INTERNATIONAL INSTITUTE OF

PROFESSIONAL STUDIES

MAJOR RESEARCH PROJECT ON

MICROINSURANCE: PERCEPTION AND NEED OF LOW
INCOME GROUP
(With special reference to Indore)

Guided by: Submitted by:

Dr. Sujata Parwani Neeraj Kumar

Faculty IIPS IM-2K5-30

MBA (MS) 5yrs

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 CERTIFICATE
This is to certify that the research paper “MICROINSURANCE: perception and
need of low income group” was done with sincere efforts and dedication and is
being submitted by Mr. Neeraj Kumar of MBA (MS) 5 yrs as major Research
Project at International Institute of Professional Studies.

Dr. Sujata Parwani

Faculty, IIPS, DAVV, Indore

Research Guide

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 DECLARATION
I hereby declare that the project titled “MICROINSURANCE: perception and
need of low income group” is a genuine work done by me and the information
collected is authentic to the best of my knowledge. I take full responsibility for the
originality of my work and declare that it is not pirated in any manner which is
deemed illegal by law. My guide is fully exempted from any such responsibility as
mentioned above.

Neeraj Kumar

IM-2K5-30

MBA (MS) 5yrs

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 ACKNOWLEDGEMENT

I would like to express my gratitude to all who have shared their valuable time and
helped me directly or indirectly in the preparation of this project.

I am thankful to my project guide Dr. Sujata Parwani, who guided and helped me
through the course of the development of the project.

I would also express my sincere thanks to all my Friends and my seniors for their
timely support in the analysis part of this project report.

Neeraj Kumar

IM-2K5-30

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Contents
1. Introduction…………………………………………………...…………... 6

Salient features of Microinsurance ……………………………………….. 9

Industry Profile…………………………………...………………………...12

Major players in Microinsurance…………………………………………..14

IRDA (Microinsurance) Regulations, 2005…………………………...…...20

Microinsurance products in India……………..………………………….27

2. Literature Review…………………………………………………………36

3. Objective of study……………………………….………………………40

4. Research Methodology……………………………………….…………41

5. Data Analysis…………………………………………………………….43

6. Finding ……………………………………………………….………….56

7. Conclusion………………………………………………………….…….59

8. References…………………………………………………………………60

9. Appendix…………………………………………………………………61

INTRODUCTION

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India is enjoying rapid growth and benefits from a young population. Its middle
class is growing rapidly but 70 percent of the population is still rural, often very
poor, and handicapped by poor health and health services, and low literacy rates.
Although the type of risks faced by the poor such as that of death, illness, injury
and accident, are no different from those faced by others, they are more vulnerable
to such risks because of their economic circumstance. According to World Bank
study (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall
below the poverty line as a result of their stay in hospitals. The same study reports
that more than 40 percent of hospitalized patients take loans or sell assets to pay for
hospitalization.
When a poor’s family’s income generator dies, when a child of a poor family is
hospitalized, or home of a poor family is destroys by flood, earthquake or fire.
Every illness every accident or every natural disaster leads to deeper poverty to a
poor family. That’s where micro insurance comes in.
Microinsurance is the protection of low income households against specific
perils in exchange for premium payments proportionate to the likelihood and cost
of the risk involved. It is specifically designed for the protection of low income
people with affordable insurance products to help them cope with and recover from
common risk. A key strategy for enhancing economic development and alleviating
poverty is to make financial systems more inclusive, for example by improving
access to savings and credit services for un- and under-served markets. In part,
Poverty stems from the fact that low-income households and markets do not have
the same opportunities to finance investments, accumulate capital or protect assets
(including human assets). The poor’s heavy reliance on informal financial services
– such as moneylenders, under-the-mattress savings and mutual assistance societies
– can be inefficient and expensive, and may even exacerbate poverty. An inclusive
financial system makes insurance available to low-income persons. However,
many commercial insurers and policymakers believe that providing insurance to
the poor is the responsibility of the state. Although many governments have social
protection programmes, the targeting of these schemes is often ineffective. The
poorest segments do not always benefit from the subsidy, while people who can
afford insurance often find ways to access these benefits. In general, governments
have made little effort to shift the burden of risk-pooling to market-led schemes;
and the private sector (commercial insurers) seems to have little incentive to seek
out this market segment. In principle, micro-insurance works like any typical

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insurance business. But there are several things that differentiate it from normal
insurance. First, it is group insurance that can cover thousands of customers under
one contract. Second, micro-insurance requires an intermediary between the
customer and the insurance company. Preferably, this intermediary is a non-
governmental organization (NGO) or microfinance institution, for example a rural
bank that can handle the whole distribution and most of the administration process.
The few differences between traditional insurance and microinsurance are as
follows:
Traditional Insurance Microinsurance
Clients • Low risk environment • High risk exposure/
• Established insurance high vulnerability
culture • Weak insurance culture
Distribution • Sold by licensed • Sold by non traditional
model intermediaries or by intermediaries to clients
insurance companies with little experience of
directly to wealthy clients insurance
or companies that
understand insurance
Policies • Complex policy • Simple language
documents with many • Few ,if any exclusion
exclusions • Group policies
Premium • Good statistical data • Little historical data
calculation • Pricing based on • Group pricing
Individual risk • Very price sensitive
market
Premium • Monthly/quarterly/semi or • Frequent or irregular
collection annually collection payment adapted to
volatile cash flow of
clients
• Often linked with other
transaction (e.g. loan
repayment
Control of • Limited eligibility • Broad eligibility
insurance risk • Significant documentation • Limited but effective
(adverse

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selection, required control
moral hazards, • Screening such as medical • Insurance risk included
frauds) test is required in premium rather than
exclusion
• Linked to other service
(like credit)
Claims • Complicated process • Simple and fast
handling • Extensive verification procedure of small
documentation firms
• Efficient fraud control

Historically in India, a few micro-insurance schemes were initiated, either by

nongovernmental organizations (NGO) due to the felt need in the communities in
which these organizations were involved or by the trust hospitals. These schemes
have now gathered momentum partly due to the development of micro-finance
activity, and partly due to the regulation that makes it mandatory for all formal
insurance companies to extend their activities to rural and well-identified social
sector in the country (IRDA 2000). As a result, increasingly, micro-finance
institutions (MFIs) and NGOs are negotiating with the for-profit insurers for the
purchase of customized group or standardized individual insurance schemes for the
low-income people. Although the reach of such schemes is still very limited,
anywhere between 5 and 10 million individuals.
The UNDP report has analyzed six key issues pertinent to the growth of the micro-
insurance industry in India, capturing the concerns of different stakeholders as
indicated below:
(i) There are specific reasons for low demand for insurance in spite of intense need.
Suppliers have their own concerns which help to explain why there have been so
little efforts at market development. Consequently, the rural market is characterized
by limited and inappropriate services, inadequate information and capacity gaps.
(ii) There are challenges in product design, which has resulted in a mismatch
between needs and standard products on offer. Efforts at product development /
diversification have been limited.
(iii) Pricing, including willingness to pay and the availability of subsidies,
influence the market. In the absence of a historical data base on claims, premium

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calculations are based on remote macro aggregates and overcautious margins.
Building and sharing claims histories can help in aligning pricing decisions with
actuarial calculations, thereby reducing prices.
(iv) Difficulty in distribution is one of the most cited reasons for absence of rural
insurance. The high costs of penetrating rural markets, combined with
underutilization of available distribution channels, hinder the growth of rural
insurance services. This adds to costs, both, managerial and financial. Like
Inclusive credit, inclusive insurance is expected to be a “low ticket” business,
requiring volumes for viability.
(v) Cumbersome and inappropriate procedures inhibit the development of this
sector.
(vi)Contrasting perspectives of the insured and the insurers, lead to low
customization of products and low demand for what is available.

Salient features of Microinsurance:

1) USAGE: Though no figures are available on the exact size of the microinsurance
market in India, a rough estimate would place it at around 14m individuals, or
approximately 2% of the adult population. The low take-up can be ascribed to a
general lack of awareness of insurance as a financial product, even in the high to
middle-income market (a factor that emerged strongly from the focus group
findings). In addition a lack of rural financial services infrastructure for distribution
purposes, as well as a lack of actuarial data, inhibit the development of the
microinsurance market.

2) PLAYERS: Though the state-owned insurers still have the largest market share,
there are now a total of 32 licensed insurers. A feature that sets India apart from
other countries is the fact that microinsurance is mostly provided by large,
corporate insurers. This is due to a cautious regulatory approach – in response to
the fact that small and cooperative financial institutions have not performed well
historically – that limits the players in the non-bank field to large cap institutions.
The cooperative/mutual sector therefore does not feature as a provider of
microinsurance, though corporate insurers use it as a distribution channel. Informal
insurance is virtually exclusively the domain of formal entities such as health

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insurance schemes not registered for insurance purposes, rather than community
risk-pooling groups, and is estimated to only comprise 20% of the market.

