Microinsurance Final

8/8/2019 Microinsurance Final

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INTRODUCTION:

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.

According to Micro-insurance Regulations, issued in 2005 by the Indian Insurance Regulatory and

Development Authority (IRDA), micro refers to the small financial transaction that each insurance

policy generates and it is insurance with low premiums and low caps / coverage. It plays a vital role in the

economic development of the rural poor. Micro insurance in emerging economies and developing

countries means where people are often most vulnerable to risks such as natural disasters, illness and

disease and where there is little or no social security.[1]

REVIEW OF LITERATURE

Historical back ground of Micro- insurance

Government of India and certain insurance agencies started this scheme in 1980s,but

only after in the later years success has been obtained. Though the reach is been very limited among the 10 million

population the future is prone to yield high scope. The overall market is estimated to reach 250 billion.

TATA AIG was the first private player to enter into this market .This is followed by a number of

players like Birla Sun Life, SBI Life Insurance, Bajaj Allianz ,ICICI, Ing Vysya , MetLife etc. Most of these companies

focused upon the Life Insurance compared to the non-life insurances . They charged a nominal premium for the various

insurance schemes and are able to perform substantially well.

1] Demand of micro insurance

The inventory lists 51 schemes that are operational in India.

Most schemes are still very young , having started their operations in the last few years. Of the 39 schemes for which

this information is available, around 24 schemes came up during the last 4 years and about 7 schemes have operated for

a decade

43 schemes with available information cover 5.2 million people

66% micro insurance schemes are linked to micro finance services. 21% are implemented by community based

organizations and 12% by health care providers

Life and health based insurance are highly demanded. 59% and 57 5% on the overall respectively.

25 % out of the 37 % receive external funds to initiate the schemes, 20 out of the 32 schemes got technical external

assistance who manage the insurance activities. The other schemes kept relying on their regular staff while

recognizing them the additional responsibilities linked to the management of the scheme.


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2]Supply of Micro insurance

Out of 80 listed insurance products, 45 (55%) cover only a single risk. The other products covering of risks as a

package mostly focus on 2 (20%) or 3(18%) risks coverage.

The available products cover a wide range of risks. However, the broad majority of the insurance products

cover life (40 products or 52%) or accident-related risks. The health coverage remains very limited (12

products).

Most life insurance products (23 out of 42) are addressed to individuals. However, some products may be

bought both by individuals and groups.

Most life insurance products (55%) have been designed to cover an extended contract duration ranging from 3

to 20 years.

Out of 42 life insurance products, 23 are pure risk products. The other 19 products propose various types of

maturity benefits.

Out of the total 12 health products, 7 products propose the reimbursement of hospitalization expenses whilethe other 5 have chosen to narrow down the coverage to some specific critical illness.

3]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. Every model has its own advantage and

disadvantage.

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.

Full service model: The micro-insurance scheme is in charge of everything; both the design anddelivery of products to the clients, working with external healthcare providers to provide the

services.

Provider-driven model: The service provider and the insurer are the same, i.e., hospitals ordoctors offer policies to individuals or groups. The healthcare provider is the micro-insurance

scheme, and similar to the full-service model, is responsible for all operations, delivery, design,


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and service.

Community-based/mutual model: The policyholders or clients are in charge, managing andowning the operations, and working with external healthcare providers to offer services.

4]Distribution Channels:

The following approaches have emerged in India to provide insurance to low-income populations (only regulated

channels are included here, not in-house schemes):

Partnership model

Agency model

Micro-agent model

Partnership model

The partner-agent model:

As the name implies this model involves a partnership between an insurer and an

agent that provides some kind of financial service to large numbers of low-income 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. This party is an agent, selling insurance policies to the clients on behalf of the insurance

provider (usually) in exchange for a commission or fee. The insurance provider utilizes the established distribution

channels of this agent and its financial transactions with low-income groups, that would otherwise be too costly to

set up.

