Microinsurance in India

y Micro-insurance is protection of poor people and their

families against specific perils like death, illness, weather catastrophes, etc. In principle, micro-insurance works like any typical insurance business. y But there are several things that differentiate it from normal insurance.

‡ First, it is group insurance that can cover thousands of

customers under one contract. For example in India, Allianz covers 42,000 customers under one contract. ‡ Second, micro-insurance requires an intermediary between the customer and the insurance company. Preferably, this intermediary is a non-governmental organization (NGO) or microfinance institution.

Micro Insurance Models
y Partnership model y Agency model y Micro-agent model

Partnership Model
y A partnership between an insurer and an agent that provides

some kind of financial service to large numbers of lowincome people. This could be a microfinance organization, an NGO, or a business that supplies precuts to large numbers of low-income people, such as a fertilizer supplier.

Agency model
y In this model the insurer uses its normal agency office and

sells microinsurance products directly. The client comes to the agency office for sales and servicing of the product.

Micro-agent model
y It is the invention of Tata-AIG y The central building blocks of the model are Rural

Community Insurance Groups (CRIGs) supervised by rural organizations such as churches, NGOs or MFIs. y The leader of the CRIG is licensed as an agent. y This practice reduces training costs.

Distribution Channels
y Agents y Formal Banks y Regional Rural Banks y Cooperative Bank y NGOs & MFIs y Post Office

Agents
y Prime channel for insurance distribution y y y y y

in urban areas Trust of the company & customer must Knowledge of different products Postman,School teacher, shopkeeper, gram sevikas, gram sahayaks Training & educating poses a challenge Not an optimum channel as 42 % of 600,000 villages have population of less than 500

Formal Banks
y 27 PSBs have19, 104 rural branches and

30 Pvt.SBs 1,111 y Private banks are constrained by their lack of reach and meager branch strength
y Banking sector has shown propensity

towards the larger size accounts
y Within the foreseeable future they will

normally not be able to fully serve that market

Regional Rural Banks
y 177 RRBs together with14,150 branches

cover 516 districts and serve a client base of close to 62.70 million
y RBI has permitted RRBs to undertake

insurance business as corporate agent without risk participation

Cooperative Banks
y ST structure comprises of 30 SCBs, 367

DCCBs and over 112,309 PACS y RBI has allowed scheduled licensed SCBs and licensed DCCBs having a networth of Rs. 500 million to undertake insurance business as corporate agents without risk participation y Given their poor governance structures it is unlikely that they would emerge as efficient distribution channels

NGOs and MFIs
y Large number of NGOs and MFIs are involved in social as

well as financial services intermediation

Post Offices
y There are about 129,000 rural post offices. y Post Office itself is offering insurance products to the poor y Its efficacy as an intermediary channel needs to be explored

Challenges in Micro Insurance Penetration
Designing of products suiting the rural market. Using the right distribution channel mix to reach the potential customer at an affordable cost. Intermediaries being able to build personal credibility with the clients. Lack of products

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