3) PRODUCTS: Microinsurance in India is for the most part driven by compulsory

credit life insurance on the back of microfinance. Due to the limited reach of the
public health system, there is also a high natural demand for health insurance.
Many MFIs therefore provide a package of compulsory insurance cover to their
clients that are credit-linked – this includes life, asset as well as health insurance.
The cover is for the term of credit (usually 1 year). Health cover provided in such
packages is not comprehensive and it covers only certain listed diseases for which
hospitalization is required. Accident cover is a rider on life insurance and is a fixed
payout. India is therefore fairly unique in that compulsory insurance cover extends
beyond life cover. It is estimated that only 10% of microinsurance policies are sold
on a voluntary basis. Of these, up to 90% are endowment products rather than pure
risk products, indicating a preference among the lowincome population for
financial products that provide some payout regardless of whether a risk event has
occurred.

4) DISTRIBUTION: Distribution is an important part of the microinsurance

landscape in India. Regulations were issued in 2005 to create a microinsurance
agent category for the dedicated distribution of microinsurance. Currently such
agents however only distribute about 20% of all microinsurance. Instead,
distribution mainly takes place through MFIs who either do not qualify as
microinsurance agents under the regulations or who find the regulations too
restrictive, as partners or agents of formal insurers. we can distinguish four
institutional models for providing microinsurance which help us to understand how
corporate insurers, government bodies as well as other institutions, such as
microfinance institutions (MFIs) can play a role.
i) Partner –Agent Model: Commercial or public insurers together with MFIs or
nongovernmental organizations (NGOs) collaboratively develop the product. The
insurer absorbs the risk, and the MFI/NGO markets the product through its
established distribution network. This lowers the cost of distribution and thus
promotes affordability. This model of collaboration has become the dominant
approach to microinsurance in India and has encouraged many microfinance

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institutions to switch from a full-service model to the partner-agent model.
Examples of this scheme are AIDMI's Afat Vimo as well as SEWA, a
microinsurance pioneer, who offers its life, health and asset coverage in partnership
with various insurers.
ii) Community based Model: A group of people or local communities, MFIs, NGOs
and/ or cooperatives develop and distribute their own product, manage the risk pool
and absorb the risk. The Swayamkrushi Youth Charitable Organisation (YCO) in
Andhra Pradesh is an example of a community-based model. It is primarily a
savings and credit association with added insurance features. The cooperative's
8,100 members pay a yearly premium of Rs. 100 into a pool managed by the
cooperative and receive cover for death and property loss. The life insurance
benefit is Rs. 15,000 for a natural death, and Rs. 30,000 in the event of an
accidental death.
iii) In the in-house or full-service model: A MFI or NGO runs its own insurance
scheme for its clients and any profit or loss is absorbed by the MFI. The system is
not very common anymore but it still exists in some organizations such as
SPANDANA, located in Guntur, Andhra Pradesh. This scheme started in urban
areas and then moved to rural ones and has expanded enormously in recent years.
iv) Provider model: Banks and other providers of microfinance can directly offer
or require insurance contracts. These are usually coupled with credit, for example,
to insure against default risk. This model is used widely in the general insurance
market but high transaction costs and low ability to pay premiums inhibit its
extensive use in the field of disaster insurance for the poor.

INDUSTRY PROFILE
Life Insurance
In India, Insurance is a national matter, in which life and general insurance is yet a
booming sector with huge possibilities for different global companies, as life

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insurance premiums account to 2.5% and general insurance premiums account to
0.65% of India's GDP. The Indian Insurance sector has gone through several
phases and changes, especially after 1999, when the Govt. of India opened up the
insurance sector for private companies to solicit insurance, allowing FDI up to
26%. Since then, the Insurance sector in India is considered as a flourishing market
amongst global insurance companies. However, the largest life insurance company
in India is still owned by the government. The history of Insurance in India dates
back to 1818, when Oriental Life Insurance Company was established by
Europeans in Kolkata to cater to their requirements. Nevertheless, there was
discrimination among the life of foreigners and Indians, as higher premiums were
charged from the latter. In 1870, Indians took a sigh of relief when Bombay Mutual
Life Assurance Society, the first Indian insurance company covered Indian lives at
normal rates. Onset of the 20th century brought a drastic change in the Insurance
sector. In 1912, the Govt. of India passed two acts - the Life Insurance Companies
Act, and the Provident Fund Act - to regulate the insurance business. National
Insurance Company Ltd, founded in 1906, is the oldest existing insurance company
in India. Earlier, the Insurance sector had only two state insurers - Life Insurers i.e.
Life Insurance Corporation of India (LIC), and General Insurers i.e. General
Insurance Corporation of India (GIC). In December 2000, these subsidiaries were
de-linked from parent company and were declared independent insurance
companies: Oriental Insurance Company Limited, New India Assurance Company
Limited, National Insurance Company Limited and United India Insurance
Company Limited.

General Insurance
The General Insurance industry in India dates back to the Industrial Revolution and
the subsequent increase in trade across the oceans in the 17th century. As for Life
Insurance, the British brought General Insurance to India, and a similar path was
followed in the development of this industry. A number of private companies were

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in existence for years and years until, in 1971, the Indian Government decided that
the public interest would be served by nationalizing the industry, merging all the
107 companies into four companies, depending on the sort of business transacted
(Marine, Fire, Miscellaneous). These were the National Insurance Company Ltd.,
the Oriental Insurance Company Ltd., the New India Assurance Company Ltd., and
the United India Insurance Company Ltd. located in Calcutta, New Delhi, Bombay
and Madras respectively. The General Insurance Corporation (GIC) was set up in
1972 as a ‘holding’ company, having these four companies as its subsidiaries.

MAJOR PLAYERS IN MICROINSURANCE

• Life Insurance Corporation of India (LIC)

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Life Insurance Corporation of India (LIC) was established on 1 September 1956 to
spread the message of life insurance in the country and mobilise people’s savings
for nation-building activities. LIC with its central office in Mumbai and seven
zonal offices at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and
Bhopal, operates through 100 divisional offices in important cities and 2,048
branch offices. LIC has 5.59 lakh active agents spread over the country.
The Corporation also transacts business abroad and has offices in Fiji, Mauritius
and United Kingdom. LIC is associated with joint ventures abroad in the field of
insurance, namely, Ken-India Assurance Company Limited, Nairobi; United
Oriental Assurance Company Limited, Kuala Lumpur; and Life Insurance
Corporation (International), E.C. Bahrain. It has also entered into an agreement
with the Sun Life (UK) for marketing unit linked life insurance and pension
policies in U.K.
In 1995-96, LIC had a total income from premium and investments of $ 5 Billion
while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's
income grew at a healthy average of 10 per cent as against the industry's 6.7 per
cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).
LIC has even provided insurance cover to five million people living below the
poverty line, with 50 per cent subsidy in the premium rates. LIC's claims settlement
ratio at 95 per cent and GIC's at 74 per cent are higher than that of global average
of 40 per cent. Compounded annual growth rate for Life insurance business has
been 19.22 per cent per annum.

The introduction of private players in the industry has added to the colors in the
dull industry. The initiatives taken by the private players are very competitive and
have given immense competition to the on time monopoly of the market LIC. Since
the advent of the private players in the market the industry has seen new and
innovative steps taken by the players in this sector. The new players have improved

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the service quality of the insurance. As a result LIC down the years have seen the
declining phase in its career. The market share was distributed among the private
players. Though LIC still holds the 75% of the insurance sector but the upcoming
natures of these private players are enough to give more competition to LIC in the
near future. LIC market share has decreased from 95% (2002-03) to 82 %( 2004-
05).

• ICICI Prudential Life Insurance Company Ltd.

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a
premier financial powerhouse and prudential plc, a leading international financial
services group headquartered in the United Kingdom. ICICI Prudential was
amongst the first private sector insurance companies to begin operations in
December 2000 after receiving approval from Insurance Regulatory Development
Authority (IRDA). The company has a network of about 56,000 advisors; as well
as 7 banc assurance and 150 corporate agent tie-ups.

• Birla Sun Life Insurance Company Ltd.

Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint
venture between the Aditya Birla Group, a well known and trusted name globally
amongst Indian conglomerates and Sun Life Financial Inc, leading international
financial services organization from Canada. The local knowledge of the Aditya
Birla Group combined with the domain expertise of Sun Life Financial Inc., offers
a formidable protection for its customers’ future.

• Tata AIG Life Insurance Company Ltd.

Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of life
insurance products to individuals, associations and businesses of all sizes, with a
wide variety of additional coverage to ensure our customers can find an insurance
product to meet their needs.

