1

Microinsurance in India: Outreach & Efficacy

Basanta K. Sahu,

Researcher

Centre for Microfinance Research (CMR)

(Main Centre, Lucknow)

Bankers Institute of Rural Development (BIRD)

Lucknow-226012

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ACKNOWLEDGEMENTS

The study benefited from the experiences of members of self-help groups, microcredit

clients, MFIs, insurers (microinsurance), bankers, experts, researchers and others,

particularly from the states of Tamilnadu and Orissa who provided some critical and

interesting insights. Support from MFIs (ASA Gram Vidiyal, Mahasemam and

BISWA) during the field survey was invaluable in covering different groups.

Several rounds of discussions with the Director, BIRD and others at CMR, BIRD,

Lucknow helped me in providing a proper direction to this study. Support from office

staff at BIRD is also duly acknowledged without which the document preparation

would have been difficult.

Thanks are also due to Mr. Arvind Yadav who generously helped with the data

processing work for the study.

Usual disclaimer applies.

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CONTENTS

Page No

Acknowledgement

Executive Summary

7-10

Chapter - 1

Introduction

Meaning and Definition of Microinsurance

Microinsurance India

Microinsurance & Social Security

Review of Literature

Structure of the study

11-27

Chapter -2 Objectives, Methodology, Data & Study Areas

Partner-Agent Model of Microinsurance

Advantages and Limitation of Agent -Partner Model

Research Questions:

Objectives

Methodology

Selection of Study Area

Data Collection

Sampling & Data Collection Methods

Features of Methodology

Field Visit

Primary Data Analysis

Limitations of the Study

28-39

Chapter -3 Insurance Sector in India and Outreach of

Microinsurance

Performance of Insurance Sector in Post-Reform Period

Obligations of Life insurers

Outreach of Microinsurance in India

Opportunity for Microinsurance in India

40-51

Chapter -4 Introduction to Select MFI & Microinsurance in Study

Areas

Introduction

BISWA, (Sambalpur, Orissa)

Mahasemam, (Madurai, Tamil Nadu)

ASA Gram Vidiyal, (Tiruchirapally

Comparative Observations & Suggestions of MFIs on

Microinsurance

Summary

52-74

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Chapter -5 Microinsurance, Household Risks and Coping Strategy

in Study Areas

Household Features

House Types

Education & Skills

Household Employment Pattern

Household Income Pattern

Household Borrowing & Saving Pattern

Household Asset Holding Pattern

Household Participation in Microinsurance

Microinsurance and Household‘s Perception and Priority

Demand for Insurance

Summary

75-124

Chapter -6 Conclusions & Policy Suggestions

125-132

References

133-135

Appendix – I: Case Study on Understanding Insurance

Products and its Use

136-137

Appendix - II Some Socio-Economic Features of

Selected States in India

137

Appendix – III Questionnaire for Household

138-150

Appendix – IV Questionnaire for MFI

151-153

Glossary

154-157

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List of Tables:

Title Page

Table – 1.1 Population Excluded from Insurance in South Asian Countries

Table – 1.2 Key Issues & Findings on Microinsurance: a brief review

Table – 2.1 Sample Size and Study Areas

Table – 3.1 Insurance Penetration & Insurance Density in Asia

Table – 3.2 Insurance Policies Issued during 2008-09

Table – 3.3 Microinsurance Business during 2008-09 (LIFE) Table – 3.4 IRDA Prescribed Range of Microinsurance Cover

Table – 3.5 Insurance Penetration in Select Countries & Changes -2001-07

Table – 3.6 Insurance Density in Select Countries and Changes -2001-07

Table – 3.7 Lists of Approved Microinsurance Products in India

Table – 5.1 Features of Sample Households

Table – 5.2 Level of Education of Group Members (in %)

Table – 5.3 Household Employment by Activity, Region & Sex

Table – 5.4 Household Income by Activity, Region and Sex

Table – 5.5 Household Borrowing from MFI by Activity & Regions

Table – 5.6 Household Borrowing from Non-MFI by Activity & Regions

Table – 5.7 Household Saving Pattern by Activities & Regions

Table – 5.8 Asset Holding Pattern of Sample Households in Study Areas

Table – 5.9 Types of Household Risks & Coping Strategy in Study Areas

Table- 5.10 Household Perception about Insurance & Risks Management

Table- 5.11 Intra-Household Risk Management

Table- 5.12 Intra-Household Risk Strategy: Reduction in Food Expenditure

Table- 5.13 Insurance Awareness & Insurance Related Problem

Table- 5.14 Household‘s Insurance Holding Pattern by Activity & Regions

Table- 5.15 HH Preference to Continue with Current Insurance Product

Table- 5.16 Distribution of Demand for Insurance by Type of Risks

Table–5. 17 Correlation table

Table- 5.18 Distribution of Demand for Insurance by Activity Group

Table- 5.19 Average Sum Assured per person (Rs) by Activity & Regions

Table- 5.20 Average Premium per Person (Rs) by Activity & Regions

Table- 5.21 Impact of Microinsurance: Expectations of Sample Households

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List of Charts

Title Page-No.

Chart –3.1 Insurance Density in Select Countries in World

Chart –3.2 Insurance Density in South Asian Countries 2001-07

Chart- 3.3: Change in Insurance Density in South Asian Countries

Chart –5.1: Asset Holding Pattern of HH

Chart –5.2 – Type of Household Risks in Study Areas

Chart –5. – Household Risks Coping Strategy in Study Areas

Chart –5.4 – Who gets Affected worse without insurance

Chart –5.5 – Can Insurance Manage HH Risks

Chart–5.6 – Intra-Household Risk Management: Increase in

Working Hours

Chart–5.7 Intra-Household Risk Management: Health Exp

Chart–5.8 Intra-Household Risk Management: Education Exp.

Chart–5.9 Intra-Household Risk Management: Food Exp.

Chart–5.10 Problem Related to Microinsurance

Chart–5.11 Household Awareness about Insurance

Chart–5.12 Household Insurance Holding

Chart–5.13 Household Demand for Life & Health Insurance

Chart–5.14 Distribution of HH Demand for Insurance (%HH)

Chart–4.15 Average Premium of HH

Chart–5.16 Impact of Microinsurance

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Executive Summary

1. Coping with risks such as health problems, crop failure, loss of livestock, death of a

family member, loss of asset, income and employment is much harder on the part of

poor and low income groups than others. Many poor households involve in activities of

smaller scale but carrying higher degree of risk and uncertainty and hence prone to

financial and income risks.

2. Microinsurance is believed to work as a powerful risk management tool for low income

and vulnerable groups by preventing them from falling into the poverty trap. But not

much is known about outreach and efficacy of microinsurance across regions and

groups.

3. In India, though government plays a proactive role in providing insurance cover to the

poor through subsidized insurance schemes and other programmes. The size and

potential of microinsurance market is enormous due a sizeable portion of poor and low

income population who live without any formal insurance.

4. A recent UNDP study (2007) found that about 90% of the Indian population (950

million people) is not covered by insurance and it constituted an untapped market of

about US$2 billion. India has lower insurance penetration of 4.7 percentage (ratio of

premium to GDP) and insurance density of USD 46.6 (ratio of premium to population)

compared to world average of 7.5 percent and USD 607.7 respectively. However,

within South Asian region, India has experienced a positive and faster change in

insurance density in recent years.

5. More than 50 microinsurance schemes are in operation in India and most of them have

been launched during last 4-5 years. Around 43 schemes cover 5.2 million people and

about 66% insurance schemes are linked with micro finance services provided by

specific institutions (ILO, 2004a). Life and health insurance risk related products are

generally demanded by people. Most of these insurance schemes (74%) operate in 4

southern states: Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%) and

Kerala (8%). The microinsurance sector in India is characterized by uneven

development and limited to a few products.

6. The present study has attempted to analyze microinsurance in India under Partner -

Agent Model where, insurers utilize MFI as intermediary or delivery channel to provide

sales and basic services to the clients with lower administrative cost.

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7. The present study is based on primary field survey covering 75 women micro credit

clients randomly selected from 23 centers in 11 development blocks in three districts of

two states (Trichy and Madurai in Tamil Nadu and Sambalpur in Orissa). The analysis

of microinsurance has been made mainly on the basis of information collected from

select MFIs and household data with focus on enterprise/occupation, groups and

regions.

8. About a quarter of the sample households reported had faced some adverse (risk)

during last two years (prior to the date of field survey) that severely affected their

financial condition and economic situation. Common Risks observed among sample

household ranged from major health related expenditure, health problems of females,

accidents, crop loss, loss of livestock, market related problems, and other problems

such as divorce.

9. Common risk coping strategies adopted by households were reduction in household

expenditure ( on food, education and health), borrowing from informal sources, dis-

saving (in kind/cash), migrating out, distress sale of produce and other assets,

increasing average working hours (observed mainly among females), postponement of

social expenditures etc. However, these coping strategies were no longer found

adequate and effective to manage sharp fluctuations in household income and

consumption, especially when faced with multiple risk events.

10. Over and above the microinsurance product, (mostly life insurance of microcredit

clients comes with microcredit loan) the priority accorded to various risk coping

strategy among households varied across occupation groups and regions. About 42

percent households resorted to borrowing from informal sources, 18 percent

households used dis-saving, 16 percent households undertook supplementary non-farm

activity and about 14 percent undertook distress sale of assets as coping mechanism. To

some degree, this underscores the importance of linkage between savings, formal credit

and insurance in risk avoidance behavior of households.

11. Though about 88 percent of sample households in the study had some idea about life

insurance their understanding was inadequate, unclear and very different. However,

lack of understanding, information and options for insurance products was found one of

the key constraints for wider outreach of insurance. About 44 percent of households

had heard about livestock and asset insurance but they did not possess any further

information. Surprisingly, only 30 percent households knew about health insurance and

only a few of them had tried it at least once. Preference for health insurance was more.

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It reflects the gap between supply of microinsurance and potential demand for the same

among the poor households.

12. Similarly, households‘ complaints against existing insurance products were found to be

very high and it varied with different aspects of insurance products and household

characteristics. About 85 percent of households were not happy with the design of

insurance product offered to them. A sizeable proportion of households reported having

problems related to insurance premium (65 percent) and claim settlement (60 percent).

Non-coverage of spouse and other family members in life and health insurance scheme

was one of the main cause of dissatisfaction among households.

13. High male mortality rate (two to four times higher than female) was believed to be one

of the key factors for not providing coverage to spouse of the female group members,

especially when premium under microinsurance has been kept low.

14. However, findings of our analysis do not support the argument that a household‘s risk

assessment and experience of shocks has a direct correlation on household decision to

participate in insurance market. Households exposed more to risks are less likely to use

available formal insurance products than others. Some lower income groups feel that

use of insurance product as an additional risk as they have to pay premium regularly.

Their poor understanding about the functioning of insurance services and lack of trust

on the staff of insurers drives them away from insurance.

15. Household borrowing, saving, family size, level of education, asset holding etc. did not

reflect much association with household participation in insurance or continuance.

Many low income households reported using borrowing from informal sources in the

event of crisis such as illness, crop loss, livestock loss and death of a earning member

rather than participating in any formal insurance scheme.

16. However, household participation in insurance, through microcredit programme by

MFIs was found to be mostly involuntary in nature. Many microcredit clients believed

that it is difficult to pay premium out of their small loan amount from MFIs. Under the

given arrangement and conditions of household borrowing from MFIs, insurance

uptake did not appear to be very effective.

17. It appears that there is a vicious circle of uptake and renewal of insurance products in

operation. The situation of inability to pay premium led to a position of no insurance

cover (no risk cover – more vulnerable to risks of income and expenditure – high cost

of coping with risks - borrowing and liquidation of asset – low capacity and

productivity – low income - inability to pay premium/- no insurance).

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18. In many cases, what poor households are willing to pay and able to pay for the

insurance was led to inability to cover risks adequately. Under this situation, dire credit

need of poor households often surpasses their need for insurance.

19. Demand for insurance found to be dependent on household income flows, nature of

enterprise or activities undertaken.

20. On supply side, constraints of the insurers and intermediaries (MFIs) help to explain

why there has been so little development of the microinsurance market. While insurers

look to experiment and explore the large client base of MFIs and to fulfill the social

and rural obligations imposed by the regulator, the intermediaries (MFIs) are keen to

protect their credit. It also partly explains the low voluntary demand for insurance and

wide gaps between the client‘s needs and insurance products on offer.

21. MFIs as distribution channel of microinsurance can prove to be useful in reducing

administrative costs of penetrating rural markets, but underutilization of this

distribution channels is visible. Though MFIs enjoy flexibility to choose insurance

partner through bargaining process, some of them change insurance partners frequently

which further affects the insurance activity.

22. The microcredit-linked insurance business is one of the key factors for growth of the

microfinance sector in India. For the insurers, it is beneficial to gain access to the huge

rural client base of MFIs and there is enormous market potential for customized

insurance products and dire need for innovation. In this regard, a comprehensive

health-cum- livestock insurance product, particularly in lower segment may offer better

opportunity.

23. Creation of complete awareness, flexibility for premium payment options, efficient

claims processing system, trained and trustworthy insurance agents or staff and

effective client redressal system are some core areas for policy intervention. Role of

MFIs along with involvement of local institutions (Gram Panchayat, Gram Sabha and

other community based institutions) could be useful in addressing insurance related

matters such as, claim settlement, premium payment, client identification in

consultation with the insurers. The documentation and submission of proof of claim

need to be standardized. Insurers should involve MFIs and representatives of clients in

product design and development. MFIs may obtain clients feed-back and use it in

negotiations with the insurers. Better incentives for intermediaries and training for field

staff are also suggested.

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Chapter - 1

Introduction

Risk is pervasive in the lives of poor and low-income groups. Economic, social, natural,

and other factors distort household‘s risk management capability and their struggle to

come out of poverty. Faced with multiplicity of risks, poor and weaker sections are

often forced to deplete their financial, physical, social and human assets just to cope

with the contingencies. Some common risks they confront with are unemployment,

illness, accident, death of main earning members of the family, crop loss, loss of

livestock, fire, theft, drought, flood, and loss in petty trading activity due to market

factors. Some groups are more vulnerable to many of these risks than the others and

unable to cope with risk events. Hence, uninsured risk leaves many poor households

more vulnerable to the losses from negative shocks. However, impact of such risks

lingers for a longer period depending on the nature and severity of risks and strategy

adopted by the household for coping. On the other hand, household exposure to risks

not only results in substantial financial losses but also the suffering accentuates the fear

and uncertainty relating to the risk. Because of this perpetual apprehension, many poor

households are less likely to take advantage of income-generating opportunities which

could be a way out of poverty.

Risk pooling and informal insurance are not entirely new to many low income

households. Informal risk-sharing practices have been around for generations. Options

for protecting against risks includes diversifying household resources and income,

building assets, stocking food, investing in livestock, renewing & strengthening social

networks, saving and borrowing from informal sources, participating in public social

security programme, enrolling in insurance schemes etc. The risk management

approaches differ under socio-economic and agro-climatic conditions and also

depending upon its exposure to risk. Unfortunately, risk coping mechanisms are limited

in assuring benefits and typically cover only a small portion of the total loss of income

and income generating opportunity. Household‘s informal means to manage risks may

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not provide adequate and long term protection, especially to poor and low income

groups who are prone to loss of entitlements incurred due to variety of risks.

Households follow variety of coping strategies to manage different kind and nature of

risks that affect their income and consumption smoothing. But many informal risk

coping strategies come at a cost, as assets are depleted when trying to cope with risk

such as distress sale during crises, reduction of household expenditure on food,

withdrawing children from school, postponing or avoiding expenditure on health, social

functions etc. It has both short term and long-term adverse impacts on households.

Though household diversification often viewed as positive response against risk events

many such coping strategies followed by the poor do compensate the entire loss. If

household risks are not carefully designed and strategically handled it may result in

bigger welfare losses. The situation would be worse when risks to life and livelihoods

recur more frequently and there is limited risk managing options. So provision of

formal insurance cover to these vulnerable groups could be useful to protect them

against risks and supplement their risk managing capacity. As formal insurance can

directly impact on households‘ ex-post risk coping mechanisms, it is believed that

households participation in insurance would help to maintain income and consumption

soothing and avoid asset loss.

