ContentsVol. I Issue 1 March 2014

Historical Perspective of mutuals

Mutuality Mutuality Mutuality MattersMattersMatters

Quarterly Mutuality update from DHAN Collective

Cover Story Historical perspective of mutuals 2

Simon Kadijk

Mutuality for social security 5

Krishnamurthi. P

Mutual insurance initiative of poor 8

Balasubramanian. S

Livestock mutuals 10

Palanisamy. M

Mutuality yields mutuality 12

Gayathri. S & Madhan Kumar. A

Mutual institutions and mainstream insurance 15

Sivarani. B

From the Editors’ Desk

Dear Readers,

Greetings from People Mutuals !

Mutuality expressions are in existence across and within communities. It is common that communities organize and act in solidarity towards their common interest and purposes for their well being. The article of �Historic Perspective of Mutuals� by Simon Kadijk well clearly depicts this. The article focuses on the fundamental prerequisites of trust, solidarity and commonality of purpose for mutual solutions / insurance to problems.

The mutuals could be within a specific geographical area or within a homogeneous occupation group expressing the fundamental mutual traits. Such a mutual of poor communities in India is narrated in the articles on the Kadamalai federation of SHGs and the decade old People Mutuals, the social security initiative of DHAN Foundation. They are mutual institutions of poor communities focusing on safeguarding poor from their risks and vulnerabilities. How the mutuality and solidarity built by social capital infrastructure is aiding this mutual insurance programs is well understood form these articles. Likewise, the article on how the specific group of dairy farmers and goat and sheep herders are mutually coping with the livestock risks provides a nice reading.

The existing social capital imbibed with common interest and intense mutuality traits is well recognized by the mainstream insurers for distributing their insurance products. The mainstream insurance product experiences in this regard are lucidly covered in the articles on the Salem life insurance experiences and Universal Health Insurance Scheme.

The mutuality attributes in mutual organizations are breeding mutual programmes towards the community's common interest and need and thus mutuality indeed breeds mutuality. The interrelated attributes of social capitalization and mutuality are the pillars of the People Mutuals, a people's initiative for risk management including insurance, building on the indigenous coping mechanisms. The magazine � 'Mutuality Matters' is published by the community initiative of People Mutuals and the first issue is focusing on the mutuality concept of insurance and the magazine would strive to bring the vast experiential knowledge in this regard.

I look forward to your valuable feed back to enrich the magazine.

S. Balasubramanian

Mutuality Matters

Quarterly Mutuality update from DHAN Collective

Editorial Board

1. Balasubramanian. S

2. Kalyanasundaram. M

3. Krishnamurthi. P

4. Umarani. A

5. Vasimalai. M.P

We invite articles to the magazine.

We encourage contributors to share scientific and analytical papers based on experiential knowledge on micro insurance.

The articles can be limited to 3 pages of about 2000 words with relevant pictures.

Please Contact

People Mutuals1A, Vaidyanathapuram East

Kennet Cross RoadMadurai 625 016. Tamil Nadu, INDIA

Tel.: +91 452 2302563Email: pm@dhan.org

Website: http://www.dhan.org

Publishers

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Mutuality mattersMutuality arises from the expression of need – consciously or subconsciously for a sense of comfort, protection and security among the communities. Mutuality is a powerful social instinct of the human race that brings a feeling of belonging in social setting. In other words, it is a natural expression for achieving shared interest and purpose by the communities. It connects people, keeps them together on the basis of mutual trust, benefit and ownership. Over time, seeking the comfort of mutuality, the communities have come together as mutuals or cooperatives across the globe for specific need and purpose in different forms – economic, financial, social and cultural needs and aspirations. Mutuality derives its strength on the values of self help, self responsibility, democracy, equity, equality and solidarity and above all sharing and caring for each other in times, good and bad. As the mutuals/cooperatives seek to bring the benefits of mutuality to the members, it builds solidarity for collective action and protection of their interests to ensure sustainable development of the communities on a long haul.

The ethos of mutuality guides the communities to find the ways and means to address risks they face to their lives and assets. It brings innovative ways of preventing, sharing and reducing risks for the members of the mutuals and from the financial perspective, risk financing through several appropriate insurance mechanisms. As the mutual communities grow, they connect and enhance their cooperation with one another to enlarge the power and influence of mutuality for the larger benefits. It can be said that mutuality has both tangible and intangible expression which are equally important.

Mutuality matters a lot for the poor from social and economic perspective as evidenced by the effective demonstration of micro mutual insurance initiative built on the social capital of SHG federations. It is a measure of the timeless relevance of mutuality that we now witness a global trend of remutualisation of some of the existing commercial entities - be it commodities or finances or services.

