Microinsurance Final

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), ͞micro͟ 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 securityc

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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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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 while
the other 5 have chosen to narrow down the coverage to some specific critical illness.
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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.
´

: 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.
´ÿ
: The micro-insurance scheme is in charge of everything; both the design and
delivery of products to the clients, working with external healthcare providers to provide the
services.
´

: The service provider and the insurer are the same, i.e., hospitals or
doctors 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.
´a : The policyholders or clients are in charge, managing and
owning the operations, and working with external healthcare providers to offer services.

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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

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 the
investment 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.

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;
a
·ecause 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 tomorrow͛, 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 or
management 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.
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Does not require much additional investment in infrastructure;
·etter control of the quality of the agent than with the partnership model.
a
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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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.

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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 ʹ 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:
ͻ It is one of the most demanded forms of cover.
ͻ It is relatively easy to price compared to other types of insurance.
ͻ It is mostly resistant to problems of fraud and moral hazard.
ͻ It is not dependent, unlike many types of health insurance, on the existence
and efficient functioning of other infrastructure like clinics or hospitals.
ͻ 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 Illnesses
y ´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 can͛t 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.
Rural Products

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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%
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THE MAIN CHALLENGE IS THE COVER UP THESE TO ·ASE DRAW·ACKS AND CATER TO THIS SEGMENT OF
INDIA.
It͛s been seen that most of the companies don͛t 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 don͛t 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. ·ringing 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.
·ASIX has already taken some initiatives in improving the access to micro-insurance for the poor. ·ASIX, 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. ·ASIX 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 ·ASIX, the
insurance company priced the product conservatively at Rs. 8.62 per thousand sum insured.
·y 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 ʹ 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. ·ased on actual performance of the product, ·ASIX &
AVIVA could reduce the premium rate by more than 50% in a three year period.
This further allowed ·ASIX 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.
·y the end of September, 2007, ·ASIX insured over 500,000 individuals under this micro-insurance policy and
it͛s to cover over one million lives within the next one year. In partnership with insurance companies, ·ASIX
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 ·ASIX to enroll more number of
customers for micro-insurance.
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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 coupled
with 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 overall
insurance 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:
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Following are the broad benefits of micro insurance
I. Simplicity
II. ·asket coverage
III. ·enefits in cash or in kind
IV. Cash- ·ack ·enefits
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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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In India, which is perhaps the world͛s 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 SEWA͚S product covers death,hospitalization and asset loss benefits that come from two different
insurance companies into one comprehensive product. ·undled product delivers a more comprehensive risk
protection package while reducing expenses since marginal costs of additional benefits are minimal
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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.
"* a · ·!
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.
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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
- P a g e
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

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Microinsurance Final

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INTRODUCTION:

Micro-insurance is a financial arrangement to protect low-income people against specific perils in

disease and where there is little or no social securityc

The inventory lists 51 schemes that are operational in India.

43 schemes with available information cover 5.2 million people

à  

      

 Requires fewer skills for the agent than an in-house model;

 The insurance provider is dependent on the quality of the agent;

      

      

 Does not require much additional investment in infrastructure;

 Agents will need special training in dealing with low-income clients;

 Offices may intimidate poor clients;

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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)

* Crop micro insurance

* Property micro insurance ʹ assets, livestock, housing.

Life Micro insurance

ͻ It is one of the most demanded forms of cover.

ͻ It is relatively easy to price compared to other types of insurance.

ͻ It is mostly resistant to problems of fraud and moral hazard.

ͻ It is not dependent, unlike many types of health insurance, on the existence

and efficient functioning of other infrastructure like clinics or hospitals.

ͻ It is a relatively low-risk product for the provider.

of old age or of the death of a breadwinner.

y ´Hospitalization and outpatient (comprehensive)

y ´Limited outpatient/ community health services:

y ´Preventive health services

insurance for weather risks in lower income areas.

7.4 Disability Micro insurance

injury and loss can͛t be recovered.

7.5 Crop Micro insurance

drought, crop pest). peril.

7.6 Property Micro insurance

of a lump sum payment or livestock replacement.

disasters like drought, flood or livestock affecting epidemics.

households and cover specific risks.

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Requires fewer skills for the agent than an in-house model;

The insurance provider is dependent on the quality of the agent;

Does not require much additional investment in infrastructure;

Agents will need special training in dealing with low-income clients;

Offices may intimidate poor clients;

.

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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%

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