Microinsurance Project Copy

7/29/2019 Microinsurance Project Copy

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Contents

1. Introduction......

Salient features of Microinsurance ..

Industry Profile......

Major players in Microinsurance..

IRDA (Microinsurance) Regulations, 2005......

Microinsurance products in India...

2. Marketing Of Microinsurance..

3. Premium Collection

4. Claim Processing

5. Micro Insurance Agents.

6. Organisational Development In Microinsurance..

7. Literature Review

8. Objective of study.

9. Research Methodology.

10.Data Analysis.

11. Finding .

.


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12. Conclusion.

.

INTRODUCTION

India is enjoying rapid growth and benefits from a young population. Its middle

class is growing rapidly but 70 percent of the population is still rural, often very

poor, and handicapped by poor health and health services, and low literacy rates.

Although the type of risks faced by the poor such as that of death, illness, injury

and accident, are no different from those faced by others, they are more vulnerable

to such risks because of their economic circumstance. According to World Bankstudy (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall

below the poverty line as a result of their stay in hospitals. The same study reports

that more than 40 percent of hospitalized patients take loans or sell assets to pay

for hospitalization.

When a poors familys income generator dies, when a child of a poor family is

hospitalized, or home of a poor family is destroys by flood, earthquake or fire.

Every illness every accident or every natural disaster leads to deeper poverty to a

poor family. Thats where micro insurance comes in.

Microinsurance is the protection of low income households against specific

perils in exchange for premium payments proportionate to the likelihood and cost

of the risk involved. It is specifically designed for the protection of low income

people with affordable insurance products to help them cope with and recover

from common risk. A key strategy for enhancing economic development and

alleviating poverty is to make financial systems more inclusive, for example by

improving access to savings and credit services for un- and under-served markets.

In part,

Poverty stems from the fact that low-income households and markets do not have

the same opportunities to finance investments, accumulate capital or protect assets

(including human assets). The poors heavy reliance on informal financial services

such as moneylenders, under-the-mattress savings and mutual assistance

societies can be inefficient and expensive, and may even exacerbate poverty. An

inclusive financial system makes insurance available to low-income persons.


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However, many commercial insurers and policymakers believe that providing

insurance to the poor is the responsibility of the state. Although many governments

have social protection programmes, the targeting of these schemes is often

ineffective. The poorest segments do not always benefit from the subsidy, while

people who can afford insurance often find ways to access these benefits. Ingeneral, governments have made little effort to shift the burden of risk-pooling to

market-led schemes; and the private sector (commercial insurers) seems to have

little incentive to seek out this market segment. In principle, micro-insurance

works like any typical insurance business. 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. Second, micro-insurance requires an

intermediary between the customer and the insurance company. Preferably, this

intermediary is a non-governmental organization (NGO) or microfinanceinstitution, for example a rural bank that can handle the whole distribution and

most of the administration process. The few differences between traditional

insurance and microinsurance are as follows:

Traditional Insurance Microinsurance

Clients Low risk environment

Established insurance

culture

High risk exposure/

high vulnerability

Weak insurance culture

Distribution

model

Sold by licensedintermediaries or by

insurance companies

directly to wealthy clients

or companies that

understand insurance

Sold by non traditional

intermediaries to clients

with little experience of

insurance

Policies Complex policy

documents with many

exclusions

Simple language

Few ,if any exclusion

Group policies

Premium

calculation

Good statistical data

Pricing based on

Individual risk

Little historical data

Group pricing

Very price sensitive

market

Premium Monthly/quarterly/semi or Frequent or irregular


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collection annually collection payment adapted to

volatile cash flow of

clients

Often linked with other

transaction (e.g. loanrepayment

Control of

insurance risk

(adverse

selection,

moral hazards,

frauds)

Limited eligibility

Significant documentation

required

Screening such as medical

test is required

Broad eligibility

Limited but effective

control

Insurance risk included

in premium rather than

exclusion

Linked to other service(like credit)

Claims

handling

Complicated process

Extensive verification

documentation

Simple and fast

procedure of small

firms

Efficient fraud control

Historically in India, a few micro-insurance schemes were initiated, either bynongovernmental 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, 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). As a result, increasingly, micro-finance

institutions (MFIs) 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. Although the reach of such schemes is still very limited,

anywhere between 5 and 10 million individuals.

The UNDP report has analyzed six key issues pertinent to the growth of the micro-

insurance industry in India, capturing the concerns of different stakeholders as

indicated below:


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(i) There are specific reasons for low demand for insurance in spite of intense

need. Suppliers have their own concerns which help to explain why there have

been so little efforts at market development. Consequently, the rural market is

characterized by limited and inappropriate services, inadequate information and

capacity gaps.(ii) There are challenges in product design, which has resulted in a mismatch

between needs and standard products on offer. Efforts at product development /

diversification have been limited.

(iii) Pricing, including willingness to pay and the availability of subsidies,

influence the market. In the absence of a historical data base on claims, premium

calculations are based on remote macro aggregates and overcautious margins.

Building and sharing claims histories can help in aligning pricing decisions with

actuarial calculations, thereby reducing prices.(iv) Difficulty in distribution is one of the most cited reasons for absence of rural

insurance. The high costs of penetrating rural markets, combined with

underutilization of available distribution channels, hinder the growth of rural

insurance services. This adds to costs, both, managerial and financial. Like

Inclusive credit, inclusive insurance is expected to be a low ticket business,

requiring volumes for viability.

(v) Cumbersome and inappropriate procedures inhibit the development of this

sector.(vi)Contrasting perspectives of the insured and the insurers, lead to low

customization of products and low demand for what is available.

Salient features of Microinsurance:

1) USAGE: Though no figures are available on the exact size of the

microinsurance market in India, a rough estimate would place it at around 14m

individuals, or approximately 2% of the adult population. The low take-up can be

ascribed to a general lack of awareness of insurance as a financial product, even in

the high to middle-income market (a factor that emerged strongly from the focus

group findings). In addition a lack of rural financial services infrastructure for

distribution purposes, as well as a lack of actuarial data, inhibit the development of

the microinsurance market.


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2)PLAYERS: Though the state-owned insurers still have the largest market share,

there are now a total of 32 licensed insurers. A feature that sets India apart from

other countries is the fact that microinsurance is mostly provided by large,

corporate insurers. This is due to a cautious regulatory approach in response to

the fact that small and cooperative financial institutions have not performed wellhistorically that limits the players in the non-bank field to large cap institutions.

The cooperative/mutual sector therefore does not feature as a provider of

microinsurance, though corporate insurers use it as a distribution channel. Informal

insurance is virtually exclusively the domain of formal entities such as health

insurance schemes not registered for insurance purposes, rather than community

risk-pooling groups, and is estimated to only comprise 20% of the market.

3)PRODUCTS: Microinsurance in India is for the most part driven by compulsorycredit life insurance on the back of microfinance. Due to the limited reach of the

public health system, there is also a high natural demand for health insurance.

Many MFIs therefore provide a package of compulsory insurance cover to their

clients that are credit-linked this includes life, asset as well as health insurance.

The cover is for the term of credit (usually 1 year). Health cover provided in such

packages is not comprehensive and it covers only certain listed diseases for which

hospitalization is required. Accident cover is a rider on life insurance and is a fixed

payout. India is therefore fairly unique in that compulsory insurance cover extendsbeyond life cover. It is estimated that only 10% of microinsurance policies are sold

on a voluntary basis. Of these, up to 90% are endowment products rather than pure

risk products, indicating a preference among the lowincome population for

financial products that provide some payout regardless of whether a risk event has

occurred.

4) DISTRIBUTION: Distribution is an important part of the microinsurance

landscape in India. Regulations were issued in 2005 to create a microinsurance

agent category for the dedicated distribution of microinsurance. Currently such

agents however only distribute about 20% of all microinsurance. Instead,

distribution mainly takes place through MFIs who either do not qualify as

microinsurance agents under the regulations or who find the regulations too

restrictive, as partners or agents of formal insurers. we can distinguish four

institutional models for providing microinsurance which help us to understand how


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corporate insurers, government bodies as well as other institutions, such as

microfinance institutions (MFIs) can play a role.

i)Partner Agent Model: Commercial or public insurers together with MFIs

or nongovernmental organizations (NGOs) collaboratively develop the product.