Tata AIG Life is a joint venture of the Tata Group and American International

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Group, Inc. (AIG). They operate in 11 states with a specific relationship
management team for each state. A dedicated & trained sales and marketing team
manages the front end of the Micro insurance program. Our micro insurance
distribution model collaborates with NGO’s (Non-governmental organisations) and
Rural organizations with community level SHG (Self Help Group) women advisors
who provide insurance advisory services to the rural customers at their doorstep.
• SBI Life Insurance Company Limited
SBI Life Insurance Company Limited is a joint venture between the State Bank of
India and BNP Paribas Assurance. SBI Life Insurance is registered with an
authorized capital of Rs 2000 crores and a Paid-up capital of Rs 1000 Crores. SBI
owns 74% of the total capital and BNP Paribas Assurance the remaining 26%.
State Bank of India enjoys the largest banking franchise in India. Along with its 6
Associate Banks, SBI Group has the unrivalled strength of over 16,000 branches
across the country, arguably the largest in the world.
SBI Life has a unique multi-distribution model encompassing vibrant
Bancassurance, Retail Agency, Institutional Alliances and Corporate Solutions
distribution channels. SBI Life extensively leverages the SBI Group as a platform
for cross-selling insurance products along with its numerous banking product
packages such as housing loans and personal loans. SBI’s access to over 100
million accounts across the country provides a vibrant base for insurance
penetration across every region and economic strata in the country ensuring true
financial inclusion.

• ING Vysya Life Insurance Company Private Limited

ING Vysya Life Insurance (ING Life), a part of the ING Group the world’s largest
financial services corporation entered the private life insurance industry in India in
September 2001. Headquartered at Bangalore, ING Life India is staffed by over
6,000 employees and services more than 10 lakhs customers.
ING Life India is a joint venture between ING Group (ING Insurance International
B.V.) & Exide Industries. ING Life has a pan India network, and distributes its
products through two channels, the Tied Agency Force and the Alternate Channel.
The Tied Agency force comprises of over 60,000 ING Life Advisors, spread across
the country. The channel has branches in 234 cities, and 366 sales teams across the

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country. The Alternate Channels business within ING Life is one of the fastest
growing distribution channels. The company currently has tie ups with over 200
cooperative bank across the country. The Alternate Channels division has
Bancassurance (ING Vysya Bank), Referral Banks, Corporate Agents, Brokers and
SMINCE.

• Allianz Bajaj Life Insurance Company Ltd.

Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest
Insurance Company and Bajaj Finserv. Allianz SE is a leading insurance
conglomerate globally and one of the largest asset managers in the world,
managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz SE
has over 115 years of financial experience and is present in over 70 countries
around the world.

• Metlife India Insurance Company Pvt. Ltd.

MetLife India Insurance Company Limited (MetLife) is an affiliate of MetLife,
Inc. and was incorporated as a joint venture between MetLife International
Holdings, Inc., The Jammu and Kashmir Bank, M. Pallonji and Co. Private Limited
and other private investors. MetLife is one of the fastest growing life insurance
companies in the country. It serves its customers by offering a range of innovative
products to individuals and group customers at more than 600 locations through its
bank partners and company-owned offices. MetLife has more than 50,000
Financial Advisors, who help customers achieve peace of mind across the length
and breadth of the country.

• Aviva Life Insurance Company India Limited

Aviva India is a joint venture between one of the country’s oldest and largest
groups, Dabur, and Aviva plc, the UK's largest insurance group, whose association
with India dates back to 1834. With a strong sales force of over 30,000 Financial

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Planning Advisers (FPAs), we have initiated and pioneered many innovative sales
approaches, including the concept of Bancassurance and Financial Health Check
services. We are among the first companies to introduce the contemporary unit-
linked products With a wide distribution network of 195 branches and close to 40
Bancassurance partnerships, we are spread across nearly 3,000 towns and cities in
India.

• Sahara India life insurance

The Sahara Pariwar’s latest foray is in the field of Life Insurance. The Pariwar’s
life insurance company – Sahara India Life Insurance Company Ltd.- has been
granted licence by the insurance regulator – the IRDA on 6th February 2004. With
this approval Sahara India Life Insurance Company Ltd. becomes the first wholly
and purely Indian company, without any foreign collaboration to enter the Indian
Life insurance market. The launch is with an initial paid up capital of 157 crores.
The Chairman of the company is Shri Subrata Roy Sahara who is also the
Chairman of Sahara Pariwar.

• Shriram life insurance company

Shriram Life Insurance Company is the joint venture between the Shriram Group
and the Sanlam Group. The Shriram Group is one of the largest and well-respected
financial services conglomerates in India. The Group's main line of activities in
financial services include chit fund, truck financing, consumer durable financing,
stock broking, insurance broking and life insurance.
The Group has a customer base of 30 lacs chit subscribers and investors and
operates through a network of 630 offices all over the country. The Group has the
largest agency force in the private sector consisting of more than 75,000 loyal and
dedicated agents.

• IDBI Fortis Life Insurance Company Ltd.

IDBI Fortis Life Insurance Co Ltd is a joint-venture of IDBI Bank, India’s premier
development and commercial bank, Federal Bank, one of India’s leading private
sector banks and Fortis Insurance International, a multinational insurance giant

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based out of Europe. In this venture, IDBI owns 48% equity while Federal Bank
and Fortis own 26% equity each. Having started in March 2008, in just five months
of inception we became one of the fastest growing new insurance companies to
garner Rs 100 Cr in premiums. The company offers its services through a vast
nationwide network across the branches of IDBI Bank and Federal Bank in
addition to a sizeable network of advisors and partners.

• DLF Pramerica Life Insurance Co. Ltd.

DLF Pramerica Life Insurance Company Ltd. (DPLI) is a joint venture between
DLF Limited and Prudential International Insurance Holdings, Ltd. (referred to
hereafter as "PIIH"). PIIH is a fully owned subsidiary of Prudential Financial, Inc.
(referred to hereafter as "PFI"). The combination of the strength of the DLF brand
and PFI's insurance expertise provide the strongest possible foundations for DPLI
to succeed in the rapidly growing Indian life insurance market.

• Star Union Dai-ichi Life Insurance Co. Ltd.,

Bank of India and Union Bank of India, two leading Public Sector Banks in India
and the Dai-ichi Mutual Life Insurance Company, a leading Japanese Company in
the Life Insurance market, have floated a Joint Venture Company, "Star Union
Dai-ichi Life Insurance Co. Ltd." for undertaking Life Insurance Business in India.
The Company has a capital stake of 51% by BOI, 26% by Dai-ichi Life and 23%
by Union Bank. The Company has authorized capital of Rs. 250.00 Crores.
Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian
Financial Sector coupled with the Dai-ichi Life’s strong domain expertise is
expected, to be a strong player in the Indian Life Insurance market in a short time.
The Company offers various products to serve all strata of the society.

IRDA (Microinsurance) Regulations,2005

Regulations on micro-insurance were officially gazette by the IRDA on 30

November 2005. The salient features of the regulation are presented below

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The regulation defines micro-insurance products
The regulation provides definitions of micro-insurance products covering life and
general insurance “General micro insurance product” means any health insurance
contract, any contract covering the belongings, such as, hut, livestock or tools or
instruments or any personal accident contract, either on individual or group basis,
as per terms stated in Schedule-I appended to these regulations. “Life micro
insurance product” means any term insurance contract with or without return of
premium, and endowment insurance contract or health insurance contract, with our
without an accident benefit rider, either on individual or group basis, as per terms
stated in Schedule-II appended to these regulations.
(a) “micro-insurance policy” means an insurance policy sold under a plan which
has been specifically approved by the Authority as a micro insurance Product.
(b) “micro-insurance product” includes a general micro-insurance product or life
insurance product, proposal form and all marketing materials in respect thereof.
(c) Every insurer shall be subject to the “file and use” procedure with the IRDA.
(d) No one other than insurer – be it a micro-insurance agent or anyone else – can
underwrite a micro-insurance proposal.
(e) Rural business transacted under micro-insurance by an insurer will be counted
for quota fulfillment both for rural as well as social sector obligations.
It promotes the extensive use of intermediaries
The micro-insurance regulations promote extensive use of intermediaries by the
insurers for selling and servicing various micro-insurance products. The regulation
also creates a new intermediary called the micro-insurance agent. The regulation
clearly defines MI agents and has imposed minima in terms of the number of years
of experience (at least 3) of working with low income groups. It also emphasises
the need for such agents to have appropriate aims and objectives, a good track
record, transparency and accountability stated in the bye-laws with demonstrated
involvement of committed people. This has been done in order to prevent the
engagement of unscrupulous operators in the activity. However, the onus for the
selection of appropriate MI agents and their capacity building lies with the
insurance company.
Intermediary: The micro insurance agent, can be a Non-Governmental
Organization (NGO), MFI or other community organization such as Self Help
Groups (SHG) appointed by an insurer to distribute micro-insurance through

