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UNIVERSITY SCHOOL OF MANAGEMENT STUDIES

G.G.S. INDRAPRASTHA UNIVERSITY

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FINANCE PROJECT

MICRO -INSURANCE IN INDIA:

T R E N D S A N D S T RAT E G I E S F O R F U RT H E R
EXTENSION

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 Submitte
d by:

ACKNOWLEDEGMENT

I herby offer my sincere and profound thanks to M/s Divya – our financial

management teacher, who gave us such a challenging project and guided us

through out our project including analysis and presentation of the same. Without

her we would not been able to complete our project successfully.

I would also like to thank Mr. SHALENDRA GUPTA, Genaral Manager, TATA

AIG Life Insurance, for his valuable support.

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 DECLARATION

I hereby declare that this project report is the result of hard core study done by
Micro insurance team – Govind Kumar Jha, Gaurav Asthana, Shiva Jangid, Indu
Bhushan, Rakesh, Himanshu Nirwan, Deepak, Manish and Lucky Talwar.

This is to further declare that this project report is authentic and not being
submitted by any other student previously.

DATE:

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 Contents

Foreword........................................................................................
............... i

Introduction....................................................................................
...............1

• Development of Micro-insurance in
India........................................3

• Supply and Demand Side

Developments ........................................5

3.1 Supply of micro-insurance ..................................................................5

3.2 Demand for micro-insurance...............................................................6

• On Extending Micro-
insurance .......................................................10

4.1 Flexibility in
Premium........ ................................................................11
4.2 Micro-insurance and micro-finance ...................................................16

• Conclusions.............................................................................
..........20

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Introduction

Insurance
Insurance is an essential part of running any business. If you are operating a
small business you need more than just property insurance. Taking out the
right insurance will help protect your business and minimize its exposure to
risk.

Your insurance requirements will vary according to the type of business you
are operating, but you should be aware that some forms of insurance are
compulsory, such as workers’ compensation and third party car insurance.

When you’re in business you deal with a variety of potential risks each day.
Risk is not something you can avoid, but it is something you can manage.
Risk management will increase the probability of success and reduce the
probability of failure of your business.

Types of insurance

• Assets & revenue insurance

• People insurance

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 • Liability insurance

Assets & revenue insurance

To protect your assets and revenue-generating capacity, here are some of
the types of insurance available:

Building and contents

Covers the building, contents and stock of your business against fire and
other perils such as earthquake, lightning, storms, impact, malicious damage
and explosion.

Burglary

Insures your business assets against burglary, and is most important for
retailers or a business which maintains unattended premises.

Business interruption or loss of profits

Covers you if your business is interrupted through damage to property by

fire or other insured perils. Ensures your ongoing expenses are met and
anticipated net profit is maintained through a provision of cash flow.

Fidelity guarantees

Covers losses resulting from misappropriation by employees who embezzle

or steal.

Machinery breakdown

Protects your business when mechanical and electrical plant and machinery
at the work site break down.

Motor vehicle

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It is compulsory to insure all company or business vehicles for third party
injury liability. Many different types of policies are available, so make sure
you understand the options before making a decision. There are four basic
options:

1. Compulsory third party (injury) – covers you for claims made

against you for personal injuries and legal costs arising from the use of
your car. You must obtain this insurance to register your car.
2. Third party property damage - covers your liability for damage
to another person or to the property of others and your legal costs. It
doesn’t include repairs to your own car if you caused an accident.
3. Third party, fire and theft - covers you against the events
covered above, as well as fire and theft. It also insures against damage
caused if your car was stolen.
4. Comprehensive - covers you for all of the above plus damage
caused to your own car by you in an accident. If you're buying a car on
an installment basis, financiers will usually insist on this cover.

People insurance
It includes:

• Superannuation
• Workers compensation requirements

Insurance cover for you and your employees:

Workers Compensation

You must provide accident and sickness insurance for your employees -
workers compensation - through an approved insurer. Workers compensation
is covered by separate state and territory legislation.

Personal accident and illness

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If you are self employed you won’t be covered by workers compensation, so
you need to cover yourself for accident and sickness insurance through a
private insurer. There are several types of life insurance. Some are
investment-type funds where you contribute over a certain time and get
back your investment plus interest earnings at the maturity date. Others are
designed to cover risk - things that could happen to you.

• Income protection or disability insurance - covers part of

your normal income if you are prevented from working through
sickness or accident.
• Trauma insurance - provides a lump sum when you are diagnosed
with one of several specified life threatening illnesses.
• Term life insurance or whole of life cover - provides your
dependents with a lump sum if you die.
• Total and permanent disability insurance - provides a
lump sum only if you are totally and permanently disabled before
retirement.

Superannuation
If you are running a business or employing people, you are likely to have
superannuation obligations to your employees. If you are self-employed you
also need to provide for your retirement - superannuation is generally used
to provide for a retirement plan.

Liability insurance
Types of liability insurance you need to consider:

Public Liability

Public liability insurance protects you and your business against the financial
risk of being found liable to a third party for death or injury, loss or damage
of property or ‘pure economic’ loss resulting from your negligence.

Professional Indemnity

Professional indemnity insurance protects you from legal action taken for
losses incurred as a result of your advice. It provides indemnity cover if your
client suffers a loss - either material, financial or physical - directly attributed
to negligent acts.