But access to and provision of formal insurance is limited for the poor and low income

groups. State-provided social security measures are inadequate to cover all kinds of

household risks. Under this condition many poor households may tend to behave as

resilient to risk events or their risk coping behaviour may result in huge welfare loss

due to wrongly managed or unable to manage risks. It may also induce many poor

households to focus on low risk and low return activities or rely on a range of informal

ex-post options, relief measures, public social security measures etc. It provides huge

scope for policy interventions as well as business opportunity.

Therefore, it is important from policy point of view to understand different household

risks and risk-management strategies in one hand and the need and demand for

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insurance products, particularly for low income groups. On the other hand, interestingly

microinsurance has drawn attention of the policy makers, insurers, business leaders and

others in recent years. Microinsurance has been seen as one of the major risk managing

tools for the poor and low income groups and a potential market for business.

Experiences across countries in the world show that microinsurance has potential to

reduce household risk impacts and to provide business opportunity. By offering a

payout after the loss, it may avoid more costly ways of risk coping by the poor

household and leaves their future income earning opportunities intact. The sense of

security linked to being insured through microinsurance augment household welfare

with positive impacts.

Poverty and vulnerability among low income groups mainly stems from their poor risk

management capacity and exclusion from the financial markets. Hence it is important to

understand their need as well as demand for financial products including insurance.

Many poor and low income households may involve in activities or enterprises of

smaller scale but higher risk and uncertainty. It makes them disadvantageous because

they are more prone to economic and financial collapse. Under this situation it is

interesting to analyze how microinsurance can play a meaningful role in household risk

managing efforts, in rural credit and insurance market and providing business

opportunity. In this regard we like to focus on current scenario of outreach and efficacy

of microinsurance in India, major factors that encourage and prevent growth of

microinsurance and other related issues for achieving broader objectives such as

financial inclusion and inclusive development.

Meaning and Definition of Microinsurance:

Microinsurance, commonly called as insurance for the poor, has recently drawn the

attention of practitioners in developing countries. In common parlance, microinsurance

is the provision of insurance services to low-income households, which serves as an

important tool to reduce risks for the already vulnerable population. There is no

unanimously accepted definition of microinsurance despite its profound use and

understanding across stakeholders and others. A simple definition of microinsurance is

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offered by Churchill (2006) is that it is an insurance that (i) operates by risk-pooling (ii)

financed through regular premiums and (iii) tailored to the poor who would otherwise

not be able to take out insurance. Microinsurance is defined as ―...insurance that is

accessed by the low-income population, provided by a variety of different entities, but

run in accordance with generally accepted insurance practices ... Importantly this means

that the risk insured under a microinsurance policy is managed based on insurance

principles and funded by premiums‖ (International Association of Insurance

Supervisors, 2007).

Microinsurance is different from usual form of insurance. A macro definition of

microinsurance states that it is the provision of financial protection contingent on the

occurrence of predefined risk in exchange for an ex-ante premium payment affordable

to the clients. In terms of micro definition, microinsurance is more complicated as there

are different approaches. ―Micro‖ as reference to low premium and low benefits may be

affordable but it may not be effective enough to manage risks of different types of

different categories of clients. Microinsurance is often believed to be an important

component of a broader set of financial services under microfinance – making available

financial services for poor households and enterprises to sustain their livelihoods.

Basically there are two broad categories of microinsurance often commonly understood

– one focused on extending social protection to the poor in the absence of appropriate

government schemes and the other offering a vital financial service to low-income

households by developing an appropriate business model that enables the poor to be a

profitable (or sustainable) market segment for commercial or cooperative insurers.

Microinsurance is also taken as group insurance that can cover thousands of customers

under one contract. It requires an intermediary between the customer and the insurance

company. This intermediary role has been played mainly by non-governmental

organization (NGO) and microfinance institutions (MFI). The role of intermediaries in

growth of microinsurance in India is well documented.

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Currently around 135 million, or 5%, of low income people in developing countries are

using microinsurance products. But the size of insurance market for low income groups

is large and it constitutes about 1.5 to 3 billion potential clients (Microinsurance Centre,

2007). According to a research carried out by Swiss Re in 2007, most growth in the

insurance industry over the past decade has come from the wealthy and middle income

markets in emerging economies. Premiums grew by 3.3% globally and by 11.8% in the

emerging markets in that year. Though partly this was due to a growing number of

clients moving into the wealthy and middle income brackets in these countries, it is also

attributable to insurance expanding into new markets. The number of people covered

under microinsurance is estimated about 78 millions in 77 countries out of 100 less

developed countries (Roth et al 2007).

Microinsurance in India

In India development of microinsurance sector and related policy discussions has

started few years back. Within very short period, the sector has drawn attention of

policy makers due to its importance both at household level and the economy as a

whole. Two major and recent studies by the ILO (2004a and 2004b) depict broad

picture of microinsurance sector in India. As regard to the microinsurance products the

study highlights that out of 80 listed insurance products 45 cover only a single risk and

only two or three products cover multiple risks. Majority of the insurance products

cover life (52%) or accident-related risks and addressed to individuals. Out of the 12

currently available health insurance products seven products have been designed and

restricted to groups and five products have chosen to coverage to some critical illness at

individual level but not the reimbursement of hospitalization expenses. Most of the

products require a single payment of premium (i.e., a one-time payment) upon

subscription. Private insurers had three times more products than their public

counterparts.

Some important observations about the demand for microinsurance in India are made in

a recent study by ILO (2004b). The study provides details of micro-insurance schemes

operational in India. Out of 51 schemes that are operational in India most schemes

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have started operations during the last few years. As regards to beneficiaries, about 43

schemes, for which the information is available, cover 5.2 million people. About 66%

of the microinsurance schemes are linked with micro finance services provided by

specialized institutions (17 schemes) or non-specialized organizations (17 schemes).

Twenty two percent of the schemes are implemented by community based

organizations, and 12% by health care providers. Life and health are the two most

popular risks for which insurance is demanded. Twenty-five out of 37 schemes received

some external funds to initiate their schemes. Twenty out of 32 schemes received

external technical assistance in the form of advisory services, technical services,

training or even referral services for their schemes. As regard, to the regional

distribution of microinsurance outreach about 74 % of total schemes operate in 4

southern states constituting Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka

(17%) and Kerala (8%). Two western states Maharashtra (12%) and Gujarat (6%)

account for 18% of the schemes. About 56% of schemes deal with one single risk. This

shows low outreach and unequal distribution of microinsurance in the country. The

study also reflect the linkage between micro-insurance and micro-finance.

Development of microinsurance is often related to microcredit, particularly in

developing countries like India. Though microcredit has dominated in microfinance

market the entry of microinsurance is only in recent past. In India microinsurance is a

relatively new financial service and its outreach is rather limited and unevenly

distributed across states. The over all performance of microinsurance in India is not

very encouraging. According to a recent study by UNDP (2007), the outreach of

microinsurance is around 5 million people covering only 2 percent of the poor in the

country. It shows there is huge potential for microinsurance market in the country. A

conservative estimation of size of microinsurance market (both life and non life) in

India ranges between INR 62,304.70 to 84,267.55 million (US$ 1,384.55 to 1,872.61

million). In case of life insurance, the market potential is estimated to be between

INR15,393 to 20,141 million (US$ 342.07 to 447.58 million) and in case of non-life

insurance, it is between INR46,911.70 to 64,126.55 million (US$1,042.48 to 1,425.03

million). The non-life insurance estimation is limited to four types of coverage – milch

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animals, livestock, health and crop insurance. The population used for this estimation is

40-50 percent of those earning less than US$1 a day and 50-70 percent of those earning

between US$1 – 2 a day. This is expected to increase as demand grows and a wider

range of risks are recognized as insurable. However, high exclusion of poor and

vulnerable groups from formal insurance cover in India is also evident as per the UNDP

study.

Table 1.1 Population Excluded from Insurance in South Asian Countries

Countries Excluded (%) Population (Million)

India 90 950

Bangladesh 93 134

Pakistan 97 147

Nepal 95 23

Source: Marc Socqut (2005)

Historically, a few micro-insurance schemes were initiated in India, either by non-

governmental organizations (NGO) or by the charitable trust hospitals. It 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).

One recent study by UNDP, GTZ and Allianz AG (2006) finds that India has the

most dynamic microinsurance sector in the world. Liberalization of the economy and

the insurance sector has created new opportunities for insurance to reach the vast

majority of the poor, including those working in informal sector. However, the

insurance market penetration is largely driven by supply and not by demand. Available

microinsurance products tend to be supply driven or compulsory in nature and more

recently, driven by the quota system imposed on insurers under rural and social sector

obligations (UNDP, 2007). Microinsurance in India has valuable lessons for rest of the

world, particularly in the regulation of the industry. The study suggests some key

determinants of microinsurance development in India which is different from what

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commonly assumed that a microinsurance policy is simply a low-premium insurance

policy. Some of the key factors that hinder growth of microinsurance are remote

location of clients, illiteracy and unfamiliar with the insurance products, illness due to

poor food consumption pattern, work conditions and lack of regular medical check-ups

and lack of access to formal financial services. Higher transaction costs on the part of

policyholders in terms of premium deposit, claim settlement and other matters is often

considered as major factor preventing growth of microinsurance in the country.

In a pioneering study by UNDP (2007), pro-poor insurance sector growth in India

was discussed with some key issues and constraints, pertinent to the growth of the

microinsurance sector.

(1) 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 has been

slow development in microinsurance market. The rural financial markets characterized

by limited and inappropriate services, inadequate information and capacity gaps also

hinder growth of rural insurance market.

(2) There are challenges in insurance product design, which result in a mismatch

between client‘s needs and standard products on offer. Inadequate effort in product

development could be due to different perspective of stakeholders.

(3) Absence of adequate and suitable insurance data is a major concern. In the

absence of a suitable insurance database calculation of premium, costs, benefits,

willingness to pay, based on macro aggregates may not give actual insights. Building

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

calculations, thereby reducing price.

(4) Difficulty in distribution is one of the most cited reasons for absence of rural

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

of available distribution channels, hinder the growth of rural insurance services.

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

sector.

(6) Contrasting perspectives of the insured and the insurers, lead to low customiza-

tion of products and low demand for what is available.

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Microinsurance & Social Security

Social protection measure is often related with microinsurance for the poor and low

income groups. Microinsurance can play a crucial role as a comprehensive tool to

reduce poverty, inequality and vulnerability, particularly where public social protection

measures are inadequate and unevenly distributed. Unfortunately, more than half of the

world‘s total poor do not benefit from any form of social protection measures. Since

microinsurance is designed for the protection of low-income people to cope with

common risks, it can also strive to cover the excluded such as poor, women and

workers in informal sector. In many developing countries like India, the proportion of

informal workforce in total workforce is substantial and there is increasing tendency

towards casual nature of labour. Under this situation, it becomes daunting task on the

part of the government to provide social security to all. About 90 percent of the

working population of India is employed in the informal sector and about thirty percent

of the unorganized workers are very poor who needs public social security supports.

Although current social protection measures consist of health, disability, death, old age

and economic risks are prioritized, its funding and implementation remain challenging.

In India social protection being a concurrent subject, it has its own political economy.

So in the absence of a dependable social protection, the importance of microinsurance

becomes interminable.

With inherent limitations of the existing social protection measures in the country, there

is also a high demand to combat the adverse impacts of natural disasters such as

drought, floods, cyclone etc. Unfortunately, the ex-post coping mechanisms primarily

supported by the Government are not sufficient and do not cover all groups in all

sectors. Though India has exhibited with series of pro-poor anti-poverty measures

oriented towards reduction of risks and vulnerability, microinsurance can contribute

indirectly as it often exclude covariant risks from their portfolio.

There are a wide range of developmental programmes being supported by the

Government like Swarna Jayanti Gram Swarojgar Yojana (SGSY), National Rural

20

Employment Guarantee Scheme (NREGS), Rastriya Swasthya Bima Yojana (RSBY),

Rastriya Health Mission (RHM), Aam Aadmi Bima Yojana (AABY), Indira Awas

Yojana (IAY), Public Distribution (PDS), old age allowances, drought relief etc. which

have facilitated the improvement of income levels of poor households. The public-

package of ―Doubling Flow of Agricultural Credit‖ has also enabled greater

institutional credit flow for agriculture and allied activities. However, all these policy

interventions, though ambitious in stated intent, only incidentally address household

risks. The most vulnerable rural population, particularly women, older people and rural

people are mostly excluded from the insurance market. It implies the need of this

segment of population for protection of their lives / income-generating assets against

various perils. At present, Personal Accident Insurance Scheme (PAIS) which is being

provided as a bundled offering along with the Kisan Credit Card (KCC) Scheme and

the Rashtriya Krishi Bima Yojana (RKBY) for insuring crops, are, probably, the only

borrowed-linked risk mitigation mechanisms available to rural households. Similarly,

the progress in enrolment of the poor in the Rashtriya Swasthya Bima Yojana1 (RSBY)

in its third year of operation does not seem to meet the target to cover all poor by 2012 (

Narayana, 2010).

Under this situation, prospect of microinsurance is expected to be much wider and

challenging, especially with huge network of financial infrastructure in the country. For

instance, many commercial banks have partnered foreign insurance companies for

providing life insurance policies. Thus, banking outlets (which number close to 70,000)

and more than 1 lakh cooperative societies could provide the needed outreach to purvey

micro-insurance facilities without much addition to transaction costs. Unfortunately, the

desired outreach and efficacy of microinsurance sector in India has not been achieved.

Review of Literature:

In this section, we have summarized findings and major issues of some important

studies and reports on microinsurance in general and in India in particular with focus on

1 Prior to launch of RSBY in 2003, Universal Health Insurance Scheme was introduced in 2003 to

provide a health benefit package to poor with sum assured of Rs 30000/-

21

household risks and risk managing strategy, outreach of microinsurance products,

major policy regulation and constraints. It helps us to develop a framework for analysis

of the present study which is presented in subsequent chapters. Available literature

evaluating the impact of insurance in low-income countries is limited. There is also

unbalance between different types of insurance products. Overall, the emphasis is

concentrated on different health insurance schemes, and their impact on health care-

utilization, out-of-pockets expenditure or social inclusion. Very few studies evaluate

the impact of insurance on household income, nutrition, or other dimensions of welfare

than those directly related to the insurance. Study on other insurance products are also

limited and hindered by the lack of systematic baseline data on individual beneficiaries

and groups.

Cohen and Sebstad (2006) highlighted the need to carefully study of clients‘ insurance

needs before introducing a new product, where market research can include studying (i)

clients‘ needs, (ii) specific products, or (iii) the size of the potential market. Analyzing

insurance demand from Uganda, Malawi, Philippines, Vietnam, Indonesia, Lao P.D.R.,

Georgia, Ukraine and Bolivia they found that the most prevalent risks relate to health

and loss of wage earners. In a recent study by Ito and Kono (2010) on health

microinsurance in Karnataka, India found that take-up rates of microinsurance have

been low despite its perceived need and the enthusiasm of microfinance practitioners.

They found some evidence that people behave in a risk-loving way when facing the risk

of losses.

However, despite these patterns, households‘ priorities regarding demand for insuring

risks are nevertheless context specific. More research is essential to understand and

identify the means for increasing insurance take-up rates and decreasing dropout rates.

A general understanding about attributes of microinsurance products from a client

perspective is awareness, easy to understand, simple, affordable, valuable and trust.

These factors are determinants of uptake and therefore, determine the impact of

microinsurance at household level.

22

In case of weather insurance, some recently studies have attempted to asses its impacts

on household incomes and also on risk-taking behaviour (Gine et al., 2007a; 2007b;

Gine and Yang, 2007). The findings do not show substantial impacts; for example,

Gine and Yang (2007) undertake a study in Malawi and shows that those with

insurance did not increase the uptake of risky technologies, one of the expected

outcomes. In terms of the impact of new schemes on existing mechanisms, Jowett et al.

