MICRO-INSURANCE

OBJECTIVES

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To understand what Micro-Insurance is. To recognize the Potential Market for Micro-Insurance in India. To identify the Key Characteristics of Micro Insurance. To have a look at the micro-insurance products.

METHODOLOGY 1

MICRO-INSURANCE
Data has been collected for the following sources:

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Primary data Secondary data

All the data has been collected by doing library research, magazines, articles, visiting bank’s official websites and various other web pages.

SCOPE OF THE STUDY

Meaning and concept of Micro-Insurance. 2

MICRO-INSURANCE

   

Need for developing micro-insurance in India. Conducted unstructured interviews sample size of 30 general

people having income less than Rs. 350 per day. The area which was selected for the survey is bounded by central

suburbs of Maharashtra State. All the data generated for primary data that was generated

directly from face to face communication.

LIMITATIONS

Data collection was very time consuming.

3

MICRO-INSURANCE

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Since it is a new concept, untouched and unaware, the

information was not easily available. All the primary information included in the project is completely

based on the data offered by the applicants through survey analysis. There is no alternate source for confirmation of this information and data.

Introduction 4

MICRO-INSURANCE

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 • 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. 5

Third party property damage .covers your liability for damage to another person or to the property of others and your legal costs. 2. so make sure you understand the options before making a decision. If you're buying a car on an installment basis. 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. It also insures against damage caused if your car was stolen. Many different types of policies are available. Third party.covers you against the events covered above. as well as fire and theft. 3. Comprehensive . It doesn’t include repairs to your own car if you caused an accident.MICRO-INSURANCE Fidelity guarantees Covers losses resulting from misappropriation by employees who embezzle or steal.covers you for all of the above plus damage caused to your own car by you in an accident. People insurance It includes: • Superannuation • Workers compensation requirements Insurance cover for you and your employees: Workers Compensation 6 . Motor vehicle It is compulsory to insure all company or business vehicles for third party injury liability. fire and theft . There are four basic options: 1. 4. Machinery breakdown Protects your business when mechanical and electrical plant and machinery at the work site break down. financiers will usually insist on this cover.

financial or physical .covers part of your normal income if you are prevented from working through sickness or accident. 7 . Income protection or disability 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. If you are self-employed you also need to provide for your retirement . 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. Professional Indemnity Professional indemnity insurance protects you from legal action taken for losses incurred as a result of your advice. Personal accident and illness If you are self employed you won’t be covered by workers compensation. Workers compensation is covered by separate state and territory legislation. It provides indemnity cover if your client suffers a loss .directly attributed to negligent acts.provides your dependents with a lump sum if you die. Others are designed to cover risk .either material.things that could happen to you. There are several types of life insurance.provides a lump sum when you are diagnosed with one of several specified life threatening illnesses.through an approved insurer. • Trauma insurance .provides a lump sum only if you are totally and permanently disabled before retirement. • Total and permanent disability insurance .MICRO-INSURANCE You must provide accident and sickness insurance for your employees workers compensation . • Superannuation If you are running a business or employing people. so you need to cover yourself for accident and sickness insurance through a private insurer. you are likely to have superannuation obligations to your employees. loss or damage of property or ‘pure economic’ loss resulting from your negligence. • Term life insurance or whole of life cover .superannuation is generally used to provide for a retirement plan.

The death of a family member.MICRO-INSURANCE Product Liability If you sell. WHAT IS MICRO INSURANCE? On a daily basis. the poor around the world face a multitude (huge amount) of risks that threaten to derail any progress they have made to work their way out of poverty. 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. and natural disasters each pose unique dangers.the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) 8 . loss of property and livestock. you may need cover against claims of goods causing injury or damage. Micro insurance . illness. even in the form of repair or service. supply or deliver goods. Protecting people against these losses is an important step to alleviating global poverty.

 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. for example. etc. adopted this definition in explaining “microinsurance products” as those within defined (low) minimum and maximum caps. those appointed by and acting for an insurer. issued in 2005 by the Indian Insurance Regulatory and Development Authority (IRDA). for distribution of micro-insurance products (and only those products).MICRO-INSURANCE proportionate to the likelihood and cost of the risk involved – seeks to provide a suitable solution for managing these risks. others very large companies). The IRDA’s characterization of micro-insurance by the product features is further complemented by their definition for microinsurance agents. including small community-based schemes. 9 . The Micro-insurance Regulations. but also by enormous multinational insurance companies. The institutions or set of institutions implementing microinsurance are commonly referred to as a micro insurance scheme. (iii) the delivery channel: it can be delivered through a variety of different channels. 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. “micro” refers to the small financial transaction that each insurance policy generates. In this definition. (ii) the scope of the risk (the risks themselves are by no means “micro” to the households that experience them). DEFINITIONS Micro-insurance is insurance with low premiums and low caps / coverage. credit unions or other types of microfinance institutions.

including community health funds. and who remain exposed to variety of risks mainly because of absence of cost-effective risk hedging instruments. mutual health organizations. The common feature within all.e. service provision. decisions in microinsurance are made within each unit. political instability. revolving drugs funds. the term used to refer to insurance to the low-income people.  Micro-insurance is the use of insurance as an economic instrument at the “micro” (i. Insurance is fast emerging as an important strategy even for the lowincome people engaged in wide variety of income generation activities.MICRO-INSURANCE  Micro-insurance is synonymous to community-based financing arrangements. pre-dating the other three approaches. This definition integrates the above approaches into one comprehensive conceptual framework. (rather than far away. is the active involvement of the community in revenue collection. rural health insurance. active involvement of an intermediate agency representing the target community and so forth. frequently. It was first published in 1999. and community involvement in user-fee management. NGOs that offer support in operations. companies. 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). Most community financing schemes have evolved in the context of severe economic constraints. etc.). at the level of governments. INTRODUCTION Micro-insurance. smaller than national) level of society. resource allocation and. and lack of good governance. 10 . and has been noted to be the first recorded use of the term “micro-insurance”. Under this definition. pooling.