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Product Liability

If you sell, supply or deliver goods, even in the form of repair or service, you
may need cover against claims of goods causing injury or damage. Product
liability insurance covers damage or injury caused to another business or
person by the failure of your product or the product you are selling.

What is Micro Insurance?

On a daily basis, the poor around the world face a multitude of risks that
threaten to derail any progress they have made to work their way out of
poverty. The death of a family member, loss of property and livestock,
illness, and natural disasters each pose unique dangers. Protecting people
against these losses is an important step to alleviating global poverty.
Micro insurance - the protection of low-income people against specific perils
in exchange for regular monetary payments (premiums) proportionate to the
likelihood and cost of the risk involved – seeks to provide a suitable solution
for managing these risks.

The Global Landscape

It is estimated that only eighty million out of the world's 2.5 billion poor are
now covered by some form of micro insurance. Most remain without access
to this critical financial service. In India and China, where organizations are
estimated to serve nearly 30 million micro insurance clients each, the
percentage of poor lives insured hovers below 3%. In Africa this figure is
much lower – just 0.3% of the continent’s poor are insured. According to
recent data, in 23 of the poorest 100 countries in the world, there is currently
no identified micro insurance activity, representing an unserved population
of 370 million.

History and Vision

The Micro Insurance Agency has its roots within Opportunity International, a
large microfinance network motivated by Jesus Christ’s call to serve the
poor. With a network of 47 microfinance institutions, Opportunity
International has been serving the entrepreneurial poor since 1971. In
partnership with Opportunity’s microfinance institutions, we began working
in 2002 on the development of a range of life, property, livestock, crop

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derivative, disability, unemployment and health insurance products to cover
the risks faced by Opportunity’s loan clients.
Micro Insurance Agency staff observed that the risks the poor face can often
set them back months and years behind where their loans and savings
products offered by Opportunity had taken them. For instance, a death of a
family member from HIV/AIDS – a “pre-condition” most insurance companies
would not cover – would often mean expensive funeral costs and the loss of
a breadwinner, resulting in increased economic hardship for the family. In
response, Micro Insurance Agency staff developed an affordable funeral
benefit product that did not exclude any pre-conditions, including HIV/AIDS.
This transformed the mindset of retail insurance providers in the country,
who later developed similar non-exclusive products in light of the competing
environment.
Through the experience of serving Opportunity’s microfinance institutions
and their clients, Micro Insurance Agency staff observed that the products
most demanded by the poor are not always the ones available. Health
insurance, for example, is a critical need of the poor but the most limited in
terms of supply. In addition, policies that are available are often based on
first world practices and are too complex for the simple coverage demanded.
Further, when offered on an individual, one-off basis, high premium
requirements and a need to pay in a single lump sum preclude a huge sector
of the market from access. New distribution models and channels were
needed to increase access and reduce the effective price charged to clients.
In 2005, the Micro Insurance Agency was founded by Opportunity
International as a fully-owned subsidiary capable of offering insurance
products and services to a wide range of customers.
Our mission is to empower the materially poor to transform their lives by
insuring them against financial risk and its consequences. Specifically, we
seek to serve the economically active poor who live on $4 per day or less in
developing countries and provide a safety net to reduce economic setbacks.

Definitions of micro-insurance
Micro-insurance, the term used to refer to insurance to the low-income
people, is different from insurance in general as it is a low value product
(involving modest premium and benefit package) which requires different
design and distribution strategies such as premium based on community risk
rating (as opposed to individual risk rating), active involvement of an
intermediate agency representing the target community and so forth.
Insurance is fast emerging as an important strategy even for the low-income
people engaged in wide variety of income generation activities, and who
remain exposed to variety of risks mainly because of absence of cost-
effective risk hedging instruments.

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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. In the
context of health contingency, for example, a 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. Indeed, enhancing the ability of the poor to deal with
various risks is increasingly being considered integral to any poverty
reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).

Of the different risk management strategies2, insurance that spreads the

loss of the (few) affected members among all the members who join
insurance scheme and also separates time of payment of premium from time
of claims, is particularly beneficial to the poor who have limited ability to
mitigate risk on account of imperfect labour and credit markets.

In the past insurance as a prepaid risk managing instrument was never

considered as an option for the poor. The poor were considered too poor to
be able to afford insurance premiums. Often they were considered
uninsurable, given the wide variety of risks they face. However, recent
developments in India, as elsewhere, have shown that not only can the poor
make small periodic contributions that can go towards insuring them against
risks but also that the risks they face (such as those of illness, accident and
injury, life, loss of property etc.) are eminently insurable as these risks are
mostly independent ,idiosyncratic. Moreover, there are cost-effective ways
of extending insurance to them. Thus, insurance is fast emerging as a
prepaid financing option for the risks facing the poor.

In this paper, we analyze the early evidence on micro-insurance already

available in this regard, highlight the current initiatives being contemplated
to strengthen micro-insurance activity in the India, and suggest specific ways
that can help promote insurance to the target segment.

Development of Micro-insurance in India

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

non-governmental 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

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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---their potential is viewed to be considerable. The
overall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004).