(2003) found that social cohesion and informal financial networks are negatively

associated with insurance uptake, suggesting that the former crowd out public voluntary

health insurance. Dercon and Krishnan (2003) present evidence that suggests a

crowding out effect of informal risk-sharing arrangements by food aid. On the other

hand, Morduch (2006) argues towards a possible negative price effect of insurance

during times of shocks when insured individuals drive up the price of goods, for

example food products.

On the other hand, more educated households have been found to be more likely to take

up insurance (Chankova et al., 2008; Gine et al., 2007b). It emphasizes on effort to

improve communication and financial education on risk-pooling, insurance and rights

of policyholders tailored to low-educated and illiterate individuals and simplify

policies. Similarly, households with a sick household head are less likely to purchase

insurance. This might capture the fact that households with a sick household head have less

income flow and have difficulty in financing the insurance premium (Ito and Kono, 2010)

Clients‘ understanding of insurance products and ability and willingness to pay are key

to take up of insurance.

As regard, to constraints of microinsurance products it could be region and group

specific. Some common constraints already documented in literature are low take-up

rates, high claim rates, low renewal rates, poor delivery channels, high transaction costs

and poor insurance literacy. Another serious constraint to the uptake of insurance is

trust on each other. The contrast of microinsurance with microcredit helps to see the

difference between these two activities. Lenders have to trust borrowers; while insurers

have to be trusted by clients. Radermacher et al. (2006) underline the importance of

23

trust along these two dimensions: first, that the insurer is willing to make payments to

clients; and second, that the insurer is able to deliver the payments. The demand, uptake

and renewal of insurance clients also depend on the market conditions and constraints

to insurance provision.

Willingness to pay for insurance is crucial in promoting enrolment by low-income

households (Chankova, 2008). Paying premiums should be in line with households‘

cash flows (Cohen and Sebstad, 2006). Dror et al. (2007) study households‘ willingness

to pay, analyzing data on households in India find a higher level of nominal willingness

to pay and household income and nominal willingness to pay are positively correlated,

while household income and willingness to pay as a percentage of household income is

negatively correlated. Household size is the most important determinant of willingness

to pay levels.

As regard, to supply of microinsurance products some common findings are emerged

from across studies. While different perspective of different stakeholders constitutes as

a major supply constraint, availability of suitable distributive channel, pricing and

regulation determine the overall supply of microinsurance products. Interestingly, most

of the low segment insurance markets are supply driven. From the insurers‘

perspective, microinsurance opens a huge market, especially for the ones facing market

saturation. Insurers aim to develop new business models that create mechanisms which

cater to this low-income market who will be future high-income clients. Unfortunately,

standardized insurance product may not respond to client needs.

As regard to the designing of microinsurance products, Brown and Churchill (2000a)

argues for some criteria,

(i) a large number of similar units exposed to risk,

(ii) limited policyholder control over the insured event,

(iii) the existence of insurable interest,

(iv) losses can be identified and measured,

(v) losses should not be catastrophic,

24

(vi) chance of loss is calculable and

(vii) Premiums are economically affordable.

Potential demand for insurance may get influenced by type and nature of risks and

vulnerability. Leftley and Mapfumo (2006) highlight, the importance of demand side

factors for developing a successful product depending on the operational and regulatory

environment as well as risk carrier options. The risk coverage-premium tradeoff by

providing a menu of choices and letting clients chose their desired coverage and

corresponding premium has been developed (Dror, 2007). In Ethiopia, it was found that

the risk inherent in a modern high-return input (fertiliser) caused lower than optimal

uptake (Dercon and Christiaensen, 2007). Unable to insure agricultural risk, aversion to

risk led to choices that suppressed expected returns. The UNDP (2007) study on India,

found that health insurance was perhaps in most demanded products but short in

supply, because of operating such insurance schemes.

Managing moral hazard is another key constraint in microinsurance sector. Households

with a higher ratio of sick members are more likely to purchase insurance (Ito and

Kono 2010), showing some evidence of presence of moral hazard. To manage moral

hazard and adverse selection problems composite insurance products is recommended

by Cohen and McGuinness (McCord 2008). But Roth and Chamberlain (2006), warn

that in practice the potential benefit of bundled microinsurance in terms of lower

premium is hardly passed on to its clients.

As regard, to delivery channel of microinsurance using intermediaries such as NGOs

and MFIs is common, particularly in rural areas. However, within institutional models

and delivery channels there are four major delivery models such as (1) partner-agent

model, (2) community based model, (3) full-service model, and (4) public insurance

provider model. Partner-agent model found referred in many cases (McCord 2006, Roth

and Athreye, 2005). Number of studies evaluated different microinsurance insurance

schemes and focus on several aspects beyond just the purchase of insurance. Some of

the general findings of these studies are complied and presented below.

25

Table - 1.2: Key Issues & Findings on Microinsurance: a brief review

Issues Key Findings

Cost of Risks

Ex-ante risk

management

mechanisms

Risk management is common, via diversification or entry into low

risk, low return activities.

Risk reduction at the cost of lower mean incomes.

Lower mean consumption spending due to precautionary savings.

Poverty persistence.

Ex-post risk coping

mechanisms

Evidence of use of assets to smooth consumption, and informal

sharing of risk within communities; overall only partial

smoothening of shocks, especially related to covariate shocks

Impact beyond

consumption or

income

Lower accumulation of assets due to risk, mainly due to ex-ante

responses; effects of portfolio composition of assets, such as

higher liquid assets rather than higher return illiquid assets. Losses

in health and nutrition, especially due to large shocks, such as

drought or catastrophic events.

Microinsurance Impact on Clients

Impact on ex ante

Risk management

No increased risk-taking in the form of modern input use (Malawi)

Decrease in precautionary savings due to health insurance.

Success of insurance

in

offering ex-post

risk coping

Positive impact of health insurance on anthropometric status in

Vietnam.

Insurance protects against payments for inpatient care, but does

not decrease out of pocket expenditures for outpatient care.

Differential treatment (drug prescription) between insured and

uninsured individuals in China due to financing.

Micro-health insurance units contribute to smaller differences in

access to health care among according to income in Philippines.

Reduced out-of-pocket expenditures for members of community

health insurances, but exclusion of the poorest in Senegal.

Increase in service utilization and inpatient care, but no reduction

in out-of-pocket expenditures in Vietnam.

Increase in service utilization but no impact on out-of-pocket

expenditures and utilization among the poor.

Heterogeneity

of Impact (profiles

of who benefits

most)

Signs that relatively not-so-poor households take up more

insurance.

Impact on existing

Informal

mechanisms and

Possible crowding out by microinsurance of informal insurance.

Evidence in Ethiopia is suggestive of this risk, albeit in the context

of a safety net, not in terms of insurance.

26

other external

effects

Evidence in Vietnam shows that strong informal insurance hinders

uptake of new insurance products.

Demand for Microinsurance

Most important risk

management

needs

- health

- loss of income earner

- highly context specific, require careful market

research

Successful product

attributes

- simple

- affordable

- valuable

Factors influencing

uptake

- education of household head

- wealth

- family size

Literacy gaps - lack of understanding of mechanisms behind

insurance

- lack of effort by insurance agents to explain

- products in a way that is understandable for low education,

illiterate groups

Improving trust and

credibility in

insurance

providers

- building on existing structures

- education

- careful marketing and sales strategies

- arguments for subsidizing insurance premium for vulnerable

groups

Willingness to pay - nominal willingness to pay is higher than estimated in previous

studies

- importance of household size as determinant of nominal

willingness to pay

Supply of MI

Developing and

pricing

microinsurance

products

Detailed suggestions on balancing inclusion, premiums, benefits

and sustainability; need for professionalization for pricing:

involvement of insurance professionals.

Institutional models

and

delivery channels

Arguments on agnosticism regarding institutional models is

required; issues related to incentive contracts for agents.

Source: Dercon et. al (2008)

27

Structure of the Study Report:

The present study is divided into five chapters. Chapter 1 contains introduction and

statement of the problem followed by review of literature to offer a general framework

to understand the link between risk and risk coping behaviour, need and potential

demand for insurance and other aspects of microinsurance.

Chapter 2 discusses objectives, research methodology, data, scope and limitations of

the study.

Chapter 3 highlights some aspects of insurance industry in India, development of

microinsurance and insurance regulation.

Chapter 4 summarizes profile of select MFIs and their experiences in microinsurance

and suitable case studies.

Chapter 5 presents an analysis of original primary data, findings and some emerging

issues on microinsurance. The field data based on household survey direct interactions

with current and potential clients are suitably presented. This chapter constitutes brief

introduction to study areas, features of sample household including income,

employment, borrowing, saving and asset holding pattern. It discusses some major risks

faced by the sample households, their risk coping mechanism; impact of risk and intra-

household risk management; how sample households perceived risks and prioritized

insurance need. Household participation in insurance, demand for specific insurance

product, expectation and suggestions etc are highlighted in this chapter.

Chapter 6 concludes with some suitable policy suggestions based on the findings of the

study. It contains specific recommendations regarding product design, pricing, claim

settlements and strategies for further improvement. Specific recommendations for

different stakeholders: service suppliers and regulators and Government, including the

IRDA, are proposed.

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Chapter-2

Objectives, Methodology, Data and Study Areas

The literature on microinsurance generally focuses on two major aspects of

microinsurance i) reduction of vulnerability and poverty ii) saving for future

contingency. While reaching out the potential clients through MFIs could be an

opportunity for the insurers to scale up insurance activity, the role of intermediaries

such as MFI cannot be undermined as regard to outreach and efficacy of

microinsurance products in developing populous countries like India. It is well captured

in three different dimensions of outreach based on the framework developed by

Schreiner (2002): depth, quality and scope of outreach. The present study, however,

does not attempt to measure it rather focus on microinsurance products delivered by

MFIs – quite popular in recent years. This is one of the limitations of the study.

There are different microinsurance models and delivery structures used by

microinsurers across the countries. Some important models are given below.

– Partnerships between insurers and distribution agents such as cooperatives and MFIs

– Regulated insurance companies that serve the low-income market directly

– Healthcare providers offering a financing package and absorbing the insurance risk

– Community-based programmes that pool funds, carry risk and manage a relationship

with a healthcare provider

– Government-sponsored or -subsidized insurance schemes

– Self-insuring MFIs that assume the risk of offering insurance to their clients

The present study aims to analyze outreach and efficacy of microinsurance under

partner agent model because of its increasing popularity in the country and elsewhere.

In the partner-agent model, the insurer teams up with a local agent, for example, a

microfinance institution, informal savings institution or other grass-root organizations.

Under this setup, the comparative advantage of the insurer in developing and pricing

policies is combined with the comparative advantage of the local agent by having

experience in reaching the poor, with networks already in place, and enjoying the trust

of large numbers of clients. For example, In India, Tata-AIG has developed a model of

29

micro-agents in addition to MFIs as agents. As microfinance interventions has been

widening, deepening and upscaling in the country, it has provided the institutional

precincts on which the edifice of micro-insurance could be built in rural areas. It also

justify selecting this model of microinsurance for the present study.

Therefore, the study is based on microcredit clients of select MFI to discuss the nature,

structure and outreach of microinsurance product among low income poorer groups and

learn how to improve and supplement their risk-management options using

microinsurance products. The study also attempts to highlight on current practice &

coverage select microinsurance products in select study areas, household risk-

management strategy & options and potential benefits and the impact of the insurance

on low-income groups etc. Although scope of the study is limited to the microcredit

clients of selected MFIs in two states (Tamilnadu and Orissa) it aims at to offer some

specific policy suggestions for better outreach and efficacy of microinsurance frontier

in India.

The research agenda is divided into three main areas: 1) Type of risks and risk aversion

behaviour of poor households 2) Nature of MFI loan-linked, microinsurance products

and its impact on the microcredit clients, 3) understanding difficulties, demand, supply

and other aspects of microinsurance in the study areas. Since most of the risks are

associated with the household‘s occupation and activities and its asset holding and asset

use pattern most of the research questions in the study (listed below) are generic and

concern with broad activity groups and regions. However, individual response, views

and suggestions and its implications are given importance wherever possible.

The association between household features and its risk aversion behaviour and demand

for insurance product across activity groups and regions are specially focused in this

study to understand the client value (potential benefit) of different microinsurance

products in different contexts. Demand for microinsurance, in terms of appropriateness

(demanded protection coverage), affordability (willing and ability to pay total cost

including premium) and accessibility (simplicity, physical access, convenience) are also

30

attempted to analyze with risk-management mechanisms of sample households

(including informal borrowing and savings, insurance, intra-household risk

management, participation in anti-poverty and social security programme). The study

aims at to discuss on household participation in insurance with focus on current credit-

saving linked microinsurance products (life insurance in Madurai & Trichy and life,

health and asset insurance in Sambalpur). Efforts are made to highlight on supply side

information collected from major stakeholders with focus on product design, selection

of partners & negotiation process, overall performance, major difficulties, use of

technology, and other issues.

Partner-Agent Model of Microinsurance

It is a partnership between an insurer and an agent that provides some kind of financial

service to large numbers of low-income people. This could be a microfinance

organization, an NGO, or a business that supplies products to large numbers of low-

income people, such as a fertilizer supplier. This party is an agent, selling insurance

policies to the clients on behalf of the insurance provider (usually) in exchange for a

commission or fee. The insurance provider utilizes the established distribution channels

of this agent and its financial transactions with low-income groups that would

otherwise be too costly to set up. The partnership model uses the comparative

advantage of each partner so that each can focus on its core business, the insurance

provider is responsible for designing and pricing the product, the final claims

management, and the investment of reserves, and absorbs all the insurance risks. In

addition to selling the policies, the agent offers its infrastructure for product servicing

such as marketing the product, premium collection, and assists in claims management.

Advantages and Limitation of Agent -Partner Model of insurance delivery

The delivery system under this model is argued works better because the synergies are

maximized, enabling both organizations to focus on their core business and expertise.

With a single partnership agreement it is possible to sell microinsurance to more

number of clients with fewer skills for the agent than other models. Like other formal

31

insurance product delivery system, it is legally recognized insurance companies and

operates under the insurance laws and regulation. Possibility of reduction of the

overhead costs of both the agent and the insurance company is better as the agent can

use its infrastructure. Information asymmetries are minimized as the agent is familiar

with the needs of clients and their situations, which reduces the time needed for claims

verification and settlement, while receiving feedback on client satisfaction and product

design. There is some incentive for the agent to earn as commission without risk, while

the insurer earns profits. Major limitation of this model is that the insurers depend on

the quality of the agent. So reputation and performance of the agents is crucial.

Conflicts of interest may occur, especially when working with non-financial

institutions. NGOs or MFIs staff or management may develop sympathy for a client

and be lax about underwriting or claims verification. It should be noted that this is less

likely to occur with an MFIs partner that is used to financial discipline with its lending

activities

Research Questions:

The primary research questions are: What are the nature and structure of risks and risk

aversion behaviour of poor households? What is the outreach and efficacy of MFI loan

linked microinsurance? Are intermediaries such as MFIs and their partners able to meet

the insurance need of these clients? What are major difficulties and suggestions offered

by different stakeholders, particularly by the potential clients, to improve the efficacy

and outreach of microinsurance?

Specific questions:

What are major risks/shocks poor and low income groups mostly confronted with?

What is the understanding and practice of formal insurance among microcredit clients?

How risk and risk management behavior are different across groups & other contexts?

What are the nature and benefits of existing microinsurance product in study areas?

32

How do poor household combine microinsurance with their existing risk management

strategies? To what extent does having insurance coverage promote undertaking higher-

risk, more productive economic activities?

Would they like to continue with existing insurance policy?

What are major difficulties and suggestions for microinsurance reported in the study

areas?

What is the room for market-based insurance that enhances household welfare?

Objectives:

The thrust of the study is to analyze the outreach, efficacy and prospect of

microinsurance, particularly among microcredit clients currently under the cover of

insurance and suggest the ways in which microinsurance services can become more

inclusive to enhance pro-poor risk management capability. Some Specific objectives of

the study are :

- Examine different risks faced by the poor and low income groups, their current

coping mechanisms, categorization and prioritization of risks by the client

population. This is expected to help in identifying factors that inhibit demand.