loss of property etc. is particularly beneficial to the poor who have limited ability to mitigate risk on account of imperfect labour and credit markets. accident and injury. for example. illness. Thus.) are eminently insurable as these risks are mostly independent or idiosyncratic. The same study reports that more than 40 percent of hospitalized patients take loans or sell assets to pay for hospitalization. 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. reports that about one-fourth of hospitalized Indians fall below the poverty line as a result of their stay in hospitals. Siegel et al. 2002). Often they were considered uninsurable. a World Bank study (Peters et al. In the past insurance as a prepaid risk managing instrument was never considered as an option for the poor. 11 . insurance is fast emerging as a prepaid financing option for the risks facing the poor. are no different from those faced by others. there are cost-effective ways of extending insurance to them. recent developments in India. life. Moreover. given the wide variety of risks they face. However. they are more vulnerable to such risks because of their economic circumstance. In the context of health contingency.MICRO-INSURANCE Although the type of risks faced by the poor such as that of death. 2001). Of the different risk management strategies. The poor were considered too poor to be able to afford insurance premiums. injury and accident. 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. Indeed. 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. as elsewhere.

For instance. we began working in 2002 on the development of a range of life. With a network of 47 microfinance institutions. Opportunity International has been serving the entrepreneurial poor since 1971. disability. 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. crop derivative.MICRO-INSURANCE HISTORY & VISION The Micro Insurance Agency has its roots within Opportunity International. In partnership with Opportunity’s microfinance institutions. a large microfinance network motivated by Jesus Christ’s call to serve the poor. livestock. property. unemployment and health insurance products to cover the risks faced by Opportunity’s loan clients. a death of a family member from HIV/AIDS –“pre-condition” most insurance companies would not cover – would often mean expensive 12 .

In addition. who later developed similar nonexclusive products in light of the competing environment. Through the experience of serving Opportunity’s microfinance institutions and their clients. for example. This transformed the mindset of retail insurance providers in the country. when offered on an individual. including HIV/AIDS. one-off basis. In 2005. 13 . resulting in increased economic hardship for the family. Further. Micro Insurance Agency staff developed an affordable funeral benefit product that did not exclude any pre-conditions. is a critical need of the poor but the most limited in terms of supply. Our mission is to empower the materially poor to transform their lives by insuring them against financial risk and its consequences. Specifically. Health insurance. high premium requirements and a need to pay in a single lump sum preclude a huge sector of the market from access. In response. Micro Insurance Agency staff observed that the products most demanded by the poor are not always the ones available. 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. policies that are available are often based on first world practices and are too complex for the simple coverage demanded.MICRO-INSURANCE funeral costs and the loss of a breadwinner. New distribution models and channels were needed to increase access and reduce the effective price charged to clients. 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.

MICRO-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.  He shall be specifically authorized to perform one or more of the following functions:-- 14 . duties and responsibilities of both the microinsurance 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.

age. The micro-insurance agent or the insurance company shall have the option to terminate the agreement/ MOU after giving a notice of three  All such agreements/ MOU must have the prior approval of the Head office of the insurance company. Collection of proposal forms. Nomination. address. 15 . distribution of policy documents.MICRO-INSURANCE  Maintaining a register of all members and their dependants covered under the insurance scheme along with details of name. Collection of self declaration from the member that he is in good  Collection of monies for issuance of contract or remittance of premium. Assistance in the settlement of claims.      months. and Any policy administration service. nominees and thumb impression/ signature.   health.

Term life insurance policies provide a set amount of insurance coverage over a specified period of time. This is the most widely used life insurance policy in low-income communities in developing countries.MICRO-INSURANCE TYPES OF MICROINSURANCE IN INDIA Life Insurance Life insurance pays benefits to designated beneficiaries upon the death of the insured. Compared with other life insurance policies this is not very complicated for the provider to offer. or twenty years. This insurance is appropriate when the policyholder's need for coverage is temporary. and endowment. ten. There are three broad types of life insurance coverage: term. five. such as one. whole-life. 16 .

Providing such insurance is difficult because of the need to verify the extent of damage and determine whether loss has actually occurred. It is difficult for most MFIs to guard against such moral hazard. Grameen Bank in Bangladesh offers its clients insurance against the death of livestock and COLUMNA in Guatemala provides insurance against fire damage. Some insurance providers also make available primary health care services such as immunization and contraceptives. and for costs of physician visits and medicine. SEWA in India. however. provides insurance against damage to home and productive assets. While actual coverage varies. It provides protection to the policy holder and her family.MICRO-INSURANCE Whole life insurance is a cash-value policy that provides lifetime protection. Health Insurance Health insurance provides coverage against illness and accidents resulting in physical injuries. MFIs have realized that expenditures related to health problems have been a significant cause of defaults and people's inability to continue improving their economic conditions. A few. do provide such coverage. Property Insurance Property insurance provides coverage against loss or damage of assets. either started their own health insurance programs or have linked their clients to existing programs. for example. It thus has a longer time horizon that the term life insurance. many health insurance providers cover for limited hospitalization benefits for certain illnesses. Disability Insurance Disability insurance in most cases is tied to life insurance products. Several MFIs have therefore. This is also not offered widely in developing countries. should she or 17 . This is hardly offered in low-income markets in the developing countries Endowment life insurance pays the face value of insurance if the policyholder dies within a specified period.