The insurer absorbs the risk, and the MFI/NGO markets the product through its

established distribution network. This lowers the cost of distribution and thus

promotes affordability. This model of collaboration has become the dominant

approach to microinsurance in India and has encouraged many microfinance

institutions to switch from a full-service model to the partner-agent model.

Examples of this scheme are AIDMI's Afat Vimo as well as SEWA, a

microinsurance pioneer, who offers its life, health and asset coverage in

partnership with various insurers.

ii) Community based Model: A group of people or local communities, MFIs,NGOs and/ or cooperatives develop and distribute their own product, manage the

risk pool and absorb the risk.The Swayamkrushi Youth Charitable Organisation

(YCO) in Andhra Pradesh is an example of a community-based model. It is

primarily a savings and credit association with added insurance features. The

cooperative's 8,100 members pay a yearly premium of Rs. 100 into a pool

managed by the cooperative and receive cover for death and property loss. The life

insurance

benefit is Rs. 15,000 for a natural death, and Rs. 30,000 in the event of anaccidental death.

iii)In the in-house or full-service model: A MFI or NGO runs its own insurance

scheme for its clients and any profit or loss is absorbed by the MFI. The system is

not very common anymore but it still exists in some organizations such as

SPANDANA, located in Guntur, Andhra Pradesh. This scheme started in urban

areas and then moved to rural ones and has expanded enormously in recent years.

iv)Provider model:Banks and other providers of microfinance can directly offer

or require insurance contracts. These are usually coupled with credit, for example,to insure against default risk. This model is used widely in the general insurance

market but high transaction costs and low ability to pay premiums inhibit its

extensive use in the field of disaster insurance for the poor.


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INDUSTRY PROFILE

Life Insurance

In India, Insurance is a national matter, in which life and general insurance is yet a

booming sector with huge possibilities for different global companies, as life

insurance premiums account to 2.5% and general insurance premiums account to

0.65% of India's GDP. The Indian Insurance sector has gone through several

phases and changes, especially after 1999, when the Govt. of India opened up theinsurance sector for private companies to solicit insurance, allowing FDI up to

26%. Since then, the Insurance sector in India is considered as a flourishing market

amongst global insurance companies. However, the largest life insurance company

in India is still owned by the government. The history of Insurance in India dates

back to 1818, when Oriental Life Insurance Company was established by

Europeans in Kolkata to cater to their requirements. Nevertheless, there was

discrimination among the life of foreigners and Indians, as higher premiums were

charged from the latter. In 1870, Indians took a sigh of relief when Bombay

Mutual Life Assurance Society, the first Indian insurance company covered Indian

lives at normal rates. Onset of the 20th century brought a drastic change in the

Insurance sector. In 1912, the Govt. of India passed two acts - the Life Insurance

Companies Act, and the Provident Fund Act - to regulate the insurance business.

National Insurance Company Ltd, founded in 1906, is the oldest existing insurance

company in India. Earlier, the Insurance sector had only two state insurers - Life

Insurers i.e. Life Insurance Corporation of India (LIC), and General Insurers i.e.

General Insurance Corporation of India (GIC). In December 2000, these

subsidiaries were de-linked from parent company and were declared independent

insurance companies: Oriental Insurance Company Limited, New India Assurance

Company Limited, National Insurance Company Limited and United India

Insurance Company Limited.


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General Insurance

The General Insurance industry in India dates back to the Industrial Revolution

and the subsequent increase in trade across the oceans in the 17th century. As for

Life Insurance, the British brought General Insurance to India, and a similar path

was followed in the development of this industry. A number of private companies

were in existence for years and years until, in 1971, the Indian Government

decided that the public interest would be served by nationalizing the industry,

merging all the 107 companies into four companies, depending on the sort ofbusiness transacted (Marine, Fire, Miscellaneous). These were the National

Insurance Company Ltd., the Oriental Insurance Company Ltd., the New India

Assurance Company Ltd., and the United India Insurance Company Ltd. located in

Calcutta, New Delhi, Bombay and Madras respectively. The General Insurance

Corporation (GIC) was set up in 1972 as a holding company, having these four

companies as its subsidiaries.


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MAJOR PLAYERS IN MICROINSURANCE

Life Insurance Corporation of India (LIC)

Life Insurance Corporation of India (LIC) was established on 1 September 1956 to

spread the message of life insurance in the country and mobilise peoples savings

for nation-building activities. LIC with its central office in Mumbai and seven

zonal offices at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and

Bhopal, operates through 100 divisional offices in important cities and 2,048

branch offices. LIC has 5.59 lakh active agents spread over the country.

The Corporation also transacts business abroad and has offices in Fiji, Mauritiusand United Kingdom. LIC is associated with joint ventures abroad in the field of

insurance, namely, Ken-India Assurance Company Limited, Nairobi; United

Oriental Assurance Company Limited, Kuala Lumpur; and Life Insurance

Corporation (International), E.C. Bahrain. It has also entered into an agreement


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with the Sun Life (UK) for marketing unit linked life insurance and pension

policies in U.K.

In 1995-96, LIC had a total income from premium and investments of $ 5 Billion

while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's

income grew at a healthy average of 10 per cent as against the industry's 6.7 per

cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US).

LIC has even provided insurance cover to five million people living below the

poverty line, with 50 per cent subsidy in the premium rates. LIC's claims

settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of

global average of 40 per cent. Compounded annual growth rate for Life insurance

business has been 19.22 per cent per annum.

The introduction of private players in the industry has added to the colors in the

dull industry. The initiatives taken by the private players are very competitive and

have given immense competition to the on time monopoly of the market LIC.

Since the advent of the private players in the market the industry has seen new and

innovative steps taken by the players in this sector. The new players have

improved the service quality of the insurance. As a result LIC down the years have

seen the declining phase in its career. The market share was distributed among the

private players. Though LIC still holds the 75% of the insurance sector but the

upcoming natures of these private players are enough to give more competition to

LIC in the near future. LIC market share has decreased from 95% (2002-03) to 82

%( 2004-05).

ICICI Prudential Life Insurance Company Ltd.

ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a

premier financial powerhouse and prudential plc, a leading international financial


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services group headquartered in the United Kingdom. ICICI Prudential was

amongst the first private sector insurance companies to begin operations in

December 2000 after receiving approval from Insurance Regulatory Development

Authority (IRDA). The company has a network of about 56,000 advisors; as well

as 7 banc assurance and 150 corporate agent tie-ups.

Birla Sun Life Insurance Company Ltd.

Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint

venture between the Aditya Birla Group, a well known and trusted name globally

amongst Indian conglomerates and Sun Life Financial Inc, leading international

financial services organization from Canada. The local knowledge of the Aditya

Birla Group combined with the domain expertise of Sun Life Financial Inc., offersa formidable protection for its customers future.

Tata AIG Life Insurance Company Ltd.

Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of

life insurance products to individuals, associations and businesses of all sizes, with

a wide variety of additional coverage to ensure our customers can find an

insurance product to meet their needs.

Tata AIG Life is a joint venture of the Tata Group and American International

Group, Inc. (AIG). They operate in 11 states with a specific relationship

management team for each state. A dedicated & trained sales and marketing team

manages the front end of the Micro insurance program. Our micro insurance

distribution model collaborates with NGOs (Non-governmental organisations)

and Rural organizations with community level SHG (Self Help Group) women

advisors who provide insurance advisory services to the rural customers at their

doorstep.

SBI Life Insurance Company Limited


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SBI Life Insurance Company Limited is a joint venture between the State Bank of

India and BNP Paribas Assurance. SBI Life Insurance is registered with an

authorized capital of Rs 2000 crores and a Paid-up capital of Rs 1000 Crores. SBI

owns 74% of the total capital and BNP Paribas Assurance the remaining 26%.

State Bank of India enjoys the largest banking franchise in India. Along with its 6Associate Banks, SBI Group has the unrivalled strength of over 16,000 branches

across the country, arguably the largest in the world.