The insurance regulatory and development authority (IRDA) defines rural

sector as consisting of:

• a population of less than five thousand,

• a density of population of less than four hundred per square kilometer
• More than twenty five per cent of the male working population is
engaged in agricultural pursuits. The categories of workers falling
under agricultural pursuits are: cultivators, agricultural labourers, and
workers in livestock, forestry, fishing, hunting and plantations,
orchards and allied activities.

The social sector as defined by the insurance regulator consists of:

• Unorganized sector
• informal sector
• economically vulnerable or backward classes, and
• Other categories of persons, both in rural and urban areas.

The social obligations are in terms of number of individuals to be covered by

both life and non-life insurers in certain identified sections of the society. The
rural obligations are in terms of certain minimum percentage of total polices
written by life insurance companies and for general insurance companies,
these obligations are in terms of percentage of total gross premium
collected. Some aspects of these obligations are particularly noteworthy.
First, the social and rural obligations do not necessarily require (cross)
subsidizing insurance. Second, these obligations are to be fulfilled right from
the first year of commencement of operations by the new insurers. Third,
there is no exit option available to insurers who are not keen on servicing the
rural and low-income segment. Finally, non-fulfillment of these obligations
can invite penalties from the regulator.
In order to fulfill these requirements all insurance companies have designed
products for the poorer sections and low-income individuals. Both public and
private insurance companies are adopting similar strategies of developing
collaborations with the various civil societies associations. The presence of
these associations as a mediating agency, or what we call a nodal agency,
that represents, and acts on behalf of the target community is essential in
extending insurance cover to the poor. The nodal agency helps the formal

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insurance providers overcome both informational disadvantage and high
transaction costs in providing insurance to the low-income people. This way
micro insurance combines positive features of formal insurance (pre paid,
scientifically organized scheme) as well as those of informal insurance (by
using local information and resources that helps in designing appropriate
schemes delivered in a cost effective way). In the absence of a nodal agency,
the low resource base of the poor, coupled with high transaction costs
(relative to the magnitude of transactions) gives rise to the affordability
issue. Lack of affordability prevents their latent demand from expressing
itself in the market. Hence the nodal agencies that organize the poor, impart
training, and work for the welfare of the low-income people play an
important role both in generating both the demand for insurance as well as
the supply of cost-effective insurance.

AN OVERVIEW OF THE MARKET

B Wealthy A
Middle Income

D
C
Poor

Severely Poor

The market for micro insurance is represented by this pyramid diagram.

Formal sector insurance companies generally focus on the area identified as
“A”. In this realm the customers are corporations and wealthy individuals,
and the products are voluntary products such as life insurance, and
obligatory products required either by law (such as motor third party liability)
or by banks (such as property loss and credit life). Also offered are products
covering employees and civil liability. Most of the non-auto related

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commercial products are being sold within the area marked “B”. The
aggregate market for microfinance providers is generally in the area
identified as “C”. Some MFPs require borrowers to obtain insurance for
property, or credit-life insurance as a means of protecting the institution’s
interests. Area “D” indicates the broad range of products offered by the
social security and public health insurance systems of developing country
governments. They include coverage for pensions, disability benefits,
primary health care, and medications. The weakness of this sector is
indicated by the dashed line that suggests incomplete coverage. The
potential market for microinsurance is indicated as “E”. This extends above
the MFP range in providing access to individuals and others that cannot
obtain appropriate products from the commercial sector. The microinsurance
range also extends below the MFP range because it addresses agricultural
coverage in some cases, and is now being sold through many delivery
channels other than MFPs. Just a few of these delivery channels include:

• Low-income focused retailers in South Africa

• Post offices in Indonesia
• On bags of agricultural inputs or through computer kiosks in India.

Micro-insurance delivery models

One of the greatest challenges for micro-insurance is the actual delivery to
clients. Methods and models for doing so vary depending on the
organization, institution, and provider involved. In general, there are four
main methods for offering micro-insurance the partner-agent model, the
provider-driven model, the full-service model, and the community-based
model. 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.

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 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.

NEW MODELS FOR POOR COMMUNITIES

Much interest over the last few decades has focused on helping communities
to establish mutual or community-based insurance schemes. Professionals
typically manage mutual insurance companies. Community-based schemes,
promoted by ILO STEP and CIDR among others, tend to be run by well
meaning local people who give freely of their time, but are not insurance
professionals. Often people who were simply in need of insurance end up
being insurance managers with these schemes. One member of the
management committee of a community- based scheme in Tanzania noted
that he “wants insurance, but doesn’t want to be an insurer.” In community-
based schemes, the limited management capacity frequently leads to a
range of difficulties. The key issues of concern for community-based
schemes include:

• Pricing – Often the process of pricing is focused on what people say they
can pay rather than being linked to the cost structure of benefits that
the group wants to receive.

• Insurance is subject to cash flow fluctuations and thus requires

significant reserves. These schemes frequently have insufficient
reserves or no reserves at all. Also, commercial reinsurance is rarely

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 available to unregulated insurance schemes thus leaving them with no
ability to manage cash flow deficits.

• Controls on management are weak and temptation is strong. Fraud by

management is frequently a problem.

• These schemes are limited in size to those people within the defined
local area. This reduces their ability to diversify a rather small risk
pool, and enhances the potential for adverse selection, both of which
make sustainability a serious challenge for local management.