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A family rooted in mutuality

Six of my eight great-grandparents came from the northernmost province of Netherlands: Groningen and they lived close to the Wadden Sea. They were farmers. You can still see that from my name: Kadijk, the dike that protected the country against the sea. I tell this because it was 100 years ago, my great-grandfather Eme Kadijk (1859-1918) was one of the five founders of the Groningen C.B.T.B., the Christian Farmers and Gardeners Association during 1914. It was the first of its kind in Netherlands in this field. Other provinces later followed this example and a country wide coordination unit evolved. The name of the country wide coordination unit later got changed as LTO Netherlands. Unitl 2005 Gerard Doornbos, a second cousin of my father was the director of LTO. My grandfather Simon Kadijk the son of one of the co-founders, Eme Kadijk (1899-1983), moved to Biesbosch in the Dutch province of South Holland (West-Netherlands), because of the crisis in the nineteen thirties. He joined the cooperative sugar factory As a kind of shareholder earning a share of profits of the sugar factory on the one hand and a guaranteed minimum price for sugar beet he harvested on the other.

Why my great-grandfather and my grandfather did organize cooperatives and associate? They were farmers for generations and were skilful in that occupation. To be a farmer they didn’t no need any help or a cooperative. It was a great honour for them to harvest as much as possible. However, there were events outside their sphere of influence that made them feel dependent and manipulated. One may think of purchase of seed or seed, potatoes or agricultural machinery. But, above all what about marketing of their products? How should they sell all those products that they harvested? They were farmers and not merchants. They had no time to go to the market in the big city every day. They were played off against each other by traders. That is why they devised the cooperative. They could then work together on particular regional subjects that negatively impacted them and influence the market by means of joint marketing and purchasing. So on the one hand they were not played off against each other by traders and on the other hand, they gained knowledge on several things that they never could obtain individually in the father to son training.

My dad inherited my grandfather’s farm together with his brother. They too were members of the

Historical perspective of mutualsSimon Kadijk*

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cooperative sugar factory and the Farmers Lending Cooperative, later Rabobank. I did not step into that agricultural tradition. I am working in the insurance business. But the mutual vision appeals to me. It comes to me naturally. I work at Mutual Insurer Donatus. Donatus is a real mutual insurer. There are a lot of mutual insurance companies in Netherlands, but the distinction between them and a commercial insurer is not that big that I reckon due to globalization and digitization.

Donatus a good example of a mutual

Donatus was founded by a priest in 1852. Father Hofman was of the opinion that insurers were not managing the entitlements of the churches in the right way. No influence was possible for an individual parish. His first idea was to completely stop insurance. He asked a number of other church boards to jointly stop the insurance. The money thus saved was set aside. If one of them had a problem, the others helped out. So his idea was actually a form of collective savings. For some problems, saving is not

a good solution. Because what to do when a church burns down right in the first year and a windstorm rages over Netherlands, causing roof damage to many churches in that very same year?

That is why the form of a mutual insurance was quickly figured out to solve the problem of the churches. That was not unique. Plenty of mutual insurance companies were established in Netherlands in the 19th century. That solution turned out to be very successful and still is. The power of a mutual insurance evolves from two things. One is the common interest and the other is the trait of trust with each other. Because you trust each other and have a common basis, you are able to develop as a community, as a cooperative or as a mutual, build knowledge jointly about a lot of aspects concerning your own industry. With that you will have a head start on other insurers.

From a neutral point of view, insurance is an expensive solution. After all you will always pay more premium than the insurer will pay out on

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damages. On an average, it is more profitable not to insure. But then you are at risk. An insurer needs to include overhead costs as a part of the premium. In addition, an insurer, including the mutual insurer needs to consider the possibility that there will be a bad year. However a mutual insurer is different from commercial insurer. I will explain how it is, by means of the example of our own Mutual Insurer Donatus.

Advantages of Mutuals

In the first place, we have much less burden of anti-selection (including those risks that are worse than average ending up in your portfolio) compared to other insurers, when it comes to insuring churches and monasteries. Of the monasteries in Netherlands, we insure 99% and of the Dutch church buildings approximately 80%. In that portfolio there might be a bad risk, but we are sure, that neither our terms and conditions nor our premium cause the bad risks to come to us.

Secondly, we have built up a huge expertise about the risks that threaten church buildings and monasteries over the course of years. Calculating the value of a church building is a very specialized work as these are often very large and historic buildings. Also the restoration in the event of damage is the work of specialists. Because we know these risks, we are able to tailor special products such as the insurance against vandalism to church buildings. Almost no insurer offers the possibility of coverage of vandalism at the outside of the building.

In the third place, the solidarity between the members plays an essential role. We call our insured persons as members. That emphasizes the interconnectedness. As mutual, we focus on the medium and long term and hence we need not pay attention to, for example, shareholders who are often solely focused on short term profit. At a mutual like Donatus, the entire profit benefits the members. Our Members Council determines what has to be done with the profit. The Members Council is a representation of our members (policyholders). Usually our Members Council decides to allocate a small part of the profit to the General Reserve, because as our portfolio is growing, the premium volume increases and that we should reserve more for possible bad times. Most of our profits, we refund back to the members at the end of the year. Over the last 25 years, on an average it works out to more than 40% of the regular rates.

Some people argue that our premium is actually 40% too high. That is incorrect. This is not the place to explain the details, but should we not apply this system the premium could not drop by 40%, but would only drop by 20%. So this is a direct benefit to our members. In fact, a mutual organizes solidarity in good and bad times.

