India: A Microinsurance Revolution

by Microfinance India on June 21, 2009

Two million new insurance clients in less than a year and plans for up to ten million by the end
of 2009—such numbers are only possible in a country like India. Yogesh Gupta, microinsurance
specialist at Bajaj Allianz, explains the story behind these numbers. Yogesh Gupta, Head of
Business Procurement & Microinsurance Business, Bajaj Allianz, India Our objective was to
create something like a revolution and cover a huge mass of communities spread out over a huge
territory.” (Photo: Bajaj Allianz) What significance has life micro insurance in rural parts of
India? Life microinsurance has helped the rural population a lot, because it created an awareness
of proper risk management and saving instruments. It also facilitates outreach to a stratum of our
population that has traditionally been neglected. In India, some 80 percent of the population is
still living in rural areas and there is a lot of potential for insurance in this segment. But no major
company has thought of really entering this market yet. These people only have poor paying
capacity and the operational structures of mainstream insurance wouldn’t work either. So why
offer life microinsurance? Well, we took this as a challenge. Our objective was to create
something like a revolution and cover a huge mass of communities spread out over a huge
territory and educate them about their personal security and saving avenues. Profit making was
not our prime objective, but of course we can’t afford to incur losses for the company.
Penetrating markets that were so far deemed non-reachable was only possible with the help of
established microfinance institutions like SKS, local NGOs, regional rural banks, co-operatives,
dairy boards. We are continuously conducting R&D to find other innovative avenues to improve
our outreach. Together with these partners we now offer extremely low-cost savings and security
products. Premiums can be paid flexible and we do not charge high penalties on premature
withdrawal or other hidden charges. We managed to create an attractive risk pool and offer low
insurance premiums, which helped our field reps to successfully cross-sell micro credit and
insurance. How much do you have to pay for such insurance? These are very low price
products with premiums as low as 45 rupees per month (1.13 dollars) for a policy with a
minimum term of 5 years. The insurance covers losses up to 2,500 rupees (62.75 dollars) and in
addition offers accident and disability and death benefits. Our clients can also obtain a loan under
the program for up to 85 percent of the cash surrender value of the policy. The people can save to
the extent of 6 to 10 percent on net invested premiums at the end of the term in these polices.
How many customers do you have and in which areas? What are your aims for the future?
We have already covered 2 million rural customers spread across the entire country with a major
density in South India. Our aim for this fiscal year is to reach 10 million people and provide
them a backbone for their financial investments and life safety. Simultaneously we are
developing product variants for the children coverage, single premium policies, and health
policies. What are the problems you face in daily business? We face several obstacles when
we want to sell insurance to the rural population. In general there is low awareness of the
benefits of insurance. Low literacy levels make it harder to educate people. Then there is a lack
of trust in insurance and big companies. On the operations side our local field representatives
have to cover a very high number of policies in order to be profitable, because each policy sold
has a very low value. The area, in which we sell our products is very huge. Unfortunately,
logistics and communication infrastructure there is poor. Finally, we face linguistic problems.
Indians has 22 official languages, but people speak hundreds of different languages. Allianz

Microinsurance India
LIC and Reliance to aggressively market Micro Insurance
Schemes
by Microfinance India on September 23, 2009
LIC to triple micro insurance biz, eyes 42 lakh policy sales
Riding on the initial success of micro insurance scheme, state-run Life Insurance Corporation of
India (LIC) is aiming to nearly triple its business by selling over 40 lakh policies in the current
fiscal.
“We aim to sell about 42 lakh policies to the financially weaker section of society during the
current fiscal against 15.4 lakh sold last fiscal,” LIC Zonal Manager (North) Vinay Kumar Sinha
told PTI.
Till August, LIC sold 4.16 lakh micro insurance policies while on the launch of Jeevan Mangal,
the second micro insurance product, the largest life insurer sold over one lakh policies.
On the first day, Sinha said, LIC sold about 1.21 lakh schemes that has low ticket size and easy
payment options. Rest of the article
Reliance Life aims Rs 1,000 cr premium from micro insurance in 5 yrs
Anil Ambani group firm Reliance Life Insurance is aiming to receive premium of around Rs
1,000 cr in the next five years from micro insurance space and is planning to introduce new
products to cater to the savings needs of this segment.
Reliance Life Insurance Company (RLIC) is likely to get Rs 100 crore premium from micro
insurance segment this year itself and plans to scale this to up to Rs 1,000 crore in the next five
years’ time.
Elaborating on the new products the company is planning to introduce, Reliance Capital CEO
Sam Ghosh said, “RLIC will be tapping this market with Group savings insurance policies and
group term life.”Rest of the Article
{ Comments on this entry are closed }