- identifying major issues of outreach and efficacy of microinsurance and the

demand and supply sides constraints.

- To understand perception of the target groups about microinsurance through

direct interactions and to explore the market potential for microinsurance in In-

dia.

- To identify activity and group specific problems and issues relating to

microinsurance such as product design, pricing, claim settlements etc.

- To suggest some implementable policy suggestions for facilitation of desired

growth and outcome of the microinsurance sector.

Methodology:

To study outreach and efficacy of microinsurance, the present study has focused on

select microcredit clients and the areas where spread of microcredit is better. Selection

33

of MFIs for the study was based on their coverage and overall performance in delivery

of financial services such as microcredit and microinsurance. The study primarily

looked at experiences in South India, especially in TamilNadu where spread of

microcredit is relatively better. Selection of Orissa was considered on the basis of

incidence of microfinance, level of poverty and variety of microinsurance products in

operation. Out of different microcredit group models2 and microinsurance delivery

structures3 partnerships between insurers and distribution agents such as MFIs was

selected as it is popular within and out of the study areas.

Keeping in mind limited variety of microinsurance products/schemes and most of are

only recently launched, we selected the study areas and microcredit clients of some

known MFI in Tamilnadu & Orissa, deal in microinsurance for fairly longer period, for

detail study. As most of the insurers have focused on the simplest insurance products

such as life insurance, attempt was made to capture some important features of the

product design, premium, coverage, and benefits, acceptability, difficulties and

suggestions made by the respondents. Detail information about household such as

demographic feature, occupation, income, employment, borrowing, saving, asset

holding, participation in insurance etc were netted out through using a structured

questionnaire. Some of intermediaries other than selected MFIs and local organizations

were identified and contacted before selecting the study areas. A pilot field visit was

undertaken before finalizing for field survey. Respondents were randomly selected

from rural, semi-urban and urban centres of the operation areas under select MFIs.

Random selection of households was mostly done during their centre meeting at early

morning. Prior information about the centre was collected from the concern branch

2 Gramin Bank model having 5 members in a group and 4-5 groups constitute a centre and Self-Help

Group (SHG) model having 10-20 members 3 Different microinsurance models are - Partnerships between insurers and distribution agents such as

MFIs, Regulated insurance companies that serve the low-income market directly, Healthcare providers

offering a financing package and absorbing the insurance risk, Community-based programmes that pool

funds, carry risk and manage a relationship with a healthcare provider, Government-sponsored or -

subsidized insurance schemes, self-insuring MFIs that assume the risk of offering insurance to their

clients

34

mangers and analyzed prior to visit to the centre and selection of the respondents for

detail interview to gather household level information.

The study employed both secondary and primary method of research.

(a) Secondary research based mainly on a review of the literature and secondary data

analysis relating to risks, insurance, credit, poverty and household behaviour.

(b) Primary research based on field survey in three districts in two states in India. This

included field investigations in three selected states of India - Orissa, Rajasthan and

Tamil Nadu - covering different geographic regions. These states also capture

differences in stages of microfinance development in the country, with Tamil Nadu

being relatively advanced. The investigations were in the form of focused group

discussions among the target population, complemented by in-depth interviews among

selected stakeholders.

Selection of Study Areas

With given constraints, the states of Tamil Nadu and Orissa were selected as they are

quite distinct in socio-economic development, allowing us to capture considerable

variability of circumstance relevant for rural insurance, as well as the different stages of

development of this industry. Field investigations were supplemented by number of

consultation with local organization, experts and stakeholders covering operational,

strategic and policy level issues. All this provides clarity on (a) the differing

perspectives of clients, insurers and intermediaries, (b) need and willingness to pay for

customized insurance products. As most vulnerable groups - in particular, women - are

largely excluded from the insurance market, this study is designed to focus on female

microcredit clients who are covered under some microinsurance scheme to analyze its

impacts.

The present study attempts to cover part of the total microinsurance sector in India by

focusing on insurance for microfinance clients in two districts (Madurai and

Tiruchirapally) in Tamil Nadu and one district (Sambalpur) in Orissa. The study is

based on primary field surveys and investigations, focus group discussion, consultation

with local experts, institutions and major stakeholders. Prior to field survey relevant

35

secondary data and information from different published and unpublished sources are

collected analyzed. Selection of Tamil Nadu was based on its better performance and

progress in the field of microfinance. It was also found to be relatively developed in

terms of higher overall insurance coverage in comparisons to other states (UNDP

2007).

Data Collection:

Secondary data were collected from different published reports and document, IRDA

Annual Reports and relevant online sources.

In this study, multiple sources of both qualitative and quantitative information are used

to answer the key research questions raised above. They are grouped in three main

categories:

(a) Contextual information on household including information on the household

features, loaned activity, income, employment, borrowing, saving, household assets.

(b) Information about household risks and risk coping mechanism such as formal

insurance, informal borrowing, distress sale, intra-household risk management etc.

(c) Views and observations about current insurance products, its impacts, major

difficulties and suggestions are gathered from sample households, selected

representative MFIs and concern insurers.

Sampling & Data Collection Methods

The research questions are addressed through a structured schedule for collection of

household level data. Despite of time constraint, to cover larger sample and more

regions, the current contents and coverage of data for the study has extensive

exploratory goals. However, the results of the study may not be amenable to

generalization, but the theory building exploration may be used in subsequent studies.

The field survey inquiry relies on multiple information and sources of evidence. Detail

of the study location and sample size presented in subsequent chapter (Table-2.1).

Primary data was gathered from randomly selected microcredit clients of selected MFIs

one each, located and operated in Trichurapally, Madurai and Sambalpur across

36

economic activities and social groups. Cluster of groups called ‗center‘ consists of 20-

45 group members was the unit of selection for household survey. After their regular

centre meeting early at morning we selected 4-6 members randomly for complete

interview and collect information with the help of structured questionnaire. Selection of

centres was made randomly at branch level with consultation with concerned branch

managers and other field staffs at branch. Branches were selected one each from rural,

semi-urban and urban areas depending on the nature of activities and period of

implementation of microinsurance products. Relevant information and discussions

were also made at headquarter of respective MFIs with the concerned staffs about the

selected sample units at each level.

Participatory approach of data collection was also followed by applying ‗cooperative-

cum-cross-checked‘ method among the group members in order to neutralizing and

minimizing personal errors and biases of the respondents. Similar procedure was

followed for conducting focus group discussions (FGDs), among the current members

and potential clients randomly selected during their centre/group meetings. Field data

was gathered through primary survey method using mixed method for data collection as

explained below.

Methods of primary data collection was done using following methods:

1. Household survey method

2. Focus Group Discussion

3. Interview with Key informants

4. Interview with local organization/institutions

5. Case Study

Features of Methodology:

(1) use of multidimensional quantitative data on household activities to show whether

microinsurance influence household risk aversion behaviour or not.

(2) use of mixed data collection methods (household survey, focus group discussion,

case study, interview with key informants) mostly quantitative, (to link household‘s

ability and its own coping strategy against risks with formal insurance products)

37

(3) use of purposive sampling to explore some new and innovative primary findings

and better understanding about household‘s behaviour on coping strategy with

insurance products.

(4) use of multidimensional data on microinsurance intermediaries (MFI)

Focused group discussions (FGDs) among current and potential clients were carried out

in all locations in each state. The FGDs were based on a pre-designed survey

instruments and check list that provided qualitative information to help assess client

perspectives on the efficacy and constraints of microinsurance.

Use of mixed methods consists of surveys with 75 group members (current clients of

three selected MFIs), 6 focus group discussions with about 60 current group members

(two each in select districts), interviews with 6 senior staffs of MFI and 4

representatives of insurance companies and two case studies.

Field Visit

The field visit consisted of two phases. The first phase was pilot survey involved two

field visits to Trichurapally and Madurai to explore current status of microinsurance

potential intermediary, clients and other issues to be studied. The first field visit was in

early November 2009 for a week. The second phase was to conduct field survey in

Tiruchirapalli, Madurai (Tamil Nadu) and Sambalpur (Orissa) lasted for three weeks

during late November to December 2009. The objective was to gather primary data and

interaction with different stakeholders according to the systematic methods presented

above.

For field data collection a team of research investigators was selected and trained by the

researcher prior to household survey in the study areas. Collection of primary data

includes key information of sample households with focus on their socio-economic-

risk-insurance features to respond the questions presented above. Primary data also

collected from the select MFIs about their experience and operation in microinsurance,

constraints and suggestion.

38

After completion of field survey a complete check of all filled in questionnaire was

made before processing of field data. Total 67 questionnaires were finalized for

processing after rejection of about 10% of total questionnaire on the basis of data gap

and other reasons. All the data were processed and analyzed for main findings and

emerging themes of the study.

Table – 2.1: Sample Size and Study Areas

Dist/MFI Branch/Block Centres/Villages Sample (no Remarks

Dist: Sambalpur/

MFI: BISWA

Maneswar Andhrapada

Chhanpall

2

1

Rural

Attabira Godabhaga

Luchinda

Laehida

3

3

2

Rural

Barpalli Kusanpari 4 Rural

Balipatana Bhakar Sahi

Badadiha

3

2

Rural

Total 4 8 20

Dist:

Tiruchirappalli

(Trichy)

MFI: ASA Gram

Vidiyal

Manachinallur Ayampalayam

Kamraj St

Samaypuram

Ulndengudi

4

3

3

3

Rural

Anathanallur Keerakali Medu

Posampatti

Keelapuram

4

3

3

Rural

Chozhan Nagar Sivanath Nagri

Buma Nagar

4

3

Semi-

Urban

Tennur Kotlakolai 4 Urban

Total 4 10 34

Dist: Madurai

MFI:

Mahasemam

Vadipatti Manadi

Magalam

6 Rural

Anaiyur Anaiyur Camp 6 Rural

Uthakadai Reddy Kupam

Indira Nagar

3

6

Semi-

Urban

Total 3 5 21

All Study Areas 11 23 75

Total Sample after Rejection 67

39

Primary Data Analysis

The findings of the data are presented in two chapters. Description of context includes a

profile of the microinsurance intermediaries in the study locations and the environment

in which it was in operation. The first part is a narrative account of socio-economic

feature of sample households followed by their asset holding, income and employment

generating activities, borrowing and saving, risk management tools and strategy,

understanding about insurance, issues and suggestion about insurance products. These

descriptions are intended to provide context for the factors that may have influenced the

risk managing behaviour of household. In most of the cases, the analysis is made on the

basis of broad group activities, study region and overall samples. The analysis has been

made at the level of seven broad activity groups, three different regions and overall

sample. Both quantitative and qualitative indicators are presented wherever possible.

Overall, analysis of both primary and secondary data provides some useful insights into

the potential for the microinsurance sector. The information on experience and

differences in perspectives across clients, intermediaries, suppliers and policy makers

helped to arrive at very specific suggestions for the way forward.

Limitations of the Study

The study has some limitations in its scope and interpretation of the results. It covers

smaller number of location, groups and respondents to draw conclusion and policy

suggestion which may not to represent the country as a whole. There are many areas in

other parts of the country which may display different risk pattern and risk coping

management and have different constraints regarding outreach and efficacy of

microinsurance. Limitation of time and resources also prevent a full scale sample

survey with wider coverage. The subjective nature of analysis, while providing some

interesting insights, could lead to some biases of the respondents and / or inadvertent

generalizations. However, despite of these limitations the present study has come out

with some meaningful findings and policy suggestions for further actions.

40

Chapter – 3

Insurance Sector in India and Outreach of Microinsurance

Insurance sector in India started in the nineteenth century and it progressed in the early

twentieth century with incorporation of National Insurance Company Ltd. in 1906 and

New India Assurance Company Ltd. in 1919. Later other insurance players joined the

industry. The formal insurance industry started in 1818 with the establishment of the

Oriental Life Insurance Company in Calcutta. General insurance business (non-life)

came into existence in 1850 with the commencement of the Triton Insurance Company.

The first Insurance Act was formulated in the pre-independence period in 1938. After

merging of 240 private insurance companies, the first public sector insurance company

called Life Insurance Corporation of India (LIC) was set up in 1956. Non-life insurance

companies were nationalized in 1972 and were taken over by General Insurance

Corporation (GIC) and its four subsidiaries - United India Insurance Company Limited,

Oriental Insurance Company Limited, National Insurance Company Limited and New

India Assurance Company Limited.

The insurance sector has undergone some notable changes during last few decades

with more policy emphasis on growth and efficiency. The broad objective of these

policy changes is to achieve inclusive financial development by enhancing risk

managing capability of people with rural and pro-poor focus.

A special committee (The Malhotra Committee) was appointed in 1993 to look into the

insurance industry to make recommendations for the expansion of this sector. The

recommendations of The Malhotra committee were focused on efficiency and growth

of insurance sector. One of the most important outcomes of the committee

recommendations was the Insurance Regulatory and Development Authority (IRDA)

legislation passed in 1999 and the Insurance Regulatory and Development Authority

was established in 2000. Since then continuous efforts have been made to bring about

changes in policy regulations and promotion of insurance sector. The IRDA has enacted

27 regulations on a number of issues such as registration of insurers, regulation of

41

agents, solvency margins, re-insurance, obligation of insurers to rural and social

sectors, investment and accounting procedures, and protection of client interests till

2005.

In 2003, Govt. of India constituted a Consultative Group on Micro-Insurance to

examine existing insurance schemes for rural and urban poor with specific reference to

outreach, pricing, products, servicing and promotion. It also attempted to examine

existing regulations with a view to promoting micro-insurance organizations with

specific reference to capital requirements, licensing, monitoring and review. One of the

key issues featured in the consultative group report was that micro-insurance is not as

viable as a standalone insurance product and it has not penetrated rural markets.

Traditional insurers have not made much headway in bringing micro-insurance

products to the poor in rural as well as urban areas. However, the committee viewed

that the partnership between insurer and organisation like NGO would be desirable to

promote micro-insurance by drawing on their mutual strengths. It re-emphasized on the

design of micro-insurance products that must have the features of simplicity,

availability, affordability, accessibility and flexibility. Unfortunately, overall insurance

industry in India has been dismal despite the fact that the country has a large population

base and insurable risks (UNDP, 2007). While it shows an enormous potential for

growth of insurance sector, much is not known about lower segment insurance market

across regions and groups.

Performance of Insurance Sector in India during Post-Reform Period

Performance of Indian insurance sector has been not satisfactory in comparison to other

countries in the world. It continued to lag behind the overall performance of the

economy. India accounts for less than two percent of the world‘s insurance market

(1.34) while it accommodates more than 16 percent of total world population and

sizeable portion of total world poor. Though India ranked second, after China among

emerging markets, insurance is viewed as a tax saving instrument and risk cover in life

insurance is almost incidental in the country. Some unit-linked instruments are

becoming popular but pure risk insurance product has taken a back seat (IRDA 2009).

42

Major challenges for insurance industry in India is low insurance intake, low renewal,

lack of awareness and delivery channels, particularly for lower segments and in rural

areas. During last few years reduced demand particularly in non-life segment, low

interest rates and the need for additional capital by many insurance companies

accentuated the performance of the sector (IRDA 2009).

As recent global economic downturn has affected the performance of insurance sector

worldwide, it is also reflected in terms of two important insurance performance

indicators such as insurance penetration4 and insurance density

5. Insurance penetration

measures the level of insurance activity relative to the size of the economy. As GDP per

capita rises, it is expected that individuals will purchase more insurance. The latest

Swiss Re report reveals that insurance penetration in India was 4.6 per cent in 2008

with 4.0 per cent in life business and 0.6 per cent in non-life business, which is more or

less same in 2007. India‘s relative position vis-à-vis other Asian countries in respect of

insurance penetration and density is depicted in the table – 3.1.