A mutual prevents and compensates risks

The three advances mentioned before (less anti-selection, more expertise, organized solidarity) do not apply to Donatus alone, but are true with each real mutual insurer. A real mutual therefore is in my opinion that by definition not a general insurer covering all risks of everyone. The power of a mutual is captured in the specific collective. This distinguishes mutuals from others. Donatus is a specialist in insuring churches, monasteries and monuments. So any sector may have its mutual, whether they are jewellery stores, owners of ships or potato growers. A real mutual works in a particular niche. In other words, a mutual has specific focus - local or regional. The specific collective will nurture the local culture, community feeling and solidarity. As one knows the risks in their region, there will be social control. The collective nature of niche insurance companies would result in a expanding the scope from insuring risks that occur in the niche, to prevention against those risks. Good examples of such preventive measures are found with potato growers or chicken farmers faced with certain infectious diseases. As a sector, one can bundle knowledge and share interests and resolve the problems by means of a different approach, other than insurance. Insurance does not prevent risks. Similarly mutual insurance also does not prevent a risk from happening. Insurance does not prevent damage but compensates only the financial consequences. That is why it is much better to avoid and mitigate risks. That knife cuts both ways all for good reasons: the members have less to suffer from the consequences of any risks such as an outbreak of a disease and the other part is that the premium will be more or less refunded to the members.

Simon Kadijk is working for Donatus since 1999. He holds the position of director since 2008. He is treasurer of Dutch registered charity initiative ‘Friends of DHAN Foundation’.

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Mutuality for Social Security Krishnamurthi. P*

One of the unique characteristics of Indian societies is social interdependence. From birth to death, people are deeply involved with others through a closely knitted social fabric. Economic activities, too, are intensely rooted in a social nexus. Socially and economically, many villages have connectivity with many others and with urban areas both near and far. In festivals and rituals organised in villages, members of various groups meet and exchange essential goods and services for one another.

These social systems and traditions have many lessons for shaping and modeling modern institutions and practices. There was spontaneous solidarity of kinship which has since then been replaced by organized assistance between groups of people with common interests. Such organized mutual assistance systems are recognized and revered by the entire community. Often the religious or community organisations in the villages ensure such practices and they are deeply integrated in the social systems.

Mutual sharing mechanisms are conspicuous in times of pleasures as well as in times of a disaster among the rural and tribal communities. For example in the Ponnakkaneri village of Ramanathapuram District, Tamilnadu, the village community organisation takes care of the entire responsibility of carrying out funeral rites in the aggrieved family and meets the expenses from its funds. At the burial ground, people from each household would contribute amounts as they wish but not less than Rs.5, which would be used for immediate expenses of the family. Similarly in the nearby Kavanur village in Ramanathapuram, at times of death, they collect Rs. 20 and half liter of rice from each family and give it to the aggrieved family. When ‘Village Pachai’ (a custom) is carried, each family would carry and give banana, soft drinks and paddy. This helps the aggrieved family to feed the outsiders who are coming to the funeral.

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Building on Mutuality

DHAN Foundation’s Kalanjiam C o m m u n i t y B a n k i n g Programme was a pioneer in formalizing the informal practices of savings and lending that existed among the rural communities for many centuries. This has given an institutional framework for the informal practices in the form of Self-Help Groups with needed institutional methods and systems. DHAN organises the poor families into primary groups of SHGs, Water Users Associations and Rainfed farmers’ groups. They come into existence to address the issue of poverty through savings and credit, rehabilitation of small-scale water bodies called tanks and rainfed farming development. The Peoples’ Organisations at each level have a unique system of organising and managing as an independent institution. They are promoted at hamlet, cluster/cascade and at block/district levels, which operate on the principles of self-help, mutual trust, and co-operation. It is self-evident that organising Peoples’ Organisations and building their nested institutions is a long-term and organic process. The Peoples’ Organisations take care of not only the present, but also the future. In other words they achieve the goals to better people’s lives in the present but strengthen institutional systems to take up future issues and broader challenges.

Mutuality strengthens social security

The rural communities express their sense of togetherness towards their neighborhoods faced with bereavement in the family, with emotional support and financial contribution in the form of cash and kind, during and after the funeral rites.

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The Peoples’ Organisations nurture and develop various products and services to their members to enable them to come out of poverty. These interventions are designed from a wide range of local best practices and indigenous knowledge that are relevant to their particular situations. For example, every community has a number of ways by which families save individually as well as a group, exchange gifts and support each other. DHAN’s development interventions are founded on the basis of the close inter-relations between peoples’ diverse livelihoods and the institutions, mainly informal, with which they interact, in order to have any deep or lasting impacts. The Kalanjiam Federations carefully study the informal systems and design suitable products taking into account these interdependencies.