SBI Life has a unique multi-distribution model encompassing vibrant

Bancassurance, Retail Agency, Institutional Alliances and Corporate Solutions

distribution channels. SBI Life extensively leverages the SBI Group as a platform

for cross-selling insurance products along with its numerous banking product

packages such as housing loans and personal loans. SBIs access to over 100

million accounts across the country provides a vibrant base for insurancepenetration across every region and economic strata in the country ensuring true

financial inclusion.

ING Vysya Life Insurance Company Private Limited

ING Vysya Life Insurance (ING Life), a part of the ING Group the worlds largest

financial services corporation entered the private life insurance industry in India inSeptember 2001. Headquartered at Bangalore, ING Life India is staffed by over

6,000 employees and services more than 10 lakhs customers.

ING Life India is a joint venture between ING Group (ING Insurance International

B.V.) & Exide Industries. ING Life has a pan India network, and distributes its

products through two channels, the Tied Agency Force and the Alternate Channel.

The Tied Agency force comprises of over 60,000 ING Life Advisors, spread

across the country. The channel has branches in 234 cities, and 366 sales teams

across the country. The Alternate Channels business within ING Life is one of thefastest growing distribution channels. The company currently has tie ups with over

200 cooperative bank across the country. The Alternate Channels division has

Bancassurance (ING Vysya Bank), Referral Banks, Corporate Agents, Brokers and

SMINCE.


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Allianz Bajaj Life Insurance Company Ltd.

Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest

Insurance Company and Bajaj Finserv. Allianz SE is a leading insurance

conglomerate globally and one of the largest asset managers in the world,

managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz SE

has over 115 years of financial experience and is present in over 70 countries

around the world.

Metlife India Insurance Company Pvt. Ltd.

MetLife India Insurance Company Limited (MetLife) is an affiliate of MetLife,

Inc. and was incorporated as a joint venture between MetLife International

Holdings, Inc., The Jammu and Kashmir Bank, M. Pallonji and Co. Private

Limited and other private investors. MetLife is one of the fastest growing life

insurance companies in the country. It serves its customers by offering a range of

innovative products to individuals and group customers at more than 600 locations

through its bank partners and company-owned offices. MetLife has more than

50,000 Financial Advisors, who help customers achieve peace of mind across the

length and breadth of the country.

Aviva Life Insurance Company India Limited

Aviva India is a joint venture between one of the countrys oldest and largest

groups, Dabur, and Aviva plc, the UK's largest insurance group, whose association

with India dates back to 1834. With a strong sales force of over 30,000 Financial

Planning Advisers (FPAs), we have initiated and pioneered many innovative sales

approaches, including the concept of Bancassurance and Financial Health Check

services. We are among the first companies to introduce the contemporary unit-

linked products With a wide distribution network of 195 branches and close to 40

Bancassurance partnerships, we are spread across nearly 3,000 towns and cities in

India.
http://www.avivaindia.com/http://www.avivaindia.com/http://www.avivaindia.com/http://www.avivaindia.com/


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Sahara India life insurance

The Sahara Pariwars latest foray is in the field of Life Insurance. The Pariwars

life insurance company Sahara India Life Insurance Company Ltd.- has beengranted licence by the insurance regulator the IRDA on 6th February 2004. With

this approval Sahara India Life Insurance Company Ltd. becomes the first wholly

and purely Indian company, without any foreign collaboration to enter the Indian

Life insurance market. The launch is with an initial paid up capital of 157 crores.

The Chairman of the company is Shri Subrata Roy Sahara who is also the

Chairman of Sahara Pariwar.

Shriram life insurance company

Shriram Life Insurance Company is the joint venture between the Shriram Group

and the Sanlam Group. The Shriram Group is one of the largest and well-respected

financial services conglomerates in India. The Group's main line of activities in

financial services include chit fund, truck financing, consumer durable financing,

stock broking, insurance broking and life insurance.

The Group has a customer base of 30 lacs chit subscribers and investors and

operates through a network of 630 offices all over the country. The Group has the

largest agency force in the private sector consisting of more than 75,000 loyal and

dedicated agents.

IDBI Fortis Life Insurance Company Ltd.

IDBI Fortis Life Insurance Co Ltd is a joint-venture of IDBI Bank, Indias premier

development and commercial bank, Federal Bank, one of Indias leading private

sector banks and Fortis Insurance International, a multinational insurance giant

based out of Europe. In this venture, IDBI owns 48% equity while Federal Bankand Fortis own 26% equity each. Having started in March 2008, in just five

months of inception we became one of the fastest growing new insurance

companies to garner Rs 100 Cr in premiums. The company offers its services

through a vast nationwide network across the branches of IDBI Bank and Federal

Bank in addition to a sizeable network of advisors and partners.
http://www.idbifortis.com/http://www.idbifortis.com/http://www.idbifortis.com/http://www.idbifortis.com/


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DLF Pramerica Life Insurance Co. Ltd.

DLF Pramerica Life Insurance Company Ltd. (DPLI) is a joint venture between

DLF Limited and Prudential International Insurance Holdings, Ltd. (referred tohereafter as "PIIH"). PIIH is a fully owned subsidiary of Prudential Financial, Inc.

(referred to hereafter as "PFI"). The combination of the strength of the DLF brand

and PFI's insurance expertise provide the strongest possible foundations for DPLI

to succeed in the rapidly growing Indian life insurance market.

Star Union Dai-ichi Life Insurance Co. Ltd.,

Bank of India and Union Bank of India, two leading Public Sector Banks in India

and the Dai-ichi Mutual Life Insurance Company, a leading Japanese Company in

the Life Insurance market, have floated a Joint Venture Company, "Star Union

Dai-ichi Life Insurance Co. Ltd." for undertaking Life Insurance Business in India.

The Company has a capital stake of 51% by BOI, 26% by Dai-ichi Life and 23%

by Union Bank. The Company has authorized capital of Rs. 250.00 Crores.

Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian

Financial Sector coupled with the Dai-ichi Lifes strong domain expertise is

expected, to be a strong player in the Indian Life Insurance market in a short time.

The Company offers various products to serve all strata of the society.

IRDA (Microinsurance) Regulations,2005

Regulations on micro-insurance were officially gazette by the IRDA on 30

November 2005. The salient features of the regulation are presented below

The regulation defines micro-insurance products

The regulation provides definitions of micro-insurance products covering life and

general insurance General micro insurance product means any health insurance

contract, any contract covering the belongings, such as, hut, livestock or tools or

instruments or any personal accident contract, either on individual or group basis,

as per terms stated in Schedule-I appended to these regulations. Life micro
http://www.dlfpramericalife.com/http://www.dlfpramericalife.com/http://www.dlfpramericalife.com/http://www.dlfpramericalife.com/http://www.sudlife.in/http://www.sudlife.in/http://www.sudlife.in/http://www.dlfpramericalife.com/http://www.sudlife.in/


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insurance product means any term insurance contract with or without return of

premium, and endowment insurance contract or health insurance contract, with our

without an accident benefit rider, either on individual or group basis, as per terms

stated in Schedule-II appended to these regulations.

(a) micro-insurance policy means an insurance policy sold under a plan whichhas been specifically approved by the Authority as a micro insurance Product.

(b) micro-insurance product includes a general micro-insurance product or life

insurance product, proposal form and all marketing materials in respect thereof.

(c) Every insurer shall be subject to the file and use procedure with the IRDA.

(d) No one other than insurer be it a micro-insurance agent or anyone else can

underwrite a micro-insurance proposal.

(e) Rural business transacted under micro-insurance by an insurer will be counted

for quota fulfillment both for rural as well as social sector obligations.It promotes the extensive use of intermediaries

The micro-insurance regulations promote extensive use of intermediaries by the

insurers for selling and servicing various micro-insurance products. The regulation

also creates a new intermediary called the micro-insurance agent. The regulation

clearly defines MI agents and has imposed minima in terms of the number of years

of experience (at least 3) of working with low income groups. It also emphasises

the need for such agents to have appropriate aims and objectives, a good track

record, transparency and accountability stated in the bye-laws with demonstrated

involvement of committed people. This has been done in order to prevent the

engagement of unscrupulous operators in the activity. However, the onus for the

selection of appropriate MI agents and their capacity building lies with the

insurance company.