The partnership model uses the comparative advantage of each partner so that each can focus on its core business:

the insurance provider is responsible for designing and pricing the product, the final claims management, and theinvestment of reserves, and absorbs all the insurance risks. In addition to selling the policies, the agent offers its

infrastructure for product servicing such as marketing the product, premium collection, and assists in claims

management.

Pros and cons ofthe partnership model

Pros

The system works better than in-house because the synergies are maximized, enabling both organizations to

focus on their core business and expertise;

With a single partnership agreement it is possible to sell microinsurance to over a quarter of a million low-

income people;

Requires fewer skills for the agent than an in-house model;

Uses legally recognized insurance companies that have adequate reserves, adhere to capital requirements,

employ certified insurance professionals, and operate under the insurance law;


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Insurer has access to reinsurance;

The overhead costs of both the organizations, the agent and the insurance company, are reduced: the agent can

use its infrastructure for collecting premiums, etc.; the insurer provides the expertise on product development,

etc.;

It reduces the need to build the capacity of agents such as NGOs and MFIs to sell insurance because the insurer

can do some of this;

Cons

Because of the quota system, the most well-known agents are already taken and have existing relationships with

insurers. There are still many other organizations, however, that could act within a partnership;

The insurance provider is dependent on the quality of the agent;

NGOs in particular are often here today, gone tomorrow, relying on donor recognition and goodwill for their

survival;

Conflicts of interest may occur, especially when working with non-financial institutions. NGO or MFI staff ormanagement may develop sympathy for a client and be lax about underwriting or claims verification. It should be

noted that this is less likely to occur with an MFI partner that is used to financial discipline with its lending

activities.

Agency model

The agency model: How doesit work?

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. Insurers described this model but the authors could find

no examples of it operating in practice.

Pros and cons ofthe agency model:

Pros

Does not require much additional investment in infrastructure;

Better control of the quality of the agent than with the partnership model.

Cons

Difficult to reach large numbers especially in rural areas where clients may be unwilling to travel to the office;

Agents will need special training in dealing with low-income clients;

Offices may intimidate poor clients;

Individual policies only would be sold; generally such microinsurance policies have not proved commercially

viable.


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Micro-agent model

While the partnership model is relatively common, the micro-agent model described below is

unique. It is the invention of Tata-AIG, specifically an employee of Tata-AIG, Vijay Artherye. The central building

blocks of the model are Rural Community Insurance Groups (CRIGs) supervised by rural organizations such as

churches, NGOs or MFIs. CRIGs are a partnership firm formed of five women from a self-help group (SHG). The

leader of the CRIG is licensed as an agent. The CRIG is a de facto brokerage firm (in the technical, not the legal

sense of the term). All CRIGs in the same geographic area meet in a single centre, usually organized with the

assistance of the rural organization, and receive training and assistance from Tata-AIG. This practice reduces

training costs.

Pros and cons ofthe micro-agent model

Pros

The model creates an insurance distribution infrastructure in low-income neighbourhoods. In addition, it creates a

new profession, that of micro-agent, with new livelihood opportunities in his/her vicinity;

Sustainability: Because the position is a commercial one with financial incentives, Tata-AIG believes that it will

last in the long term, facilitating the sale of long-term products. As mentioned under the partner-agent model, NGOs

and MFIs are often dependent on the goodwill and public recognition of aid flows, and so their long-term existence

is precarious. Chances are good that CRIGs, being registered firms, will survive, in the event of a member or leader

dropping out. The leader could be replaced by another from the community, thus mitigating the risk of orphaned

policies;

In the event that a CRIG disbands, the orphaned policies can be taken over by another CRIG that operates under

the same NGO.

Cons

Training is costly, especially in relation to premium values;

The transaction costs of the sales agent are cheap at first but increase as soon as the agent has sold to all the

peoples/he knows and needs to sell to strangers, especially to those living far away;

In many cases in the partnership model, when a claim arises the MFI or NGO investigates the claim, pays the

benefit immediately, and then claims it back from the insurer. Immediate payment of claims helps maintain client

confidence, and this is not possible under the CRIG system;

This model is new, and much more experience is needed before it can be reasonably evaluated.