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specified persons. Micro-insurance agents enter into a “deed of agreement” with
the insurer. They abide by the code of conduct defined by the IRDA and attend 25
hours of training (down from 100 hours originally required for conventional
insurance agents but now reduced to 50 hours) in the local language at the expense
of the insurer. There is no qualifying examination, unlike the case of ordinary
insurance agents.
According to the regulation,
(a) Non-Government Organization (NGO) means a non-profit organization
registered as a society under any law, and has been working at least for three years
with marginalized groups, with proven track record, clearly stated aims and
objectives, transparency and accountability as outlined in its memorandum, rule,
by-laws or regulations as the case may be, and demonstrates involvement of
committed people.
(b) Self Help Groups (SHG) means any informal group consisting of ten to twenty
or more persons and has been working at least for three years with marginalized
groups, with proven track record, clearly stated aims and objectives, transparency
and accountability as outlined in its memorandum, rules, by-laws or regulations, as
the case may be, and demonstrates involvement of committed people.
(c) Micro-Finance Institutions (MFI) means any institution or entity or association
registered under any law for the registration of societies or co-operative societies,
as the case may be, inter alia, for sanctioning loan/finance to its members.
IRDA has recognized four categories of intermediaries: brokers, agents, corporate
agents, and Micro-insurance (MI) agents. Categories other than MI agents may sell
micro-insurance but they do not benefit from the concessions allowed for the MI
agents. However, a micro-insurance agent shall not distribute any product other
than a micro insurance product.
The regulation provides for MI agents to perform the following functions
(a) Collection of proposal forms
(b) Collection of self declaration from the proposer that he/she is in good health.
(c) Collection and remittance of premium
(d) Distribution of policy documents
(e) Maintenance of registers of all those insured and their dependants covered
under the micro insurance scheme, together with details of name, sex, age, address,
nominees and thumb impression/signature of the policyholder.
(f) Assistance in the settlement of claims

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(g) Ensuring nomination to be made by the insured
(h) Any policy administration service
The regulation’s attempt to manage the cost of intermediation
A cap has been put on commission, between 10 and 20% of premiums per year
according to type and mode of insurance payment, which is in excess of what
conventional agents would normally earn. The rates of commission applicable to
MI agents are
Life insurance business General insurance business
Single Premium policies – 15% of the 15% of the premium
single premium
Non-single premium policies – 20% of
the premium for all the years of
the premium paying term
The commission rates prescribed above are more liberal than the 60% (of a single
year’s premium) payable under ordinary business in the case of life insurance and
10% in the case of general insurance. This is based on the logic that an MI agent
has to perform a number of functions which mainstream agents do not have to
undertake. MI agents may thus receive commission at different rates from those
applicable to other intermediaries. The commission structure is, however, changed
to remove up-front payments in favour of payments upon the performance of
certain functions. For group insurance products, the insurer may decide the
commission subject to the overall limits specified by IRDA.
MI agents may route premiums and claims payments through their books (such as
receive individual premiums and pay it over as one amount). This is not allowed
for other intermediaries and is considered important in managing the cost of
intermediation.

Collaborations between life insurers and non-life insurers

The regulations allow for the bundling of life and non-life elements in one single
product provided there is clear separation of premium and risk at the insurer’s
level. Where an insurer carrying on life insurance business offers any general
micro-insurance product, he shall have a tie-up with the insurer carrying on general

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insurance business for this purpose, and subject to the provisions of section 64 VB
of the Insurance Act (governing the remittance of the premium amount to the
insurance company), the premium attributable to the general micro-insurance
product may be collected from the prospect (proposer) by the insurer carrying on
life insurance business, either directly or through any of the distributing entities of
micro-insurance products. In the event of any claim in regard to general micro-
insurance, the insurer carrying on life business or the agent shall forward the claim
to the insurer carrying on general insurance business. The same arrangement holds
true for life claims faced by non-life vendors of a micro-insurance product. In both
cases, the respective primary first insurer would render all assistance in claim
settlement by coordinating with his opposite number.

The limitations of the micro-insurance regulations

The impact of the MI regulations is likely to be limited for a number of reasons
Definition of MI agents: The regulations define MI agents to include NGOs SHGs
and MFIs. The definition of MFI is, however, limited to societies, trusts and
cooperatives societies and thus excludes a large proportion of MFIs operating
through other legal forms (like for-profit and not-forprofit companies). The result is
that all profit-driven corporate intermediaries as well as some of the largest
aggregators in micro-insurance are currently excluded from benefiting from the MI
regulations. Though the formalisation of MI agents as a type has been welcomed
by the insurance companies as a positive beginning, the exclusion of MFIs
registered under the Companies Act10 is viewed with concern
Limitation on the number of insurance companies an MFI can work with: The MI
Regulations restrict a MI agent to working with one life and/or one general insurer
respectively. This is problematic and does not accommodate models currently used
in the MI market. Most insurers do not want to underwrite all risks and tend to
specialize in particular types of risk. For example if a MI agent is tied to
specialized health insurer, they cannot work with another general insurer to sell
other asset insurance products.
Know Your Customer (KYC) / Anti Money Laundering (AML) Norms: Micro
insurance agents have expressed their concern at the difficulties faced by them in
accessing KYC documents from proposers in rural areas, such as electoral identity
card or ration card or electricity bill which are generally accepted as proves of
residence.

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Commission capping: MI commissions are capped at 20% per annum for life
across the term of the policy. Non-MI products typically pay commission on a
front-loaded basis with 30-35% in year one with 7% in year 2. The up-front
structure provides little incentive for renewals, particularly as premiums have to be
collected in cash/ cheque. At the same time 20% may not be enough to incentivize
sales. It is a common (but illegal under Section 48 of the Insurance Act) practice
for agents to use the higher first year commission to give a discount to
policyholders in the first year. Some thought would need to be given to the
minimum absolute cost to sell a policy and the commission structures needed to
ensure that this could be covered. Lapse rates of 30-40% are much higher for MI
than traditional policies. This is because the cost/effort of premium
collection/renewal exceeds the commission. Besides, the incidence of the service
tax of 12.36% payable by the agents is a further point of dissatisfaction for the MI
agents, especially considering the long distance travel they have to make in rural
areas to procure and service business.
Conflicting regulations: Enabling provisions introduced in the MI regulations are
undermined by restrictions in RBI regulations. For example, the insurance
regulation allows receipt of premiums in the form of money instruments (not cash),
which must be remitted within 24 hours. RBI in 2002, however, issued regulations
stating that certain types of NBFCs (including most MFIs) may not route any
premiums through their books. The implication is that the NBFC intermediary
must make out demand drafts for individual transactions and send them to the
insurer. Significant efficiencies can be gained if these intermediaries were to be
allowed to process all the payments through their systems and make a single
payment to insurers.
Rural Regional Banks (RRB) and Cooperative Banks: It is worth further
examination as to whether RRB who have been given the status of corporate agents
and the cooperative banks can be brought into the ambit of MI agents in view of
their outreach in rural areas.

However the micro-insurance regulation has been facilitative in…

Reducing the mandatory training requirements for insurance agents from 50 hours
to just 25 hours in the case of MI. Most insurance companies have welcomed this
move but feel that the technological innovations in developing better systems at the
level of the MI agent and real awareness creation amongst potential clients/policy

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holders are a much larger challenge that would go a long way in developing the
micro-insurance market.
Allowing MI agents to take greater responsibilities: The regulator has allowed MI
agents to take up greater responsibilities than are permitted to mainstream agents,
for example, the collection of premiums on behalf of the insurance companies and
the servicing of claims. IRDA believes that if the MI agents are able to carry out
these functions effectively, it will help in minimizing the transaction costs that the
insurance companies have to incur, thereby leading to lower premiums for the
clients in the long run.
Treating benignly apparent infringements of the regulations by community-based
organisations: There are restrictive entry norms for organizations that are explicitly
licensed to provide insurance to the general public. Insurance companies need a
large amount of start-up capital of Rs100 crore to get a license from the IRDA.
This entry norm is applicable for community based insurance as well if they want
to underwrite risk. IRDA has treated the existing cases of in-house insurance with
benign neglect. Essentially, this approach is dictated by the relatively limited
experience and low supervisory capacity of the IRDA. Compared to the vast
numbers of people in need of social protection in India, the coverage provided by
both formal and, even more so, by community insurance programmes is so low that
the role of regulation seems fairly limited. The creation of a two-tier space where
the insurance companies are regulated and supervised and community insurance is
not is de facto recognition of this fact.
The IRDA’s approach is that it is pointless to have regulations that are not properly
enforced as long as community insurance agencies provide cover to a limited
population that is clearly defined (either geographically or socially or through other
forms of association), they can be allowed to function without being regulated. It is
here that the regulations are not very clear for MFIs or NGOs, where the
membership cannot be clearly defined. Although generally limited within a
geographical territory, the scale of some MFIs or NGOs is significant and spans
across several states.
Taxation issues
By a notification of 16 July 2001, the Government of India brought insurance
auxiliary services under the ambit of Service Tax. The following important
definitions and references are relevant in this context.