Intermediary: The micro insurance agent, can be a Non-Governmental

Organization (NGO), MFI or other community organization such as Self Help

Groups (SHG) appointed by an insurer to distribute micro-insurance through

specified persons. Micro-insurance agents enter into a deed of agreement withthe insurer. They abide by the code of conduct defined by the IRDA and attend 25

hours of training (down from 100 hours originally required for conventional

insurance agents but now reduced to 50 hours) in the local language at the expense

of the insurer. There is no qualifying examination, unlike the case of ordinary

insurance agents.


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According to the regulation,

(a) Non-Government Organization (NGO) means a non-profit organization

registered as a society under any law, and has been working at least for three years

with marginalized groups, with proven track record, clearly stated aims and

objectives, transparency and accountability as outlined in its memorandum, rule,by-laws or regulations as the case may be, and demonstrates involvement of

committed people.

(b) Self Help Groups (SHG) means any informal group consisting of ten to twenty

or more persons and has been working at least for three years with marginalized

groups, with proven track record, clearly stated aims and objectives, transparency

and accountability as outlined in its memorandum, rules, by-laws or regulations, as

the case may be, and demonstrates involvement of committed people.

(c) Micro-Finance Institutions (MFI) means any institution or entity or associationregistered under any law for the registration of societies or co-operative societies,

as the case may be, inter alia, for sanctioning loan/finance to its members.

IRDA has recognized four categories of intermediaries: brokers, agents, corporate

agents, and Micro-insurance (MI) agents. Categories other than MI agents may sell

micro-insurance but they do not benefit from the concessions allowed for the MI

agents. However, a micro-insurance agent shall not distribute any product other

than a micro insurance product.

The regulation provides for MI agents to perform the following functions(a) Collection of proposal forms

(b) Collection of self declaration from the proposer that he/she is in good health.

(c) Collection and remittance of premium

(d) Distribution of policy documents

(e) Maintenance of registers of all those insured and their dependants covered

under the micro insurance scheme, together with details of name, sex, age, address,

nominees and thumb impression/signature of the policyholder.

(f) Assistance in the settlement of claims

(g) Ensuring nomination to be made by the insured

(h) Any policy administration service

The regulations attempt to manage the cost of intermediation

A cap has been put on commission, between 10 and 20% of premiums per year

according to type and mode of insurance payment, which is in excess of what


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conventional agents would normally earn. The rates of commission applicable to

MI agents are

Life insurance business General insurance business

Single Premium policies 15% of thesingle premium

Non-single premium policies 20% of

the premium for all the years of

the premium paying term

15% of the premium

The commission rates prescribed above are more liberal than the 60% (of a single

years premium) payable under ordinary business in the case of life insurance and

10% in the case of general insurance. This is based on the logic that an MI agent

has to perform a number of functions which mainstream agents do not have to

undertake. MI agents may thus receive commission at different rates from those

applicable to other intermediaries. The commission structure is, however, changed

to remove up-front payments in favour of payments upon the performance of

certain functions. For group insurance products, the insurer may decide the

commission subject to the overall limits specified by IRDA.

MI agents may route premiums and claims payments through their books (such as

receive individual premiums and pay it over as one amount). This is not allowed

for other intermediaries and is considered important in managing the cost of

intermediation.

Collaborations between life insurers and non-life insurers

The regulations allow for the bundling of life and non-life elements in one single

product provided there is clear separation of premium and risk at the insurers

level. Where an insurer carrying on life insurance business offers any general

micro-insurance product, he shall have a tie-up with the insurer carrying on

general insurance business for this purpose, and subject to the provisions of section64 VB of the Insurance Act (governing the remittance of the premium amount to

the insurance company), the premium attributable to the general micro-insurance

product may be collected from the prospect (proposer) by the insurer carrying on

life insurance business, either directly or through any of the distributing entities of

micro-insurance products. In the event of any claim in regard to general micro-


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insurance, the insurer carrying on life business or the agent shall forward the claim

to the insurer carrying on general insurance business. The same arrangement holds

true for life claims faced by non-life vendors of a micro-insurance product. In both

cases, the respective primary first insurer would render all assistance in claim

settlement by coordinating with his opposite number.

The limitations of the micro-insurance regulations

The impact of the MI regulations is likely to be limited for a number of reasons

Definition of MI agents: The regulations define MI agents to include NGOs SHGs

and MFIs. The definition of MFI is, however, limited to societies, trusts and

cooperatives societies and thus excludes a large proportion of MFIs operating

through other legal forms (like for-profit and not-forprofit companies). The result

is that all profit-driven corporate intermediaries as well as some of the largestaggregators in micro-insurance are currently excluded from benefiting from the MI

regulations. Though the formalisation of MI agents as a type has been welcomed

by the insurance companies as a positive beginning, the exclusion of MFIs

registered under the Companies Act10 is viewed with concern

Limitation on the number of insurance companies an MFI can work with: The MI

Regulations restrict a MI agent to working with one life and/or one general insurer

respectively. This is problematic and does not accommodate models currently used

in the MI market. Most insurers do not want to underwrite all risks and tend tospecialize in particular types of risk. For example if a MI agent is tied to

specialized health insurer, they cannot work with another general insurer to sell

other asset insurance products.

Know Your Customer (KYC) / Anti Money Laundering (AML) Norms: Micro

insurance agents have expressed their concern at the difficulties faced by them in

accessing KYC documents from proposers in rural areas, such as electoral identity

card or ration card or electricity bill which are generally accepted as proves of

residence.

Commission capping: MI commissions are capped at 20% per annum for life

across the term of the policy. Non-MI products typically pay commission on a

front-loaded basis with 30-35% in year one with 7% in year 2. The up-front

structure provides little incentive for renewals, particularly as premiums have to be

collected in cash/ cheque. At the same time 20% may not be enough to incentivize

sales. It is a common (but illegal under Section 48 of the Insurance Act) practice


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for agents to use the higher first year commission to give a discount to

policyholders in the first year. Some thought would need to be given to the

minimum absolute cost to sell a policy and the commission structures needed to

ensure that this could be covered. Lapse rates of 30-40% are much higher for MI

than traditional policies. This is because the cost/effort of premiumcollection/renewal exceeds the commission. Besides, the incidence of the service

tax of 12.36% payable by the agents is a further point of dissatisfaction for the MI

agents, especially considering the long distance travel they have to make in rural

areas to procure and service business.

Conflicting regulations: Enabling provisions introduced in the MI regulations are

undermined by restrictions in RBI regulations. For example, the insurance

regulation allows receipt of premiums in the form of money instruments (not

cash), which must be remitted within 24 hours. RBI in 2002, however, issuedregulations stating that certain types of NBFCs (including most MFIs) may not

route any premiums through their books. The implication is that the NBFC

intermediary must make out demand drafts for individual transactions and send

them to the insurer. Significant efficiencies can be gained if these intermediaries

were to be allowed to process all the payments through their systems and make a

single payment to insurers.

Rural Regional Banks (RRB) and Cooperative Banks: It is worth further

examination as to whether RRB who have been given the status of corporateagents and the cooperative banks can be brought into the ambit of MI agents in

view of their outreach in rural areas.

However the micro-insurance regulation has been facilitative in

Reducing the mandatory training requirements for insurance agents from 50 hours

to just 25 hours in the case of MI. Most insurance companies have welcomed this

move but feel that the technological innovations in developing better systems at

the level of the MI agent and real awareness creation amongst potential

clients/policy holders are a much larger challenge that would go a long way in

developing the micro-insurance market.

Allowing MI agents to take greater responsibilities: The regulator has allowed MI

agents to take up greater responsibilities than are permitted to mainstream agents,

for example, the collection of premiums on behalf of the insurance companies and

the servicing of claims. IRDA believes that if the MI agents are able to carry out


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these functions effectively, it will help in minimizing the transaction costs that the

insurance companies have to incur, thereby leading to lower premiums for the

clients in the long run.