• Finally, in many countries there is no legal framework for these

schemes. Indeed regulators are often unwilling to allow such schemes
for fear that they will not be able to adequately supervise many small
schemes run by non-professionals. This is the case in India. Service
providers, most typically hospitals and other healthcare providers have
offered pre-financing mechanisms that act somewhat like insurance.
These products, it is argued, will attract more people to the facility and
the people who come will be able to pay for the services. Often this
becomes a problem because providers have limited ability to manage
the insurance administration issues. One overseer of a particular group
of hospitals noted that attempting to offer microinsurance could
present a dual threat to the hospital network for which he works. He
noted that the hospital administrators “do not even know how to price
their own healthcare services”. Therefore, they mis-price their
premiums based on those prices, which are typically too low. The
resulting increase in patients using the insurance leads to even higher
losses, due to higher administrative costs and incorrect fees that do
not cover the actual costs of services. Governments also provide a
form of microinsurance through the programs they provide for low-
income Citizens. Unfortunately, in many countries these programs are
simply insufficient to address the financial risks of the low- income and
destitute populations. Certainly there is a population that will not be
covered by commercial or other non-government microinsurance.
However, if a proper balance could be found, it is possible that the
combination of government programs, commercial microinsurance,
mutual insurance, and traditional commercial insurance could make
each of these more efficient, and make the government interventions
more effective in addressing those that truly require such services.

Need for Developing Micro-Insurance in India – IRDA perspective

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Background

• Micro-insurance refers to protection of assets and lives against

insurable risks of target populations such as micro-entrepreneurs,
small farmers and the landless, women and low-income people through
formal, semiformal and informal institutions. Such products are often
bundled with micro-savings and micro-credit, thereby allocating scarce
resources to micro-investments with the highest marginal rates of
return. Microinsurance is the most underdeveloped part of
microfinance. Yet various schemes exist that are viable, benefiting
both the institutions and their clients. Such schemes have generally
served two major purposes: (i) they have contributed to loan security;
and (ii) they have served as instruments of resource mobilization. The
greatest challenge for microinsurance lies in the combination of
viability and sustainability with outreach.
• Although introduction of sound practices such as appropriate policy
sizes and timely payment of installments of premium or positive
incentives to renew on time in order to avoid policy getting lapsed can
be feasible, the ultimate effectiveness of interventions focusing on
institutional transformation and sound insurance practices will vary
considerably, depending on the appropriateness of the regulatory
environment.

Development Goal
To enable microinsurance to be an integral part of a country's wider
insurance system, it is important for every insurer to adjust its costs of
serving marginal clients in remote areas, collecting premiums and
installments, and offering doorstep services. It is also important to recognize
a wide network of intermediaries in the rural and social sectors and notify
regulations in order to guide and supervise the micro-insurance service
providers and their customers.

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Today we have a variety of microfinance institutions with national and local
outreach. Many of them have already become corporate agents or have
entered into referral

arrangements with insurers. However, semiformal institutions including

savings and credit cooperatives, NGOs and self-help groups which have
immense potential in carrying the message of insurance as also solicit
insurance business are yet to be utilized in a manner where their true
potential can be harnessed to increase the insurance penetration levels. This
is due to restrictions in the existing agency regulations in terms of minimum
eligibility norms in order to become an agent.
Depending on the existence and vigour of such institutions, the following
alternatives have emerged, for offering strategic entry points for
microinsurance development:

• Adapting formal insurance arrangements to the needs of the micro-

economy.

• Upgrading non-formal (comprising semiformal and informal) insurance

arrangements with insurance companies.

• Linking formal and non formal insurance institutions with banks and
self-help groups.

• Establishing new local institutions providing microinsurance services.

The first three strategies may be inter-connected:

• adapting insurance companies to the requirements of the micro-

economy is a first step; then
• Linking them as wholesale institutions to self-help groups as retailers;
and finally,
• Upgrading self-help groups e.g. to the level of financial cooperatives or
village banks.

If insurers are to serve customers who differ widely in terms of service costs
and risks, the only viable inducement for them is an adequate margin, lest
they exclude small farmers, - micro-entrepreneurs and people in remote
areas. Only sound social insurance, which combines a social mandate with
profit-making, has a chance of sustainability.

Institutional Adaptation

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The experience so far has been that formal financial institutions serve but a
fraction of the population, which typically lies within the upper quartile of the
social hierarchy. Through adaptation to the microfinance market
requirements, they may gradually expand into the second-highest quartile
and into segments of the lower quartiles. Within the foreseeable future they
will normally not be able to fully serve that market.
Non formal finance mostly rests on local institutions which are directly
accessible to all segments of the population. Self-Help Groups (SHGs) are
member-owned and member-controlled local institutions. They may either be
financial groups, with financial intermediation as their primary purpose; or
non financial groups, with financial intermediation as a secondary purpose,
such as vendors' associations, family planning groups and numerous other
types of voluntary associations.

The functions that need to be focused must include: providing guidance to

members, collecting premium installments from members, insurance
services to members, communication and exchange of experience, providing
linkages with banks, NGOs or donors, supporting the proposals of individual
members to insurance companies through recommendations.