Table – 3.1 Insurance Penetration & Insurance Density in Asia - 2008

Insurance Penetration –

2008 (In %)

Insurance Density - 2008 (US

Dollars)

Total Life Non-life Total Life Non-life

Japan 9.8 7.6 2.2 3698.6 2869.5 829.1

Singapore 7.8 6.3 1.6 3179.0 2549.0 630.0

India 4.6 4.0 0.6 47.4 41.2 6.2

Malaysia 4.3 2.8 1.5 345.4 225.9 119.5

Thailand 3.3 1.8 1.5 142.1 77.2 64.9

PR China 3.3 2.2 1.0 105.4 71.7 33.7

Sri Lanka 1.4 0.6 0.9 32.1 12.8 19.3

Philippines 1.4 0.9 0.4 25.6 16.2 9.4

Indonesia 1.3 0.9 0.4 29.5 20.1 9.4

Pakistan 0.8 0.3 0.4 6.8 2.8 4.0

Source: Swiss Re Sigma No. 3 (2009)

4 Insurance premium as per cent of GDP

5 Ratio of premium to total population

43

Figure – 3.1 Insurance Density in Select Countries and World

Insurance Density 2001-07

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

Life

Non-

Life

Life

Non-

Life

Life

Non-

Life

Life

Non-

Life

Life

Non-

Life

Life

Non-

Life

Life

2007 2006 2005 2004 2003 2002 2001

Brazil

PR China

India

World

Source: Compiled from Data presented in Table 3.1

Figure – 3.2 Insurance Density in South Asian Countries 2001 and 2007

Insurance Density (Life & Non-Life) in South-Asia & World

0

100

200

300

400

500

600

700

India Sri Lanka Pakistan Bangladesh World

Total-2007

Total -2001

Source: Source: Compiled from Data presented in Table 3.1

Figure 3.3: Change in Insurance Density in South Asian Countries during 200-07

YoY Chage in Insurance Density (Life & Non-Life)

2001-2007 in South Asia (%)

-40

-20

0

20

40

60

80

100

Life Non-

Life

Life Non-

Life

Life Non-

Life

Life Non-

Life

Life Non-

Life

Life Non-

Life

2007 2006 2005 2004 2003 2002

India

Sri Lanka

Pakistan

Bangladesh

World

Source: Source: Compiled from Data presented in Table 3.1

44

Indian insurance sector has witnessed a transition phase with new policy changes and

entry of a number of global insurance companies. Most of the private insurance

companies are now having joint ventures with recognized foreign institutions across the

globe. During the post-liberalization period, with the opening up of the sector, some

insurers are offering flexible insurance products. With new products, flexibility in terms

of riders comes in very handy for providing customized solutions for the policyholders.

All these factors have made the insurance more dynamic with more challenges and

regulations. The performance of insurance sector in India during financial year 2008-09

is presented in the table -3.2.

Table – 3.2 Insurance Policies Issued during 2008-09

Life Non-Life

Insurer

2007-

08

2008-

09

Apr-

Jun

2008

Apr-

Jun

2009

2007-

08

2008-

09

Apr-

Jun

2008

Apr-

Jun

2009

Public 376.13

(-1.61)

359.13

(-4.52)

48.20

(-23.36)

59.08

(22.59)

385.47

(13.47)

451.37

(17.09)

96.00

(8.52)

88.87

(-7.43)

Private 132.62

(67.40)

150.11

(13.19)

27.25

(43.99)

25.46

(-6.57)

187.03

(47.36)

219.23

(17.21)

49.71

(27.93)

53.18

(6.99)

Total 508.74

(10.23)

509.23

(0.10)

75.45

(-7.78)

84.55

(12.05)

572.50

(22.69)

670.60

(17.13)

145.71

(14.44)

142.06

(-2.51)

Note: Figure in brackets indicates the growth (in per cent) over previous year

Source: IRDA Annual Report 2008-09

Despite the fact that growth performance of insurance sector has been faster in India in

recent years overall insurance coverage continues to be abysmally low and more so for

non-life products. The rise in level of insurance penetration, particularly in life

insurance, may be due to sharp rise in income levels, particularly among the middle

income groups. The total number of policies issued by the non-life insurers for the first

quarter of 2009-10 was 142.06 lakh as against 145.71 lakh in 2008-09 recording a

decline of 2.51 per cent in 2009-10. Of this, the public insurers issued 88.87 lakh

policies and private insurers 53.18 lakh policies, compared to 96.0 lakh and 49.71 lakh

respectively in the corresponding period in previous year. The private insurers

45

registered a growth of 6.99 per cent, while public insurers witnessed a negative growth

of - 7.43 per cent. Though public sector has recovered in issue of life insurance policies

during later years it failed to do so non-life insurance policies. On the other hand

private sector has performed better than public sector in terms of issuing number of

policies except in life insurance sector during April-June 2009. It appears that insurers

in private sector have little advantage in non-life insurance products than their

counterparts in public sector.

As regard to type of insurance product, endowment products have been dominant in

insurance market because of its saving component. While dominance of the life

insurance products is well documented in Indian insurance sector, the need for health

insurance is very high (UNDP, 2007). This could be the one of the factors for sudden

surge of health insurance with a 60 per cent growth. Since, health insurance portfolio is

new to the Indian domain such growth may not be significant. On the other hand, as

most of the healthcare spending is self-funded and arranged through informal

borrowing. It may aggravate economic condition of many poor households without

adequate health insurance cover. Similarly, non-renewal and lapse of policy is a serious

issue.

As more ambitious public policies such as covering all poor under insurance, provision

of health insurance to senior citizens and more penetration in rural areas are undertaken

by the government the importance of insurance sector has increased. However, the gap

between policy and performance of insurance sector is evident. There is need focus to

policy specific to people, products and players to bridge the wide gap in insurance

needs and potential demand. Development of microinsurance in terms of better

outreach and efficacy could be effective in addressing these issues.

Insurance for Rural and Social Sector

One of the key features of insurance sector in India is insurers have to fulfill the social

and rural sector obligation on an annual basis as defined by the regulator. The rural and

social obligations as stipulated in the IRDA Regulations, 2002 lay down the

46

requirements to be complied with by the insurers during the first five years of their

operations. In case of public sector insurers, these obligations have been linked to their

performance in the year 2001-02. However, with the amendments notified in 2007-08,

the obligation of the private insurers up to the tenth year of operations has been laid

down. Simultaneously, the obligations of the public sector insurers were also revisited.

The obligations of the private insurers are as under:

Rural sector:

Life insurer: commencing from seven per cent of the total policies written direct in the

first financial year to twenty per cent in the tenth financial year.

Non-life insurer: commencing from two per cent of total gross premium income written

direct in the first financial year to seven per cent from the ninth financial year

onwards.

Social sector: (all insurers commencing from five thousand lives in the first financial

year to fifty five thousand lives in the tenth financial year.

Though rural and social sector obligations have helped to expand outreach of

microinsurance the poor are not adequately perceived as a potential business op-

portunity.

Microinsurance in India:

Development of microinsurance sector in India is recent phenomenon. Micro-insurance

portfolio has made steady progress during last few years after IRDA (Micro-insurance)

Regulations 2005 that allow the insurers for composite covers or package products.

According to IRDA source, more life insurers have commenced their micro-Insurance

operations and many new products have been launched during the year 2008-09. With

expansion of distribution infrastructure and new business has shown upward trend in

microinsurance sector but it is still much smaller than the desired level.

However, micro-insurance business in India largely constitutes group portfolio. Under

the individual policy category microinsurance though more policies are underwritten

47

but total premium amount is low. Among the insurers the share of LIC was substantial

in microinsurance business. As regard to infrastructure and manpower expansion there

has been increase in the number of micro-insurance agents. By at end of March 2009 it

was 7250; of which 6647 were for the LIC and the remaining represented the private

sector companies. Fifteen life insurers have so far launched 30 micro-insurance

products. Of the 30 products, 16 are for individuals and the remaining 14 are for

groups.

Table - 3.3: Microinsurance Business (LIFE) during 2008-09 (Premium

Individual Group

Policies

(Nos)

Premium

(Rs. lakh)

Schemes

(Nos)

Lives

covered

(Nos)

Premium

(Rs. lakh)

LIC 1541218 3118.74 6883 11052815 17268.54

Private 610851 537.81 14 1498994 3326.80

Total 2152069 3656.55 6897 12551809 20595.34

Note: New business premium includes first year premium and single premium

Source: IRDA Annual Report 2008-09

Table - 3.4 IRDA Prescribed Range of Microinsurance Cover

Policy Minimum Sum

Assured (Rs)

Maximum Sum

Assured (Rs)

Life Term 5000 50000

Endowment 5000 30000

Health (Individual) 5000 30000

Health (Family) 10000 30000

Personal Accident 10000 50000

Crop 5000 50000

Livestock 5000 50000

Asset(Dwelling unit & others) 5000 50000

Source: IRDA Annual Report 2008-09

Regulation of IRDA has defined both general and life microinsurance products. The

former refers to any health insurance contract protecting assets such as a hut; livestock,

tools and instruments; or an accident contract, either for an individual or a group. The

latter refers to any term insurance contract, with or without return of premium;

endowment insurance contract; or health insurance contract, with or without accident

rider, either on an individual or group basis. For each of these policies, the minimum

and maximum for amount of cover, term of cover, and age at entry have been specified.

48

Companies have to design products under these specifications and get special approval

from IRDA for them to qualify as microinsurance products.

Gap & Opportunity in Microinsurance in India:

With higher economic growth and expansion of income earning opportunity more

intensive pro-poor policy can create a good environment for microinsurance sector in

India. Increased policy attention towards rural and agriculture credit and financial

services progressive growth of microfinance sector are potential factors for achieving

robust growth in microinsurance sector. With wide spread SHG activities, participation

of women in development programme and their increasing credit and saving activities,

provision of insurance product could be much easier. Inspite of all these conducive

factors outreach of microinsurance in India is very low. It is estimated about 5.2 million

people constituting only two percent of total poor in the country (UNDP, 2007). Some

guaranteed public insurance schemes have been implemented under poverty alleviation

programme and often designed along with a credit package for the low income groups.

Due to lack of perception and understanding and awareness the concept of insurance

lost its spirit and ultimate result. For instance, insurance covered in livestock and crop

loans are often not known to the clients. It may affect the benefits of insurance services

and growth in low segment level.

There is wide gap between the supply and demand for insurance for the poor and for

rural areas. While targeting lower segment and rural areas require changes in product

design, delivery models, poor infrastructure, information, awareness among people

pose challenges for rapid growth of microinsurance in India. Targeting low income

groups or poor requires necessary changes in product design and insurance models. As

microinsurance expands, more products are being offered through a variety of insurer

models and delivery channels. But the product development process is a complex and

resource consuming activity which is too often skipped by commercial insurers. The

approach of microinsurance supply is more product-driven—in the way microcredit

was initially provided—than market driven. It might have contributed to increasing the

gap between supply and demand, particularly in low segment insurance market.

49

Table – 3.6 Insurance Penetration* in Select Countries and Changes (in %) therein during 2001 and 2007

Countries

Insurance Penetration during

2007

Percentage (%) increase in Insurance Penetration over previous year during 2001 to 2007 Insurance

Penetration during 2001 2007 2006 2005 2004 2003 2002

Total Life Non-Life Life

Non-Life Life

Non-Life Life Non-Life Life Non-Life Life Non-Life Life Non-Life Total Life

Non-Life

Developed Countries

USA 8.90 4.20 4.70 5.00 -2.08 -3.38 -4.19 -1.90 -2.53 -3.65 -1.72 -4.78 5.02 -48.72 13.18 8.97 4.4 4.57

UK 15.70 12.60 3.00 -3.82 -11.76 47.19 -4.23 -0.22 -3.53 3.48 -22.53 -15.41 4.17 -28.14 -57.50 14.2 10.7 3.45

Switzerland 10.30 5.70 4.60 -8.06 -6.12 0.00 -1.80 -7.88 -0.60 -12.82 0.00 -5.16 -3.83 -35.96 -34.34 12.7 7.95 4.76

France 10.30 7.30 3.00 -7.59 -3.23 11.58 -0.96 10.97 -0.32 6.51 -0.63 6.77 6.40 -34.62 -48.17 8.58 5.73 2.85

Germany 6.60 3.10 3.60 0.00 0.00 1.31 -3.49 -1.61 -3.37 -1.89 1.05 3.59 3.24 -53.57 23.33 6.59 3 3.59

S. Korea 11.80 8.20 3.60 3.80 12.50 8.67 7.38 7.70 7.58 -0.30 -3.15 -17.74 -15.38 -31.81 -61.10 12.1 8.69 3.38

Japan 9.60 7.50 2.10 -9.64 -4.55 -0.24 -0.90 0.73 -1.33 -4.07 2.27 -0.35 -0.90 -21.95 -74.92 11.1 8.85 2.22

Developing Countries

Brazil 3.00 1.40 1.60 7.69 0.00 -2.26 -4.76 -2.21 3.70 6.25 -3.57 21.90 -3.45 -50.93 383.33 2.14 0.36 1.78

Russia 2.40 0.10 2.40 0.00 4.35 -16.67 6.98 -80.33 -3.15 -45.54 4.23 16.67 17.68 -68.63 16.77 3.06 1.55 1.51

Taiwan 15.70 12.90 2.80 11.21 -3.45 3.85 -1.02 0.99 -4.56 33.57 1.32 12.65 7.83 -14.73 -53.40 8.62 6.03 2.59

Hong Kong 11.80 10.60 1.20 15.22 0.00 6.60 -6.98 9.52 -7.19 23.51 -7.33 22.69 3.45 -17.98 -71.73 6.34 5.13 1.21

Malaysia 4.60 3.10 1.50 -3.13 -11.76 -11.11 -6.59 2.27 -3.19 6.99 -8.74 11.90 4.57 -43.24 -41.72 5.18 3.38 1.8

Singapore 7.60 6.20 1.50

14.81 36.36 -10.00 -

25.68 -0.33 0.00 -1.15 -1.33 75.00 4.90 -24.02 -57.94 4.58 3.4 1.18

Thailand 3.40 1.80 1.50 -5.26 -6.25 -4.52 -1.23 2.58 2.53 -13.78 31.67 7.66 4.35 -28.91 -38.17 2.94 1.86 1.08

South Africa 15.30 12.50 2.80 -3.85 -6.67 19.93 -0.99 -5.16 2.71 -11.81 1.03 -18.59 2.10 -11.41 -81.17 18 15.2 2.78

Australia 6.80 3.80 3.00 0.00 -6.25 8.26 3.56 -15.83 -19.74 -5.66 7.84 -11.95 3.18 -45.14 -39.30 9.15 5.7 3.45

PR China 2.90 1.80 1.10 5.88 10.00 -4.49 8.70 -19.46 -12.38 -3.91 1.94 13.30 8.42 -7.73 -29.10 2.2 1.34 0.86

South Asia

India 4.70 4.00 0.60 -2.44 0.00 62.06 -1.64 0.00 -4.69 11.95 3.23 -12.74 -7.46 -4.43 -68.84 2.71 2.15 0.56

Sri Lanka 1.50 0.60 0.90 0.00 0.00 -3.23 7.14 3.33 9.09 9.09 2.67 0.00 0.00 -54.17 41.51 1.2 0.53 0.67

Pakistan 0.70 0.30 0.40 0.00 -20.00 11.11 25.00 -3.57 -6.98 16.67 13.16 0.00 0.00 -64.71 26.67 0.68 0.3 0.38

Bangladesh 0.70 0.50 0.20 25.00 0.00 -4.76 0.00 13.51 0.00 0.00 0.00 27.59 17.65 -36.96 -41.38 0.46 0.29 0.17

World 7.50 4.40 3.10 -2.22 3.33 3.69 -5.66 -4.62 -7.56 -0.87 -0.86 -3.57 2.66 -39.21 -27.78 7.83 4.68 3.15

Source: Compiled from the data in Swiss Re, Sigma various volumes Note: *Insurance penetration is measured as ratio (in per cent) of premium (in US Dollars) to GDP (in US Dollars)

50

Table – 3.7 Insurance Density* in Select Countries and Changes (in %) therein during 2001 and 2007

Country

Insurance Density during

2007

Percentage (%) increase in Insurance Density over previous year during 2001 to 2007 Insurance Density during

