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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 inventio