Linkage to Insurers
On a modest scale, various forms of life and health insurance have been
successfully practiced by different institutions in different countries,
particularly as part of loan protection schemes. Micro-insurance procedures
and services should be set by insurers rather than the regulator. Appropriate
procedures and services should be applied to attain:

(1) Sound financial management,

(2) Convenient and safe savings premium collection and deposit facilities,

(3) Appropriate claim appraisal and processing procedures,

(4) Adequate risk management,

(5) Timely collection of premium installments,

(6) Monitoring and

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(7) Effective information gathering, all of which may include cooperation
between different formal and non-formal intermediaries in fields where each
is most effective.

Proposed Micro-insurance Regulations

In order to introduce the concept micro-insurance it is necessary to draft
suitable bring in suitable regulations to enable insurers to design and
distribute and service micro-insurance products and discharge their
obligations to the rural and social sectors as per provisions of the Insurance
Act, 1938.

1. It is proposed that an insurer transacting life insurance business shall

be permitted to provide life micro-insurance products as well as
general micro-insurance products provided it ties up with an insurer
transacting general insurance business for the general micro-insurance
products, and vice versa.

2. In addition to an insurance agent or corporate agent or insurance

broker who are authorized to solicit and procure insurance business,
including micro-insurance business with an insurer in accordance with
the provisions of the Insurance Act, 1938 and the regulations made
there under it is also proposed to introduce the concepts of “micro-
insurance product” and “micro-insurance agent” .

Micro-insurance Product
1. A “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 the Table A below, filed with the Authority:
Table A:

Type of Minimum Maximum Term of Term of Minimum Age Maximum age at

Cover Amount of Amount Cover Cover at entry entry
Cover of Cover Min. Max.
Term Rs. 10,000 Rs. 50,000 5 year 7 years 18 60
Insurance
with or
without
return of
premium
Endowme Rs. 10,000 Rs. 50,000 5 year 7 years 18 60
nt

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 Insurance

Health Rs. 10,000 Rs. 15,000 1 year 7 year 18 60

Insurance
Contract
Accident Rs. 10,000 Rs. 50,000 1 year 5 years 18 60
Benefit as
rider

NOTE: The present average sum insured is around Rs. 5,000. This is
highly
inadequate to provide any tangible relief even to an individual below
the
poverty line. Therefore, it is suggested that the minimum amount of
cover of Rs.
10,000 appear more realistic.

2. A “general micro-insurance product” means any health insurance

contract, any contract covering the belongings such as hut,
livestock, any personal accident contract, or tools or instruments,
either on individual or group basis, as per terms stated in the
Table B below, filed with the Authority:
Table B:

Type of Minimum Maximum Term of Term of Minimum Maximum age at

Cover Amount Amount of Cover Cover Age at entry entry
of Cover Cover Min. Max.
Hut or Rs. 10,000 Rs. 20,000 1 year 1 year 18 70
livestock
or Tools
or
implement
s or other
assets—
against all
perils
Health Rs. 10,000 Rs. 15,000 1 year 1 year 18 60
Insurance
Contract
Personal Rs. 10,000 Rs. 50,000 1 year 1 year 18 60
Accident

Micro-insurance Agent

• A “micro-insurance agent” shall be a Non Government Organization

(NGO) or a Self Help Group (SHG).

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 • Explanation: For the purposes of this regulation:

• A Non Government Organization (NGO) shall be a registered non-profit

organization under the Society’s Act, 1968 with a proven track record
of working with marginalized groups with clearly stated aims and
objectives, transparency, and accountability outlined in its
memorandum, rules and regulations and demonstrates involvement of
committed people.

• Self Help Group (SHG) may be an informal group or registered under

Societies Act, State Co-operative Act or as a partnership firm,
consisting of 10 to 20 with a proven track record of working with
marginalized groups with clearly stated aims and objectives,
transparency, and accountability outlined in its memorandum, rules
and regulations and demonstrates involvement of committed people.

• The minimum number of members comprising a group should be

atleast ten for insurance of individuals, and atleast fifty for group
insurance.

Scope and Functions

A micro-insurance agent shall be appointed by an insurer by a deed of
agreement or memorandum of understanding which should clearly specify
the terms and conditions, duties and responsibilities of both the micro-
insurance agent and the insurer, and he shall abide by the following:-

• He shall work either for one life insurer or for one general insurer or for
one life insurer and one general insurer;

• He shall be specifically authorized to perform one or more of the

following functions:--

a) Maintaining a register of all members and their dependants covered

under the insurance scheme alongwith details of name, age, address,
nominees and thumb impression/ signature;

b) Collection of proposal forms;

c) Collection of self declaration from the member that he is in good

health;

d) Collection of monies for issuance of contract or remittance of premium;

Page 23
 e) distribution of policy documents;

f) Assistance in the settlement of claims;

g) Nomination; and

h) Any policy administration service.

i) The micro-insurance agent or the insurance company shall have the

option to terminate the agreement/ MOU after giving a notice of three
months.

j) All such agreements/ MOU must have the prior approval of the Head
office of the insurance company.