Private insurance companies are usually not involved in it. covariant risks typical of rain-fed agriculture systems dependent on only one or two crops. To improve the ability of rural farmers to repay loans from agricultural development banks (ADBs). Similar programs were developed in countries as diverse as Brazil. This is not very widely offered by Micro insurance providers. the Philippines and the USA. These programs typically provided loan repayment and occasionally income supplements to farmers suffering crop yields below an established minimum. Reinsurance 18 . Unemployment insurance attempts to stabilize the economy by enabling people to maintain their purchasing power. The experience with crop insurance in developing countries and even in the developed economies has had mixed results. with expenses (administrative and claims) far outstripping revenues. Uganda and CARD in Philippines are examples of MFIs providing clients with disability insurance. Unemployment Insurance Unemployment insurance is typically offered by the public sector. It also helps unemployed workers find jobs. Reasons for the failure of crop insurance have included: bad program design (such as failure to bring into account the incentives faced by the policy holders). This insurance provides cash relief to individuals who become unemployed involuntarily and who meet certain government requirements. FINCA.MICRO-INSURANCE some of her family suffers from a disability. India. Crop Insurance Crop insurance typically provides policy holders protection in the event their crops are destroyed by natural calamities such as floods or droughts. In each country the results were disastrous. and in some cases / unanticipated catastrophic natural calamities. many governments developed crop insurance programs in the 1970s and 1980s.

etc. Reinsurance can be used to stabilize profits. Reinsurance reduces an insurer's risk exposure and acts as an effective source of financing and a valuable source of actuarial expertise. donor. micro-insurance 19 . In this model. there are four main methods for offering micro-insurance the partner-agent model. Despite its obvious benefits reinsurance is largely unavailable for microinsurers. This is a central feature of the operations of all commercial insurers. An example of an MFI using reinsurance is that of FINCA International. In general. Methods and models for doing so vary depending on the organization. and in some cases a third-party healthcare provider. MICRO-INSURANCE DELIVERY MODELS One of the greatest challenges for micro-insurance is the actual delivery to clients. instead of having large fluctuations in financial outcomes year to year. Uganda which has entered a partnership with American International Group (AIG) to provide its clients life and disability insurance. the full-service model. Access to reinsurance can spur both the development of new micro-insurers and the growth of existing ones. while the agent retains all responsibility for design and development. It allows smaller insurers to share risk with other insurers in different regions or countries. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients. and the community-based model. the provider-driven model. microfinance institution. Each of these models has their own advantages and disadvantages. effectively developing sufficient large risk pools by combining the risks of many insurers. and provider involved. institution.  Partner agent model: A partnership is formed between the micro-insurance scheme and an agent (insurance company.).MICRO-INSURANCE Reinsurance is the shifting of part or all of the insurance originally written by one insurer to another.

and similar to the full-service model. managing and owning the operations. There is an advantage once more in the amount of control retained. is responsible for all operations. working with external healthcare providers to provide the services. both the design and delivery of products to the clients. yet is disadvantaged by its small size and scope of operations.  Full service model: The micro-insurance scheme is in charge of everything. This model has the advantage of offering micro-insurance schemes full control. This model is advantageous for its ability to design and market products more easily and effectively. design. and service. delivery.  Provider-driven model: The healthcare provider is the micro- insurance scheme. yet the disadvantage of higher risks. THE KEY CHARACTERISTICS The IAIS-CGAP Joint Working Group on Micro Insurance document on the -regulation and supervision of Micro Insurance identified the following key characteristics of Micro Insurance: 20 . but are also disadvantaged in their limited control.  Community-based/mutual model: The policyholders or clients are in charge. and working with external healthcare providers to offer services.MICRO-INSURANCE schemes benefit from limited risk. yet disadvantage in the limitations on products and services.

MICRO-INSURANCE  Inclusiveness: While formal channels of insurance business tend to exclude low-income households. research facilities. access to reinsurance etc.e. These groups effectively by enlisting their support in member selection and reduces insurance risks such as fraud. Even though the informal economy is frequently seen as disorganized. over-usage and moral hazard.  Group Coverage: Group insurance is more inclusive and cost effective than individual coverage. small business associations and the like. THE MICRO INSURANCE MECHANISM Micro Insurance operates by connecting multiple small units with larger structures and thereby creates networks which enhance both insurance functions (through risk pooling) and support structures for improved governance (i. Micro Insurance schemes generally tend to be inclusive. informal savings and credit groups. cooperatives.  Simple Processes. there are groupings available. Rules and Restrictions: Insurance contracts are generally full of complex conditions and conditional benefits. such as women's associations.). This insurance mechanism is independent of permanent 21 . data banks. Micro Insurance contracts have to be in plain language (preferably local language) and kept as simple as possible so that everyone has a clear understanding of what is covered and what is excluded. training.