From Informal Practices to Formal Solutions

Taking lessons from the informal mechanisms of mutual support that existed in the traditional communities, in early nineties, in one of the SHG Federations at Appanthirupathi, Madurai, members voluntarily initiated a practice of supporting the ‘funeral expenses’ incurred by bereaved members by contributing Re 1 per month. The bereaved family would get a support of Rs.500 for funeral expenses. Simultaneously the federation at Tirupathi, Andhra Pradesh approached LIC of India and insured 1,000 members for life under group insurance with coverage of Rs. 1,000 per member. These two experiments triggered the process of wider consultation to expand the experience to more members. As the members found collaboration with outside agencies cumbersome due to many procedures, the need for ‘mutual-insurance’ emerged. Meanwhile, federations as part of implementing livestock projects through bank linkage initiated ‘Livestock’ insurance for cows, sheep and goats. The interaction with various insurance companies provided an opportunity to explore the possibility of initiating other products viz., accident and disability, health coverage and other selected products for rural women.

The experience of Kadmalaikundu federation to continue both ‘Life insurance’ and ‘Health insurance’ since 1997 as a ‘Self-managed’ product is noteworthy. The federation is able to manage these products

profitably since inception. The life cover includes support for natural death, accidental death of both member and spouse while the health product includes coverage of hospitalisation expenses upto Rs.10,000 for the whole family. This experience has demonstrated the potential of a self-managed ‘Mutual insurance’ programme by the community and offered a lot of lessons for scaling-up.

All the products are offered by federations either through insurance companies or ‘Self-managed’ have developed over a period, exclusive systems of collecting the baseline, premiums, coordinating with insurance companies and setting the claims as well as ensuring the end use.

Genesis of People Mutuals

With the principles drawn from such local practices, which maintain these social fabrics intact, the Peoples Organisations promoted by DHAN Foundation are implementing well-designed mutual insurance solutions by themselves. These organisations have collectively promoted an institution called People Mutuals for facilitating a comprehensive social security cover to the members of the people’s organizations. The new institution is a mutual trust, owned and controlled by the people’s organizations. The People Mutuals develop needed operational systems to evolve and manage various insurance products, which are responsive to member needs. For implementing the programme, ‘People Mutuals’ collaborates with member federations, insurance companies, government and other formal insurance agencies. The People Mutuals spearheads insurance literacy programmes which educate the poor communities on the importance of insurance in their life and need for fostering mutuality to fight the issues of poverty in a cooperative way. The concept of “Mutuals” for addressing risk and vulnerabilities has gained increasing acceptance by people and is well rooted now.

P. Krishnamurthi, Programme Leader,Centre for Development Communication,

DHAN Foundation

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In India, due to the transition of the society from agrarian to urban and industry based livelihoods, there is a growing phenomenon of disintegration of joint families into nuclear families, migration and increased urbanization, resulting in gradual degeneration of the social customs based on mutuality leaving the affected persons / families to take care of their own. To rejuvenate the mutuality community systems, there are few private micro insurance initiatives, mostly by development organizations. DHAN Foundation’s micro insurance initiative, ‘People Mutuals’ is a pioneering one in this regard, involving access of insurance to over one million poor at present. People Mutuals was institutionalized to ensure insurance services to poor and disadvantaged sections of the society through products addressing their needs for safeguarding them from risks and vulnerabilities to achieve poverty reduction.

People Mutuals is a public charitable trust promoted on October 2, 2013 by federations of SHGs of poor

through the collaboration of DHAN Foundation, Oxfam Novib, Rabobank Foundation and Achmea Foundation. People Mutuals envision to be the preferred risk manager for the poor and strives for safeguarding poor from risks and vulnerabilities through collaboration with mainstream and mutual solutions to reduce poverty.

During the decade, People Mutuals saw the clear emergence of mutual insurance entities. People Mutuals has been instrumental in linking the poor with the mainstream insurance companies on different risks at affordable price. Identifying the gaps in the mainstream product and also to cater to the special needs of covering the life risks of poor aged beyond 60 years, the mutual initiatives have developed product to cover the death risks of poor in advanced ages apart from meeting the immediate need of the funeral expenses and it further ensures that the entire death benefits accrue to the children and the family. Similarly mutual health programmes are covering the primary health care requirements of

Mutual insurance initiative of poorBalasubramanian. S*

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poor, which are not available with the mainstream. The mutual livestock programme involves pro poor and hassle free enrolment processes and claim mechanisms by community committees. The mutual rainfall indexed crop insurance is a path breaking initiative of dry land farmers to cover the rainfall risks in crop cultivation and 159 automatic telemetric village rain gauges have been installed in this regard at Tamil Nadu and Andhra Pradesh states of India.

The fundamental premise of mutual programmes is the intense mutuality trait that is prevailing in the community social capital infra structure of people federations. The communities being the insured and insurer, the problems of adverse selection and moral hazard are not in existence. These are the main factors working against insuring poor by the mainstream. By moral hazard the mainstream

perceives that being insured raises the probability of loss among poor. Further as a result of perceived adverse selection, the insurance rates tend to be high and hence low risk people shy away from the pool. Another main reason for high premium rate is high transaction costs attributed by policies for small amounts and that claims need to be assessed on an individual basis. The poor are weaned away from insurance services due to these perceptions of insurance providers often resulting in meagre insurance products not relevant to their needs. In this regard, keeping in view the actuarial requirements from the long term perspective for developing pro poor insurance products and mutual solutions for different risks, People Mutuals has built the mortality data base of the poor people with the support of Mr.R.Ramakrishnan, former Chief Actuary of Life Insurance Corporation of India and who is presently the chairman of the Advisory Committee of People Mutuals.