Treating benignly apparent infringements of the regulations by community-based

organisations: There are restrictive entry norms for organizations that areexplicitly licensed to provide insurance to the general public. Insurance companies

need a large amount of start-up capital of Rs100 crore to get a license from the

IRDA. This entry norm is applicable for community based insurance as well if

they want to underwrite risk. IRDA has treated the existing cases of in-house

insurance with benign neglect. Essentially, this approach is dictated by the

relatively limited experience and low supervisory capacity of the IRDA. Compared

to the vast numbers of people in need of social protection in India, the coverage

provided by both formal and, even more so, by community insurance programmesis so low that the role of regulation seems fairly limited. The creation of a two-tier

space where the insurance companies are regulated and supervised and community

insurance is not is de facto recognition of this fact.

The IRDAs approach is that it is pointless to have regulations that are not properly

enforced as long as community insurance agencies provide cover to a limited

population that is clearly defined (either geographically or socially or through

other forms of association), they can be allowed to function without being

regulated. It is here that the regulations are not very clear for MFIs or NGOs,where the membership cannot be clearly defined. Although generally limited

within a geographical territory, the scale of some MFIs or NGOs is significant and

spans across several states.

Taxation issues

By a notification of 16 July 2001, the Government of India brought insurance

auxiliary services under the ambit of Service Tax. The following important

definitions and references are relevant in this context.

As per section 65(31), insurance auxiliary service means any service provided

by an actuary, an intermediary or insurance intermediary or an insurance agent in

relation to general insurance business and includes risk assessment, claim

settlement, survey and loss assessment. Taxable event and scope of service

means any service provided to a policyholder or insurer by an actuary or

intermediary or insurance intermediary or insurance agent, in relation to the

insurance auxiliary service.


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The service providers are insurance agents, insurance surveyors and loss adjusters,

actuaries and insurance consultants. In the case of insurance surveyors and loss

adjusters, actuaries and insurance consultants, the service is provided mainly to the

insurance companies (insurer) while in the case of insurance agents, the service is

provided to both the insurer and the policy holder. Service Tax is liable to be paidby the insurance auxiliary service provider except in case of insurance agents.

Insurance agents normally do not charge the policyholder. However, the insurance

company pays the agent a commission (usually as a percentage of the insurance

premium) on a periodic basis. In the case of an insurance agent, it has been

provided in the Service Tax Rules that the person liable to pay Service Tax will be

the concerned insurance company who has appointed the agent However as

practised by the companies, no service tax is paid by the agents. The service tax is

payable by the person whose life is assured and the current rate is 12.36 % on thepremium paid to the life insurance companies. If an agents accumulated

commission for the year reaches Rs 20,000 tax is deducted (at source) by the

company at the rate of 11.33% (as prescribed by the income tax rules) from the

commission of the agent. The service tax on premiums adds to the price of

insurance. An assessment of the impact of this tax on the cost of micro-insurance

is needed. From the perspective of inclusion, enabling the penetration of insurance

services to low income people and in rural areas, there could be a case for

exempting micro-insurance from the payment of service tax.


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MARKETING OF MICROINSURANCE

Marketing of micro insurance is a little more difficult than selling of conventionalplans to middle class and rich people. Here, micro insurance agents who are eithernon-government organizations or micro finance institutions or self-help grouphave to sell product to a target group which is poor and does not have muchknowledgeabout insurance.Hence properly designed micro insurance can be a valuable tool for low incomeclients.

For this, an effective campaign is a must for its success through1. Main marketing messages2. Technique used for conveying these messages3. Important marketing role of after-sales services

4. Marketing implications of mandatory insurance.

1. MAIN MARKETING MESSAGES

The first step in designing a marketing strategy is to determine whom the microinsurance is trying to reach including their literacy and income level. Afteridentifying the target market, the next step is to determine the main message that


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micro insurance wants to convey. Micro insurers have to anticipate some anti-insurance arguments and objections of the target market. Then they have to designmessages to counter those objections. From the available case studies, four mainmarketing messages emerge.

a. Protectionb. Solidarityc. Optimismd. Trust

a. Protection

Insurers through their agents have to remind low income households that they aremore vulnerable to risks all the time which if not proactively and effectively

managed will make them worse off.

b. Solidarity

While the protection message is essentially the same for insurance and microinsurance, some micro insurers also emphasize solidarity as key marketingmessage. This message builds on informal selfhelp mechanism with which people

are familiar, to make insurance and risk pooling more comprehensible to a marketthat is uneducated and unaware of its benefits.The message of Yeshaswini India is Each for all and all for each. Insurancerequires solidarity and that even though they might not benefit this year, theymight in future and they have made it possible for many others to do so.

c. Optimism

Several micro insurers recognize that they need to put a positive spin on their

marketing messages. The insurer has to approach and emphasise Insure and BeSecure approach. This optimistic approach is probably easiest with endowment oraccumulating value life insurance policies. The message can focus on the amountof savings that one might have at the end of the term, which can be used for

building a house, educating children, wedding of family members etc.

d. Trust


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Insurers need to be perceived as trustworthy by micro insurance low incomehouseholds. Insurers have to convey the impression that they are large and stablecompany. Branding an organization as trustworthy is very vital; take forexample L. I. CS slogan : Trust Thy Name Is L.I.C.

2. MARKETING TECHNIQUE

To get customers to the point of signing their contract and paying their premiums,marketing personnel have to go through three phases.a. First, they have to raise awareness about micro insurance and micro insurance

providers.b. Second, they have to help the market understand the products including costs

and benefits.C. Lastly, they have to activate the market by turning the increased awareness andunderstanding into sale.

First phase of marketing process

Raising the customers awareness of insurance has two aspects.a. a general knowledge of insurance, and

b. Specific familiarity with an insurance provider.

a. General awareness

educate their clients more broadly about insurance .

describe how it fits into a broader array of risk management mechanism, and

Illustrate the advantages and disadvantages of insurance relative to other ways ofmanaging risk (e.g. saving or credit). One example of creating awareness thatemerged from case studies was Tata-AIG, which produced brochures explaininginsurance without actually mentioning the insurer or product.

u Govt. or NGO can undertake general awareness campaigns.

(I) Creating general awareness about Insurance


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Generally, knowledge of micro insurance is provided along with main streaminsurance plans. Awareness about insurance can be created through Television,Print, radio advertisement and fair or melas in villages.

(II) Raising Awareness about specific micro insurance providers

The three most common approaches are(i) Branding(ii) Public relation(iii) Prevention campaign

(i) BrandingBranding is an effective way of acquainting a market with an organization. To

promote their brand, micro insurers tend to use sign boards, billboards for distinct

identity. Another component of the brand is the tag line used in marketing materialto convey a general message about the organizations to clients and prospectiveclients.E.g. LICS Zindagi ke saath bhi, Zindagi ke baad bhi, and TataAIGsky line A new look at life Use of illustrations/pictures to convey marketingmessages to both literate and illiterate marketing segments.(ii) Public Relations

Generally, in India life insurers hold claim award ceremonies where a beneficiary

receives an insurance claim at a public event from the hands of dignitaries. Thishas a powerful demonstration effect. Large micro insurance companies are alsoengaged in corporate sponsorships. Some insurers organize painting and drawingcompetition or debate competition. Spandan India uses some of the surplusgenerated from its insurance scheme to finance education campaign.

(iii) Prevention campaign

Prevention campaign can also raise awareness about a micro insurer. For example,shepherd (India) run cattle care camps, partly funded through a surcharge or each

insurance policy to promote the proper maintenance, free immunization and de-worming. Some Micro Insurance providers have mobile medical units that visit co-operatives and other affinity groups to provide free medial consultations

III Raising the awareness and understanding of thespecific micro insurance products available.


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When the market has a general awareness about insurance andMarketing of MicroInsurance is familiar with the insurance provider, the next step in the marketingprocess is to increase its understanding of the specific products available includingproduct features and the costs and benefits of insurance relative to other risk

management strategies. Some use street theatres to educate target groups on thebenefit of health micro insurance. Among micro finance institution clients, someparticipants are selected and are provided with intensive training in rural theatrefor 7 days. Then for 3 days they visit different villages to collect real life storiesreflecting critical social issues. Some use PICTORIAL PRESENTATION toillustrate how insurance works. Even semi-educated and illiterate persons can alsounderstand pictorial presentation.