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As per section 65(31), “insurance auxiliary service” means any service provided by
an actuary, an intermediary or insurance intermediary or an insurance agent in
relation to general insurance business and includes risk assessment, claim
settlement, survey and loss assessment. ‘Taxable event and scope of service’ means
any service provided to a policyholder or insurer by an actuary or intermediary or
insurance intermediary or insurance agent, in relation to the insurance auxiliary
service.
The service providers are insurance agents, insurance surveyors and loss adjusters,
actuaries and insurance consultants. In the case of insurance surveyors and loss
adjusters, actuaries and insurance consultants, the service is provided mainly to the
insurance companies (insurer) while in the case of insurance agents, the service is
provided to both the insurer and the policy holder. Service Tax is liable to be paid
by the insurance auxiliary service provider except in case of insurance agents.
Insurance agents normally do not charge the policyholder. However, the insurance
company pays the agent a commission (usually as a percentage of the insurance
premium) on a periodic basis. In the case of an insurance agent, it has been
provided in the Service Tax Rules that the person liable to pay Service Tax will be
the concerned insurance company who has appointed the agent However as
practised by the companies, no service tax is paid by the agents. The service tax is
payable by the person whose life is assured and the current rate is 12.36 % on the
premium paid to the life insurance companies. If an agent’s accumulated
commission for the year reaches Rs 20,000 tax is deducted (at source) by the
company at the rate of 11.33% (as prescribed by the income tax rules) from the
commission of the agent. The service tax on premiums adds to the price of
insurance. An assessment of the impact of this tax on the cost of micro-insurance is
needed. From the perspective of inclusion, enabling the penetration of insurance
services to low income people and in rural areas, there could be a case for
exempting micro-insurance from the payment of service tax.

MICROINSURANCE PRODUCTS IN INDIA

As from above we can see there are 23 life insurance companies are present in
India but only 14 companies are providing microinsurance products this clearly
give an idea of low attraction of majority of companies towards these products.
Below is the list of microinsurance products along with the name of companies:

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Name of Insurer Name of the Product Product UIN No.

AVIVA Life Ins. Co. India Pvt. Grameen Suraksha 122N039V01

Ltd.

Bajaj Allianz Life Insurance Co. Bajaj Allianz Jana Vikas Yojana 116N047V01
Ltd Bajaj Allianz Saral Suraksha Yojana 116N048V01
Bajaj Allianz Alp Nivesh Yojana 116N049V01

Birla Sun Life Insurance Co. Ltd. Birla Sun Life Insurance Bima 109N032V01
Suraksha Super 109N033V01
Birla Sun Life Insurance Bima Dhan
Sanchay

DLF Pramerica Life Insurance DLF Pramerica Sarv Suraksha 140N007V01

Co. Ltd

ICICI Prudential Life Insurance ICICI Pru Sarv Jana Suraksha 105N081V01
Co. Ltd

IDBI Fortis Life Insurance Co. IDBI Fortis Group Microsurance Plan 135N004V01
Ltd.

ING Vysya Life Insurance Co. ING Vysya Saral Suraksha 114N032V01
Ltd.

Life Insurance Corporation of LIC's Jeevan Madhur 512N240V01

India LIC's Jeevan Mangal 512N257V01

Met Life India Met Vishwas 117N042V01

Sahara India Life Insurance Co. Sahara Sahayog (Micro Endowment 127N010V01
Ltd. Insurance without profit plan)

SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti 111N038V01
SBI Life Grameen Super Suraksha 111N039V01

Shriram Life Insurance Co. Ltd. Shri Sahay 128N011V01

Sri Sahay (AP) 128N012V01

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Star Union Dai-ichi Life SUD Life Paraspar Suraksha Plan 142N009V01
Insurance Co

TATA AIG Life Insurance Co. Ayushman Yojana 110N042V01

Ltd. Navkalyan Yojana 110N043V01
Sampoorn Bima Yojana 110N044V01
Tata AIG Sumangal Bima Yojana 110N061V01

Bajaj Allianz Alp Nivesh Yojana

An endowment plan with Life cover and Maturity benefit equal to sum assured +
vested bonus.

• Life cover and Maturity benefit equal to sum assured + vested bonus
• Guaranteed Surrender Value.
• Avail additional benefits including Accidental Death Benefit & Accidental
Permanent Total / Partial Disability Benefit.

Bajaj Allianz Jana Vikas Yojana

A single premium plan with maturity benefit of 125% of the single premium
payable on survival till the end of the policy term.

• Life Cover.
• Maturity Benefit of 125%of the single premium payable on survival till the
end of the policy term.
• Guaranteed Surrender Value.

Bajaj Allianz Saral Suraksha Yojana

The Most economical term insurance policy with return of premium on maturity.

• Return of premium on maturity

• Guaranteed Surrender Value

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 • Avail additional benefits including Accidental Death Benefit & Accidental
Permanent Total / Partial Disability Benefit

AVIVA Life’s ‘Grameen Suraksha’

A micro-insurance rural term insurance plan for BASIX customers. This traditional
term plan has been developed with the objective of giving the rural policyholder
maximum benefits.
• the policyholder pays premium for a period of just two years and then avails
the term benefit for 5 or 10 years

• The minimum sum assured is Rs 5,000 and the maximum is Rs 50,000.

• In addition, tax benefits can be availed as per Section 80C of the Income Tax
Act, 1961.

BSLI Bima Dhan Sanchay

• A Win-Win Situation Security plus Guarantee. The refund of premiums paid

by you is guaranteed with 3 maturity options.

• Sum Assured Rs.5,000/- to Rs.50,000/-

• Maximum Maturity age 65 years

• A grace period of 180 days from the premium due date will be available to
you

• An option for additional Sum Assured is available provided the base sum
assured is minimum Rs 10,000/- and the sum assured under the rider should
not exceed the sum assured under the base product if the death occurs due to
accident

BSLI Bima Suraksha Super

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BSLI Bima Suraksha Super provides you life insurance cover for which you have
to pay regular premium. The nominee gets the sum assured in the unfortunate
event of death.

• BSLI Bima Suraksha Super provides you life insurance cover for which you
have to pay regular premium. The nominee gets the sum assured in the
unfortunate event of death.

• Your premium depends on your age, gender, Sum Assured and benefit
period chosen.

• At maturity, there is no benefit payable.

• An option for additional Sum Assured is available provided the base sum
assured is greater than or equal to 10,000/- if the death occurs due to
accident.

ICICI Pru Sarv Jana Suraksha

ICICI Prudential Life Insurance presents its first Micro Insurance Plan - Sarv Jana
Suraksha – especially designed for rural population which provides total security to
you and your family, at very affordable cost.
• Min / Max entry age-18 years - 55 years
• Min/Max Sum Assured- Rs. 5,000 -Rs. 50,000
• Policy Term -5 years
• Cover ceasing age -60 years

SBI Life insuance’s Grameen Super Suraksha and Grameen Shakti

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SBI Life insuance’s Grameen Super Suraksha and Grameen Shakti products have
been designed to meet the requirements of the weaker sections of the rural
population.
Grameen Super Suraksha is a micro insurance pure term product and Grameen
Shakti is micro insurance product with ROP.
Grameen Shakti is a dual benefit life insurance product to safe guard the group
member which provides Protection with maturity benefit at affordable rates. It
offers to the “Family” of the group member “Protection” & it offers to the “Group
member” survival Benefit.
Duration of plan: 5 years or 10 years as per the Group Master policyholders
choice.
Age at entry: Minimum 18 years age last birthday.
Maximum 50 years age last birthday.
Sum assured: Rs.5, 000/- to Rs.50, 000/- (in multiples of 5,000) as per choice of
Master Policyholder.
Premium frequency: Yearly.
Requirement from the Group member: Automatic acceptance linked to
signature of Membership form that includes Good health declaration and
nomination clause.
Death Benefits: First 45 days after the cover start date or after the revival date –
No death claim will be accepted (inclusive of accidental death)
Form 46th day from cover start date / revival date – Sum assured is payable

Tata AIG Life Sumangal Bima Yojana

In this plan you have to pay premium for 10 years and you get insurance protection
for 15 years. Enjoy total guaranteed returns of 120% of the *total policy premium
at specified intervals during term of the policy.

• Policy Term : 15 years

• Premium Paying term : 10 years
• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-
Maximum Death Benefit (Sum Assured): Rs.30,000/-
• Premium payment frequency : Monthly, quarterly, half yearly & yearly

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 • Survival Benefit: We shall pay you the survival benefits as below, if you
have paid all due premiums.

Tata AIG Life Sampoorn Bima Yojana

A low cost insurance plan where the policyholder receives all the premiums paid
during the policy term upon survival until the term of the policy. Premiums are
payable for only 10 years, while the coverage is up to 15 years.

• Policy Term : 15 years

• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-
Maximum Death Benefit (Sum Assured): Rs.50,000/-
• Premium payment frequency : Monthly, quarterly, half yearly & yearly
• Death Benifit : Sum assured is paid to the policyholder’s nominee
• Maturity benefit: At the end of the 15 years, all the premiums paid will be
returned to the policyholder.

Tata AIG Life Sampoorn Bima Yojana

A low cost insurance plan where the policyholder receives all the premiums paid
during the policy term upon survival until the term of the policy. Premiums are
payable for only 10 years, while the coverage is up to 15 years.