The foremost learning from the decade experience of People Mutuals is that towards comprehensive risk cover of poor, it is more appropriate to complement the mainstream insurance product which covers certain segments of risks, by a mutual solution to address the gaps in the mainstream product. This is well proved by the present insurance reach of over one million DHAN programme clientele by the efforts of People Mutuals, involving about 1.7 million insurance contracts, of which over 4.7 lakhs are mutuals.

S.Balasubramanian, Chief Executive, People Mutuals

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Building people institutions on a common theme / interest is the central focus of thematic programmes of DHAN. The rainfed agriculture programme revolves around making the rainfed farming a viable and sustainable livelihood by undertaking different activities of agricultural land development, soil health enrichment, crop production enhancement, livestock development and activities for supplementary income to the farmers etc and these activities are taken up on the platform of people federations of SHGs of dry land farmers. Such people federations are robust mutual institutions built on the common interest of rainfed farming livelihood enhancement and risk management.

Animal husbandry is one of the supplementary off-farm activities taken up under rainfed agriculture. The livestock – plough bullocks, dairy cattle, sheep and goat, are the major assets owned by the dry land farmers and the risks associated with these livestock livelihood assets are of great concern to

them. Even though the importance of insuring the animals is felt to be a necessity, the farmers are not in favour of insuring them mainly due to the not so good experiences, associated with non pro poor enrolment processes and claim systems. The enrolment under mainstream livestock insurance stipulates certification systems for the value and quality of animals, which involve inherent expenses in addition to the premium thus making the insurance unaffordable. Further, in the event of claims, the insured has to ensure obtaining and submission of death and post mortem certificate of the animal which involves operational difficulties and significant cost burden. Moreover the claim settlements were normally not prompt. These weighed in the minds of the people and they decided to run the livestock mutual programme built on the infra structure, solidarity and trust, imbibed within the community institution of farmers federations of SHGs.

Livestock MutualsPalanisamy. M*

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Under the livestock mutual programme, mutual insurance committee of wiser farmers in each village is constituted, who perform the functions of certification of the value and health of the animal at that time of insurance enrolment. When there is death of an animal, the committee would immediately visit and send the claim recommendation after ensuring the genuineness to the mutual institution for facilitating the payment of the claim benefits to the farmer within a week. The intense traits of mutuality prevailing in the federation and the mutual insurance committee mechanism and documentation requirements of photo and ear tag have nullified the challenges of adverse selection and moral hazard under mutual programme. Moreover, this has avoided the avoidable drudgery and cost of certification and post mortem at the enrolment and claim processes, which have made the mutual programme lucrative and affordable.

The risk management under mutuals is not only risk financing through insurance but also ensuring risk prevention and mitigation efforts. The mutuals organize vaccination and animal health camps at strategic intervals to ensure good health of animals for reducing the animal deaths and the resultant

lower claims. Further towards ensuring good animal health through nutritive feed, azolla green fodder initiatives are under taken by livestock mutuals.

Thus a livestock mutual programme strives to manage the entire gamete of livestock risks through an integrated approach of risk prevention, mitigation and financing. The programme is in operation on a viable and sustainable manner for the past 5 years and this evidences its success.

M. Palanisamy, Programme Leader, Rainfed Farming Development Programme,

DHAN Foundation

Animal Health Camp

Azolla Green Fodder

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of the weavers were not members of the co-operative institutions.

DHAN started to work on the demand side of the equation by building social capital in the form of community institutions that are fully owned and governed by the poor and vulnerable communities including the handloom weavers, in Ayodhyapattanam block of Salem district. Large number of self help groups namely Kalanjiams were formed at village level. About 225 Kalanjiam self help groups got federated as Mullai Vattara Kalanjiam.

Mutual Organisations in Salem Region at a glance

Year : 2012No. of. Federations 10

No. of. Blocks 10

No. of. Villages 353

No. of. Urban slums 237

Primary Self-help groups 2005

No. of. members 31,146

Life insurance access(Including members & spouses) 56,700

This form of community institutions offer a platform for the women from poor families to prioritize their needs, plan their expenditures at appropriate time, manage the cash flows which were like roller coaster rides, save money regularly, get institutional credit from banks to enhance their livelihoods, arrest the income leakage in the form of exorbitant interest rates in the informal market, get their entitlements form Government, and so on. Thus the simple act of getting together, joining hands, sharing resources, risks and the needs, blossomed into a disciplined institution unleashing the potential of ‘Mutuality’. Those poor and vulnerable persons who were weak and less significant were marginalized as individuals and where as collectively they could build institutions with mutuality and solidarity to work for the common interest.