2001 2007 2006 2005 2004 2003 2002

Total Life Non-Life Life Non-Life Life

Non-Life Life

Non-Life Life

Non-Life Life

Non-Life Life

Non-Life Total Life

Non-Life

Developed Countries

USA 4086.5 1922.0 2164.4 7.4 1.4 2.1 0.6 3.6 2.9 2.1 4.2 -0.3 10.1 3.8 8.1 3266.0 1602.0 1664.0

UK 7113.7 5730.5 1383.2 11.5 4.2 56.4 1.2 3.0 -0.5 21.9 -8.6 -2.3 20.1 4.3 45.3 3393.8 2567.9 825.9

Switzerland 5740.7 3159.1 2581.7 1.5 5.4 1.1 -1.2 -6.0 1.6 -4.6 9.5 10.7 22.3 14.1 12.0 4342.8 2715.7 1627.1

France 4147.6 2928.3 1219.3 0.2 5.8 18.1 5.4 15.1 3.4 21.6 13.7 31.0 30.2 6.4 13.3 1898.8 1268.2 630.6

Germany 2662.1 1234.1 1427.9 8.6 9.8 9.0 2.5 2.0 0.2 9.8 12.9 26.3 25.8 9.3 10.0 1484.2 674.3 809.9

South Korea 2384.0 1656.6 727.3 11.9 23.0 22.3 19.3 20.2 20.1 15.2 11.7 6.3 9.3 7.7 13.9 1060.1 763.4 296.7

Japan 3319.9 2583.9 736.0 -8.7 -3.2 -4.3 -3.8 -2.9 -4.9 1.4 8.2 7.9 7.5 -0.8 1.9 3507.5 2806.4 701.1

Developing Countries

Brazil 202.2 95.3 106.9 31.4 20.9 27.6 22.6 23.7 30.6 28.2 17.9 31.6 4.0 151.9 -15.4 64.0 10.8 53.2

Russia 209.4 6.1 203.3 52.5 38.4 -

36.5 26.1 -

74.6 30.0 -

26.8 39.3 46.8 47.8 -30.4 33.4 65.8 33.2 32.6

Taiwan 2628.0 2165.7 462.3 20.3 2.7 5.9 0.9 13.7 7.7 42.3 8.1 13.5 8.2 21.6 8.1 1088.5 760.9 327.6

Hong Kong 3373.2 3031.9 341.3 23.4 2.9 11.0 0.0 17.5 -0.4 27.0 -4.5 19.9 1.0 -0.9 16.8 1545.2 1249.7 295.5

Malaysia 332.1 221.5 110.6 17.1 7.4 0.6 8.1 12.4 6.8 19.7 2.3 17.8 10.0 -8.3 15.3 198.3 129.5 68.8

Singapore 2776.0 2244.7 531.2 38.9 55.7 1.6 -13.0 7.2 7.3 14.1 14.1 78.1 6.6 2.4 22.3 959.0 713.2 245.8

Thailand 129.7 70.8 58.9 18.0 17.8 9.9 12.6 7.5 7.5 -2.3 49.6 23.5 19.5 23.5 16.7 53.9 34.1 19.8

South Africa 878.5 719.0 159.5 3.4 -0.4 24.6 2.6 2.3 10.8 14.5 31.3 32.2 65.7 -4.4 -6.2 446.3 377.2 69.1

Australia 3000.2 1674.1 1326.1 20.5 11.3 1.6 -0.9 6.3 1.4 13.8 30.1 11.8 31.1 -2.9 10.7 1668.3 1040.3 628.0

PR China 69.9 44.2 25.5 29.6 31.4 11.8 22.8 11.7 22.5 8.8 15.2 30.7 17.9 57.4 21.8 20.0 12.2 7.8

South Asia

India 46.6 40.4 6.2 21.7 19.2 81.4 18.2 16.6 10.0 21.7 14.3 10.3 16.7 28.6 25.0 11.5 9.1 2.4

Sri Lanka 24.9 10.2 14.7 20.0 14.8 23.2 36.2 11.3 19.0 17.0 9.7 17.8 18.0 4.7 13.0 9.7 4.3 5.4

Pakistan 6.5 2.6 3.9 13.0 8.3 21.1 28.6 26.7 27.3 36.4 22.2 10.0 5.9 -16.7 13.3 2.7 1.2 1.5

Bangladesh 2.9 1.9 0.9 5.6 12.5 5.9 0.0 13.3 0.0 7.1 14.3 40.0 16.7 0.0 0.0 1.6 1.0 0.6

World 607.7 358.1 249.6 8.3 11.3 10.4 2.4 2.7 -0.5 9.1 8.6 8.0 15.3 5.2 10.9 393.3 235.0 158.3

Source: Compiled from the data in Swiss Re, Sigma various volumes Note: * Insurance density is measured as ratio of premium (in US Dollar) to total population

51

Table – 3.8 Lists of Approved Microinsurance Products in India (as on 05.11.2009) Financial

Year Name of Insurer Name of the Product

Product UIN

No.

2007-08

Bajaj Allianz Life Insurance Co.

Ltd. Bajaj Allianz Jana Vikas Yojana 116N047V01

2007-08

Bajaj Allianz Life Insurance Co.

Ltd.

Bajaj Allianz Saral Suraksha

Yojana 116N048V01

2007-08

Bajaj Allianz Life Insurance Co.

Ltd. Bajaj Allianz Alp Nivesh Yojana 116N049V01

2007-08

AVIVA Life Ins. Co. India Pvt.

Ltd. Grameen Suraksha 122N039V01

2007-08 Birla Sun Life Insurance Co. Ltd.

Birla Sun Life Insurance Bima

Suraksha Super 109N032V01

2007-08 Birla Sun Life Insurance Co. Ltd.

Birla Sun Life Insurance Bima

Dhan Sanchay 109N033V01

2008-09

ICICI Prudential Life Insurance

Co. Ltd ICICI Pru Sarv Jana Suraksha 105N081V01

2007-08

ING Vysya Life Insurance Co.

Ltd. ING Vysya Saral Suraksha 114N032V01

2006-07

Life Insurance Corporation of

India LIC's Jeevan Madhur 512N240V01

2009-10

Life Insurance Corporation of

India LIC's Jeevan Mangal 512N257V01

2008-09 Met Life India Met Vishwas 117N042V01

2007-08 SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti 111N038V01

2007-08 SBI Life Insurance Co. Ltd. SBI Life Grameen Super Suraksha 111N039V01

2006-07

TATA AIG Life Insurance Co.

Ltd. Ayushman Yojana 110N042V01

2006-07

TATA AIG Life Insurance Co.

Ltd. Navkalyan Yojana 110N043V01

2006-07

TATA AIG Life Insurance Co.

Ltd. Sampoorn Bima Yojana 110N044V01

2008-09

TATA AIG Life Insurance Co.

Ltd. Tata AIG Sumangal Bima Yojana 110N061V01

2006-07

Sahara India Life Insurance Co.

Ltd.

Sahara Sahayog (Micro Endowment

Insurance without profit plan) 127N010V01

2007-08 Shriram Life Insurance Co. Ltd. Shri Sahay 128N011V01

2007-08 Shriram Life Insurance Co. Ltd. Sri Sahay (AP) 128N012V01

2008-09

IDBI Fortis Life Insurance Co.

Ltd.

IDBI Fortis Group Microinsurance

Plan 135N004V01

2008-09

DLF Pramerica Life Insurance

Co. Ltd DLF Pramerica Sarv Suraksha 140N007V01

2008-09

Star Union Dai-ichi Life

Insurance Co Ltd. SUD Life Paraspar Suraksha Plan 142N009V01

Source: IRDA website www.irda.org accessed on 15 Jan 2010

52

Chapter - 4

Select MFIs and Microinsurance Products in Study Areas

In this section we have analyzed about microinsurance products supplied by select

microfinance institutions (MFIs) and their functioning and experiences in microinsurance

activity in study areas. Here we look at microinsurance from the perspective of

microfinance institutions, which are one of the important microinsurance delivery

channels. By reviewing the profile and experiences of three different MFIs — BISWA in

Orissa and Mahasemam and ASA Gram Vidiyal in Tamil Nadu — we have summarized

their microinsurance activity, performance, agent -partner development process, product

deliver mechanism and other features. Even though these MFIs operate in more or less

similar environments, they have adopted different approaches, which presumably make

sense given their experiences, degree of maturity, and intentions. Insights into the choices

they made, and the reasons for making those choices, may benefit others. In this regard,

comparisons between these MFIs are made wherever possible.

ASA Gram Vidiyal is an older and large MFI that started with its in-house life insurance

scheme with simple benefits and later moved into partner-agent model of microinsurance

with good numbers of professional insurers. On the other hand, BISWA is relatively

younger NGO but offering a range of insurance products (life, health, assets) in

partnership with different insurers. Its objective is to provide comprehensive social

protection to its group members. The third MFI, Mahasema, falls somewhere in between.

It has a long experience with different insurance products using both in-house and

partner-agent models, and now with the advent of Indian regulations that require insurers

to serve the low-income market it appears to have both foot firmly in the partner-agent

camp.

All three MFIs have offered microinsurance fairly longer period to provide valuable

lessons for other microfinance institutions. The main lessons, organized around four

major themes - a) mission, vision and overall performance b) delivery mechanisms; c)

product design and d) constraints in handling microinsurance activity. For this, a brief

53

profile of the three selected MFIs are prepared and presented in this chapter with focus

on their structure, current operation areas and products, insurance and fund partners,

constraints and suggestion about microinsurance which highlight broad picture of

microinsurance in study areas. It will be interesting to observe different priority of

different stakeholders - MFIs (may be to protect their credit first), the insurers (may look

for simpler and easier products to launch to minimize administrative costs) and clients

(may need different products than what are offered to them – almost as compulsory with

their loan).

A. BISWA, (Sambalpur, Orissa)

1. Profile

Name & Location: Bharat Integrated Social Welfare Agency (BISWA), Sambalpur,

Orissa

Type of Institution: NGO – MFI – NBFC

Started as a Philanthropic organization in 1994 in Sambalpur District, Orissa. Registered

in 1995 and entered into MFI since 1996 and adopted SHG Model as a strategy of

intervention. Since then, BISWA adopted the integrated approach (Five pillars) to reach

the masses. Successful partnership with CASHE (Credit And Saving for Household

Enterprises – A Programme of CARE India in 2002 with following basic principles

Integrity, Honesty, Cohesive approach, Team work, Participatory approach, Involvement

of grass-root workers in planning process. Registered under Societies Registration Act

XXI of 1860, Govt.of India vide, Regn No-22060-41 of 2005-06 dated 01.07.2005

(issued against old Regn No-4824-22 of 1995-96 dated 15.07.1995)

Vision: A Just and equitable society with greater emphasis on Social, Economic and

Spiritual well being with peace and compassion.

Mission: To make a real and lasting social, financial, psychological and spiritual impact

on individuals, help build strong cohesive communities and generate substantial

employment opportunities by increasing availability of a wider range of services.

54

Year of Operation: 1994 (NGO) 1996 (Microfinance) 2002 (Microinsurance)

Details of Staffs: Total staffs – 3759, (Staff at Head Office – 355, Project Staff – 438,

Field Staff – 2966, Staff involved in Micro insurance Operation-23)

Area of Operation: Within Orissa (Total offices – 252, Branch office – 207, District

office – 35, Zonal office – 3) Outside Orissa: (State office -6, 14 States, No. of

Projects, 113 projects)

2. Fund Partners/Funding Agencies/Sponsoring Organization

Financial Partners: ABN Amro Bank, Allahabad Bank, Andhra Bank, Bank of India,

BISWA Micro Finance PVT. Ltd., CARE India, CITI Bank, Dena Bank, Development

Credit Bank, Federal Bank Limited, HDFC, ICICI, IDBI, Indian Overseas Bank, INDUS

IND Bank, MANAVIYA Holdings, NMDFC New , Oriental Bank of Commerce, Punjab

National Bank, Rashtriya Mahila Kosh, SIDBI, United Bank of India, AXIS Bank, IFMR

Trust, FWWBI, Grameen Capital, State Bank of India, Utkal Gramya Bank

3. Insurance Partners:

LIC, TATA AIG, Oriental Insurance Company, ICICI Lombard

4. Activities Relating to Micro insurance

Insurance

Products

Year of

operation

Coverage:

Nos of Client/

Members

State Sponsored/Partner

Organization

Sum

Assured

(Rs)

Life

2007 55282 Orissa TATA AIG 30000

Life 2005 75155 Orissa LIC of India 30000

Health

2006 75891 Orissa ICICI LOMBARD 50000

Health 2008 87008 Orissa Oriental Insurance

Co

30000

Asset 2006 77328 Orissa Oriental Insurance

Co

40000

Source: BISWA Annual Report 2009-10

55

5. Detail of Micro insurance Activities/Products Undertaken

Activities/Product & Coverage Year

of start

Nos of

Clients

Premium

per unit*

Sum

Assured

Insurer

TATA-AIG Sampoornaa Bima Yojana is a

Micro-Insurance Protection Plan where the

policyholder receives all the premiums paid

during the term of policy upon survival till

the term of the policy, provided the policy is

in force at the end of the term. The premium

is payable for 10 years whereas the coverage

under the policy is for 15 years.

2007 55282. Depend

on Age

and Sum

Assured.

10,000. TATA

AIG

Health Insurance: (on family) reimbursement

of Hospitalization expenses of Rs-15000/-per

family on floater basis.

Maternity benefit covers for the wife of the

insured person reimbursement up to Rs-

2000/-for normal delivery and up to Rs-

5000/- for Caesarean Section.

Personal Accident Insurance cover for the

Policy holder under JPA (Janata Personal

Accident Policy) policy Rs-25000/-

Transportation Charge Up to Rs-300/-

Disability Compensation Loss of Wages

Income due to the Hospitalization of the

Insured person Rs-40/-per day upto 20 days.

2008 87008 300 15000 OIC

The Policy can be cover to member‘s life and

assets under fire, burglary, flood, storm/

hurricane and personal accident. The

premium per annum is for Rs upto 5000/- Rs-

64 for up to 15000/- it is 172/- for upto Rs-

50000/- it is Rs-250/-.

2006 77328 Cover of

policy

According

to the

Loan

Status

Accordi

ng the

Policy

Cover to

the

client.

OIC

Source: Complied from Information collected from BISWA

56

6. Micro-Insurance Performance of BISWA – Coverage &

Claims Settlement

Policy

Coverage

Insurance

Company

Total Client

covered till

Dec 2009

Number of

claims made

up to date

No of

Claim

settled

Claim

received by

clients

Life

LIC 75,515 180 149 Rs.23,90,000/-

Life

TATA AIG 55,282

60

55

Rs.5,45,759/-

Health

ICICI Lombard 75,891 604 524 Rs.32,72,476/-

Health Oriental

Insurance Co. 87,008

1768

680 Rs.28,33,032/-

Asset Oriental

Insurance Co. 77,328 1018 193 Rs.40,55,380/-

Source: Complied from Information collected from BISWA

7. Overall Performance of BISWA

March - 2009 March - 2010

Number of States 11 15

Number of Districts 65 112

Total Branch 227 252

Total SHGs formed 34,299 69,000

Average Member per SHG 16 16

Total Member enrolled 550,570 1,104,000

Average SHGs per Promoter 23 25

Total Federation promoted 233 233

Total Savings mobilised Rs.23.12 cr. Rs.55.0.0 cr.

No. of loan Disbursed during the year 31,236 38,465

Loan Disbursed Rs.251.03 cr. Rs.542.32 cr.

Amount of Loan Disbursed Rs.596.54 cr. Rs.1138. 84 cr.

Repayment Rate 99% 99%

Portfolio Outstanding Rs.190. 58 cr. Rs.317. 26 cr.

Turnover achieved Rs.784. 76 cr. Rs.169. 62 cr.

Total Assets Rs. 238. 97 cr. Rs.394. 83 cr.

57

Total Liabilities Rs.189. 32 cr. Rs.332. 59 cr.

Net Worth Rs.49. 64 cr. Rs.62. 24 cr.

8. Observations & Suggestion on Microinsurance (BISWA)

BISWA believes that poor households are especially vulnerable to risk, in both the form

of natural calamities as well as more regular occurrences of illnesses and accidents.