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5]MICROINSURANCEPLAYERS IN INDIA:

y SBI Life Insurance Co. Ltd.

y Allianz Bajaj Life Insurance Co. Ltd.

y Om Kotak Mahindra Life Insurance Co. Ltd.

y ICICI Prudential Life Insurance Co. Ltd.

y HDFC Standard Life Insurance Co. Ltd.

y Birla Sun Life Insurance Co. Ltd.

y ING Vysya Life Insurance Co. Ltd.

y Tata AIG Life Insurance Co. Ltd.

y MetLife India Insurance Co. Pvt. Ltd.


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y AMP Sanmar Assurance Co. Ltd.

y Dabur CGU Life Insurance Co. Pvt. Ltd. (AVIVA)

y Max New York Life Insurance Co. Ltd.

y Life Insurance Corporation of India

Bajaj Allianz Product : Alp NiveshYojana(Life) url:

Jana Vikas Yojana(Life) url:

Saral Suraksha Yojana(Life) url:

Birla Sun Life Product : Bima Suraksha Super (Life) url:

Bima KavachYojana(Life) url:

Bima Dhan Sanchay(Life) url:

SBI LIFEPRODUCT : Grameen Shakthi(Life) url:

Grameen Super Suraksha(Life) url:

TATAAIG PRODUCT : Ayushman Yojana(Life) url:

Navkalyan Yojana(Life) url:

Sampoorn Bima Yojana(Life) url:

Sumangal Bima Yojana(Life) url:

ICICI PRUDENTIALPRODUCT: Sarv Jana Suraksha(Life) url:

6]MICROINSURANCE PRODUCTS

Micro-insurance, like regular insurance, may be offered for a wide variety of risks. These include both

health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of microinsurance

products exist to address these risks.

The most frequent micro insurance products are:

* Life micro insurance (and retirement saving plans)

* Health micro insurance (hospitalization, primary health care, maternity, etc.)

* Weather micro insurance (natural disaster)


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* Disability micro insurance

* Crop micro insurance

* Property micro insurance assets, livestock, housing.

Life Micro insurance

Life Insurance covers the policy holder and his/her family on the event of death and disability. It is an

important measure of financial security for low-income households and the insurance product currently

most widely available. Of all insurance types, life cover is, relatively speaking, the least difficult to

provide, because:

It is one of the most demanded forms of cover.

It is relatively easy to price compared to other types of insurance.

It is mostly resistant to problems of fraud and moral hazard.

It is not dependent, unlike many types of health insurance, on the existence

and efficient functioning of other infrastructure like clinics or hospitals.

It is a relatively low-risk product for the provider.

Low-income people consistently find demand for risk management tools that could help them cope with


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financial issues related to the death of a breadwinner. In these cases, this market is looking for (1) funds to

help the remaining family carry on; (2) Funds to assist with the funeral and the related ceremonies and

customs; and (3) coverage for the outstanding balance of a loan, if indebted.

Life micro-insurance (and retirement savings plans) provides coverage against the financial consequences

of old age or of the death of a breadwinner.


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7.2 Health Micro insurance

Health micro-insurance provides coverage against the financial consequences of ill health and maternity.

The financial consequences can take several forms: direct medical costs of prevention, care and cure (fees

for consultations, laboratory tests, medicines, hospitalization, delivery, etc.); direct non-medical costs such

as costs of transportation, food in case of hospitalization; and indirect costs (opportunity costs), as ill


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health and maternity usually entail a loss of productive time for both patients and caretakers. Health

micro-insurance schemes usually cover direct medical costs covering a predetermined list of risks (or

health services). Very few schemes provide cash benefits (income replacement) in case of ill health or

maternity. Health micro insurance offers the promise of helping communities pay for quality healthcare by

optimally pooling their own limited resources. Micro insurance schemes provide various levels of

coverage by design, to meet the needs and payment capacity of the policyholder

y Hospitalization only:

y Hospitalization and outpatient (comprehensive)y Limited outpatient/ community health services:y Chronic Illnessesy