The success of Mullai Vattara Kalanjiam was so appealing to the poor households from other

Mutuality Yields MutualityGayathri.S & Madhankumar.A*

The context

Salem is one of the largest districts geographically located in the centre in Tamilnadu, India. It is a district with a good combination of resources like forests, hilly region and plains. No wonder it gives ample scope for diversified livelihoods like Agriculture, Horticulture and industries. Yet there is widespread unemployment /under employment, high infant mortality rates (16 out of 1000 babies), poor infrastructure facilities, exploitative informal financial markets, alcoholism, children dropping out from school and high prevalence of HIV AIDS, indicating the backwardness of the district.

The emergence of mutual organisations

DHAN Foundation with the mission of poverty reduction entered the region in the year 1999 and started its development interventions with the weaving communities, one of the most vulnerable communities in the region. The weaving communities were faced with multiple risks including the occupational hazards resulting in health issues and high mortality rates in addition to those mentioned above.

The social security programmes like subsidized credit, minimum support price for the products, weavers’ pension, were implemented by the government. However, these programmes have neither been effective in reaching the intended persons nor efficient as they were expected as most

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parts of the district that gradually many such mutual institutions came into existence. Thus the agriculture labourers, construction workers, street vendors, small traders, potters, blacksmiths, industry contract labourers and other unorganized workers came together and promoted their own community institutions resulting in 2005 self help groups promoting 10 federations.

Mutuality spreads mutuality

The social capital built in Salem through the mutuality, started to yield dividends in the form of increased recognition for poor. The identity of poor changed from mere ‘receiver of welfare benefits’ to a ‘participant in the market system’. This changed identity invited the players in financial markets such as banks and insurance companies to regard the community institutions as their partners. The mutual organizations in Salem thus partner with many of these mainstream insurers. This mainstream collaboration with life insurers has created an impact in protecting the poor from life risks.

The Kalanjiam community organizations in Salem have gained an identity and the mainstream insurers started seeing them as most suitable platform to reach out to the door steps of thousands of poor households with their products. On the other hand, the communities started to exercise their bargaining power and negotiate with the insurers for affordable prices and hassle free procedures. Hence from the year 2001 onwards, the SHG members in Salem district started to access insurance and the coverage began to grow year after year. The figure below shows the year wise take up of life insurance among the members of Salem federations.

Year wise life insurance coverage ratio in Kalanjiam Community organisations in Salem

Note: Coverage percentage is the percentage of insured to the potential eligible persons

Insurance being a financial solution based on the principle of mutuality, it goes well with the core belief of the community institutions and hence immediately it took momentum among the members. To start with, the Jan Shree Bima Yojana, presently Aam Adhmi Bima Yojana, a life insurance product with 50 percent premium subsidy from the Government, was accessed by the members through their federations as nodal agencies. Subsequently, it attracted other players like HDFC Life and Birla Sunlife for insurance partnership with the federations in Salem. This has resulted in about 96 percent of the potential members and their spouses covered under life insurance. With multiple policies, the insurance cover ranges from Rs.30,000 to 50,000 for natural death and Rs.75000 to Rs.95000 for accident death.

The members of federations in Salem perceive life insurance as an important instrument of managing the death risk. This is mainly because most of the households (about 76%) depend on their manual labour for meeting their ends meet. In the absence of other productive assets, life of the breadwinner is very crucial for the households. With a huge part of population in their productive life span, their loss derails the family from the development path. So, the need for a financial protection to the poor family in case of loss of the bread winner was strongly felt by them. When the communities got the opportunity, they were ready to grab it. The positive growth shown in the graph above shows the perceived value of insurance to the members of the community organizations. The analysis of the performance of the programme during the period 2006 to 2012 also reveals that the incurred claim ratio was 76 percent indicating the viability of the intervention for the insurers.

Thus, the high value perception by the communities and the viability experienced by the insurers results in synergy. This promises for the sustainability of the insurance partnership between the community organizations and the mainstream insurers. Besides this, this positive experience triggers the partners in exploring further needs and scope.

A study was conducted by the community organizations in Salem to see what extent life insurance has been effective in meeting its purpose. The study tried to look into the utilization of death claim benefits by the families, to get useful insights.

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It was observed that about 57 percent of households used the claim for repayment of external loan. For these families, among various other needs, the cost of loan (ranging from 24 to 120 percent) gives more burden than the benefits from other ways of using it and hence they want to get rid of the burden of external debt. Those households using the claim for income generation and those reserving for future needs like education and marriage of children, together constituted 20 percent. About 23 percent of households resorted to spending the money for immediate consumption needs like funeral and other household expenses. It was also observed that nearly 10 percent of children of different ages discontinued their education in the event of the death of the bread winner. This gives leads for further explorations in the directions of adequacy of insurance coverage and credit facilities through the mutual organizations for reducing their vulnerabilities.