Micro-Finance Institutions (MFIs) have played an active role in reducing and protecting

them against such situations by providing credit for increasing income-earning

opportunities; and by providing savings services to build up resources that can be utilized

in case of emergencies. As one of its development interventions and as a social security

measure, BISWA cover its clients in three major micro-insurance schemes. To BISWA

Micro Insurance means the insurance which their SHG members can easily afford. It is

the SHG members particularly the BPL members suffered the most due to absence of

microinsurance. As a social security measure it has paid great dividend. Many BISWA

SHG members have been benefited from three different microinsurance products as given

below available to the group members along with group loan.

I. Life insurance ( from LIC and TATA-AIG),

II. Health insurance (from ICICI-Lombard and Oriental Insurance Company Ltd.),

III. Assets insurance (from Oriental Insurance Company Ltd.).

Name of the insurance products are Janashree Bima Yojana (life) of LIC, Nabakalyan

and Sampoorna Bima Yojana with TATA-AIG (life), Health insurance from ICICI

Lombard and Oriental Insurance Company and Asset insurance from Oriental Insurance

Company. The target clients are mainly SHG members promoted by BISWA both loanee

and non-loanee groups spread across BISWA‘s operational area and about 40% of total

members are already covered.

Health Insurance: BISWA in collaboration with Oriental Insurance Company Limited

has launched health insurance scheme in October 2007. Premium is Rs.325/- per annum

and coverage is Rs. 15,000/ for a maximum of 4 persons (member & 3 specified

nominees). Besides, there is provision of Rs.300/- maximum per year as transportation

allowance and a maximum of Rs.800/- per year as subsistence allowance for the insured

member in case of hospitalization only. Since beginning, leaflets in Oriya have been

58

prepared and widely circulated among the members for better awareness and proper data

collection.

Assets Insurance: It has become very common that poor people are badly affected by

natural calamities every year. Hence, it is very much important to cover their assets under

insurance in order to meet financial loss. Hence BISWA is also covering them under its

various asset insurance policies such as Live Stock Insurance, Kishan Package Policy,

Janata Personal Accident Policy.

Claim Settlement: As a microinsurance partner, BISWA has given priority for the

settlement of claims in all Insurance Schemes. In the case of death claims, LIC has settled

149 claims and TATA AIG has settled 55 claims till December 2009. In health insurance

claims ICICI Lombard has settled 524 claims and Oriental Insurance settled 668 claims.

In asset insurance Oriental Insurance has settled 163 claims. Usually the insurance claims

are processed by BISWA and negotiated with the respective Insurance Companies for

settlement. As per the norms of the Insurance Companies, the claim amount is either

directly given to the client‘s nominee or upon receipt, BISWA hands over the amount to

the respective nominee.

Other Programmes on Micro Insurance: Under Janashree Bima Yojana (JBY) of LIC

455 students are been awarded scholarship of Rs. 240500.

Bima Village: In another effort to provide Insurance to the poor at the doorstep four

villages have been declared as Bima Villages. Every household of these villages has been

covered with a Life Insurance Policy. The names of the villages are: Matikhai,

Kankudipali and Balaranga of Sambalpur District and Rangamatia of Bargarh District. To

make insurance popular campaign for insurance products among poor are conducted on

monthly basis in different district offices of BISWA.

Loan for Insurance Premium: All members who avails a loan from BISWA got

insurance cover as applicable. At the time of loan disbursement the premium amount of

the selected Insurance for one year is usually collected and deposited with BISWA for

onward transfer to the respective Insurance Companies. Any member unable to pay

premium can avail credit for premium with same terms and conditions as the group loan.

Training: BISWA staff are given training on the Insurance products which is conducted

by the concerned Insurance Companies and the trained staff in turn creates awareness

59

among the members about Insurance products. This orientation is done prior to the

disbursement of loan.

Major constraints, Issues and Suggestions Relating to Micro insurance

i. Life Insurance:

Constraints:

Service tax on Micro Insurance Life product.

No grace period of renewal payment in case the policy gets lapsed.

The Insurers accept the policy proposal with certain age proof or without any age

proof but while settling the claim they ask for standard age proof or reject the

claims on the ground of non disclosure of correct age.

Suggestions:

Service tax should be waived off in Micro-insurance product

The policy should be allowed for minimum 5 years once premium is paid. The

claims may be settled (in the period when premium is not paid) after deducting

the premium and interest. The policy gets lapsed in most cases due to non-

service, migration, non-regular cash flow & awareness etc.

If Insurance companies are not satisfied with the age proof then they should not

issue the policy. Once it is issued they should not insist on standard age proof.

Certification by the Sarpanch or the SHG members should be acceptable.

ii. Health Insurance

Constraints:

Health Insurance premium is non-refundable.

Authenticity of Documents submitted questioned and claims rejected i.e. admit

and discharge summary, first prescription, medicine, lab test bills along with

transport details.

Claims are rejected on the ground pre-existence of the disease vary from insurers.

The insurance company insists the patient should be under health policy of the

same insurance company at the time of identification of the disease.

60

Any claim is admissible for settlement if the patient is admitted for a period of

more than 24 hours.

Suggestions:

It discourages clients as customer regularly renew the policy after five years does

not get back anything if there is no claim. At least 50% of the premium should be

refunded.

Insurers should consider authenticity of the SHG report of the disease of the

concerned member for quick settlement.

The insurance company should accept it if the pre-existence diseases happen

under any insurance company should not reject the claim. The doctor‘s report

should not constitute the only base of the exact occurrence of the disease since

due to ignorance the patient may not mention the exact timing of occurrence of

the disease.

Claims should be admitted for less than 24 hours of hospitalization, all medicine,

other expenses of (OPD/clinics without facilities for hospitalization/ ayurvedic

doctors/ homeopathy doctors/ village quacks/RMPs etc) if found genuine.

iii. Asset Insurance

Certification or documentation of claim or loss, high transaction on cost and delay

in claim settlement

Suggestions:

Village Sarpanch/Samiti Member/ School Teachers/ Representative of NGOs

certificate should be considered along with photo proof. Time to submit FIR to

insurance companies should be increased to 72 hours instead of 24 hours. NGOs

should be given power to some extent to settle claims.

61

B. Mahasemam, (Madurai, Tamil Nadu)

1. Profile

Name & Location: Mahasemam, Madurai, Tamil Nadu

Type of Institution: NGO/Trust – MFI- NBFC

In 1997‚ Mahasemam trust was established with the aim of helping the women to attain

financial sufficiency and stability helping a poverty free life with the family. Today‚

Mahasemam Trust is one of the fastest growing microfinance organizations in the state‚

actively undertaking the poverty alleviation efforts through the coordinated and

disciplined women centric work culture. Mahasemam provides loans to poor women for

various income generation activities‚ trains them in basic marketing skills to equip them,

harness their skills and supports them to start livelihood projects of their choice to

generate a steady income for her family. This multi-pronged focused approach for

helping the poor‚ which have shown unbelievable results in poverty alleviation and

creating sustainable livelihood opportunity for the members. Micro Credit Rating

International Ltd. (M-CRIL) has rated Mahasemam as the Beta + microfinance

institution. Mahasemam works towards empowering poor women to become self

sufficient by providing innovative and sustainable financial services with following

objectives:

Vision & Mission:

- To empower women by improving their social and economic status.

- To strengthen and increase women‘s saving and credit through Grameen Group

model.

- To improve and develop viable income generating activities and to train the

women in entrepreneurships.

- To provide health services to tackle the health issues of women and community.

- To instill positive attitude among men towards women and to encourage them to

accept women in new roles

Year of Operation: 1997(Trust), June 2000 (Microinsurance), Registration April 2000

Details of Staffs: Operation staffs (1100), Supervisor & Auditor (175), Managers (42),

62

Staff involved in Micro insurance Operation (3)

Areas of Operation: The microcredit disbursed till recently is about been Rs.222.45Cr

serving 221‚613 poor women spread in 754 villages across 13 districts in Tamilnadu.

2. Overall Activities/Coverage since 2000

Activities/

Operation

Coverage:

Client/

members

Coverage:

Geographical

Sponsor/Part

ner

Organization

Annual

Turn over

Micro loan, Business

loan, Education loan,

Emergency loan, Festival

loan & Destitute loan

Microinsurance(life)

2,91,323 13 districts

in Tamilnadu

Private and

Nationalized

Banks

150 crores

3. Detail of Micro insurance Activities/Products

Activities/Product

& Coverage

Date of

operation

Nos of

Client/

members

Premium

per unit*

Sum

Assured

per unit*

Insurer/

Insurance

Companies

Life Insurance

April

2009

1,80,000 Rs. 33/ 12000 Bajaj Alliance

A premium of Rs.25 is paid by Mahasemam on behalf of the member. Compensation is

given in case of the death of a member or her husband.

Compensation given Active *

Member Savers

Active member who has repaid

the first loan and waiting for

second loan

Death of a Member Rs.10‚000 Rs.2‚000 Rs.5‚000

Death of Husband Rs.2‚000 – –

*Member who has taken loans.

Cumulative Death Compensation has been done for 524 members. Trust has paid

Rs.4‚257‚775 as insurance premium to Bajaj Allianz.

4. Fund Partners

Activities/Operation Sponsored/Fund Partners Annual Turn over

Micro loans Private, Public and Govt. Banks Rs. 150 crores

Microinsurance Bajaj Allianz, ICICI LOMBARD

Mahasemam has tied up with insurance companies like Bajaj Allianz and ICICI

LOMBARD to provide insurance cover to its members.

5. Claims Settlement (as Nov 2009)

Claims Nos. Amount (Rs)

Total Claims made 548 3034000

Claims Settled 454 2600000

63

Claims Pending 85 434000

6. Loan Products

Product Purpose Term Interest Rate

Income Generation

Program Income Generation

Collateral Free

Term – 50 Weeks

Repaid weekly

12% Flat

Small Business Loan To start up small

business unit

Collateral Free

Term – 100

Weeks

Repaid weekly

12% Flat

7. Overall Performance

March‘09 March‘08 March‘07 March‘06

Branches (Nos) 88 71 65 29

Villages (Nos) 2,832 2,263 2,216 640

Centers (Nos) 7,678 6,129 5‚603 2,553

Groups (Nos) 59,877 48,560 44‚759 18,724

Members (Nos) 2,88,822 2,32,393 2‚21‚613 92,145

Staffs (Nos) 752 692 650 297

Cumulative Borrowers (Nos) 7,33,513 4,59,477 3,30‚082 1,30,584

Active Borrowers (Nos) 2,51,127 1,98,407 1,75‚089 68,361

Cumulative Loans (Rs in Lakh) 58443 37800 22245 8565

Recovery Rate (%) 98.74 98.9 99.0% 99.1

8. Observation on Microinsurance (Mahasemam)

Microinsurance is believed as compensation paid on the event of physical and financial

loss of a microcredit client. It safeguards the loss in income of the family in case of risk

event. Worse affected groups are women members of the family and particularly on the

event of the death of spouse and the children or death of parents. Micro insurance

products are covering life of client. Sometimes their health care was arranged in selected

hospitals. On the occurrence of the death of a client, the claim amount would take care of

the loan liability or assist other family members to sustain their earnings.

64

Major constraints of Microinsurance

Product Constraints Suggestion

Life

Expecting more claim, Lot of

clarification required for claim

Low premium covering client as well

as family members and quick claim

enable to include all in this scheme

Health

Response is very less and not

willing to go for hospital treatment

Decentralized facilities may reach

more to seek for health care

Livestock

Annually collected is not repeated

till animal alive, not bothering the

health care of animals

All premium for few years at

concessional price attract many to go

for insuring many animals

Assets

Limited awareness on insuring

assets from risks

Loaned assets may be covered during

the tenure and this may be practiced

even after settling off the dues

Crop

Loaned members go for this and

others ignored this proposal

Uncertainty and safety to save your

risk invisible to farmers

Others Compulsory schemes are normally

taken up

All to be taught to know the feature of

the scheme.

Health Care Measures

A micro health insurance cover is extended by Mahasemam in collaboration with

Meenakshi Mission Hospital and Research Center and ICICI LOMBARD‚ a major player

in private insurance sector. The premium of Rs. 125 will be paid by the Trust, thereby

ensuring it to be a totally free of cost facility for the beneficiary. Mahasemam members

can avail the medical facility at the hospital free of cost by just producing their identity

card. Insurance cover has been provided to 30,498 members from 10 Branches, in and

around Madurai. The same facility will be extended to all the members in a phased

manner. The Trust has paid Rs.3‚812‚247 as premium to ICICI LOMBARD.

Mahasemam in association with Meenakshi Mission Hospital & Research Centre

provides health benefits to its members. MMHRC conducts regular medical camps at the

centers that include General Health Check up Camps‚ Eye Camps‚ Blood Donation‚

AIDS Awareness Camps etc. For all major illnesses, members are provided healthcare

services at very nominal and subsidized rates. Mahasemam in association with

Meenakshi Mission Hospital & Research Centre(MMHRC), Madurai has launched a

telemedicine project for its members . It is the first MFI in India to have successfully

implemented the Scheme for the hitherto neglected sections of society living in the far

flung villages. The project is supported by ―Direct Relief International‖ (DRI, USA) and

Indian Space Research Organization (ISRO, India).

65

C. ASA Gram Vidiyal, (Tiruchirapally)

1. Profile

Name & Location: - ASA Gram Vidiyal, Tiruchirapally, Tamil Nadu

Type of Institution: Trust – MFI – NBFC

Grama Vidiyal is a microfinance institution that provides, collateral-free loans to women

without access to formal credit, thus facilitating the economic, social and political

empowerment of these women and their families. Grama Vidiyal‘s parent organisation,

Activists for Social Alternatives (ASA) is a public charitable trust founded in 1986. It has

been in existence as a Public Charitable Trust since 1996. It received the Non Banking

Financial Company Licence in February 2007 and transformed itself in January 2008.

It has provided small loans to poor women who do not have much access to formal credit.

Later, it started offering a range of financial products to its members. Its success during

last one and half decade has helped and to transform it from a charitable trust to a

regulated Non-Bank Financial Company (NBFC). After becoming a NBFC, Grama

Vidiyal has achieved an accelerated outreach in microfinance field.

Vision: Free, Productive, Prosperous, Humane and Sustainable "Grama Vidiyal" Family

Mission: To empower women of the poorest families socially, economically and

politically through networking them into community institutions and through efficient

poverty alleviation and microfinance programme.

Year of Operation: 1996 (Trust) 2007 (NBFC) - Grama Vidiyal Micro Finance Private

limited GVMF(P)L, 1993 (Microinsurance – at own initiative)

Details of Staffs: Total staff – 3759 (Staffs at Head Office – 355, Project Staff – 438,

Field Staff – 2966, Staff involved in Micro insurance Operation-23)

Area of Operation: Total 408685 members, 154 branches operated in 21 districts of

Tamilnadu and Puducherry.

66

2. Microinsurance Product

Grama Vidiyal had initiated its own micro insurance scheme in 1993. Since, then it has

been dealing with the microinsurance for its clients. But during 2004-05, it finalized to

deal with formal market based life insurance product after negotiating with both public

sector and private insurance companies like LIC, ICICI, Tata AIG, Max New York Life,

Bajaj Allianz. All its clients are covered under group life insurance from Bajaj Allianz.

The sum assured is INR 20,000 to the family of the deceased member, on the death of the

member due to any cause. The premium for the product is reasonably low and the

documentation required for processing of claims is minimal. Grama Vidiyal has worked

with various companies in delivering insurance. For the last three years alone the number

of lives covered using insurance is 363,751 and the number of the families enlightened

with the claim benefit worth in INR 10,360,000.