resource allocation and. and partly due to the regulation that makes it mandatory for all formal insurance companies to extend their activities to rural and well-identified social sector in the country (IRDA 2000). increasingly. Development of Micro-insurance in India Historically in India. As a result. a few micro-insurance schemes were initiated. frequently. service provision.MICRO-INSURANCE external financial support. 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. Historically. micro-finance institutions (MFIs) 22 . Micro Insurance products have evolved out of community-based financing arrangements with active involvement of the community in revenue collection. pooling. The principal objective of Micro Insurance 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.

hunting and plantations. forestry. and workers in livestock. agricultural labourers. The rural obligations are in terms of certain minimum percentage of total polices written by life insurance companies and for general insurance companies. The insurance regulatory and development authority (IRDA) defines rural sector as consisting of:   a population of less than five thousand.MICRO-INSURANCE 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. Third. or what we call a nodal agency. Finally. The categories of workers falling under agricultural pursuits are: cultivators. non-fulfillment of these obligations can invite penalties from the regulator. both in rural and urban areas. and acts on behalf of the target community is essential in extending insurance cover to the poor. these obligations are to be fulfilled right from the first year of commencement of operations by the new insurers. 250 billion by 2008 (ILO 2004). This way micro insurance combines 23 . these obligations are in terms of percentage of total gross premium collected. The nodal agency helps the formal insurance providers overcome both informational disadvantage and high transaction costs in providing insurance to the low-income people. First. In order to fulfill these requirements all insurance companies have designed products for the poorer sections and low-income individuals. there is no exit option available to insurers who are not keen on servicing the rural and low-income segment. Second. Both public and private insurance companies are adopting similar strategies of developing collaborations with the various civil societies associations. 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. 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. The social sector as defined by the insurance regulator consists of:  Unorganized sector  informal sector  economically vulnerable or backward classes. fishing. and  Other categories of persons. The presence of these associations as a mediating agency. orchards and allied activities. 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 social and rural obligations do not necessarily require (cross) subsidizing insurance. that represents. Some aspects of these obligations are particularly noteworthy.

In this realm the customers are corporations and wealthy individuals. and obligatory products required either by law (such as motor third party liability) or by banks (such as property loss and credit life).MICRO-INSURANCE positive features of formal insurance (pre paid. or credit-life insurance as a means of protecting the institution’s interests. In the absence of a nodal agency. coupled with high transaction costs (relative to the magnitude of transactions) gives rise to the affordability issue. Also offered are products covering employees and civil liability. Lack of affordability prevents their latent demand from expressing itself in the market. The 24 . Some MFPs require borrowers to obtain insurance for property. 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. Hence the nodal agencies that organize the poor. the low resource base of the poor. Area “D” indicates the broad range of products offered by the social security and public health insurance systems of developing country governments. primary health care. Most of the non-auto related commercial products are being sold within the area marked “B”. The aggregate market for microfinance providers is generally in the area identified as “C”. disability benefits. They include coverage for pensions. AN OVERVIEW OF THE MARKET B Wealthy Middle Income A D C Poor E Severely Poor The market for micro insurance is represented by this pyramid diagram. impart training. 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). and the products are voluntary products such as life insurance. Formal sector insurance companies generally focus on the area identified as “A”. and medications.

the full-service model. and similar to the full-service model. design. both the design and delivery of products to the clients. 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. there are four main methods for offering micro-insurance the partner-agent model. and provider involved. There is an advantage once more in the amount of control retained. etc. donor. and the community-based model. The potential market for microinsurance is indicated as “E”. the provider-driven model. • Full service model: The micro-insurance scheme is in charge of everything. is responsible for all operations. This extends above the MFP range in providing access to individuals and others that cannot obtain appropriate products from the commercial sector. working with external healthcare providers to provide the services. • Provider-driven model: The healthcare provider is the micro-insurance scheme. Methods and models for doing so vary depending on the organization. yet the disadvantage of higher risks. This model is advantageous for its • 25 . micro-insurance schemes benefit from limited risk.MICRO-INSURANCE weakness of this sector is indicated by the dashed line that suggests incomplete coverage. managing and owning the operations. Partner agent model: A partnership is formed between the microinsurance scheme and an agent (insurance company. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients. delivery. In this model. and in some cases a third-party healthcare provider. but are also disadvantaged in their limited control. while the agent retains all responsibility for design and development. yet disadvantage in the limitations on products and services. and working with external healthcare providers to offer services. institution.). Micro-insurance delivery models One of the greatest challenges for micro-insurance is the actual delivery to clients. In general. Each of these models has their own advantages and disadvantages. and is now being sold through many delivery channels other than MFPs. • Community-based/mutual model: The policyholders or clients are in charge. and service. microfinance institution. The microinsurance range also extends below the MFP range because it addresses agricultural coverage in some cases. This model has the advantage of offering micro-insurance schemes full control.

Finally. will attract more people to the facility and the people who come will be able to pay for the services.based scheme in Tanzania noted that he “wants insurance. 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. in many countries there is no legal framework for these schemes. • Insurance is subject to cash flow fluctuations and thus requires significant reserves. One member of the management committee of a community. yet is disadvantaged by its small size and scope of operations. • Controls on management are weak and temptation is strong. but doesn’t want to be an insurer. it is argued. but are not insurance professionals. 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. These products.MICRO-INSURANCE ability to design and market products more easily and effectively.” In community-based schemes. • These schemes are limited in size to those people within the defined local area. This is the case in India. most typically hospitals and other healthcare providers have offered pre-financing mechanisms that act somewhat like insurance. 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. Often this becomes a problem because providers have limited ability to manage the insurance administration issues. promoted by ILO STEP and CIDR among others. Often people who were simply in need of insurance end up being insurance managers with these schemes. commercial reinsurance is rarely available to unregulated insurance schemes thus leaving them with no ability to manage cash flow deficits. These schemes frequently have insufficient reserves or no reserves at all. Also. This reduces their ability to diversify a rather small risk pool. Communitybased schemes. Service providers. the limited management capacity frequently leads to a range of difficulties. Professionals typically manage mutual insurance companies. Fraud by management is frequently a problem. One 26 . both of which make sustainability a serious challenge for local management. tend to be run by well meaning local people who give freely of their time. and enhances the potential for adverse selection.