HIV/AIDS

y Preventive health services


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7.3 Weather Micro insurance

The rural poor, economically dependent on agricultural production, face significant risks to their

livelihoods from catastrophic weather events that cause widespread crop failure, with implications not

only for the affected households, but for the whole rural economy. Weather or climate Insurance is an

agricultural insurance product and like crop insurance, often linked to index insurance. Index insurance is

an innovation that circumcision many of the fundamental problems that hamper the development of

insurance for weather risks in lower income areas.

7.4 Disability Micro insurance

Disability micro-insurance provides coverage against the financial consequences of disability, whether

temporary or permanent, depending on the contract. Disability is called temporary when the physical loss

is reversible and lasts for a limited period of time (generally up to three years) and is permanent when the

injury and loss cant be recovered.

7.5 Crop Micro insurance

Crop insurance is an agricultural insurance product and covers crops against perils such as hail or fire.


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Index instruments are often used for crop insurance to avoid moral hazard risks and is not connected to

one particular crop, but is based on the measurable occurrence of a specific Micro-insurance provides a

financial compensation in the case of crop failure generated by uncontrollable adverse events (e.g.,

drought, crop pest). peril.

7.6 Property Micro insurance

Property micro-insurance (assets, livestock, housing) provides coverage against the financial

consequences of the damage or loss of personal assets, work premises and tools (e.g. hut micro-insurance

against fire, theft of belongings, or death of livestock).Property and asset insurance covers against damage

of property and damage and/or loss of assets in the event of the covered perils.

Livestock insurance is an agricultural insurance and covers against loss of livestock owned by the policy

holder(s). Most livestock insurance schemes insure against a specific peril and can be paid out in the form

of a lump sum payment or livestock replacement.

Agricultural insurance aims to reduce the vulnerability of low-income households faced by natural

disasters like drought, flood or livestock affecting epidemics.


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7.7OtherInsuranceProducts

Micro insurance includes many specific products that are adapted to the needs and demands of lowincome

households and cover specific risks.

Insurance Company Rural Products

LIC Anmol jeevan, Jeevan aastha.

MetLife Met Vishwas

AVIVA Life Grameen Suraksha

TATA AIG Navkalyan Yojana, Ayushman Yojana, Sampoornabima, Sumangalbima.

Birla Sun life Insurance Bima Suraksha Super andBima Dhan Sanchay.

IFFCO TOKIO Janata bima Yojana, Mahila Suraksha Yojana, Jan

SwasthaBima and Jan Kalyan

Bima.

Max New York Life Max Suraksha, Easy term, Max mangal endowment,Max vriksha moneyback.

7]THEORETICALFRAMEWORK:


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NEED OF THE STUDY:

As we find that there is a huge potential of rural market which remains untapped, this

study will help the microinsurance companies(banks in particular) to understand the end to end aspect of rural

market and microinsurance products already in operation in India.This study will substantially help them topromote their products by using appropriate strategies for new markets & new products.

OBJECTIVE OF THE STUDY:

TO OBTAIN A CLEAR PICTURE OF PATHDOWN THE LINE ATTRIBUTE OF MICROINSURANCE IN

INDIA.

TO IDENTIFY THE PROS & CONS OF THE VARIOUS MICROINSURANCE PRODUCTS

TO IDENTIFY THE CHALLENGES & TO PROVIDE SUGGESTIONS FOR THE VARIOUS

MICROINSURANCE SCHEMES IN INDIA.

LIMTATIONS OF THE STUDY:

The time taken to complete this study is very less.

Since it is a secondary research, the data obtained through online & Journals are a little older(by 1 year).


