Furthering the potential of Micro insurance in India

I believe the potential for market based financial inclusivity solutions (specifically insurance services) in
fighting against poverty in India is being misunderstood today. Parallelly, we are also missing out on
addressing some critical issues essential for success of these market based solutions

Adequate insurance is an essential financial service to preserve the gains accumulated from other
innovations, especially for vulnerable communities. It plays a crucial role in preventing these
communities from sinking into debt traps and in enabling their investments into long term priorities
(like children’s education, entrepreneurship, etc). Sustainably catering to this crucial service
requirement necessitates market based solutions, with both public & private actors’ involvement

While India is touted to be one of the forerunners in rightly identifying the necessity of insurance
services for the vulnerable, the sustainability of its market based solutions is suspect. Despite efforts
across decades, insurance solutions underperform on coverage, efficacy and profitability of our services

On the demand front, we continue to struggle with coverage of critical beneficiaries (~ 90% of India’s
bottom quartile lack health insurance)1 and out of pocket expense payment (In 2011 -12 OOP health
expenses drove 5.5 Cr Indian into poverty)1. On the supply front our insurers face extremely high claim
payout/ loss rations (Crop insurance gross loss in FY 19 stood at 100%)2

This underperformance can be traced back to gaps in our understanding of what constitute critical
success factors for micro insurance. Bridging them will give market based micro insurance services the
firepower essential to alleviate poverty

1. Focus on push vs pull factors to drive enrolment:

Most micro or rural, insurance schemes supported by government today (RSBY, PMFBY) focus on
creating push for enrolment via subsidization of premiums.

Essential pull factors like tailoring insurance services to customer needs (Eg: provision for crop
damage from wild animals); smoothening customer experience during service delivery/ claims
settlement (Eg: digital claims submission & processing); and enabling informed decision making by
sharing potential benefits are deprioritized in design of the services

2. Low priority accorded to economic viability of service providers:

Government’s promotion of populist measures like waiver of crop loans after a bad monsoon season
prevent end users from opting for market solutions, limiting the available market for insurers

Further, restrictive policy measures, often contrasting with end user requirements, prevent service
insurers from gainfully serving the market. For example, RSBY caps coverage at Rs 30K while
PMFBY offers only 1 insurance product. Service providers are hence discouraged from developing
products to satisfactorily serve market segments with different requirements

1
https://www.business-standard.com/article/current-affairs/90-poorest-have-no-health-insurance-reel-
under-high-medical-costs-report-119121100371_1.html
2
https://www.thehindubusinessline.com/opinion/how-to-improve-crop-insurance-
coverage/article30705320.ece
3. Limited investment into creation of overall enabling ecosystem:

As an extension to above two factors, both the government & insurance service providers fail to
invest in creating ecosystems necessary for market viability of services.

For example, holistic & enabling initiatives like leveraging Telemedicine to improve healthcare
access & outcomes (not just enrolment), construction of warehouses, cold storage chains to
minimize price risk to farmers ( and eventual high payout by insurers), are not being undertaken