and (ii) the spread of risk for 13Rural poor get lump sums in the agricultural seasons whereas urban poor get small amounts frequently 27 . commercial microinsurance. 11 Flexibility in Premium In the IRDA’s concept note on micro-insurance there is no provision that explicitly calls for allowing flexibility in premium collection which is necessary for extending the reach of micro-insurance. Certainly there is a population that will not be covered by commercial or other non-government microinsurance. For example. the cash flows in case of farmers would depend on the number of crop cycles in a year as well as on the timings of harvest whereas a self-employed household worker may have a more stable income stream. This can be a serious drawback in extending the reach of insurance to the low-income people. synchronizing premium collection with the harvest time is necessary for farmers whereas for self. in many countries these programs are simply insufficient to address the financial risks of the low. most products whether life or non-life require single. mutual insurance. Although some micro-insurance products allow for half-yearly. Often nodal agencies adopt several methods to facilitate premium collection. Therefore. premium collection schedule should match with the cash flows. Where a nodal agency collects annual premium in one go. having insurance contract of shorter durations and so forth. flexibility in premium collection has a bearing on their joining or not joining an insurance scheme.employed household workers paying premium in small but regular installments may be easier. collecting smaller amounts but more frequently. The resulting increase in patients using the insurance leads to even higher losses.13 The ‘type’ of flexibility needed in premium collection would depend very much on (i) the pattern of income stream of the target population. yearly payment of premium upon subscription. which are typically too low. collecting premium in kind. and traditional commercial insurance could make each of these more efficient. on the membership size. it is possible that the combination of government programs. Governments also provide a form of microinsurance through the programs they provide for low-income Citizens. and hence. they mis-price their premiums based on those prices.income and destitute populations. However. for the low income people premium constitutes a significant proportion of their income. due to higher administrative costs and incorrect fees that do not cover the actual costs of services. In particular. Also. Unfortunately. Therefore. The literature on micro-insurance cites the importance of appropriate ‘timings’ for premium collection. cash flows for the rural poor may be different from those of the urban poor. especially in rural areas. quarterly and even monthly payment of premium. The cash flow varies for different categories of workers. if a proper balance could be found. These methods may take the form of soft loans for paying premium. He noted that the hospital administrators “do not even know how to price their own healthcare services”.MICRO-INSURANCE 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. and make the government interventions more effective in addressing those that truly require such services. there is not much involvement of the agency. Moreover. Therefore. Rural incomes display seasonality.

MICRO-INSURANCE ( Need for Developing Micro-Insurance in India – IRDA perspective Background • Micro-insurance refers to protection of assets and lives against insurable risks of target populations such as micro-entrepreneurs. depending on the appropriateness of the regulatory environment. thereby allocating scarce resources to microinvestments with the highest marginal rates of return. the ultimate effectiveness of interventions focusing on institutional transformation and sound insurance practices will vary considerably. semiformal and informal institutions. Such products are often bundled with microsavings and micro-credit. and (ii) they have served as instruments of resource mobilization. 28 . Yet various schemes exist that are viable. small farmers and the landless. women and low-income people through formal. The greatest challenge for microinsurance lies in the combination of viability and sustainability with outreach. Such schemes have generally served two major purposes: (i) they have contributed to loan security. benefiting both the institutions and their clients. Microinsurance is the most underdeveloped part of microfinance. • 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.

55 62304.55 29 . livestock. Millions) 15393-20141 46911. The UNDP report also tried to estimate the potential size of the Micro Insurance market in India.126.267. Some 52.08 billion earns less than US $ 2 a day (in terms of Purchasing Power Parity).2 a day. The Potential Market for Micro-Insurance in India Insurance Segment Life Segment Non-Life Segment TOTAL (Life and Non-Life) Market Size (Potential)(Rs.MICRO-INSURANCE POTENTIAL MARKET FOR MICRO-INSURANCE IN INDIA : The UNDP Study During 2005-06. The population used for the estimation is 40-50 percent of those earning less than US$ 1 a day and 5070 per cent of those earning between US$ 1 . The nonlife estimation included four types of coverage .milch animals.70-84. the Human Development Report Unit of UNDP conducted a study of the potential Micro Insurance market in India on the basis of field surveys conducted in the States of Orissa.4 per cent of India's population of 1. Micro Insurance can play an important role in protecting the income of these people. Tamil Nadu and Rajasthan. health and crop insurance. The UNDP report commented that the potential utility of Micro Insurance may be even broader than that of micro-credit and may be closer to the potential market for micro-savings.70-64. balanced by affordability considerations in the early stages. The estimates corresponding to the life and non-life segments are provided in Table 3.

it is important for every insurer to adjust its costs of serving marginal clients in remote areas. and offering doorstep services. for offering strategic entry points for micro insurance development: 30 . Colombo. This is due to restrictions in the existing agency regulations in terms of minimum eligibility norms in order to become an agent. UNDP Regional Centre.MICRO-INSURANCE SOURCE: UNDP (2007). However. collecting premiums and installments. the following alternatives have emerged. Building Capacity for the Poor Potential and Prospect for Micro-Insurance in India. 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. Today we have a variety of microfinance institutions with national and local outreach. 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. Many of them have already become corporate agents or have entered into referral arrangements with insurers. Depending on the existence and vigor of such institutions. DEVELOPMENT GOAL To enable micro insurance to be an integral part of a country's wider insurance system.