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RESEARCH METHODOLOGY:

Research Methodology is a way to systematically solve the research problem, why the research has been

undertaken, how the research problem has been defined, what data has been adopted, why a particular technique

of analysis for data has been used.

RESEARCH DESIGN: Exploratory Research is undertaken.This research enables the insurance companiesto understand why the growth of microinsurance is a bit slow when compared to the urban insurance schemes

SAMPLE DESIGN:The sample design adopted for the study is Non Probability Sampling Design.

AREA OF STUDY:INDIA

POPULATION: Rural People

DATACOLLECTION METHOD:

SecondaryD

ata Collected through internet, journals,magazines, books and one on one discussion withMr.Shanmuganathan, Reliance Territory Manager .

UTILITY OR SIGNIFICANCE OF STUDY

The research study is a comprehensive MARKET OPPORTUNTITY

ANALYSIS(MOA).It analyses all the typical attributes of microinsurance & its features in India. The Research

enables the existing microinsurance players to understand the current market scenario & to design newer

products accordingly & to modify the existing products according to the market needs. It provides a prominent

base for the new entrants since the market is still in the Blue Ocean.

The rural market is a vast potential area and it could be of immense advantage if it is rightly

tapped. An almost same scenario existed before 3 decades & the appropriate utilization of the markets enabled

the Grameen Bank & a number of microfinance institutions to flourish. The first step over promotion of

microinsurance (To make the rural people understand the significance of microinsurance) is quite a difficulttask. But once the first step is crossed, the other steps are a smooth fall. This study provides substantial evidence

for the huge potential associated with the rural market in India.


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ANALYSIS & INTERPRETATION:

PERFORMANCE STATISTICS OF MICROINSURANCE:

Year

Group

2007-08 2008-09

Premium (INR Mn) 2012.75 2059.53

Growth rate 1.2% 2%

Propotn of tot New prem Income 1.70% 1.50%

Number of Policies 12.2 Mn 12.5 Mn

Growth rate 1.5% 3%

Proportions of New lives covered 42.67% 36.65%

YearNo. ofProd

approved

2006-07 5

2007-08 11

2008-09 6

2009-10 1

Total 23


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NEWPRODUCTS REGISTERED:


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The statistical data indicates that the growth of individual microinsurance is

quite significant while the growth of group microinsurance is comparatively low. This shows that themicroinsurance companies can particularly target individual consumers since group insurance requires complex

monitoring procedures.More of private microinsurance companies are entering the market every year which is a

good sign of liberalization.The claims ratio shows that the claims are manageable with the premiums collected

from customers.


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MICROINSURANCEPERFORMANCEBY DIFFERENTCOMPANIES:

2001-02

BajajAllianz

IngVys

ya

RelianceL

ife

SBILife

TATAAIG

HDFC

Standard

ICICIPrudentia

l

BirlaSunLife

Aviva

KotakMahindra

MaxNew

York

Metlife

LIC

Target

Achieved

0

2

4

6

8

10

12

14

16

18

20

Value (Rs. in Mn)

Target

Achieved


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2008 - 09

BajajAllianz

IngVysya

R

elianceLife

SBILife

T

ATAAIG

HDFC

Standard

ICICIP

rudential

Birla

SunLife

Aviva

KotakMahindra

MaxNew

York

Me

tlife

LIC

TargetAchieved

0

5

10

15

20

25

30

35

40

Value(Rs.in Mn)

Target

Achieved


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2001-02

2008-09


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P

a

g

e

Royal Sundaram

TATA AIG

Reliance

IFFCO TOKIO

ICICI Lombard

Bajaj Allianz

New India

National

United India

Oriental

Health Insurers

Star Health

Apollo DKV

Target

Achieved

0 1 23 4 5

6 7

ValueinMn(Rs)

RuralSectorBusin

ess(non-life)2001-02

Target

Achieved


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a

g

e

Royal Sundar

TATA AIG

Reliance

IFFCO TOKIO

ICICI Lombard

Bajaj Allianz

New India

National

United India

Oriental

Health Insurers

Star Health

Apollo DKV

Target

Achieved


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2001-02(PRIVATEPLAYERS)

2001- 02 (PUBLICPLAYERS)



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Challenges in marketing of micro insurance products:

THE MAIN CHALLENGE IS THE COVER UP THESE TO BASE DRAWBACKS AND CATER TO THIS SEGMENT OF

INDIA.