Activite the Customer to buy the Micro InsuranceProduct Third Phase of Marketing Process

Once the market is aware of insurance and the insurer and it has an understandingof the product, the third phase in the market process is to arrange for the customersto sign their contracts and pay their premiums. One way to activate the customer isthrough annual subscription. Period or enrolment campaign such as used byVIMOSEWA micro insurance requires a different sales culture from that ofconventional insurance. Instead of highlighting products, the micro agent needsto guide prospective clients towards the conclusion that emergencies are expensiveand that they are vulnerable to emergencies:

Micro insurance agents must be hands on personally involved, therefore, targetmeets have lower literacy levels and lack of confidence in formal insurance.

To activate the customer, micro insurance marketing has to activate the seller.Micro insurance wants to reward and encourage sales, without tempting microinsurance agents to push insurance on to people who do not really want it. i.e.unwilling prospects. Finding this balance is tricky.

Some strategies to find this balance include:

a. Setting moderate sales target that can be achieved without aggressive measuresand without violating the spirit of micro insurance

b. Balancing sales commission with re-enrolment incentives to ensure that theservice gets the same attention as sales. For example, LIC can offer incentive forlower lapsation, for renewals etc.


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c. Encouraging the sales people to buy insurance as well so that they can speakfrom experience. For example, LIC must ensure that every MI agent has firstinsured his own life.

After Sales Service

One way that micro insurance demonstrates its uniqueness in relation toconventional insurance is by providing best services. Services in insurance

parlance are largely limited to claims, making sure clients know how to makeclaims, assisting them in meeting the documentation requirements and ensuringthat claims are paid quickly with a bare minimum of rejections/repudiations.Continuous reminders about the micro insurance product are necessary. Poorservices can lead to loss of micro insurance customers acquired with so mucheffort. Excellent services create a demonstration effect whereby, the noninsured

begin to see that the insurer means business and he is trustworthy. Excellent

service is an effective marketing strategy as well. It stimulates positive word ofmouth advertising which is often one of the most powerful marketing channels.Policy documents explaining the benefits, exclusions and claim procedure must begiven to clients.

PREMIUM COLLECTION

When extending insurance to the low income market, the process of collecting

premium is a major challenge. The target market largely consists of self- employedpeople and workers, most of the premiums are paid in cash in the informal market.These people are less likely to have a savings account with a bank. Microinsurance market comprises people with low and often irregular and unpredictableincomes, so that premium payment must be scheduled to match with time when

policyholders have funds available. For micro insurance to succeed, the premiumpayment mechanism needs to find a balance between being efficient and beingsensitive to the needs and capacities of clients. Higher transaction costs forfrequent small premium payments can drive up the premium rates.

In this chapter we will discuss the following four topics.1. Modes of premium collection2. Premium collection and timing3. Client considerations4. Premium collection and controls


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1.MODES OF PREMIUM COLLECTION

The way in which premiums are collected has a direct bearing on per unittransaction costs. To make micro insurance viable it is necessary to minimize

transaction costs. However, the key factor in deciding on the mode of premiumcollection is still the client circumstances and access to other financial services.

Here, we will discuss four modes of premium collection.

(i) Premium linked to loansMany micro insurance products are linked to other final products especiallycredit/loan. Premium collection at the point of loan disbursement or repayment isattractive since the transaction is piggyback on the top of another financial

product.

Consequently, the marginal cost of premium collection is kept to a minimum.Loan linked insurance method is used by many micro financial institutions becausethe insured do not feel the pinch. But this has some disadvantages like lack oftransparency, lack of awareness about insurance cover and benefits and protection,risk cover is limited to loan term.

(ii) Automatic premium deduction from savingsaccount

Where possible, automatic premium collection is advantageous in reducingtransaction cost. Central union can easily deduct the premium from the membersaccounts and forward them to the insurer with hundreds of small premiums

batched into one electronic transfer.

(iii) Premium paid from savings account interest

Perhaps the simplest mode of collection is to allow premium to be paid from the

interest on savings account. One NGO, VIMA SEWA used a fixed depositpayment approach. Here policyholder can make a deposit into special SEWAinsurance coverage until they reach the age of 60 without any additionaltransactions. Consequently, the depositor never pays any premiums and still hasaccess to and ownership of the money on the savings account. This is like pre-funding of whole life policy. This fixed deposit payment approach undoubtedlyminimizes transaction cost.


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(iv) Physical/door-to-door premium collection

The fourth approach is to physically collect the premiums either by going door to

door to collect individual payments or through group mechanism where manypayments can be collected at once. In some cases, the policyholder can visit acentral location (like branch or designated bank etc.), to pay their premiums. A keydistinction between this method and those discussed above is that it is an insuranceonly transaction, whereas the other modes are all linked to either savings or acredit product. The cost-effectiveness of the premium payment mechanism has to

be seen in relation to the value that is provided to policyholders e.g. ease of access,understanding of product, premium rate etc. However door-to-door premiumcollection is expensive.

Preventing lapses and non-renewalsLapses and non-renewals are an important indicator of the appropriateness of

premium collection mechanism. The idea of completely eliminating non-renewals,however, needs to be balanced with the realities of servicing poor people. Ratherthan relying solely on penalties, such as terminating cover for late payers,innovations are required to help people who need leniency. For example, withTATA-AIG Endowment Policy, if the client misses premium, the insurer deductsmissing amount from the accumulated value of the policy to keep the cover inforce. Incentive can also play a role in encouraging payment discipline.

For example, policyholders who regularly pay on future could beeligible to pay a lower premium. Insurers realized that in a scheme with frequent

premium collection, more promotional and marketing work was needed toencourage clients to keep their policy in force. Another strategy to reduce lapses isto help policyholders to boost their income. If they are given access to a microenterprise loan that enabled them to increase household income, then it would beeasier for them to pay the premium as well. The link between micro insurance andmicro finance is even more important than just the efficiencies that can begenerated through integrated financial services. For, access to micro finance mayalso make it possible for poor policy holders to afford their premium paymentmore easily.

2.PREMIUM COLLECTION AND TIMING


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As discussed earlier, insurers generally prefer premium to be paid in advance ofpolicy activation, so that they can generate additional income by investing themoney, which in turn, should lead to lower premium rates.However, for low income market it may not be possible to pay full premium up

front, it may be necessary to collect in smaller instalments over time. Periodicpayments- weekly, fortnightly, monthly, quarterly or annually are popular modeof premium collections because clients have limited purchasing power, andliquidity. But more frequent payments result in additional transaction costs and canlead to the likelihood of non-renewal or premium default. Hence there is lowerreturn. However, some clients do not like to pay insurance premium at shortintervals (weekly). Client generally prefers premium payments to coincide withtheir cash flows. It is also necessary to consider not just when the target marketwill have money, but where are they getting the money from. If source is common,the premium can be paid in masse for many policy holders and therefore enhance

efficiency e.g. loan-linked mechanism. Flexibility in the timing of premiumpayments is an important component to access micro insurance.

3. CLIENT CONSIDERATIONAppropriate and suitable financing mechanisms are essential. Self help groups,saving and credit associations encourage members to make small increases in theirregular savings deposits so that when an annual premium becomes due, themembers already have the money with them to pay it. Working with cooperativesalso helps in customized options for financing premiums. Because of cooperative

financial relationship some micro financial institutions offer loans specifically topay premiums rather than integrating the premiums into a micro enterprise orhousing loan. This way the cost of insurance becomes much more apparent to theclient, but premium becomes costlier.

Balancing efficiency and affordability

The balance between efficiency for the organizations and affordability for clientsis a classic trade off. There are no onesize- fits-all answers and the balance has to

be appropriate for the business environment.Premium should be affordable for the poorest clients. To define the affordable,work out what cash a client will have to spare on an average day. Since clients areunlikely to always save for a premium payment, a monthly premium needs to beequal to the cost of a non-essential item (such as bottle of beer/packet of bidis etc).lf policy holders have to travel to pay their premium, the transportation andopportunity costs of missing work can be even higher than premium costs.