Establishing new local institutions providing micro insurance The first three strategies may be inter-connected:    adapting insurance companies to the requirements of the micro- economy is a first step.g. . has a chance of sustainability. 31 . Upgrading self-help groups e. and finally.  services. then Linking them as wholesale institutions to self-help groups as retailers.MICRO-INSURANCE  Adapting formal insurance arrangements to the needs of the micro-economy.  Linking formal and non formal insurance institutions with banks and self-help groups. If insurers are to serve customers who differ widely in terms of service costs and risks. Only sound social insurance. the only viable inducement for them is an adequate margin.micro-entrepreneurs and people in remote areas. lest they exclude small farmers. to the level of financial cooperatives or village banks.  Upgrading non-formal (comprising semiformal and informal) insurance arrangements with insurance companies. which combines a social mandate with profit-making.

insurance services to members. they may gradually expand into the second-highest quartile and into segments of the lower quartiles. communication and exchange of experience. with financial intermediation as a secondary purpose. Within the foreseeable future they will normally not be able to fully serve that market. Through adaptation to the microfinance market requirements. Self-Help Groups (SHGs) are member-owned and member-controlled local institutions. Non formal finance mostly rests on local institutions which are directly accessible to all segments of the population.MICRO-INSURANCE INSTITUTIONAL ADAPTATION The experience so far has been that formal financial institutions serve but a fraction of the population. supporting the proposals of individual members to insurance companies through recommendations. NGOs or donors. The functions that need to be focused must include: providing guidance to members. or non financial groups. family planning groups and numerous other types of voluntary associations. collecting premium installments from members. various forms of life and health insurance have been successfully practiced by different institutions in different countries. They may either be financial groups. providing linkages with banks. which typically lies within the upper quartile of the social hierarchy. with financial intermediation as their primary purpose. LINKAGE TO INSURERS On a modest scale. particularly as part of loan protection schemes. such as vendors' associations. Appropriate procedures and services should be applied to attain: 32 . Micro-insurance procedures and services should be set by insurers rather than the regulator.

Appropriate claim appraisal and processing procedures. including micro-insurance business with an insurer in accordance with the provisions of the Insurance Act.  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. 1938. all of which may include cooperation between different formal and non-formal intermediaries in fields where each is most effective. 33 . and vice versa. 1938 and the regulations made there under it is also proposed to introduce the concepts of “micro-insurance product” and “micro-insurance agent” . Convenient and safe savings premium collection and deposit facilities.  In addition to an insurance agent or corporate agent or insurance broker who are authorized to solicit and procure insurance business. 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.MICRO-INSURANCE        Sound financial management. Monitoring and Effective information gathering. Adequate risk management. Timely collection of premium installments.

AIG companies serve commercial. Paris. on the New York Stock Exchange. world leaders in insurance and financial services. as well as the stock exchanges in London. Micro Insurance is the process of delivering and servicing relevant and affordable life insurance products to the low-income socio economic 34 . is the leading international insurance organization with operations in more than 130 countries and jurisdictions. In addition. (AIG).S. AIG companies are leading providers of retirement services. Switzerland and Tokyo. Inc. Inc. AIG's common stock is listed in the U.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.MICRO-INSURANCE Initiative Taken By Private Sectors Tata AIG Life . (AIG) American International Group. financial services and asset management around the world. institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer.

low cost term plan for the rural adults who seek life insurance protection without any maturity benefit. where traditionally the far-flung.5. 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. there is now an affordable life insurance product for nearly every rural household in India.000/Maximum Death Benefit (Sum Assured): Rs.50. 000 to Rs. lower and lower middle-income segments have had limited access to life insurance services.MICRO-INSURANCE strata. Cost of plans: Tata AIG Life Micro insurance plans are available with or without survival benefits and with death benefits ranging from Rs.50.5. 000. Key features include: • Policy Term : 5 years • Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5** per month. half yearly & yearly • Death Benifit : Sum assured to the policyholder’s nominee • Maturity benefit : None 35 . The focus of Tata AIG Life’s Micro insurance program is rural India. • • • Navkalyan Yojana Ayushman Yojana Sampoorn Bima Yojana NAVKALYAN YOJANA A regular premium payment. quarterly. With premiums as low as Rs.000/• Premium payment frequency : Monthly.