Policy Term: 15 years

• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-

Maximum Death Benefit (Sum Assured): Rs.50,000/-
• Premium payment frequency : Monthly, quarterly, half yearly & yearly
• Death Benifit : Sum assured is paid to the policyholder’s nominee
• Maturity benefit: At the end of the 15 years, all the premiums paid will be
returned to the policyholder.

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Tata AIG Life Navkalyan Yojana

A regular premium payment, low cost term plan for the rural adults who seek life
insurance protection without any maturity benefit.

• Policy Term : 5 years

• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-
Maximum Death Benefit (Sum Assured): Rs.50,000/-
• Premium payment frequency : Monthly, quarterly, half yearly & yearly
• Death Benifit : Sum assured to the policyholder’s nominee
• Maturity benefit : None
• Rider: Option to attach Accident Death Benefit Rider for issue ages 18 to 55
years at a nominal extra charge.

IDBI Fortis Group Microsurance Plan

The first of its kind group that will be benefited by this unique plan is Samhita
Community Development Services, announced officially by IDBI Fortis Life
Insurance Co Ltd at a press conference held at Bhopal today. This tie-up will insure
13,356 poor members for a Sum Assured of over Rs. 7cr in the rural and urban
areas of Madhya Pradesh.
The plan provides affordable life insurance cover to groups offering great value to
Micro Finance Institutions, Self-Help Groups and NGOs. Not only does the plan
insure the lives of their group members and thus provide security to the group
member’s families, it can also be used for providing protection from loan liabilities
in the unfortunate event of the death of the main bread-winner.

Aviva Grameen Suraksha

Grameen Suraksha is a life insurance plan that helps you protect your family's
future. While there can be no compensation for the loss of life, Grameen Suraksha
ensures that their financial needs are met when something unfortunate happen to
you.
• Entry Age: 18 to 45 years
• Policy Term: 5 and 10 years

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• Premium Paying Term: 2 years (payable in yearly mode only)
• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)
A grace period of one month is allowed for payment of premium.

LIC's Jeevan Madhur

“Jeevan Madhur”, is available to both male & female without any medical
examination and is a simple saving related life insurance plan covering individuals
in the age group of 18 to 60 years. Minimum sum assured under the plan is Rs.
5000 and maximum sum assured is Rs. 30000. Mode of payment of premium can
be even weekly/fortnightly in addition to other regular modes to suit the needs of
people with low income. Minimum premium is Rs. 25/- per week, Rs. 50/- per
fortnight, Rs. 100/- per month which is expected to be well within reach of the
targeted group. The term of policy ranges between 5 to 15 years. The policy, if kept
in full force, is entitled to the simple reversionary bonuses depending upon
Corporation’s experience. Accident benefit is also applicable as per terms and
conditions of the policy. After premiums are paid for 2 years, Auto Cover facility
i.e., continuance of cover even in case of inability to pay premium up to 2 years
from the date of First Unpaid premium is available to take care of contingencies
and uncertainties of income.

LIC's Jeevan Mangal

Aterm assurance plan with return of premiums paid on maturity.

The Micro Insurance Plan “Jeevan Mangal” launched today is a term assurance
plan with return of premium on maturity providing for a sum assured (risk cover)
ranging from minimum of Rs.10, 000/- to maximum of Rs.50, 000/- with an
optional accident benefit rider, together providing for total death benefit equal to
double the sum assured, on death due to accident

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Met Vishwas

It is a life insurance plan that protects you in case of death at a nominal cost when
you survive the term of the policy you get back up to 125% of premium(in case of
coverage term 10 years)
Maturity benefit: 110% of the single premium paid for a 5 year coverage term
125% of the single premium paid for a 5 year coverage term

• Entry Age: 18 to 60years

• Policy Term: 5 or 10 years
• Premium Paying Term: 2 years (payable in yearly mode only)
• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)
A grace period of one month is allowed for payment of premium.

SUD Life Paraspar Suraksha Plan

The scheme has been specifically designed for the weaker sections of the society
and those from the rural areas. The scheme covers the groups of 200 and or
members. The scheme is to provide life cover at low cost to groups of persons
engaged in a common economic activity like those financed by an NGO, MFI or
Banks in rural or urban areas.
• Entry Age: 18 to 50years
• Group size : minimum-100, maximum – no limit
• Premium Paying Term:
Minimum premium- single premium-162.50, annual premium-33.50
Maximum premium- single premium-1625.0, annual premium-335.0
• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)

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 LITERATURE REVIEW

It is estimated that India has 300 million BPL population or 60 million BPL
families, without any kind of social protection. The spread of health insurance is
only negligible in this segment and that too because of the NGOs operating in this
arena. Although the reach of such schemes is still very limited---anywhere between
5 and 10 million individuals---their potential is viewed to be considerable. The
overall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004). But unless
the people from this segment develop confidence over the infrastructure facilities
and the assurity of the supply chain management of insurance services, this will not
be practically possible.
Martina Wiedmaier-Pfister (2004) revealed that a number of clarifications are
important for the insurers. The first point relates to the delineation of social
protection schemes (government driven and “provided” to the poorest), and
privately, market-led insurance services (provided by a private insurer or
informally organized and “bought” by those who can afford them). The second
point relates to the role of reinsurance, which is definitively a crucial area for
microinsurance. Third, the history and experiences of the regulation and
supervision of “microinsurance” in industrialized countries could also not be
considered.
Ramesh Bhat and Nishant Jain (2006) examines the factor affecting insurance
purchase decision his study at Anand district in Gujarat in his study he found that
amount of income and healthcare expenditure are major determinant of health
insurance plans and income of person have significant effect on amount of health
insurance purchase but there is nonlinear relationship between them in addition
number of children in family, age, and perception regarding future health care
expenditure were also found to be significant.
Dr. S. Ganesan and Dr. S. Jayaprakash in Eleventh Annual APRIA Conference
(2007) about Micro Banc assurance Models for India suggest that the growth of
micro insurance in India does not lies only in the hands of the product design,
distribution network but also in creating the proper infrastructure that can support
the servicing of insurance policies. India is a very big country with villages as its
backbones. Enormous involvement of various stakeholders is required to create

1
proper infrastructure for the growth of insurance/micro insurance in the rural areas.
He stresses the need for viewing the banks not as a mere distribution channel for
insurance but to convert the same into a strategic business unit wherein the banks
will be the epicenter of operations for the growth of the infrastructure in the rural.
Jim roth, Michael J. MacCord and Dominic Liber (2007) presented a report which
gives a description about the functioning of Microinsurance and detailed
quantitive overview of microinsurance in world’s 100 poorest countriesin which he
explains about distribution channels, types of microinsurers and various
microinsurance products , regulation and social security schemes in 100 countries
including India.

Seiro Ito and Hisaki Kono (2007) investigate take-up decisions using household
data collected in Karnataka, India, especially focusing on prospect theory,
hyperbolic preference, and adverse selection. There they found some evidence that
people behave in a risk-loving way when facing the risk of losses, which is
consistent with prospect theory. Since insurance covers losses, we suspect that
these people are less likely to take up insurance and they found some evidence
supporting this view. They also find that hyperbolic discounters are more likely to
purchase insurance, a fact which can be explained by the demand for commitment
among sophisticated hyperbolic discounters have. Also find some evidence on the
existence for adverse selection: households with a higher ratio of sick members are
more likely to purchase insurance. Interestingly, they also find that households
with a sick household head are less likely to purchase the insurance. This may
capture the fact that households with a sick household head have less income flow
and have difficulty in financing the insurance premium.
Koli N Rao (July 2008) said that in India, agricultural risks are exacerbated by a
variety of factors, ranging from weather variability, frequent natural disasters,
uncertainties in yields and prices, weak rural infrastructure, imperfect markets and
inadequate and sub-optimal financial services including the limited span and design
of risk mitigation instruments such as credit and insurance and farmers use a
variety of formal and informal techniques to manage and mitigate risk, ranging
from the use of drought resistant crop varieties to reduced consumption and sale of
assets. The Government is also implementing a large number of schemes to
provide succor to farmers facing adversity, the Comprehensive Agriculture risk
management framework can be presented in three main categories:

1
The first covers direct initiatives on the part of the Government, such as
agricultural credit, input subsidies and calamity relief. The second covers indirect
initiatives on the part of the Government to mitigate production risks through
insurance mechanisms covering crops, weather and livestock and including micro
insurance. Thirdly, Government and market-based approaches to mitigate price or
income risks, which include minimum support prices, farm income insurance, a
price stabilization fund, commodity markets, contract farming, etc. he also told
about different stages of development of microinsurance in India: There are three
distinct phases of micro-insurance (MI) development in India. The first phase
coincided with the introduction of target- oriented poverty alleviation programs
such as the Integrated Rural Development Program (IRDP). The second phase of
MI growth can be seen in conjunction with the growth of credit disbursement to the
poorer segments of society through the Self Help Groups (SHGs). This saw an
increase in the role of Non-Governmental Organizations (NGOs) for the purposes
of intermediation and the proliferation of Microfinance Institutions (MFIs). The
third phase of MI development was borne out of the increasing realization of the
need for an increased coverage of poorer households through some form of social
security measure.