Initiative Taken By Private Sectors

Tata AIG Life - First insurance company to launch Micro

Insurance
• First major Micro Insurance initiatives venture by an Indian insurance
company

• Launches three new Micro Insurance products and five Micro Insurance
branches

• Adopts a tailor made rural communication strategy to reach out to the

rural community

American International Group, Inc. (AIG)

American International Group, Inc. (AIG), world leaders in insurance and

Page 24
financial services, is the leading international insurance organization with
operations in more than 130 countries and jurisdictions. AIG companies
serve commercial, institutional and individual customers through the most
extensive worldwide property-casualty and life insurance networks of any
insurer. In addition, AIG companies are leading providers of retirement
services, financial services and asset management around the world. AIG's
common stock is listed in the U.S. on the New York Stock Exchange, as well
as the stock exchanges in London, Paris, Switzerland and Tokyo.

Micro Insurance is the process of delivering and servicing relevant and

affordable life insurance products to the low-income socio economic strata.
The focus of Tata AIG Life’s Micro insurance program is rural India, where
traditionally the far-flung, lower and lower middle-income segments have
had limited access to life insurance services.

Cost of plans:
Tata AIG Life Micro insurance plans are available with or without survival
benefits and with death benefits ranging from Rs.5, 000 to Rs.50, 000. With
premiums as low as Rs.5** per month, there is now an affordable life
insurance product for nearly every rural household in India.

Policies Available:

The following special Micro Insurance products from Tata AIG Life are now
available for the rural population at the bottom of the pyramid.

• Navkalyan Yojana
• Ayushman Yojana
• Sampoorn Bima Yojana

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NAVKALYAN YOJANA

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

Key features include:

• 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.

Tax Benefits and Age Eligibility

• Premiums paid under this plan are eligible for tax benefits as per the
Income Tax Act, 1961 and are subject to any amendments made
therein from time to time.*

Anyone between ages 18 and 60 can apply for this policy.

AYUSHMAN YOJANA

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A single premium plan where the policyholder pays the premium at the
beginning of the policy term. This is especially useful for those rural people
who have a seasonal income.

Key features include:

• Policy Term : 10 years

• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-
Maximum Death Benefit (Sum Assured): Rs.50,000/-
• Death Benifit : Sum assured to the policyholder’s nominee
• Maturity benefit : On survival, 125% of the single premium paid.

Tax Benefits and Age Eligibility

• Premiums paid under this plan are eligible for tax benefits to the
extent of 20% of Sum Assured as per the Income Tax Act, 1961 and
are subject to amendments made therein from time to time.*

Anyone between ages 18 and 60 can apply for this policy.

SAMPOORNA 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.

How do we operate?

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We 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 organizations) and Rural
organizations with community level SHG (Self Help Group) women advisors
who provide insurance advisory services to the rural customers at their
doorstep. The grassroots level agents explain the product details in the local
language of the customer, thereby enabling the customer to make a
decision. The training programs, brochures, contract documents, and
application forms are available in 8 different languages other than English
and Hindi

Key features include:

• 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.

Tax Benefits and Age Eligibility

Premiums paid under this plan are eligible for tax benefits as per the Income
Tax Act, 1961 and are subject to any amendments made therein from time
to time.* Anyone between ages 18 and 60 can apply for this policy.

RESEARCH OBJECTIVE

To find out potential depth in society for providing opportunities for further
extention for micro insurance

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Sub objective:
 Determine need and ability of people segment whose per day
income is less than 100 bugs. What really matters to him or her
while think about insurance.
 Determine awareness about insurance among them. if aware
then source of information
 To determine the govt. and private sector proceeding in this area
and extent of their success

RESEARCH METHODOLGY

Data collection

For data collection, we developed a well defined questionnaire as a research

instrument, consisting questions aimed to measure the people perception
about insurance, their need and problems, bottleneck why hadn’t insured,
and target to find out opportunities for further extention of micro insurance.
We conducted unstructured interviews (sample size) of 52 general people
having income even less than 100 bugs per day like vendors, rickshaw wala,
coolies etc. at survey location (Kashmiri gate, old Delhi railway station,
prostitutional area etc. All the data generated was primary data that was
generated directly from face to face communication

Data analysis

The data collected based on structured questionnaire is recorded on an excel

sheet and with the help of SPSS software a pie chart analysis along with
pillar data analysis is generated and based on this findings a qualitative
inferences are made for each analysis. The same is being presented in form

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of graphs and tables

SURVEY RESULTS

The following are our findings regarding the survey conducted by us. The
following graphs show the potential depth from different perspectives, as
shown below:

ANALYSIS AND INTERPRETATION

Table 1:

Gender of the respondents

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 S. No. Sex No of Respondents Percentage

1. Male 50 91

2. Female 05 09

Total 55 100

Chart 1:
Gender of the respondents
No of Respondents

9% 0% 1
2
3
4
5
6
7
8
9
91% 10

Inference:
The above reveals the fact that Majority of the respondents, about 91%
belong to the category of male and 9% belong to the category of female.

Table 2: Age of the respondents Chart 2:

frequency
17% 12%

AGE 1
2
3
38% 4
33%

Page 31

25 20
Inference:

The above reveals the fact that Majority of the respondents, about 38%
belong to the category of 2 age and 33% belong to the category of 3 of age,
17% belong to category 2 and 12% belong to the category 1 of age.