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Hence to create a balance between efficiency and affordability, some organizationsadd a small fee to the premium for convenience of collection e.g. premiums arereduced for people who pay by standing order or in fewer instalments. Thisarrangement increases efficiency and enhances the products affordability

3.PREMIUM COLLECTION AND CONTROLS

Fraud and mistakes in premium collection are significant concerns for microinsurers as their small margins do not allow finance mismanagement, fraud andmistakes. Effective hierarchical and horizontal controls should be combined and

put in place. Hierarchical controls require that insurers set up at least a rudimentarystructure within the organization to maintain the quality of the premium collection

process. These controls generally work better for insurers that use their ownstructures to manage the process than for those that outsource them. If the insurer

selects that process be outsourced it is advisable for the insurer to create horizontalcontrols. To prevent fraud, some Micro finance institutions make the microinsurance product mandatory and premiums are paid through cashless transactionsin the back office. Some have implemented an audit of collected amount to try toavoid fraud as well as mistakes.

CLAIM PROCESSING

Micro Insurance claim processing differs from that of traditional mainstreaminsurance keeping in view the realities of low income;for example:

Claims need to be settled quickly because low income people have insufficientaccess to funds to manage the financial costs of risks.

As far as possible Health Claim should be paid directly to provider since lowincome people frequently do not have available funds to obtain treatment and thenwait for reimbursement

The process must be as simple as possible. There must be enough checks andbalance to ensure that fraudulent claims are not paid but the process must also beuser-friendly and cost effective for all parties. Claim application must be simple


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for beneficiaries to complete requiring only documents sufficient to confirm theoccurrence of the insured events.

Many Micro insurers have their management deliver the claim settlements to the

beneficiaries. This activity enhances their public image and promotes the Schemeand its benefits to their members.

To reduce claim rejections, improvements are needed.

1. Policyholders must have all the knowledge about the product they are buying.Besides, providing client education, micro insurers should give a simple policydocument that states the date of coverage, the benefit and the claim process.2. Micro insurers must deal with the root cause of nonrenewals and lapses. It issometimes necessary to develop alterate payment options to address the problem.

Control over claims

Insurers have to ensure that the claims are legitimate and comply with policyrequirement. For example, they do not just need a document from the policeconfirming death but they must also ensure that

The document is legal.

The death was an accident.

The person who died was actually covered by the policy and

The policyholder was up to date with premium payments whenthe death occurred.


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For preventing fraud in micro insurance sector, control must be strong. However, itmakes little sense to implement expensive controls that the market cannot complywith, or that cost more to implement than the likely cost of aggregate loss. Asmargins are smaller with micro insurers, the cost benefit analysisis particularly

critical.

MICRO-INSURANCE AGENTS

Insurance is a subject matter of solicitation and insurance including micro-insurance product cannot be sold over the counter because insurance literacy isvery low in India and policyholder cannot take decision on their own. Aninsurance company appoints market intermediary either as agent or broker tocanvas business on its behalf.

MICRO INSURANCE AGENTS

The insurer identifies NGO/Self Help Group/MFI that have good relationship withthe community and appoints them as Micro insurance agents. These agents arecalled tied agents and can work only for one life insurance company and one non-life insurance company.


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Micro insurance agent shall not distribute any product other than a micro insuranceproduct. A micro insurance agent shall be appointed by an insurer by entering intoagreement which shall clearly specify the terms and conditions of suchappointment including the duties and responsibilities of both the micro insurance

agent and the insurer. The appointment of micro insurance agent has to beapproved by the head office of the insurer. The deed of agreement shallspecifically authorize the micro insurance agent to perform one or more additionalfunction in addition to sale of business like:

a. Collection of proposal forms.b. Collection of self declaration from the proposer that he/ she is in good health.c. Collection and remittance of premium.d. Distribution of policy documents.e. Maintenance of register of all those insured and their dependents covered under

the micro insurance scheme, together with details of name, sex, age, address,nominees and thumb impression/signature of the policyholder.f. Assistance in settlement of claims.g. Ensuring nomination to be made by the insured.h. Any policy administration service.

As discussed above, the agent works on behalf of a single insurance company(either life / non-life), while a broker works for multiple insurers. To reach to thelow income market, the broker seeks to service large groups of clients through

aggregators. In India, terms of appointment and service conditions are regulatedby IRDA (Micro insurance) Regulations 2005.

Micro insurance intermediary has the following benefits:

(i)Product Development

Since micro insurance intermediary remains in touch with both policyholders andinsurers, an intermediary understands the needs of clients and insurer both whichhelps the insurer to develop a new product which is more suitable for all parties.

(ii)Transaction Costs

An intermediary with a wider client base benefits from economies of scale.Investment in systems reduces transaction costs and increases operatingefficiencies by serving a much larger client base.

(iii) Administration


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An intermediary is well placed to handle administrative matters relating to claimprocessing as well as reporting to the insurance company as to who is covered andwhen the premium is due.

(iv) Staff Training

An intermediary is well placed to provide organization staff with the requiredtraining. This increases financial literacy and ultimate client satisfaction.

Business Leads for Micro Insurance Agents

a. Contact MFIs who give small loans to the poor and offer to cover the loaneeswith insurance priced modestly and collected along with the loan amount e.g. rural

credit societies, co-operative credit societies, co-operative credit banks, etc.

b. Contact any institution which has registered members who pay membership feesso that centralized collections are possible through the piggyback arrangementalong with the fees.

c. Contact the Charities Commissioner of the State for a list of all unorganizedworkers groups and their trade association heads for offering them microinsurance products.

d. Contact the Director-General of the Publicity Dept. of the State Mantralaya toget the contacts for Mahila Bachat Sanghatana, womens Associations, etc.

e. Contact the Share-Autodrivers associations, rickshaw pullers associations,potters associations, domestic servants associations, etc.

f. You can obtain a CD from the State Government departments for the names andcontact details of all cooperatives and also of all the Sarpanches, and Panchayat

members who can then be contacted and with their help our insurance products canbe sold in villages.

g. Hold claimcheque distribution gatherings to encourage those present to getthemselves insured as well.

.


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Criteria in the Selection of Micro Agents at Tata-AIG

(i) Must be resident of the community in which he will sell and service policies.(ii) Should preferably have passed 12th or at least 10th to be eligible to be licenced(IRDA Requirement).(iii)Married: Since micro insurance is a long term commitment to policyholders,an unmarried CRIG leader may migrate to her future husbands village, leaving theCRIG and the policyholders in the lurch.(iv)Ability to write in English: since underwriting in the Head Office is in English,it is imperative that the proposal forms are filled in English.(v) Good track record of integrity:Handling money is an Integral part of her dutyas a leader.(vi) Effective Leadership Qualities: She has to manage a group of four otherwomen.

(vii) Public Speaking Ability: She will be required to address gatherings topromote the products.(viii) Training Skills: Since she is the only one trained in insurance, she has to trainthe other four.(ix) Must have a positive influence among the target market: each leader should

be admired for her integrity and have a forward-looking and progressive nature,and must be able to use her influence to enable her CRIG members to achieve theirtargets.(x) She should preferably have some previous work experience in the social sector.

ORGANISATION DEVELOPMENT IN

MICRO INSURANCE

A well planned organized structure is required for micro insurance. Since microinsurance is comparatively a new concept in the insurance sector, even peopleworking within this sector are not much aware about of micro insurance.Moreover, it is a market where, insurers have to deal with a marketing segment

which is not much aware of insurance even.The lack of control over frontline staff, coupled with a reluctant and uninformedmarket, necessitates some creativity in deploying training and regarding staff fordelivering micro insurance. Hence, we will discuss five aspects of organizationaldevelopment.