Mark malika and Anet T. Kuriakose (2008) discussed the role of microinsurance in
mitigating external shocks on poor household. He also stressed on careful attention
and expert technical input is required in designing microinsurance products and
programs as they are significantly more complex than and credit programs offered
by different organizations. Use of different risk layering using different form of
reinsurance to cover the insurer is crucial from a financial sustainability standpoint,
and the use of various outreach mechanism to reach poor household is necessary
from an equity point of view.
Michael J MacCord (March 2008) suggested many inputs required to reach
microinsurance to billions of poor peoples some of these inputs are - Coordination
of knowledge of activities to allow all parties- mutual’s, commercial insurers,
intermediaries and delivery channels, governments, donors, and others—to
maximize effectiveness, Improving products and processes that recognize the needs
of low-income families and satisfy their needs with value, Innovation in processes
that can be replaced or augmented by technology. This requires financial and

1
regulatory facilitation, and an openness to offer such technology on a public
platform, Careful development of regulation that effectively balances the need for
consumer protection with the flexibility needed to develop and service a massive
market.
Rachele Pierro(2008) gives an overview of Christian Aid interest in crop/ weather
micro-insurance (MI) as well as partners‟ involvement in micro-insurance related
products and services” in his research he found that majority of people interviewed
(85%) believe crop/weather insurance would help poor farmers in managing
weather risks and this percentage rises to 100 % for interviewees based in field. For
most respondents conditions for successful MI would be the presence of
empowered communities and the absence of conflict, while protection to different
categories of poor (not only farmers but also landless and marginalized pastoralist
communities) makes weather insurance more appealing than traditional crop
insurance.
Wendy J. Werner (August 2009) analyses micro-insurance schemes in Bangladesh
with contrasting examples from India and found that these schemes improves the
health status of poor and also it reduces poverty, these microisurance schemes had
reduced the barriers of health services for poor and encouraged them to avail of
clinics and trained medical care i.e. the micro-insurance schemes for health in
Bangladeshi have increased access to basic healthcare , However, there is both
demand and necessity for surgeries and more expensive medical procedures among
the poor that remains unaddressed by basic microinsurance for health. Micro-
insurance can serve the interests of poor populations with risk-pooling to manage
unpredictable employment, flows of income, and catastrophic events. To ensure
that micro-insurance safeguards the assets and interests of the poor, micro-
insurance initiatives must exercise professional management, product development,
management information systems, and re-insurance.

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 OBJECTIVE OF STUDY

 To find the awareness of microinsurance among the poorest group of people

in Indore.

 To find the client need of Microinsurance in Indore.

 To find the preference of various products in Microinsurance of clients.

 To explain the various difficulties of insurers to produce, market and

distribute different microinsurance products.

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 RESEARCH METHODOLOGY

Research refers to a search for knowledge. It is a systematic method of collecting

and recording the facts in the form of numerical data relevant to the formulated
problem and arriving at certain conclusions over the problem based on collected
data.
Thus formulation of the problem is the first and foremost step in the research
process followed by the collection, recording, tabulation and analysis and drawing
the conclusions. The problem formulation starts with defining the problem or
number of problems in the functional area. To detect the functional area and locate
the exact problem is most important part of any research as the whole research is
based on the problem.
In short, the search for knowledge through objective and systematic
method of finding solution to a problem is research. The research type will be the
descriptive research about the needs and preferences about the microinsurance to
the potential target people in Indore.

DRAFTING QUESTIONNAIRE
The questionnaire is considered as the most important thing in a survey operation.
Hence it should be carefully constructed. Structured questionnaire consist of only
fixed alternative questions. Such type of questionnaire is inexpensive to analysis
and easy to administer. All questions are closed ended. In this research the
questionnaire is structured and close ended questionnaire.
DATA COLLECTION
The task of data collection begins after the research problem has been
defined and research design chalked out. While deciding the method of data
collection to be used for the study, the researcher should keep in mind two types of
data viz. Primary and secondary data.

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Primary Data: - The primary data are those, which are collected afresh and for
the first time and thus happen to be original in character. The primary data were
collected through well-designed and structured questionnaires based on the
objectives.

Secondary Data:
The secondary data are those, which have already been collected by
someone else and passed through statistical process. The secondary data required
of the research was collected through various newspapers, and Internet etc.

SAMPLING
It was divided into following parts:
Sampling universe
All the low income groups of Indore are the sampling universe for the research.
Sampling technique
Judgmental sampling
Sample was taken on judgmental basis. The advantage of sampling are that it is
much less costly, quicker and analysis will become easier. Sample size taken was
100 residents of Indore.

LIMITATION OF STUDY

 As only INDORE dealt in survey so it does not represent the view of the
total Indian market.
Size of the research may not be substantial as sample size is only 100 and it
does not represent whole population of Indore.
 There was lack of time on the part of respondents.
The survey was carried through questionnaire and the questions were based
on perception.
 There may be biasness in information by respondents.

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 DATA ANALYSIS

In this section of the research all the primary data are analysed with the help of pie
charts and bar graphs.
Respondent’s Profile
All of the respondents are daily earners, chosen randomly and all of them are male,
with age more than 25 years. Maximum respondents are Gumtiwalas and
Thellawalas, some of them are university Hostel and UTD guards.

What is annual income of Family?

Option Number of respondents
Less than 30000 0
30000-60000 54
60000-90000 35
more than 90000 11

Major portion of respondents belongs to income group 30000-90000, only 11

respondent’s family income is more than ninety thousands as there is more than
one earner in their family.

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Number of family member in their house?
Option Number of respondents
2 0
3 5
4 27
5 34
6 28
More than 6 6

Most of respondents are married having one or two children. 34% of respondents
have family of size 5, 27% and 28% of respondents live in a family of 4 and six
respectively

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Do you understand microinsurance?
Option Number of respondents
Yes 0
No 100

As we can see from above pie chart 100% respondents are totally un
aware of the Microinsurance.

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Have you ever invested in any Insurance policy?
Option Number of respondents
Yes 7
No 93

Only seven respondents have invested in Insurance policy and rest of

93% of respondents have not invested in any insurance policy.

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Do you think insurance is / will helpful to you?
Option Number of respondents
Yes 56
No 12
May be 32

After explaining them about benefits of insurance 56% of respondents

says insurance will be helpful for them and 32 % were in dilemma .
Are you interested in investing in Microinsurance?
Option Number of respondents

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Yes 74
No 26

As from above figure we can see that 74% of respondents are interested
in investing in Microinsurance but 26% were not interested in
Microinsurance.

Does any insurance agent have come to you for your insurance?
Option Number of respondents

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Yes 43
No 57

In spite of only 7 had invested in insurance but 43 respondents were approached by

insurance agents maximum of agents are of LIC. It shows the wide network of
agents of LIC among the lowest class of the people. Rest of 57% of respondents are
not approached by any insurance agents

If an opportunity comes in front of you to invest in Insurance which type of

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organization you will choose?
Option Number of respondents
Government insurance company 94

Private sector insurance company 6

About 94% of respondents choose government owned insurance companies rather

than private insurance companies

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 Do you have any account in?
Option Number of respondents
Bank and Post office 22
Bank and Cooperative society 42
Bank and Others 24

All of respondents have a bank account generally all of them have bank account is
PSBs, 42% have recurring account local co-operative society banks which daily
takes some amount for depositing same like former some of them have in account
in SAHARA and other NBFCs where they daily or weekly deposit money ranging
from 100-200 weekly. 22% of the respondents have deposit account in Post-office.

In which type of Insurance policy you will invest/ have invested?

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Options Number of respondents
Term Insurance Policy 14

Endowment Policy 53

Ulip Policy 9

Health Insurance Policy 24

More than half of respondents choose endowment policies, health

insurance of their children comes at second preference and term
insurance comes next to them.

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How much premium you are paying/will prefer annually for insurance?
Option Number of respondents
Less than 1000 5
1000-3000 35
3000-5000 56
More than 5000
3

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As we can see 56% of respondents are ready to invest daily 10-20 Rs. for
investment in insurance, 35 % of respondents wants to pay 1000 to 3000 Rs for
premium, premium amount more than 5000 is chosen by only 3 respondents.

Which mode of payment will you prefer for premium?

Option Number of respondents
Annual 2
Quarterly 12
Semi annually 6
Monthly 30
Weekly 17
Daily 33

As from above graph we can see that 33% of respondents want to pay daily and
30% wants to pay monthly premium, 17 % of respondents choose to pay weekly
premium for the insurance as majority of these respondents are daily earners.

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Where will you prefer to give your premium?
Option Number of respondents
At your door step 96
At Bank 4
At Post office
0
Other place
0

96% of respondents prefer to give premium at their home or at their shop, only 4
respondents prefers bank and none of them prefer post office or any other place.

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 FINDINGS
Below are the findings of the research, all the options were tick by respondents the
findings are summarized in the table where first column represents questions in the
questionnaire ,second column represents options of the questions and third column
represents number of respondents ticks every options.

