Microinsurance In India Oct 09

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Micro-insurance in India Practices & Prospects Premasis Mukherjee
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Transcript of Microinsurance In India Oct 09

  • 1. Micro-insurance in India Practices & Prospects Premasis Mukherjee
  • 2. The Storyline Introduction to micro-insurance Micro-insurance products & challenges Delivery channels in micro-insurance Micro-insurance in India Micro-insurance regulation and its impact Trends in micro-insurance industry Some Experiments by MFIs/ companies Possible engagements of MicroSave
  • 3. Risk Management by the Poor Informal Group Insurance Self Insurance Funeral/burial societies Liquidation of assets Multiple membership Informal /semi-formal borrowing High transaction cost Informal savings (ROSCA/ASCA) Mostly covering specific life risks Micro-insurance Social Security Gap in intent and practice In-efficiency of formal economy Resource stress on developing nations
  • 4. Defining micro-insurance Protection of low-income people. (not having access to commercial insurance or social protection) against specific perils (that causes vulnerability in their livelihood) ..in exchange for regular payment of premiums proportionate to the likelihood and cost of the risk involved. --- Craig Churchill Micro-insurance working group, CGAP Social Finance Programme, ILO
  • 5. Fundamental Principles of Insurance Full material disclosure Clear communication of product Low probability Randomness Utmost Good Faith Independence Uncontrollability Unequivocal Insurable Interest Insurance EventAt the time of inceptionCreditor- Debtor (Loanamount) Life : at inception IndemnityProposer Nominee General: at occurrence
  • 6. Micro-insurance Scenario : World
  • 7. Micro-insurance Product types Loan linked insurance (Credit-life or credit-life +) Health insurance Long term insurance Annuity Pension Endowments Agriculture insurance Rain fall insurance Livestock insurance
  • 8. Loan Linked Insurance Benefit :Credit- life/Accidental disability Added benefits: Illness cover Funeral cover Spouse cover Risk borne by: MFI/Insurance company (as re-insurer) Sum Assured: Outstanding loan / include accrued interest Price: 0.2% to 8% of loan portfolio (group price) Profit-sharing model Term : Renewed only if loan renewed (optional) Nominee : The MFI Subscription : Mostly mandatory with loan
  • 9. Loan Linked Insurance: Focus Physical Evidence Product Group based Process Term : loan schedule Easy claim settlement Flexible Sum Assured Least paper work Group underwriting Price Service agreement Affordable Issuance Competitive Addition/Deletion Annual review of price Claim Promotion Positioning The opportunity benefit Least cost insurance Place People Mandatory Research about options The benefit of insurance is best communicated through claims
  • 10. Health Insurance Relevant Fraud Payment Health Insurer Service RelationshipSpecific benefit package ProviderPremium : frequency &quantumFund management Adverse selectionHigh claim ratio Client Moral hazardHigh cost, low frequency FraudeventsClaim servicing Pre-existing criteria Low cost-high frequency events
  • 11. Long term Insurance Annuities High actuarial expertise Efficient financial management (asset-liability management) Defined contribution & defined benefit pension COMPFED Endowments Horizon issue Stability and brand Financial sector performance
  • 12. Long term Insurance Challenges with clients Migration Matching with transaction patterns Assurance of return Challenges with intermediaries High cost high involvement proposition High admin cost + distribution cost Standalone MI is becoming non-profitable Transfer of actuarial risk and distribution cost to companies Resource intensive Brand / imagery risk Long term tracking of clients
  • 13. The Micro-insurance Supply Chain Re- Policy Covered insurer Insurer Delivery Channel Holder Lives Receives Sells theInsures the premium product Buys the Those who haveinsurer against Carries risk Collects product a premium paidcatastrophic Manage premium Proposer to cover themrisks regulation Aids the client Pays claims in settling claims e.g., family members,e.g. Munich Re e.g. Individuals, Groups group members e.g. Insurance e.g., MFIs, NGOs, companies, CBOs, CBOs, retailers , agents Mutual
  • 14. Partner-Agent Model Selecting partner (Insurer) Benefits Bidding Simple & quick Role clarity No need for specialised Staff training manpower Underwriting No capital requirement Premium collection Additional income source Claim processing Constraints Financial Arrangement Income only from commissions Commission Service in third party hands Profit sharing Limitation on product offering Premium mark-ups Incentive structure for staff
  • 15. Micro-insurance Scenario : World Distribution Channels Un- Product wise Distribution organized Retailors/Fu 1% nerl Parlors 2% Brokers Agents 0% 10% MFIs Property 22% 21% Life 36% NGOs/CBO s AccidentMutuals 33% & 17% Disability 23% Government Health 15% 20% Employer Groups 0%