Mutuality deepens mutuality

The effectiveness of the community institutions in partnering with the mainstream players has given confidence among the communities that from 2010 they started offering mutual solutions for those uncovered insurance needs of mainstream products like life cover of poor aged above 59 years. In Salem region, the percentage of the members aged above 59 at present is 15 percent. This is expected to grow more in future. Although they are aged, they continue to engage in economic activities and hence the loss of their life results in economic loss to the family, at least to the tune of funeral expenses. But the need of getting a life cover among the aged remained unanswered for a long time until the federations in Salem decided to design a mutual solution. However, the life risk being high among the aged, offering stand alone insurance only for those aged above 59 was found to be unaffordable. Once again the mutuality did the magic in quite a scientific way. A wonderful mechanism of mutuality emerged by which 85 percent of young members below the age of 59 contributed towards covering a part of the risk premium of the 15 percent of the members who are above 59 years. Since the young group was larger, the average additional cost is not at all a burden whereas it gives a great value for the old members in their community towards protecting them from risks. The federation being an open system where addition of members takes place every year, this mutual mechanism promises to work well over years.

One other uncovered need that found solution through Mutuality is the insurance for People Living with HIV/ AIDS (PLHIV). Salem is one of the districts with about 3 percent of HIV/ AIDS prevalence, according to the survey by National AIDS Control Authority in 2006. A study conducted among the members of Kalanjiam community organizations in Salem in the year 2009 also confirmed such high level of prevalence among the member households. Since, the PLHIV are both excluded in life and health insurance products of mainstream insurers, the community organizations came up with a mutual solution, in which the life risks of PLHIV are shared among the entire populace by loading an incremental premium much like sharing the risk of aged persons as explained above. Currently, about 56,700 persons including PLHIV are covered in the region under mutual life insurance, which gives comprehensive life coverage for all those aged above 18 years including the PLHIV.

The magnitude of the impact explained so far has to be understood in the broader perspective of that these 56700 poor in Salem are part of a larger movement with about 1.4 million poor spread across twelve states of India, offering need based mutual solutions to their members households.

The lessons

The story of Kalanjiam Community institutions in Salem gives some useful lessons on the matter of ‘Mutuality’. The foremost is about the power of mutuality being effective in making the poor and vulnerable communities a strong demand system. Second lesson is about the efficiency brought in by the partnership with mainstream players thereby the overall benefits get optimized. Third, it shows that equity is ensured to those vulnerable groups who get marginalized due to various development processes so that they enjoy their rightful benefits and mutually sees that no one from their community is left out. After all, those nice mangoes of Salem are not only for exports but also for the enjoyment of those thousands of labourers who contributed in the making of it!

S.Gayathri, Programme Leader, People Mutuals Insurance Initiative of

DHAN Foundation

A.Madhankumar, Programme Leader, Center for Research, DHAN Foundation

15

Mutual Institutions and Mainstream InsuranceSivarani. B*

With about two third of Indian population being in unorganized sector, the difficulty of development interventions penetrating into these masses is immense. The recent phenomenon of organizing the poor and the unorganized under self help groups, has created an apt platform for channeling the state schemes and development programmes as well as the programmes of mainstream bankers and insurers. As the micro insurance product / schemes invariably involve master policy contracts with mutuality based SHG federations as the master policy holders, there is significant reduction in the distribution cost of insurer as well as improved access of insurance for poor. Added to this, the basic underlining mutuality spirit existing with the self help groups is aiding this linkage of poor with insurers and in fact such mutuality based community institutions are

attracting mainstream insurers to penetrate their products into this segment. One of the schemes that harnessed the federations of SHGs for accessing poor is the Universal Health Insurance Scheme (UHIS) and about 44 million poor in India were covered under this scheme during the year 2012 - 13.

While mutual institutions are able to help the agenda of mainstream towards access of the Universal Health Insurance Scheme meant for poor, building on the solidarity of mutual institutions, it is appropriate to analyze on how far the scheme have benefited the insured poor. This was attempted by analyzing the performance of UHIS vis-à-vis the mediclaim insurance scheme.

Universal Health Insurance Scheme was introduced by the Government of India during 2003. The

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subsidized (2/3rd subsidy) premium till March 2013 for the poor for single, five members family and seven members family were Rs. 100, 150 and 200, whereas the total premium was Rs.300, 450 and 600 respectively. The expenses of hospitalization of period exceeding 24 hours are admissible. Hospitalization care in network hospitals is eligible for cashless facility. The scheme provides reimbursement of hospitalization expenses of Rs.30000 per individual / family per year. Total expenses incurred for any one illness is limited to Rs.15000. After a waiting period of one year, hospitalization expenses are reimbursable for the normal delivery up to Rs.2500 and caesarian delivery up to Rs.5000. The benefit payable on account of accident death of earning member of the family / spouse is Rs.25000. For temporary total disablement due to hospitalization of earning head of the family, Rs.50 per day is paid as wage loss compensation subject to a maximum of 15 days with a time excess of 3 days.

Mediclaim insurance Scheme is the common health insurance product availed by the non poor population in India, mostly through public sector general insurers. Unlike UHIS, the mediclaim insurance products are normally excluding pre existing illness and maternity care and they do not involve any additional benefits of wage loss compensation and personal accident cover.