(i) Organizational structure


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(ii) Recruitment(iii) Training(iv) Compensation(v) Institutional Culture

(i) Organizational StructureMicro insurance is often just a small part of a large organizations businessactivities. In an insurance company, it may be a product line or even a matter of

just a few policies. For organizations involved in distribution of such asmicrofinance institutions, microfinance tends to be treated as an additionalfinancial product but one that has less importance than the organizations coresavings and credit service. However, insurers are now creating separate microinsurance departments and giving utmost importance to micro insurance becauseinsurers are aware that 70% of population is still near poverty line. Hence, their

focused effort will enable them to get a better understanding of the micro marketand find creative ways to respond.Life Insurance Corporation of India has created a separate department for microinsurance and appointed senior officers at various levels of structure who aresensitive to the needs of poor people and have the required expertise to deliver thegoods. Similarly, TATA-AIG created a special department for the rural and socialsector with a budget and flexibility to act creatively and a mandate from seniormanagement.It may be due to the statutory requirement of meeting their social and rural

obligation. The definition of social and rural obligation is given elsewhere.

(ii) Recruitment

Recruitment of the right kind of people with proper attitude is very critical for thesuccess of micro insurance. As far as field staff is concerned, only those

NGOs/SHG/MFI which are deeply committed to the social cause of communitiesshould be recruited. As for management and back office staff, given that microinsurance is a new field, insurers may not find too many existing micro insurancespecialists. So, organizations can act in either of two ways; either they can recruitintelligent and experienced people and teach them about insurance or they canoutsource major back office work to insurance specialists. Some insurancecompanies outsource their investment management also to experts but ultimately,the institution has to create a dedicated staff of its own.

(iii) Training


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Training for frontline personnel should include-(i) Basis of insurance providingstaff with the ability to answer difficult questions Specific of products policies and

procedures.(ii) Familiarity with the operations manual. (iii) Demonstrations on

how to use marketing materials such as pamphlets and posters. (iv) Role-playexercises letting staff make mistakes in the classroom rather than in front ofclients. (v) Customer service training. (vi) An Examination to ensure that a level ofunderstanding has been achieved and to identify those that require re-training.Training is not one off phenomenon. Micro insurance should regularly upgradestaff skills with the intention of creating a career path that will enhance staffretention. Trained people should be able to guide their subordinates on duty

properly.

(iv) Compensation

For micro insurance to be affordable for the lower income market, costs have to below. However, the insurer has to be careful about incentive payments to sales staffand administrative staff as both are specialists and their turnover may affect microinsurance business. Compensation can be given either as a fixed sum or it could bevariable. However, sometimes, variable pay, incentive for field staf, will be moreappropriate as they will be motivated to earn more and hence will contact a largernumber of people. There can be provision of special incentive for those whoachieve the target.

(v) Institutional Culture

The culture of a micro insurer aims to marry a social concern with an appreciationfor the bottom line. Any organization that strives to serve both the poor and themainstream marketing will need to take positive action to ensure that its field staffare actively serving the poor segments.

Other manifestations of an institutional culture include:

(1) Relationship building: Micro insurance requires field staff to focus more onbuilding a relationship than making a sale. Delta and Vimasewa have structuredtheir activities so that agents are responsible for sale as well as service. Thisemphasis can be reinforced through retention-based incentives.


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(2) After Sale Service: Vimasewa emphasizes after-sale service ensuring thatmembers know what is covered and receive any assistance they require in

preparing claim documents. The higher costs of these activities are expected to beoffset by enhanced customer retention.

3) Trust about a Brand name is also very important. For example, LIC is stillconsidered the best insurer in rural area where even for micro Insurance, LIC istrusted for providing good services.

MICROINSURANCE PRODUCTS IN INDIA

As from above we can see there are 23 life insurance companies are present in

India but only 14 companies are providing microinsurance products this clearly

give an idea of low attraction of majority of companies towards these products.

Below is the list of microinsurance products along with the name of companies:

Name of Insurer Name of the Product Product UIN No.

AVIVA Life Ins. Co. India Pvt.

Ltd.

Grameen Suraksha 122N039V01

Bajaj Allianz Life Insurance Co. Bajaj Allianz Jana Vikas Yojana 116N047V01


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Ltd Bajaj Allianz Saral Suraksha Yojana

Bajaj Allianz Alp Nivesh Yojana 116N048V01

116N049V01

Birla Sun Life Insurance Co. Ltd. Birla Sun Life Insurance Bima

Suraksha Super

Birla Sun Life Insurance Bima Dhan

Sanchay

109N032V01

109N033V01

DLF Pramerica Life Insurance

Co. Ltd

DLF Pramerica Sarv Suraksha 140N007V01

ICICI Prudential Life Insurance

Co. Ltd

ICICI Pru Sarv Jana Suraksha 105N081V01

IDBI Fortis Life Insurance Co.

Ltd.

IDBI Fortis Group Microsurance Plan 135N004V01

ING Vysya Life Insurance Co.

Ltd.

ING Vysya Saral Suraksha 114N032V01

Life Insurance Corporation of

India

LIC's Jeevan Madhur

LIC's Jeevan Mangal

512N240V01

512N257V01

Met Life India Met Vishwas 117N042V01

Sahara India Life Insurance Co.

Ltd.

Sahara Sahayog (Micro Endowment

Insurance without profit plan)

127N010V01

SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti

SBI Life Grameen Super Suraksha

111N038V01

111N039V01

Shriram Life Insurance Co. Ltd. Shri Sahay

Sri Sahay (AP)

128N011V01

128N012V01

Star Union Dai-ichi Life

Insurance Co

SUD Life Paraspar Suraksha Plan 142N009V01

TATA AIG Life Insurance Co.

Ltd.

Ayushman Yojana

Navkalyan Yojana

110N042V01

110N043V01


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Sampoorn Bima Yojana

Tata AIG Sumangal Bima Yojana

110N044V01

110N061V01

Bajaj Allianz Alp Nivesh Yojana

An endowment plan with Life cover and Maturity benefit equal to sum assured +

vested bonus.

Life cover and Maturity benefit equal to sum assured + vested bonus

Guaranteed Surrender Value.

Avail additional benefits including Accidental Death Benefit & AccidentalPermanent Total / Partial Disability Benefit.

Bajaj Allianz Jana Vikas Yojana

A single premium plan with maturity benefit of 125% of the single premium

payable on survival till the end of the policy term.

Life Cover.

Maturity Benefit of 125%of the single premium payable on survival till the

end of the policy term.

Guaranteed Surrender Value.

Bajaj Allianz Saral Suraksha Yojana

The Most economical term insurance policy with return of premium on maturity.

Return of premium on maturity

Guaranteed Surrender Value

Avail additional benefits including Accidental Death Benefit & Accidental

Permanent Total / Partial Disability Benefit


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AVIVA Lifes Grameen Suraksha

A micro-insurance rural term insurance plan for BASIX customers. This

traditional term plan has been developed with the objective of giving the rural

policyholder maximum benefits. the policyholder pays premium for a period of just two years and then avails

the term benefit for 5 or 10 years

The minimum sum assured is Rs 5,000 and the maximum is Rs 50,000.

In addition, tax benefits can be availed as per Section 80C of the Income

Tax Act, 1961.

.

BSLI Bima Dhan Sanchay

A Win-Win Situation Security plus Guarantee. The refund of premiums paid

by you is guaranteed with 3 maturity options.

Sum Assured Rs.5,000/- to Rs.50,000/-

Maximum Maturity age 65 years

A grace period of 180 days from the premium due date will be available toyou

An option for additional Sum Assured is available provided the base sum

assured is minimum Rs 10,000/- and the sum assured under the rider should

not exceed the sum assured under the base product if the death occurs due to

accident

BSLI Bima Suraksha Super


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BSLI Bima Suraksha Super provides you life insurance cover for which you have

to pay regular premium. The nominee gets the sum assured in the unfortunate

event of death.

BSLI Bima Suraksha Super provides you life insurance cover for which youhave to pay regular premium. The nominee gets the sum assured in the

unfortunate event of death.

Your premium depends on your age, gender, Sum Assured and benefit

period chosen.

At maturity, there is no benefit payable.

An option for additional Sum Assured is available provided the base sum

assured is greater than or equal to 10,0

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