Its been seen that most of the companies dont get involved in the micro-insurance because they feel that

poor would not be able to afford and also the margin being involved. There had been many possible solutions

given to the government IRDA to make these companies in the micro-insurance. One of the suggestions may

be imposing in these companies if they dont to this section of the society.

There are many companies who have taken this obligation by IRDA positive spirit and have made one attempt

to cater to this content of the society. There had been many companies who have not come to the idea that

they are very margins in the rural section of the society and they have actually in out ways to cater to these

have been able to reach huge margins.

The challenges in Marketing of Insurance in the present scenario may be perceived:

Poor comprehension of insurance in terms of the key benefit and the process.

Lack of promotion, education, and information in our rural sector.

Weak distribution channels, inaccessibility of the agent, cost of reaching individual client may be relatively

high compared to the existing commission structure.

Cumbersome Processes.

Stoic belief in fate coupled with apathetic attitude and language barriers.


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Inclusive growth is now recognized as a necessary condition to ensure long term sustainability of growth in

India. Bringing in financial inclusion for the poor, rural and socially disadvantaged sections of the society is

now a major thrust area for policy interventions. The vulnerability of this category of households is very high

to various risks related to their lives and livelihood activities. Therefore, making insurance services available to

them becomes a key strategy to ensue ensure that sustainable social protection is offered to these

households.

The rural and social sector obligations and the micro-insurance regulations from IRDA are definitely the

important steps in the direction of ensuring financial inclusion and social protection for the poor. While

enabling regulations are in place and several insurance companies are in operations in India, there is still a

need for innovation in products and distribution system/channels for ensuring the penetration of micro-

insurance to the masses that need it. And along the way, there is also the challenge of educating the vast

majority of population on insurance that has to be addressed.

BASIX has already taken some initiatives in improving the access to micro-insurance for the poor. BASIX, a

livelihood promotion institute was set up long back in 1996, provided both financial and technical assistance

services to about half a million households spread over eight states in India. In October 2002, it began its

initiative to provide life insurance cover to customers who took micro credit. BASIX took a group policy called

Credit Plus from AVIVA which covered its borrower for 1.5 times the loan amount taken by him/her during the

loan tenor. In the absence of any past experience of mortality for the customer profile served by BASIX, the

insurance company priced the product conservatively at Rs. 8.62 per thousand sum insured.

By October 2004, an experience of covering more than 50,000 person years was completed. Now the positive

performance of product by this stage allowed the insurance company to lower the premium rate to Rs.6.89

per thousand sum insured. That has given a boom year later in 2005, over 100,000 person years were

covered cumulatively. The claims experience gained till then allowed the insurance company to reduce the

premium rate to Rs. 3.98 per thousand sum insured. Based on actual performance of the product, BASIX &

AVIVA could reduce the premium rate by more than 50% in a three year period.

This further allowed BASIX to extend cover to the spouses of the borrowers, and also add a limited health

insurance cover from Royal Sundaram as the premium was much more affordable now. This experience

proved that a sustainable approach to pricing of micro-insurance, combined with proper administration of the

products, allows in the long run adding more value to the small premiums paid by its customers. Another

unique feature which was introduced in this group product was that it provided the borrowers the

convenience to pay the insurance premium in small monthly installments to the insurance company along

with their loan repayments.