1. Maximum of respondents were daily earners their income varies from season
to season, in their peak seasons the earns 200-300 per day but in off season
their earning decreases significantly, those respondents who were salaried
people get monthly salary ranging from 3000-5000 per months.
2. Most of respondents are married having one or two children. 34% of
respondents have family of size 5, 27% and 28% of respondents live in a
family of 4 and six respectively. Those families which have five or more
than five members; they generally live in combined family and these
families have income level more than five thousand per month. 34% of the
respondents have 5 family member, 28% and 27% respondents have 6 and 4
family members respectively.
3. Most of the respondents have heard about insurance but they are totally
unaware of Microinsurance, they believe depositing their money in bank or
post-office is more profitable than putting money in insurance, also ease of
withdrawing money from bank and post-office makes their investment
more liquid.
4. Only 7 respondents have invested in insurance policy, all of them belongs to
income level of more than 90000 Rs. Per annum out of which 2 have
invested their money only for one and 3 years only and they stopped giving
premium for their insurance due to some problems and all of them invested
in LIC’s policy.
5. After explaining those about need and benefits of insurance 56% of
respondents want to invest in insurance policy but lack of knowledge and

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 awareness about insurance stop them for investing. Many of them told that
they don’t need insurance as there is very low chance miss happening to
them. In spite of they are more vulnerable to risks; negligence and ignorance
of risk for their health or life also prevent them for investing in insurance.
6. As majority of respondents are daily earners and 74% are ready to invest in
microinsurance policy, they are ready to give daily 10-20 Rs for their
insurance if someone collects premium from their shops.
7. In spite of only 7 had invested in insurance but 43 respondents were
approached by insurance agents maximum of agents are of LIC. It shows the
wide network of agents of LIC among the lowest class of the people. Rest of
57% of respondents are not approached by any insurance agents
8. Maximum of respondents choose government companies rather than private
insurance firms as they think they are cheaper, reliable and ease in claiming
insurance money.
9. All of respondents have a bank account generally all of them have bank
account is PSBs as minimum deposit required in these banks are generally
lower than private banks, second highest number, 42% have recurring
account local co-operative society banks which daily takes some amount for
depositing same like former some of them have in account in SAHARA and
other NBFCs where they daily or weekly deposit money ranging from 100-
200 weekly. 22% of the respondents have deposit account in Post-office.
10. After explaining them about different types of insurance policies 53% of
respondents opted endowment policy as after maturity period they get back
invested amount. 24% of respondents opt for health insurance as Health
insurance reimburse all the hospitalization expenses of insured, maximum of
respondents was curious about ULIP policies but lack of document like Pan
Card, risk of losing money and high cost of insurance prevents them to opt
Ulip policy, low cost of term insurance is very good for them but no
reimbursement after maturity if nothing mis -happen with them stop them to
opt for Term insurance.
11. 56% of respondents are ready to invest daily 10-20 Rs. for investment in
insurance. Also they want some flexibility in payment of premium like if
they can’t pay premium of the day they can give on next day. Some of them
also suggest that in the business season they can give double of the premium

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 amount and when business is off they will not pay premium, 35 % of
respondents wants to pay 1000 to 3000 Rs for premium.
12. About three-fourth of the respondents opts to pay premium at very short
duration as they are mainly daily earner, so they want to pay premium as
soon as they earn it gives ease to them to pay premium daily or weekly,
maximum of them have a recurring account and bank personal daily come to
collect money for their deposits in the same way they want pay premium for
their insurance. 33% of respondents want to pay daily and 30% wants to pay
monthly premium.
13.Approximately all of the respondents want to pay premium at their door step
they want insurance agents to come at their shop or their home to collect
premium of the insurance.

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 CONCLUSION

The results indicate that there is a huge untapped market for microinsurance in
Indore District. With appropriate delivery channels, types of coverage, product
simplicity and easy premium collection this huge untouched market can be catered
by insurers. Although the current reach of ‘micro-insurance’ is limited, the trend in
this respect suggests that the insurance companies, both public and private,
operating with commercial considerations, can insure a significant percentage of
the poor. Serving low-income people who can pay the premium certainly makes a
sound commercial sense to insurance providers. To that extent imposing social and
rural obligations by insurance regulator (IRDA) is helping all insurance companies
appreciate the vast untapped potential in serving the lower end of the market.
Most of respondents are completely unaware of microinsurance products but many
of them are aware of insurance products. Given irregular and uncertain income
stream of the poor, flexibility in premium collection is needed to extend the micro-
insurance net far and wide. MFIs are playing a significant role in improving the
lives of poor households. Quite apart from this, linking micro-insurance with
micro-finance makes better sense as it helps in bringing down the cost of lending.
Income of the family has been found an important factor, higher income increases
probability of purchasing Insurance product. Maximum or respondents wants to
insure their children as they believe insurance will help them in saving money as
well as protection for their future. Endowment policies are most liked by
respondents because it gives death benefits as well as survival benefits. Maximum
of the respondents believes in government banks and insurance companies as they
think that private companies charges more than government owned companies and
their hard earned money will be more safe in government firms than private
companies. Many of them want to pay Rs. 10-20 for premium on daily or weekly
basis at their shops or at home.

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 REFERENCES

1) Wiedmaier Martina -Pfister (August 2004), “Regulation and supervision of

Microinsurance”, Division 41 Financial System Development.
2) Bhat Ramesh and Jain Nishant (July 2006), “Factor Affecting the Demand
for Heath Insurance in a Micro Insurance Scheme” IIM Ahmedabad,
W.P.No.2006-07 -02
3) Rajivan Anuradha (April 2007), “Engaging the private sector to insure the
poor” , UN business focal point
4) Ganesan Dr. S. and Jayaprakash Dr. S. (July 2007), “Micro Banc assurance
Models for India” Eleventh Annual APRIA Conference at National
Chengchi University, Taipei, Taiwan
5) Roth Jim, MacCord Michael J. and Liber Dominic(2007), “The landscape
of microinsurance in 100 poorest countries” the microinsurance center, LLC
6) Ito Seiro and Kono Hisaki (2007), “Why is the take-up of microinsurance is
so low? Evidence from a health insurance scheme in India” JEL
Classification: F35, O19
7) MacCord Michael J (March 2008), “Vision of the future of Microinsurance
and thoughts on getting there” Microinsurance note#9.
8) Malika Mark and Kuriakose Anet T. (2008), “Social Fund Innovation notes”
World Bank 2008 Volume 5 number 2
9) Pierro Rachele(2008) , “ Micro-insurance & drr: challenges and
opportunities in the context of climate change”.
10) Rao Koli N. (2008), “Risk management as a pillar in agriculture and food
security in India”, Food and agriculture organization for the United Nations,
FAO

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 11) Werner Wendy J. (August 2009), “Micro –insurance in Bangladesh: Risk
Protection for the Poor?” International Centre for Diarrhoeal disease
research, Bangladesh. IISN 1606-0997

APPENDIX
Dear Respondents,

For the Partial fulfillment of my MBA (MS) 5yrs degree and

concerned for need and perception of insurance among the underprivileged people,
I am conducting a research on Microinsurance to gather necessary and beneficial
responses of the people. For the sake of successful carrying out of research, I am
hoping your generous support.

Personal Profile

Name (optional): - ……………………………………

Age: - ……….

Gender: - ………….

Number of family members: - ………………….

Annual Income (in Rs) a) Less than 30000 b) 30000- 60000

c) 60000-90000 d) more than 90000

Questionnaire

1) Do you understand microinsurance?

a) YES [ ]

b) NO [ ]

2) Have you ever invested in any Insurance Policy?

a) YES [ ]

b) NO [ ]

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3) Do you think Insurance is/ will helpful to you?

a) YES [ ]

b) NO [ ]

c) May be [ ]

4) Are you interested in investing microinsurance Policy?

a) YES [ ]

b) NO [ ]

5) Does any insurance agent have come to you for your insurance?

a) YES [ ]

b) NO [ ]

6) If an opportunity comes in front of you to invest in Insurance which type of

organization you will choose?

a) Public sector insurance company [ ]

b) Private sector insurance company [ ]

7) Do you have any account in ?

a) Bank [ ]

b) Post office [ ]

c) Cooperative society [ ]

d) Others [ ]

8) In which type of insurance policy you will/ have invest/ invested?

a) Term Insurance Policy [ ]

b) Endowment Policy [ ]

c) Ulip Policy [ ]

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 d) Health Insurance Policy [ ]

9) How much premium you are paying/will pay annually for your insurance
policy?

a) Less than 1000 [ ]

b) 1000-3000 [ ]

c) 3000-5000 [ ]

d) More than 5000 [ ]

10) Which mode of payment will you prefer for premium?

a) Annual [ ]

b) Quarterly [ ]

c) Semi annually [ ]

d) Monthly [ ]

e) Weekly [ ]

f) Daily [ ]

11) Where will you prefer to give your premium?

a) At your door step [ ]

b) At Bank [ ]

c) At Post office [ ]

a) Other place [ ] please specify …………………