Table 3: Educational Qualification Chart 3:

Educational Qualification Frequency
2%
2%
28
no.of respondent

30 22
20 1
10 42% 2
1 1
0 3
54%
1 2 3 4 5 6 7 8 9 10 4
catagory of education

Inference:

The above result reveal that majority of respondents (22+28)% were either
uneducated or educated only upto primary level

Table 4: No. of family members Chart 4:

family size freq
0%

30
no.of respondent

20 1
f req
45% 2
10

0
55% 3
1 2 3 4 5 6 7 8 9 10 4
age catagory

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Inference:

Above result reveals that majority of respondent 55% live with joint family or
have big size of family

Table 5: No. of earning member Chart 5:

Series1 2% freq
earning member
Series2 4%
Series3
no.of respondent

40 33
30 Series4
16 1
20 Series5 31%
2
10 2 1 Series6
3
0 Series7
63% 4
freq Series8
earning member/family Series9
Series10

Inference:

From the above result it can be clearly seen that about 63% of the
respondent were the only earning member of their family, 31% have 2
earning member because of size of family.

Table 6: Income level Chart 6:

Series1 freq
income level 12%
Series2
30 Series3
no.of respondent

24 22
Series4
20
Series5 46% 1
10 6
Series6 2
0 Series7 3
freq Series8 42%
incom e catagory Series9
Series10

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Inference:

The above result reveals that 46% of respondent have income level 1 while
42% and 12% have income level 2 and 3 respectively.

Table 7: Account Holder Chart 7:

account map freq
15%
40 33
no.of account

30
holder

20 11 1
8
10 2
21%
0
3
1 2 3 4 5 6 7 8 9 10 64%
no.of account

Inference:
The above result reveals that 64% of respondent don’t have any account any
where while 36% have their own bank or post office account.

Table 8: Background Chart 8:

background freq
19%

40 36
no.of respondent

30
20 1
10 12%
10 6 2
0 3
1 2 3 4 5 6 7 8 9 10 69%
background catagory

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Inference:

The above result reveals that majority of respondent belong to the

background of type 3(69%), then type 1 (19%) and type 2(12%).

Table 9: No. of dependent Chart 9:

dependent members freq
12% 8%
20 18
15 16%
respondent

15 1
10 8
6 2
4
5 3
29%
0 4
1 2 3 4 5 6 7 8 9 10
5
no. of de pendent/family
35%

Inference:

The above result reveal that majority of respondent (35+29)% have no. of
dependent more than 1 and less than 4. 16% have only 1 dependent and
12%have 4 or more than 4 dependent in their family.

Table 10: Whether has ID proof Chart 10:

ID proof freq 1
2
27.5 27 0%
27 3
no.of respondent

26.5 4
26
48%
5
25.5 25
25 52% 6
24.5 7
24
8
1 2 3 4 5 6 7 8 9 10
9
1-yes ,2-no
10

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Inference:

Above result reveals that 52% have ID proof but almost there were equal no
that hadn’t any id proof.

Table 11: Faced prob with health or asset Chart 11:

health/asset problem faced Freq
23%
60
40
responses

40
20 12 1
2
0
1 2 3 4 5 6 7 8 9 10
1-yes, 2-no 77%

Inference:

Above result shows that 23% of respondent didn’t face any problem related
with health or asset but 77% faced a serious health of asset loss in past of
their life.

Table 12: If yes how they managed Chart 12:

monetory management way of monetary management
19
20 2%
15 21%
15 1
response

10 40%
10 2
3
5 1 3
0 6% 4
1 2 3 4 5
5
w ay of m anage 31%

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Inference:

The above result reveals that majority of the respondent 40% managed their
financial problem by way 1, 31% by way2 and 21% by way4 and rest
managed their problem by pattern of ways shown above in chart12.

Table 13: How many times fell ill Chart 13:

illness illness map
7%
28
30
26%
response

20
11 1
10 3 2
0 3
67%
1 2 3 4 5 6 7 8 9 10
times fell ill/month

Inference:

The result above reveals that 67% of the respondent don’t have serious
health problem and they hardly use to fell ill once in a month. But beside of
this some sector 26% and 7% respectively are those who use to fall twice or
thrice in month.

Table 14: Risk on job Chart 14:

risk on job
risk on job

28
27
27 48%
response

26 1
25
25 52% 2
24
1 2 3 4 5 6 7 8 9 10
1-yes, 2-no
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Inference:

The above result reveals that 52% of the respondent didn’t had any risk on
job but almost equal proportion 48% who had serious job risk.

Table 15: Risk toward assets Chart 15:

risk toward asset risk toward asset

40 35
33%
30
response

17
20
1
10
2
0 67%
1 2 3 4 5 6 7 8 9 10
1-ye s, 2-no

Inference:

Above result reveals that a majority of respondent 67% don’t have any risk
toward their asset while 33% were those who have. Reason might be
because of their low income they hadn’t had any significant asset.

Table 16: Awareness about insurance Chart 16:

awareness about insurance awareness about insurance
8%
60 48
response

40

20 1
4
0 2
1 2 3 4 5 6 7 8 9 10
1-ye s, 2-no 92%
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Inference:

Above result reveals that majority of respondent 92% were awared of

insurance but 8% were also there who even didn’t know what the insurance
is.