By the end of September, 2007, BASIX insured over 500,000 individuals under this micro-insurance policy and

its to cover over one million lives within the next one year. In partnership with insurance companies, BASIX

today offers a wide range of micro-insurance products covering life & health risks and also various assets in

rural areas like livestock, agriculture, and non-farm enterprises. In the past five years it has settled claims to

over 13,000 households amounting to over Rs.50 million. More than any other marketing effort, it is the


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demonstration effect created by the settlement of these claims that helps BASIX to enroll more number of

customers for micro-insurance.

Suggestions:How to overcome the challenges:

It indicated that micro-insurance initiatives can definitely alter the picture of low insurance penetration in

rural areas in India in immediate future but obviously there are certain challenges to be overcome to achieve

sustainable and scalable micro-insurance, rather than searching for actuarial data for gathering micro-insurance started.

Most poor have not had access to insurance in the past as in the present. This translates into absence of data

regarding frequencies of various risks faced by them. In the absence of this data, insurance companies are

often constrained to offer products as the availability of historical data is critical to the design of insurance

products. This perpetuates the problem of making available insurance products to the poor. To break this

deadlock, insurance companies should be willing to introduce products even in the absence of adequate

actuarial data. The incentives for doing in this would be:

It would help to build data on various risks for this segment of the market which is huge. This data and coupledwith it, the experience in administrating micro-insurance policies would save as an asset for the insurance

companies to expand their market in the huge and untapped rural market.

The marginal error in pricing micro-insurance policies in the absence of historical data would not seriously

affect the insurance companies as the financial value of the risk in micro-insurance policies is very marginal

compared to the traditional high value insurance companies. This marginal risk too can be mitigated by taking

a conservative approach to pricing of the micro-insurance policies in the inception years and in reviewing the

price, based in actual claims experience in subsequent years.

Reinsures are also beginning to recognize the potential of micro-insurance, in order to expand the overallinsurance market size. Munich Re and Swiss Re and GUC of India are examples of reinsures who have been

actively studying and promoting micro-insurance in the Indian insurance market. The willingness and the

interest of these reinsurers provide an opportunity to local insurance companies to enter into the micro-

insurance market, by ceding a portion of micro-insurance risks to global reinsurers. Reinsurers would be in a

position to absorb the risks in micro-insurance programs is still in a nascent stage.

Main Challenges:

1. Market research of the risks faced by the poor has to be done so that the actual demand of the insurance

can be assessed. This not only will spread the awareness about various insurance schemes available but

will also help the insurers to actually know the kind of risks these people are facing.

2. If rural people are already using some of the insurance products then the insurers should also try to

know the satisfaction level of the existing products they are using.


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3. The insurers should try to make products according to the demand of customers (low income group),

if it is not so then the new product will not attract them.

4. The amount of premium to be paid should be set according to the income these people receive or the

mode of premium payment should match their mode of receiving income.

indiastat.com MarchApril, 2009 8 socio - economic imprint

5. Panchayts and local groups should be involved at the time of claim payment as well as in educating

people.

6. Claim cheques should be distributed at publicly held functions to create awareness of insurance.

7. The schemes and advertisements should be displayed on the village walls that too in local language.

8. Insurance companies should tie up with rural retail chain distributors for the distribution of insurance

products. For e.g.: MetLife has tied up withH

yderabad based Vishwas retail distributor for the easy

ad fast distribution of products.

MICRO INSURANCEBENEFITS:

Following are the broad benefits of micro insurance

I. Simplicity

II. Basket coverage

III. Benefits in cash or in kind

IV. Cash- Back Benefits

I. Simplicity

Micro insurance benefits are kept simple for the following reasons:

a. Premiums are to be kept low and administrative cost should also be kept low so that the beneficiaries of the

schemes may reap the benefits of scheme.

b. Since, target population is often illiterate/uneducated and there is lack of awareness about insurance,

hence most of the micro insurance schemes are kept simple and easy to understand, devoid of any

complicated package.

c. To make the scheme simple for policyholders, there are no frills- attached to micro insurance

scheme/product.