AYUSHMAN YOJANA A single premium plan where the policyholder pays the premium at the beginning of the policy term.000/Maximum Death Benefit (Sum Assured): Rs. 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.000/• Death Benifit : Sum assured to the policyholder’s nominee • Maturity benefit : On survival.MICRO-INSURANCE • Rider : Option to attach Accident Death Benefit Rider for issue ages 18 to 55 years at a nominal extra charge.50.5. This is especially useful for those rural people who have a seasonal income. 1961 and are subject to any amendments made therein from time to time. 1961 and are subject to amendments made therein from time to time.* Anyone between ages 18 and 60 can apply for this policy. Key features include: • Policy Term : 10 years • Coverage Limits : Minimum Death Benefit (Sum Assured): Rs. SAMPOORNA BIMA YOJANA 36 .* Anyone between ages 18 and 60 can apply for this policy. 125% of the single premium paid. Tax Benefits and Age Eligibility • Premiums paid under this plan are eligible for tax benefits as per the Income Tax Act.

the insurer carving on life insurance business or the distributing entities of microinsurance products. either directly Or through any of the distributing entities of microinsurance products as specified in regulation 4. and made over to the insurer on general insurance business. as may be specified in the tie-up referred to in the first proviso. Premiums are payable for only 10 years. shall forward the claim to the insurer 37 . he shall have a tie-up With an insurer carrying on general insurance business tor this purpose. TIE-UP BETWEEN LIFE INSURER AND NON-LIFE INSURER  herein. while the coverage is up to 15 years. as provided Provided that where an insurer carrying on life insurance business offers any general micro-insurance product.MICRO-INSURANCE 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. as the case may be. An insurer carrying on insurance business may offer life micro- insurance products as also general micro-insurance products. Provided further that in the event of any claim in regard to general micro-insurance products. Act. the premium attributable to the general micro insurance product may be collected from the prospect (proposer) by the insurer carrying on life insurance business. and subject to the provisions of section 64VB of the.

CODE OF CONDUCT OF MICRO INSURANCE AGENTS  Every micro-insurance agent and specified person employed by him shall abide by the code of conduct as laid down in Regulation 8 of the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations. the premium attributable to the life micro insurance product may he collected from the prospect (proposer) by the insurer carrying on general insurance business. he shall have a tie-up with an insurer carrying on life insurance business for this purpose. and made over to the insurer carrying on life insurance business. shall forward the claim to the insurer carrying on life insurance business and offer all assistance for the expeditious disposal of the claim. Provided further that in the event of any claim in regard to life microinsurance products. as may be specified in the tie-up referred to in the first proviso. Provided that where an insurer carrying on general insurance business offers any life micro. and the relevant provisions of Insurance Regulatory and Development Authority (Insurance Advertisements and 38 .  An insurer carrying on general insurance business may offer general micro-insurance products as also life micro-insurance products. as provided herein.insurance products.insurance product. the insurer carrying on general insurance business or the distributing entities of micro. and subject to the provisions of section 64VB of the Act. as the case may be. 2000. either directly or through any of the distributing entities of micro-insurance products as specified in regulation 4.MICRO-INSURANCE carrying on general insurance business and offer all assistance for the expeditious disposal of the claim.

advertisements and disclosure norms by every micro-insurance agent. rules and regulations and demonstrates involvement of committed people. State Co-operative Act or as a partnership firm. transparency. 39 . 1968 with a proven track record of working with marginalized groups with clearly stated aims and objectives. in addition to penal consequences for breach of code of conduct and/or advertisement or disclosure norms pursuant to the provisions of sub-regulation (1). consisting of 10 to 20 with a proven track record of working with marginalized groups with clearly stated aims and objectives.  Self Help Group (SHG) may be an informal group or registered under Societies Act.  Any violation by a micro-insurance agent of the code of conduct and/or advertisement or disclosure norms as aforesaid shall lead to termination of his appointment. MICRO-INSURANCE AGENT  A “micro-insurance agent” shall be a Non Government Organization (NGO) or a Self Help Group (SHG). 2000. transparency. and accountability outlined in its memorandum.MICRO-INSURANCE Disclosure) Regulations. Provided that the insurer shall ensure compliance of the code of conduct.   Explanation: For the purposes of this regulation: A Non Government Organization (NGO) shall be a registered non-profit organization under the Society’s Act.

either on individual or group basis. rules and regulations and demonstrates involvement of committed people.MICRO-INSURANCE and accountability outlined in its memorandum. as per terms stated in the Table below. livestock. any contract covering the belongings such as hut.  The minimum number of members comprising a group should be at least ten for insurance of individuals. and at least fifty for group insurance. GENERAL MICRO-INSURANCE PRODUCT A “general micro-insurance product” means any health insurance contract. any personal accident contract. filed with the Authority: 40 . or tools or instruments.

30. Mi ni m Ag e at ent ry mu Ma xim um age at ent ry MICRO-INSURANCE Dwellin g& content . 5. or livestoc k or Tools or implem ents or other named assets/o r Crop insuran ce against all perils Health Insura nce Contra Rs. 000 y y 1 1 Insurers’ discretion 41 Rs. T e r m o f C o v e r M a x . 30.0 00 Per ass et/c ove r Rs. 000 Per ass et/c ove r y e a r y e a r 1 1 NA NA .Type of Cover Mi ni mu m Am ou nt of Co ver Ma xi mu m Am ou nt of Co ver T e r m o f C o v e r M i n . 5.0 00 Rs.

irdaindia. any endowment insurance contract or health insurance contract. as per terms stated in the Table A below. either on individual or group basis. LIFE MICRO-INSURANCE PRODUCT A “life micro-insurance product” means any term insurance contract with or without return of premium. with or without an accident benefit rider. filed with the Authority: 42 .com NOTE: The minimum number of member comprising a group shall be at least twenty for group insurance. 2005.MICRO-INSURANCE SOURCE: IRDA Micro-Insurance Regulations. www.