  • 16. The Life Insurance Preference Life Insurance Sub Category Term Can be easily linked with other products 2% Not dependent on other infrastructure The insured event is a clear cut fact Credit- Life 36% Easy to price Resistant to moral hazard & fraud Pension Credit- 55% Life Claim settlement is relatively easy Plus 0% Investm Endow ents Funeral ment 0% 5% 2%
  • 17. Indian Micro-insurance : Regulation Rural sector obligation Life Insurance General Insurance Year of % of total NOP Year of % of total NOP operation operation 1st 5 2nd 7 1st 2 3rd 10 2nd 3 4th 12 3rd - 5th 5 5th 156th 10th year 18 -20 6th 10th year 7 -10
  • 18. Indian Micro-insurance : Regulation Social SectorUnorganized workers, economically vulnerable or backward classes in urban /rural Year of operation Number of policies 1st 5,000 2nd 7,500 3rd 10,000 4th 15,000 5th 20,000 6th to 10th year 25,000 to 55,000
  • 19. Indian Micro-insurance Framework Insurance Company Rural Social sector Sector Obligation Obligation MI Product Group Insurance [1-1.5% of SA] [Rs.3-5/1000SA] Sales Force of Insurance Portfolio Security/Funder Comp. Obligation Commission Value addition Risk Mitigation Client Savings
  • 20. Issues in Indian Micro-insuranceAcquisition cost + Distribution costMortality data not availableRural channels upcoming Insurance CompanyCost of Simplicity Rural Social sector Sector Obligati Obligati on onCredit linkage insures portfolioValue addition not realised (latent demand) MI Product Group InsuranceBetter Service Level Agreement [1-1.5% of SA] [Rs.3-5/1000SA]Not profitable due to resource intensivenessThe low commission is insignificant income Sales Force of Funder Obligation Insurance Comp. CommissionClients family not getting benefit Value additionLimited flexibilityHorizon problem/ commitmentEndowment product not availableSeen as cost of creditUn-availability of integrated product Risk Mitigation Client Savings
  • 21. Micro-insurance regulation Enabling features Critiques Higher commission for Definition of MI agent prolong association Issues with NBFCs/Sec.25 20% in life, 15% in general 80% of clients belong to them Capacity building cost less Greater responsibility for MI agents Commission capping Lapsation rate is high Qualify for both rural and NBFCs associate for long term social sector numbers Companies prefer not to renew Benign negligence towards Showing premium in books community based micro- insurance schemes Single Life & General insurer Bias towards partner-agent model
  • 22. Trends Derived from MI Regulation All companies have MI product (24 MI products) Composite insurance absent in formal platform Companies wait for better opportunity (regulatory risk) Negotiation cost do not suffice benefit (wariness) NBFCs not forthcoming to become MIA Just in target approach by companies (Growth stagnant) Apprehension of IRDA for brokering in MI space Greater responsibility for MIA Community health insurance increasing (benign neglect) Concentration in south India
  • 23. Recent trends in micro-insurance MI through Bancassurance Profit sharing & shared responsibility Focus on savings linked products (micro-pension) Service and technology focus Competition parameter Increasing awareness of BoP risks by actuaries Re-negotiation of price Spouse cover for diversifying risks Community health insurers tie up with re-insurers
  • 24. Indian Examples: VimoSEWA Composite product Life and non-life Individual policies Health claim In house claim assessment Coverage 3 months to 55 years Sum Assured Rs.2,000-Rs.6,000 Cash paid in emergency Min. criteria 24 hr hospitalisation Preventive health care for claim (ex. cataract/fracture Rs.325-550 for comp. TAT of 9 days Premium Rs.100-150 for health High claim ratio in urban Backward ICICI Lombard, integration Reliance , Kotak areas (172% in 2008) Mahindra, LIC, Bajaj- Sells to other NGOs Allianz Benefit Life membership
  • 25. Indian examples: Yeshaswini
  • 26. Indian Examples: Micro-pension UTI Micro-pension Rs.50 p.m as premium Savings upto 55 years, payout from 58 years Account convertible to annuities (SWP for UTI) Invested in 60% debt+40% equity instruments Aam AdmiVima Yojna (GoI initiative) Horizon problem + long term tracking of clients Cost for intermediary not met Match with transaction pattern No guarantee of return Demand of insurance cannot be met (COMPFED)
  • 27. Indian examples: Max Vijay Investment in government securities 60% of 1st year premium 90% of subsequent premiums Investment once credited, will not reduce Premium from Rs.1,000-Rs. 2,500 Subsequent premiums Rs.10 No deadline of renewal , No lapsation Death benefit 5 X/10X annual pr.+ account value (normal) Term :10 years Partial withdrawal after 3 years Retailer channel exploited
  • 28. Donor Activities in Micro-insurance Top Micro-insurance donors (in mn US$) GTZ Opportuni (Germany ty ), 1.17 Internatio nal, 0.85 AIG, 1.50ADB,1.35 DFID (UK), 3.96 Gates + ILO, 15
  • 29. Thank You