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II. Basket Coverage:

In India, which is perhaps the worlds most sophisticated micro insurance market, there is trend towards

basket coverage whereby a number of benefits are thrown into one integrated insurance policy. For example,

VIMO SEWAS product covers death,hospitalization and asset loss benefits that come from two different

insurance companies into one comprehensive product. Bundled product delivers a more comprehensive risk

protection package while reducing expenses since marginal costs of additional benefits are minimal.

III. Benefit in cash or in kind:

Health care benefits are either reimbursed to policyholders (in cash) or in some cases some insurers are using

third party or cashless payment system whereby the micro insurer pays the health care provider directly.

Hence, here the insured does not have to pay anything from his pocket.For life insurance, benefits are always

paid in cash. In some of the life insurance policies, at the time of maturity of policy, lump sum payment of sum

insured is deferred, instead, The insurer uses this amount to pay annuities and only after the death of the life

assured are lump sum payments made to nominees.

IV. CashBack Benefits:

Generally, policyholders perceive insurance premium as unavoidable expenses if they pay premium for a long

time without receiving any benefit in return, without recognizing the importance of having enjoyed the

security and protection. To address this problem some features may be added to long term product such as:

Product Design for Micro InsuranceMicro Insurance

a. Money back policies: Generally, in life insurance policies which have long term maturity period, some

instalments are paid to policyholders after regular interval say after (4 yrs. or 5yrs). Theses are generally called

survival benefits.

b. Sometimes sum assured are paid to policyholders at the time of maturity, or premiums are returned and

even then insurance is kept alive so long as the policyholder survives.

DISADVANTAGES OF MICROINSURANCE:

a) High cost of Health insurance product as compared to life insurance product

b) Lack of interest among the members to buy a health insurance product .It also poses the question of should

the health insurance product be made compulsory and how can government intervene to provide the

insurance benefit to the poor at an affordable cost

c) Absence of a robust MIS to track details related to insured family members

d) Lack of competence on the part of the MFI to monitor the cases.

e) Inability of the MFIs to keep a track of the different documents related to health insurance claims


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f) Lack of technical competence of the MFI to understand the treatment for the illness involved which might

be inflated to increase the cost of treatment

g) Lack of proper awareness among the MFIs members about the inclusions and exclusions of the health

insurance product

h) The tendency of the MFI members of get benefit of each rupees spent in paying the insurance premium

i) In case of absence of networking hospitals , it might take long time to get a approval from the insurance

companies

CONCLUSION

The awareness of insurance products available among the low income groups is very low. Also they have

the assumption that insurance is a status symbol and it can only be afforded by the rich people. They dont

prefer giving a good chunk of their income to the insurance people to hedge themselves against the

unknown and uncertain future risk. So insurance institutions will have to take the initiative not only to

remove these misconceptions but in providing more attractive, useful and more affordable options. This

can be done only by overcoming the obstacles and increasing the awareness about micro insurance which

is a boon for low income people.


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REFERENCE

Journals:

1.Insurance Times,April 2005 Issue

May 2005 Issue

February 2006 Issue

2.Insurance Chronicle , June 2009 Issue

March2010 Issue

3.Life Insurance , June 2009 Issue

August 2009 Issue

URLLINKS

http://en.wikipedia.org/wiki/Microinsurance

http://www.authorstream.com/Presentation/aSGuest8311-128927-microinsurance-

entertainment-ppt-powerpoint/

http://bajajallianz.com/Corp/life/micro-alp-nivesh-yojana.jsp

http://bajajallianz.com/Corp/life/micro-jana-vikas-yojana.jsp

http://bajajallianz.com/Corp/life/micro-saral-suraksha-yojana.jsp

http://www.microinsuranceacademy.org/

http://www.microinsurancecentre.org/UI/Home.aspx

http://www.slideshare.net/akki.mats/micro-insurance

http://www.nabard.org/pdf/report_financial/Chap_XI.pdf

http://www.microfinanceforum.org/cm_data/Michael_Anthony.pdf

Microinsurance Final

Documents

Transcript of Microinsurance Final