemes are kept simple and easy to understand, devoid of any
complicated package.
c. To make the scheme simple for policyholders, there are no frills- attached to micro insurance
scheme/product.
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II. Basket Coverage:
In India, which is perhaps the worlds most sophisticated micro insurance market, there is trend towards
basket coverage whereby a number of benefits are thrown into one integrated insurance policy. For example,
VIMO SEWAS product covers death,hospitalization and asset loss benefits that come from two different
insurance companies into one comprehensive product. Bundled product delivers a more comprehensive risk
protection package while reducing expenses since marginal costs of additional benefits are minimal.
III. Benefit in cash or in kind:
Health care benefits are either reimbursed to policyholders (in cash) or in some cases some insurers are using
third party or cashless payment system whereby the micro insurer pays the health care provider directly.
Hence, here the insured does not have to pay anything from his pocket.For life insurance, benefits are always
paid in cash. In some of the life insurance policies, at the time of maturity of policy, lump sum payment of sum
insured is deferred, instead, The insurer uses this amount to pay annuities and only after the death of the life
assured are lump sum payments made to nominees.
IV. CashBack Benefits:
Generally, policyholders perceive insurance premium as unavoidable expenses if they pay premium for a long
time without receiving any benefit in return, without recognizing the importance of having enjoyed the
security and protection. To address this problem some features may be added to long term product such as:
Product Design for Micro InsuranceMicro Insurance
a. Money back policies: Generally, in life insurance policies which have long term maturity period, some
instalments are paid to policyholders after regular interval say after (4 yrs. or 5yrs). Theses are generally called
survival benefits.
b. Sometimes sum assured are paid to policyholders at the time of maturity, or premiums are returned and
even then insurance is kept alive so long as the policyholder survives.
DISADVANTAGES OF MICROINSURANCE:
a) High cost of Health insurance product as compared to life insurance product
b) Lack of interest among the members to buy a health insurance product .It also poses the question of should
the health insurance product be made compulsory and how can government intervene to provide the
insurance benefit to the poor at an affordable cost
c) Absence of a robust MIS to track details related to insured family members
d) Lack of competence on the part of the MFI to monitor the cases.
e) Inability of the MFIs to keep a track of the different documents related to health insurance claims
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f) Lack of technical competence of the MFI to understand the treatment for the illness involved which might
be inflated to increase the cost of treatment
g) Lack of proper awareness among the MFIs members about the inclusions and exclusions of the health
insurance product
h) The tendency of the MFI members of get benefit of each rupees spent in paying the insurance premium
i) In case of absence of networking hospitals , it might take long time to get a approval from the insurance
companies
CONCLUSION
The awareness of insurance products available among the low income groups is very low. Also they have
the assumption that insurance is a status symbol and it can only be afforded by the rich people. They dont
prefer giving a good chunk of their income to the insurance people to hedge themselves against the
unknown and uncertain future risk. So insurance institutions will have to take the initiative not only to
remove these misconceptions but in providing more attractive, useful and more affordable options. This
can be done only by overcoming the obstacles and increasing the awareness about micro insurance which
is a boon for low income people.
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REFERENCE
Journals:
1.Insurance Times,April 2005 Issue
May 2005 Issue
February 2006 Issue
2.Insurance Chronicle , June 2009 Issue
March2010 Issue
3.Life Insurance , June 2009 Issue
August 2009 Issue
URLLINKS
http://en.wikipedia.org/wiki/Microinsurance
http://www.authorstream.com/Presentation/aSGuest8311-128927-microinsurance-
entertainment-ppt-powerpoint/
http://bajajallianz.com/Corp/life/micro-alp-nivesh-yojana.jsp
http://bajajallianz.com/Corp/life/micro-jana-vikas-yojana.jsp
http://bajajallianz.com/Corp/life/micro-saral-suraksha-yojana.jsp
http://www.microinsuranceacademy.org/
http://www.microinsurancecentre.org/UI/Home.aspx
http://www.slideshare.net/akki.mats/micro-insurance
http://www.nabard.org/pdf/report_financial/Chap_XI.pdf
http://www.microfinanceforum.org/cm_data/Michael_Anthony.pdf