Table 17: Source of information Chart 17:

source of information source of information
0%
1% 11%
11%
1%
0%
30 25 3%
22
responses

20
8 8
10 5
1 0 2 0 1
0 35% 31%
1 2 3 4 5 6 7 8 9 10
source
7%

Inference:
The result above reveals that 35% of the respondent got the information
about insurance from source 7, 31% got info. from source 5 and remaining
from the source pattern shown above.

Table 18: No. of insurance taken Chart 18:

insurance taken insurance tak en

2%
40 31
30 38%
responses

20
20 1
10 1 60% 2
0 3
1 2 3 4 5 6 7 8 9 10
no.of insurance taken

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Inference:

Above shown result reveals that a majority of respondent 60% were not
insured from any where , 38% had taken life insurance but 2% were also
there who were very well awared and had 2 or more than 2 insurance.

Table 19: Why not insured? Chart 19:

reason for no insurance reason for no insurance

20 17 16
41% 44%
responses

15
10 1
6
5 2
0 3
1 2 3 4 5 6 7 8 9 10
15%
reason

Inference:

The result got above reveals that 44% were not insured because of reason1,
41% because of reason3 and 15% were not insured because of reason 2.

Table 20: Kind of insurance like to purchase Chart 20:

insurance like to have insurance like to have

9%
30 27

18 14%
responses

20
1
8
10 5 46% 2
0 3
1 2 3 4 5 6 7 8 9 10 4
type of ins urance
31%

Page 40
Inference:

Above result reveals that 46% of respondent like to have life insurance, 31%
like to have health insurance but there are some 14% who are awared
toward their child education and like to have education insurance, while
some 9% want to minimize risk toward their assets and like to have asset
insurance as well.

Table 21: Premium ready to pay Chart 21:

premium map p re miu m map

27% 24%
20
15 14
15 12
responses

10 1
10 2
5 3
0
20% 29% 4
1 2 3 4 5 6 7 8 9 10
type of prem ium

Inference:

Above result reveals that in this particular sector all the respondent were
almost have equally distributed opinion about premium package. 24% were
ready to pay a sound premium, majority were aligned toward premium
package 2, 20% were ready to pay premium 3, while 27% agreed to pay
premium package 4.

Table 22: How many members like to insured Chart 22:

members like to be insured members like to be insured

40 2%
31 2%
30 2% 1
responses

35%
18 2
20
3
10 4
1 1 1
0 59% 5
1 2 3 4 5 6 7 8 9 10
members/family

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Inference:

The above shown result reveals that majority of respondent 59% like to
insured two members of their family apart from self but 35% were those who
can’t bear even so less premium of micro insurance product and like to
insure only one member apart from self rest are distributed as shown above.

Table 23: From where you like to Chart 23:

Purchase Ins. Policy
facility location facility location

40 36
9% 0% 7% 1
4%
responses

30 2
16%
20 3
9
10 4 5
0 2 4
0
64% 5
1 2 3 4 5 6 7 8 9 10
6
location catagory

Inference:

The result above reveals that a majority of respondent 64% believes on

facility location 3 and likes to have insurance from there, 16% believe on
facility location 4 and rest are shown above.

Table 24: Insurance Duration Chart 24:

insurance duration
insurance duration

21%
25 29%
20
20 1
15
15 2
11
10 3
6
5 12% 4
38%
0
1 2 3 4 5 6 7 8 9 10

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Inference:

The result found above reveals that a majority of respondent 38% like the
insurance for the duration of 5-10 years, 29% upto 15-20 years, 12% upto
10-15 years but some were also those 21% who can’t bear even so less
premium and want to have insurance policy upto duration of 0-5 years.

FINDINGS

• Study reveals that majority of people whose daily income is less than 100
bugs have big family
• Earning member in majority of family is only male.
• Income level lies between 100-200 bugs per day
• Majority of respondent didn’t had any saving account because of no ID
proof
• Majority of respondent have more spending on travel & rent, after that on
food & cloth and Medicare & entertainment
• Majority of respondent are the only earning member in family size of 5-8.
• Majority of respondent hadn’t significant asset
• Majority of them managed critical financial problem from some lender like
master of their service
• They hadn’t any significant job risk but yes they had asset loss risk
• Many of them awared about insurance but not of micro insurance and best
source of information medium found to be “Radio” and “advertisement
banners”.
• Many of respondents were not insured just because of either high premium
or lack of complete information.
• Some complaint about bad approachability of insurance provider company
to them as well.

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 • Majority of respondent shows keen interest in micro-insurance policy in life
and health , some were very sensitive toward education and like to have
education insurance as well
• Because of low income they are ready to pay 150-200 bugs per year for
insurance and like to have atleast one more member of their family to be
insured
• They are ready to pay premium 15-20 years.

CONCLUSION:

From the above statistical interpretation it could be concluded that potential

lies in the society. There is a large segment of the population whose income
level lies under the boundary line of poverty and since micro insurance
target to those people whose income level is even less than 100 bugs per
day, it can penetrate population very well. Many of our target segments have
recommended many other facilities with micro insurance which found to be
really concernable. Micro insurance product should be manufactured in such
a way that those respondents who had denied for having insurance for all
family members only just because of premium, can also get access through
it.

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Page 45