5.0 00 Rs.0 00 y e a r y e a r s 5 1 5 18 60 .0 00 Rs.0 00 Rs. 5. 50. T e r m o f C o v e r M a x . Mi nim um at ent ry Age Ma xim um at entr y age MICRO-INSURANCE Ter m Insu ranc e with or with out retur n of prem ium Endo wme nt Insu ranc e Rs.0 00 y y 1 7 Insurers’ discretion 43 y e a r s 5 1 5 18 60 Rs.0 00 y e a r Heal th Insu ranc Rs. 30. 5. 30.Type of Cove r Mi nim um Am oun t of Co ver Ma xim um Am oun t of Cov er T e r m o f C o v e r M i n .

2005. their need and problems. milkman. we developed a well defined questionnaire as a research instrument. consisting questions aimed to measure the people perception about insurance. 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. Group insurance products may be renewable on a yearly basis. rickshaw-wala. We conducted unstructured interviews sample size of 30 general people having income less than 350 bugs per day like vendors. The minimum number of members comprising a group shall be at least twenty for group insurance.com NOTE: 1. www. 2. Survey location was Thane and Mulund etc. The same is being 44 .irdaindia. RESEARCH METHODOLOGY Data collection For data collection. cobbler etc. All the data generated was primary data that was generated directly from face to face communication.MICRO-INSURANCE SOURCE: IRDA Micro-Insurance Regulations.

MICRO-INSURANCE presented in form of graphs and tables Survey Results The following are my findings regarding the survey conducted. as shown below: ANALYSIS AND INTERPRETATION Chart 1: Age of the respondents 45 . The Ag G e roup 14% 47% 21% 20-25 25-30 30-35 35-40 18% following graphs show the potential depth from different perspectives.

18% belong to category 30-34 and 14% belong to the category 20-25 of age. about 47% belong to the category of 35-40 ages and 21% belong to the category of 25-35 of age. 54% were educated till higher secondary and the percentage of primary and graduation is very close i.e. Chart 3: Account Holder Inference: The above result reveals that 11% of respondent don’t have Educational Qualification 21% 25% Upto Prim ary Higher S ec 54% Graduation any account any where while majority of the applicants [43%] have post 46 . 21% & 25%.e.MICRO-INSURANCE Inference: The above reveals the fact that Majority of the respondents. Chart 2: Educational Qualification Inference: The above result reveals that majority of respondents i.

32% have their Bank a/c and only 14% have both the accounts. of earning member 47 . Chart 5: No.MICRO-INSURANCE office account. of family members Inference: Above result reveals that majority of respondents 50% have 4 members in a family which is ideal whereas only 7% live with joint family or have big size of family. Chart 4: No.

Chart 6: Income level Inference: The above result reveals that 68% of respondent have income level between 7000-10000 while 32% have income level between 50007000 and no one below it. 32% have 2 earning member because of size of family.MICRO-INSURANCE Inference: From the above result it can be clearly seen that about 68% of the respondent were the only earning member of their family. of dependent Incomelevel 0% 0% 32% 0-3000 3000-5000 68% 5000-7000 7000-1000 48 . Chart 7: No.

of dependent where as only 4% have 5 dependents.MICRO-INSURANCE 14 s t n 10 a c i l 8 p p A 6 f o . least expense is health and expense in travelling is nil but travelling is the highest at number 6th place. Chart 8: Expense Pattern 18 s14 t n a c12 i l 10 p p A8 f o6 . 49 . o4 N 2 0 1st Place 2nd Place 3rd Place 4th Place 5th Place 6th Place 16 Travelling Clothing Health Inference: From the above result we can see that out of the three clothing expense is more. 4 o N 2 0 1st Place 2nd 3rd Place4th Place 5th Place 6th Place Place 12 Education Rent & Electricity Drink & Entertainment Inference: The above result reveal that majority of respondent 39% have 3 no.

Chart 9: Faced problem with health or asset Inference: Above result shows that 36% of respondent didn’t face any problem related with health or asset but 64% faced a serious or minor health or asset loss in past of their life. Rent & Electricity is the highest expense and then comes Education. Chart 10: Awareness about insurance 50 . Least expense is on Drinks & Entertainment but it is highest at 5th place.MICRO-INSURANCE Inference: From the graph we can say that out of the three.

Chart 11: Source of information Inference: The result above reveals that 30% of the respondent got the information about insurance from newspaper.MICRO-INSURANCE Inference: Above result reveals that each and every applicant is aware about what the insurance is. least from Banners & Hoardings and remaining from the source pattern shown above.V. 51 . 20% got info from T.

Earning members in majority of family are two so that they are able to survive and meet their daily requirements.MICRO-INSURANCE Articles Case study FINDINGS    Study reveals that majority of people whose daily income is less than 350 bugs have ideal family. 52 . Income level lies between 150-350 bugs per day.

Middle class people take 53 . Majority of respondent had post office account and very less had both bank as well as bank account. television and from friends & relatives. some were very sensitive toward education and like to have education insurance as well. CONCLUSION We all know insurance is a very old concept. Majority of respondent have more spending on rent & Education. Majority of respondent shows keen interest in micro-insurance policy in life and health.   Many of respondents were not insured just because of either high premium or lack of complete information. Majority of them managed critical financial problem from their savings and even borrowed some money. Only few had insurance or taken  All of them are aware about insurance but not about micro insurance and best source of information medium found to be newspaper. after that on food & cloth and Medicare & entertainment. But the demand for insurance was increased from a decade.MICRO-INSURANCE     loan. Majority of respondent are the only earning member in family size of 4-5.

When we talk about poor people a question comes in mind 54 .MICRO-INSURANCE insurance policy according to their ability & capacity to pay premium to secure their life.