It is pertinent to note that poor are not a separate segment of population and their morbidity pattern is almost similar to that of general population, if not high. Combined with the positive features of UHIS product like pre existing illnesses cover, wage loss compensation, accident cover and maternity

benefits, it is natural for the UHIS claim ratio to be higher than the claim ratio of mediclaim insurance scheme of general population. However, the industry experience of ten years period (April 2003 to March 2013) indicates that the claim ratio is 65 per cent as compared to the mediclaim insurance claim ratio of 98 percent. Apart from the claim ratio, the hospitalization rate also differs widely. It is 6.30 percent under mediclaim as compared to the ratio of 1.21 percent under UHIS. The wide variation of more than five times of hospitalization rate and about 50 percent higher claim ratio under mediclaim brings to the fore, the need and scope for improvement in UHIS product design and benefit features. Further higher claim rejection ratio of 18.78 percent under UHIS as against the 6.75 percent under mediclaim, indicates the non existence of pro poor and simplified norms and processes for claims.

The unrealistically lesser claim ratio under UHIS can be attributed to the inappropriate ceiling amount and limits / sub limits. The total floating cover of Rs.30000 for the insured family involve a per illness hospitalization limit of Rs.15000 is subject to the following sub limits.

yy Room, Boarding expenses as provided by the Hospital / Nursing Home up to 0.5% of sum insured per day and if admitted in IC Unit up to 1% of sum insured per day.

yy Surgeon, Anesthetist, Medical Practitioner, Consultants, Specialists fees, Nursing expenses up to 15% of sum insured per illness / injury.

yy Anesthesia, Blood, Oxygen, OT Charges. Surgical appliances, Medicines drugs, Diagnostic material & X – Ray, Dialysis, Chemotherapy, Radiotherapy Cost of pacemaker, artificial limbs up to 15 % of sum insurance per illness / injury.

These indicate the unrealistic sub limit under all fronts as detailed below:

yy The norm of room rent and boarding expenses under mediclaim insurance is normally 1 percent of insured amount. Such policies involve higher insured amount and the 1 percent criteria may be appropriate. The UHIS with the lesser insured amount of Rs.30000 translates this eligibility to

17

Rs.150 at 0.5 percent of insured amount. This is totally unrealistic and untenable as the criteria percentage needs to be higher for lesser sum assured as well as in tune with the reality.

yy Similar is the 15 percent sub limit for Surgeon, Anesthetist, Medical Practitioner, Consultants, Specialists fees, Nursing expenses, which works out to a meager unrealistic amount of Rs.4500 and such limitation itself is not realistic with respect to the actual conditions.

yy Similarly the expenses permissible for Anesthesia, Blood, Oxygen, OT Charges. Surgical appliances, Medicines drugs, Diagnostic material & X-Ray, Dialysis, Chemotherapy, Radiotherapy Cost of pacemaker, artificial limbs works out to an unrealistic sublimit of Rs.4500 and these norms makes the insured poor to pay considerable hospitalization cost to be met out of their pocket.

Further the pre hospitalization processes like clinical investigations and consultations as well as post hospitalization procedures and course meditations are inevitable health care requirements and these are not covered under UHIS, weaning away the poor from the reimbursement of these vital and warranted health care expenses.

All these end up in significant portion of the hospitalization expenses not permissible by the insurers under the scheme, requiring the aggrieved poor to pay out substantial money out of pocket, which are mostly through borrowings and drain on assets. This eventually defeats the purpose of UHIS, which is safeguarding poor from hospitalization risks to reduce their poverty. In view of the foregoing, the following are the policy suggestions:

yy Enhancing the product features

yÖ Age eligibility of the insured may be from three months to 75 years old.

yÖ Enhancing the cover from Rs.30000 to Rs.50000 with a room rent sub limit of 2 %, ICU sub limit of 4%. The 15 % sub limit for surgeons and medical practitioner etc. could be enhanced to 25%. Similarly the limit for diagnostics etc

could also be increased to 25% from the existing 15%. The limit of any one illness cover may be increased to Rs.25000.

yÖ The pre and post hospitalization expenses are to be covered.

yÖ The maternity cover for normal delivery may be increased to Rs.5000 and for caesarian delivery may be fixed as Rs.7500.

yÖ The personal accident cover can remain unchanged at Rs.25000.

yy Subsidy

yÖ The subsidy support for UHIS is discontinued from April 1, 2013 and the insurers are required to change the entire premium without subsidy from poor and this has resulted in the reduction of insurance access under UHIS by poor during 2013-14. In view of the usefulness of the scheme, the subsidy benefit could be reintroduced for the scheme.

yÖ Notwithstanding this aspect of subsidy availability, the insurers are entitled for the entire premium and hence considering the lesser claim ratio and hospitalization rate, the product features may be enhanced apart from putting in place pro poor systems and processes.

References

Annual reports for the years 2003-04 to 2012-13 of:

National Insurance Company Ltd

New India Assurance Company Ltd

Oriental Insurance Company Ltd

United India Insurance Company Ltd

B. SivaraniProgramme Leader

Kalanjiam FoundationSalem Region

Tamil NaduIndia.

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