Definitions of micro-insurance
1. Micro-insurance is insurance with low premiums and low caps / coverage. In
this definition, “micro” refers to the small financial transaction that each
insurance policy generates. The Micro-insurance Regulations, issued in 2005
by the Indian Insurance Regulatory and Development Authority (IRDA), for
example, adopted this definition in explaining “micro-insurance products”[1]
as those within defined (low) minimum and maximum caps. The IRDA’s
characterization of micro-insurance by the product features is further
complemented by their definition for micro-insurance agents, those
appointed by and acting for an insurer, for distribution of micro-insurance
products (and only those products).
2. 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.[2] The author of
this definition adds that micro-insurance does not refer to: (i) the size of the
risk-carrier (some are small and even informal, others very large companies);
(ii) the scope of the risk (the risks themselves are by no means “micro” to the
 households that experience them); (iii) the delivery channel: it can be
delivered through a variety of different channels, including small community-
based schemes, credit unions or other types of microfinance institutions, but
also by enormous multinational insurance companies, etc.
3. Micro-insurance is synonymous to community-based financing arrangements,
[3]
including community health funds, mutual health organizations, rural
health insurance, revolving drugs funds, and community involvement in user-
fee management. Most community financing schemes have evolved in the
context of severe economic constraints, political instability, and lack of good
governance. The common feature within all, is the active involvement of the
community in revenue collection, pooling, resource allocation and, frequently,
service provision.
4. Micro-insurance is the use of insurance as an economic instrument at the
“micro” (i.e. smaller than national) level of society. [4] This definition
integrates the above approaches into one comprehensive conceptual
framework. It was first published in 1999, pre-dating the other three
approaches, and has been noted to be the first recorded use of the term
“micro-insurance”.[3] Under this definition, decisions in micro-insurance are
made within each unit, (rather than far away, at the level of governments,
companies, NGOs that offer support in operations, etc.).
Insurance functions on the concept of risk pooling, and likewise, regardless of its small unit size
and its activities at the level of single communities, so does micro-insurance. Micro-insurance
links multiple small units into larger structures, creating networks that enhance both insurance
functions (through broader risk pools) and support structures for improved governance (i.e.
training, data banks, research facilities, access to reinsurance etc.). This mechanism is conceived
as an autonomous enterprise, independent of permanent external financial lifelines, and its main
objective is to pool both risks and resources of whole groups for the purpose of providing
financial protection to all members against the financial consequences of mutually determined
risks.
The last definition therefore, includes the critical features of the previous three:
1. transactions are low-cost (and reflect members’ willingness to pay);
2. clients are essentially low-net-worth (but not necessarily uniformly poor);
3. communities are involved in the important phases of the process (such as
package design and rationing of benefits); and
4. the essential role of the network of microinsurance units is to enhance risk
management of the members of the entire pool of microinsurance units over
and above what each can do when operating as a stand-alone entity.

[edit] Micro-insurance products

Micro-insurance, like regular insurance, may be offered for a wide variety of risks. These include
both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of
micro-insurance products exist to address these risks, including crop insurance, livestock/cattle
insurance, insurance for theft or fire, health insurance, term life insurance, death insurance,
disability insurance, insurance for natural disasters, etc.
[edit] Micro-insurance delivery models
One of the greatest challenge 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[2] the partner-agent model, the
provider-driven model, the full-service model, and the community-based model. Each of these
models has their own advantages and disadvantages.
• Partner agent model: A partnership is formed between the micro-insurance
scheme and an agent (insurance company, microfinance institution, donor,
etc.), and in some cases a third-party healthcare provider. The micro-
insurance scheme is responsible for the delivery and marketing of products to
the clients, while the agent retains all responsibility for design and
development. In this model, micro-insurance schemes benefit from limited
risk, but are also disadvantaged in their limited control.
• Full service model: 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. This model has the advantage
of offering micro-insurance schemes full control, yet the disadvantage of
higher risks.
• Provider-driven model: The healthcare provider is the micro-insurance
scheme, and similar to the full-service model, is responsible for all operations,
delivery, design, and service. There is an advantage once more in the
amount of control retained, yet disadvantage in the limitations on products
and services.
• Community-based/mutual model: The policyholders or clients are in
charge, managing and owning the operations, and working with external
healthcare providers to offer services. This model is advantageous for its
ability to design and market products more easily and effectively, yet is
disadvantaged by its small size and scope of operations.

[edit] See also

• Friendly society
• Health economics
• Insurance in India
• Microfinance
• Microinsurance scheme

[edit] References
1. ^ “General micro-insurance product means 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”; and
“life micro-insurance product” means any term insurance contract with or
without return of premium, any endowment insurance contract or health
insurance contract, with or without an accident benefit rider, either on
 individual or group basis, as per terms stated in Schedule-II appended to
these regulations.
2. ^ a b Churchill C. (ed.) (2006). Protecting the Poor: A Microinsurance
Compendium. Geneva: ILO.
3. ^ a b Alexander S. Preker, Guy Carrin, David Dror, Melitta Jakab, William
Hsiao, Dyna Arhin-Tenkorang (2002). "Effectiveness of community health
financing in meeting the cost of illness". Bulletin of the World Health
Organisation (Geneva: WHO) 80 (2): 143–150.
4. ^ Dror, D, Jacquier Ch (1999). "Micro-insurance: Extending Health Insurance
to the Excluded". International Social Security Review (Geneva: ISSA) 52 (1):
71–97. doi:10.1111/1468-246X.00034.

[edit] External links