3. Claims Settlement

SL Period

No. of Claims Amount of Claim

Settled (Rs) General

Loan Business Loan

1 2008 – Nov 2009 421 1 8,470,000

2 2007 - 08 97 4 2,140,000

3 2006 - 07 (This period were under Market study by the MFI)

4 2005 - 06 266 0 5,540,000

5 2004 - 05 110 0 2,200,000

TOTAL 894 5 18,350,000

4. Insurance Partners

•Previous Partners: LIC, ICICI Lombard, Max New York, AMP Sanmar & TATA-AIG

•Current Partner: Bajaj Allianz

5. Fund Partners/Funding Agencies/Sponsoring Organization

FWWB, HDFC, Citi Bank, Reliance Capital, HSBC, IDBI, DCB, ICICI, Punjab National

Bank, BPN, SBI, ING-Vyasya, KVB, Yes Bank, Kotak Mahindra Bank, Bank of India

67

6. Loan Activity:

General Loan:

The General Loan currently comprises about 80% of Grama Vidiyal‘s total loan

portfolio. These are small, collateral free loans offered to women entrepreneurs. The

loans are disbursed to women federated in groups of 5 or more, with the other members

serving as guarantors. Repayments for the loans are made at weekly centre meetings,

facilitated by field managers. General loans range in size from Rs. 5,000 to Rs. 15,000.

Seasonal Loan:

Grama Vidiyal provides Seasonal Loans to members who already have a General Loan

outstanding and have a history of regular and prompt repayment and regular centre

meeting attendance. These loans are offered at times of school admissions and festivals.

Seasonal Loans of Rs.1,000 to 2,000 are offered. The Seasonal Loan business is a small

part of Grama Vidiyal‘s operations, comprising only 7 to 10% of the outstanding loan

portfolio.

Business Loan:

After providing financial services to entrepreneurial women for more than a decade,

many members had stabilized and grown their businesses to a great extent. To meet the

needs of these clients, Grama Vidiyal launched another loan product – the Business Loan.

Business Loans are offered to members with at least two years of repayment history. The

Business Loan is an individual loan and does not require the guarantee of other group

members, but does require a more extensive application in which the business concept,

cash flows, and profitability of the business activity is considered. A two year or one year

loan will be offered depending upon client‘s repayment capacity. Size of business Loans

ranges from Rs.25,000 to Rs.50,000. These loans currently make up 7 to 10% of the total

loan portfolio.

68

7. Overall Performance:

31 Mar

2004

31

Mar

2005

31 Mar

2006

31 Mar

2007

31 Mar

2008

31 Mar

2009

No. of Districts 6 6 11 14

19 + 1

union

Territory

27 + 1

union

Territory

No. of Branches 27 30 45 54 91 154

No. of Members 68,187 75,943 91,680 191,224 263,009 408,685

Amount of Loan

Disbursed (Rs in

Lakh)

7200 10600 15610 29240 49980 88260

Amount of Loan

Outstanding (Rs in

Lakh)

1580 1630 2540 8020 11560 20250

Repayment Rate (%) 98.17 98.03 98.01 99.69 99.36 99.99

8. Observations on Microinsurance (ASA Gram Vidiyal)

Target groups of Grama Vidiyal are mostly poor and rural women between the age of 18

and 55. It provides loans to those women who carry out an income generating activity.

Grama Vidiyal aims at a high growth during 2010 to reach over 1 million members with

expansion of branch offices of 350 and outstanding of Rs. 685 crores from currently 154

branch offices and Rs. 203 crores in loans outstanding. Currently Grama Vidiyal provides

three types of loans and term group insurance to its members:

• General loan: Collateral free loans of small amounts to groups of women entrepreneurs.

Loan size Rs. 5,000 – 15,000.

• Seasonal loan: Consumption loans up to Rs 2000/- is offered to members in dire need

of money at times of school admissions and festivals.

• Business loan: Given to individuals who have demonstrated a regular and prompt

repayment history over 2 years. Loan size Rs. 25,000 – 50,000.

Besides these products, Grama Vidiyal also offers microinsurance products or risk

mitigation products and has diverse experience in handing microinsurance.

69

Diverse Experience of the Gram Vidiyal (GV) in Micro-Insurance:

GV has diverse of experiences in microinsurance over one and half decade.

I. 1993-1997: Rs 10 for the first 1000 rupees of every loan and Rs. 5 for every

additional 1000 was deducted as a proxy for premium for insurance of the

borrowed members. In case of eventuality Rs. 500 was paid to meet funeral

expenses on the same day to the family of the deceased member.

II. 1997-2000: Capital insurance payment Rs. 500 was collected, which is refundable

(or) Premium Payment Rs. 50 was collected per annum for a coverage of Rs. 5000

per member in case of natural death or accidental death

III. 2000-01: Capital insurance payment Rs. 500 was collected, which is,

refundable (or) Premium Payment was raised to Rs. 60 per annum for insurance

cover of Rs.5000 (In-house) in case of natural death and for an accident policy of

Rs.25000 (Linked with United India Insurance – for a premium of Rs. 15)

Experience With Public Sector Insurer: LIC

LIC – JBY Scheme (Jan 2001- May 2002)

Coverage: SHG members

Policy Term: One Year

Premium Payment: Rs. 100

Government contribution: Rs. 100

Age : 18- 60 Years

Sum Assured : Natural death – Rs.20000

: Accidental death – Rs.50000

: Partial Disabilities- Rs. 25000

: Total Disabilities - Rs. 50000

Major Constraints with LIC: Insisting on cumbersome process of handing insurance such

as manual document (individual signature), lengthy documentation (death certificate,

copy of FIR from Police station, identity proof ), delay in claim settlement, not covering

past diseases, mode of payment: (payment through Bank only) and non-coverage of

common events (suicide, snake bite, drowned in the well, mortality during the pregnancy)

were major constraints with LIC.

70

Partnership model (ASA-UIIC, ICICI Lombard) Jan 2002 to June 2002

Premium Payment :Rs. 100 (Premium payment to company Rs. 27.25 + Premium in

house coverage Rs. 72.75)

Age : 18- 60 Yrs

Coverage : Natural death– Rs.20,000/- by (in-house policy of Gram Vidiyal)

: Accidental death – Rs.50,000 by General Insurance Company

: 1100 members

: Manual Documentation – with client signature

Major Constraints with Partnership Model: Life Insurance was done in-house – 20000

members, More death occurred of natural causes, Possibilities for death caused by

accident are very low in rural areas, Insurance does not covered causes such as suicide,

snake bite, and drowned in the well,

In House Insurance Model (July 2002- Feb 2003)

Premium Payment :Rs. 100

Age : 18- 60 Yrs

Coverage : Natural death & Accident Death – Rs.20,000 by ASA

Feature : No need death certificate , Member‘s declaration enough

: Within a week time sum assured amount settled

: 20 Claims settled by ASA with total amount Rs. 400,000

Negotiated with Insurers

Insurers Premium per person (Rs)

Birla Sunlife :Rs. 90-156 (Age based )

HDFC Standard : Rs. 180

ICICI prudential : Rs. 200

ING Vysya : No response

Max New York Life : Rs.70.40

Om Kotak Mahindra : Rs.144

SBI Life : Rs.36

Met Life : RS.72

TATA AIG : Rs.72-180 ( Age based)

Allianz Bajaj : Rs.36

AMP Sanmar :Rs.36

Dabur Aviva : No response

It was finalized with Allianz Bajaj because of low premium of Rs. 36 for Sum

Assured of Rs. 20,000. A strong negotiation, regular communication, simplified and

minimum claim settlement procedure and support services (staff training) are the

merits to select this insurance over others.

71

Comparative Observations & Suggestions of MFIs on Microinsurance

Under partner agent model, a partnership between an insurer and an agent that provides some

kind of financial services to numbers of low-income people. Here, MFIs are selling insurance

policies to the clients on behalf of the insurance provider (usually) in exchange for a

commission or fee. Though the partnership model uses the comparative advantage of each

partner, but it depends on the key principles, vision and mission and other objectives of the

MFI. There are some different observations and suggestions about microinsurance by the

sample MFIs are reported as given below.

Observation &

Suggestion BISWA Mahasemam GramVidiyal

Experience in

Microinsurance

3 years (2006-07) 8 years (2001-02) 16 years (1993)

Type of

Microinsurance

products deal in

and Insurance

companies

Life Insurance (Tata

AIG, LIC)

Health Insurance (OIC,

ICICI Lombard)

Asset Insurance (OIC)

Life Insurance (Bajaj

Allianz, ICICI

Lombard)

Life Insurance (Bajaj

Allianz, LIC, Tata AIG,

ICICI, Max New York

Life)

Mode Payment

of Insurance

Premium

Direct deduct from loan

amount or option for

separate loan for

insurance premium

with general loan

condition

Direct deducted from

loan amount

Direct deducted from

loan amount

Insurance Cover Life cover for spouse is

already there in life

insurance

Group member with

three family members

(1+3) in health

insurance

Life of spouse not

covered

Spouse are not covered

due to high male

mortality rate. But

some monetary support

are offered by MFI for

funeral in case of death

Coverage for entire

family with lower

premium is suggested

Life of spouse not

covered

High male mortality rate

is major constraint to

cover life of spouse

Covering life of working

member of the family in

clients‘ policy is

important but it is not

acceptable to insurers.

Health Insurance Health insurance for the

group member and

other three family

members

No formal health

insurance product

offered

People are not willing

No formal health

insurance product

offered

Health insurance is more

72

Demand for health

insurance that cover

day to day common

health problems is more

in demand than

hospitalization and

surgery. Current

microinsurance hardly

meets the needs of

clients.

to use some certified

hospitals under health

microinsurance tried

earlier

Provision of alternative

low cost health care for

the clients are in

progress

complex process to

execute and claim

settlement is more

cumbersome.

Provision of Health

insurance may be tried in

coming years

Other insurance

product

People are interested

for livestock insurance

for low productive

animals

Livestock insurance

may work if the

insurance period is

more with low

premium

Accident/mortality due

to common events such

as snake bite, drowned in

well or during delivery

should be covered.

Claim

Settlement

Early and quick

settlement of claims

with minimum

documentation

Certificate from

Sarpanch/local officers

and SHG may be

accepted for age proof

and other verifications

Increase in Time to

submit FIR from 24

hours to 72 hours in

case of eventualities

Early and quick

settlement of claims

with minimum

documentation

Certificate from

Sarpanch/local officers

and SHG may be

accepted for age proof

and other verifications

Early and quick

settlement of claims with

minimum documentation

Certificate from

Sarpanch/local officers

and SHG may be

accepted for age proof

and other verifications

Mode of payment for

claim should be relaxed

for those who do not

have a bank account

Other

Suggestions

Reduction of Service

Taxes,

One month grace

period for renewal of

policy,

Refund of 50% of the

premium for health

insurance in case there

is no claim

Pre existing diseases

should be common for

all insurers and may be

insisted at the

beginning not at time of

claim

Compusory insurance

scheme will work but

there is a gap in

information and

awaremness for other

products such as crop

and asset insurance.

Commission from

insurance companies are

very low and not

encouraging for the field

staffs

Regular training about

new product and

delivery method may be

initiated by insurance

companies

73

Summary

Functioning and experiences of all three selected MFIs in dealing with microinsurance

offer some important points for other microfinance institutions in particular and other

stakeholders in general. MFIs can be one of the channels for microinsurance products but

many of them do not deal with the products and services that the clients need. Some

issues and constraints relating to microinsurance activity emerged in above discussion, as

informed by the MFIs, are worth noting here. From the above discussion it appears that

demand for insurance services and issues relating to microinsurance activity are diverse

in nature. The challenge for the MFIs and its clients is to figure out the most cost-

effective solutions to their primary problems. There may be a trade-off between reaching

many people with a simple (mandatory) product working in the study areas. Some major

constraints, specific to partner-agent model, of microinsurance are summarized here.

Experiences and views of MFIs, may be used while designing and expanding

microinsurance products. By ensuring this microinsurance products can be made more

attractive to more groups and areas. Suggestions of MFIs on inclusion of spouse in

insurance policy, especially for women to really benefit from life insurance, should be

welcome with precaution to meet adverse selection problems such as age of husband etc.

It makes sense for MFIs to start with a simple life policy to learn about insurance and

once they know how to manage insurance risks, they may deal in variety of insurance

product to meets clients‘ needs. But it did not appear in our study areas. It is interesting to

see that relatively older and experienced MFIs (ASA GV and Mahasema) are dealing

with mainly life insurance products as compared to a younger MFIs – BISWA – dealing

in life, health and asset insurance. Perhaps, the mission, vision and principle of respective

MFI considerably influenced which products were selected and how they chose to sell

and service them.

The insurance product is closely linked with clients‘ loan activities with MFIs. Though

this link is believed to improve efficiency and outreach of microinsurance, but risk events

can happen before or after loan period or for those who do not have a loan. On the other

74

hand, as insurers are legally compelled to sell insurance to low-income clients, it is

difficult to see the advantages of an MFIs selling insurance, unless the commission for

doing this is adequate. Similarly, choosing and changing insurance partner by MFIs pose

challenges to meet their targets. For instance, all three MFIs in our study had undergone

several rounds of rigorous and lengthy process of negotiation to finalize the business.

Still they had to change insurance partners quite often, which can affect their activity and

cause confusion among the clients and staffs. In this context, experiences of ASA GV is

quite interesting, especially in negotiating hard to get good products and processes from

insurers at a decent price. On the other hand, an alternative to the situation for frequent

change of insurance partners BISWA followed a practice of reducing business with its

earlier partners and explored new suitable partners to minimize adverse effects and

confusion among staffs and clients.

As regard to claims processing system, MFIs are insisting that they would pay the claims,

and then be reimbursed from the insurer, based on documentation that is appropriate for

their clients. As MFIs might undertake prevention strategies to fulfill its social mission

and these interventions could have the additional advantage of reducing claims. Though it

make sense but they have not been successful in negotiating with their insurance partners.

Regarding efficiency in product delivery, it depends on the simplicity of the product or

product menu. Simple products are easier to administer and easier for clients to

understand. This could be the reason why life insurance products are found dominant in

the study area. However, different perceptions and priorities of different stakeholders

about microinsurance can significantly influence its outreach and efficacy. A cost-

effective solution to different perspectives of the stakeholders did not emerge out of

above discussion. But the principles, mission and vision of respective MFIs‘ seems

influence the selection of insurers and the products to sell and service them. It appears

that MFIs are keen to meet their target of reaching many people with a simple

(mandatory) product – life insurance. Ensuring the products that meet clients‘ needs,

reduction of service tax on insurance products, quick claim settlement, easy

documentation and more incentives for MFIs are some common issues that need more

policy attention. These issues may be addressed suitably at policy level.

75

Chapter -5

Microinsurance, Household Risks and Coping Strategy in Study Areas

For the poor and low income groups protecting their incomes and assets could be more

effective way out of poverty and vulnerability. In other words protecting their economic

and financial loses through affordable and effective risk management is as important as to

generate additional employment and income and provision of social safety measures for

these sections. Although pro-poor income-employment generation schemes are wide

spread across the country, less attention has been given to protect incomes of the target

groups in a systematic way. In this context, microinsurance is believed to play an

important role and can be a part of broader poverty reduction and social security policy

strategy. Recently, it has drawn attention of policy makers, development practitioners,

donors, insurers and others to discuss and debate on status, efficacy and outreach of

microinsurance. While the timing of the debate is strategic there is not enough study on

microinsurance available at micro level, especially among different groups and regions.

The present study is a modest attempt to fulfill this gap.

Households with low assets and incomes can have disproportionately large and multiple

adverse impacts with occurrence of smaller risk event. While some sections may

overcome such negative impacts with better risk management tools, many less prepared

households fail to do so. The situation can be worse for some specific groups such as

asset-poor, low-income groups and women due to their low capacity to manage risks.

This is possible, particularly, in absence of adequate formal insurance cover. However,

use of formal insurance and institutionalization of household risk management, is

abysmally low among these groups due to several factors. One of the key factors is the

nature of credit access and occupation/enterprises of household. Though access to

financial services - credit, saving and insurance and its effects on their risk coping

behaviour have been debated in development literature it vary widely across groups and

regions. Part of this debate has focused on the potential role of financial services in

76

helping the affected groups to manage common risks and prepare them better for such

events in future.

Microinsurance is an important component of financial services mainly available to the

low income groups under different supply channels involved in microcredit. In this

chapter we have analyzed participation of some select women microcredit clients in

microinsurance and discussed other related issues to understand the outreach and efficacy

of microinsurance. In this regard, the relationship between household‘s major activity,

differential access to financial services and their risks and risk coping behaviour are

highlighted. To begin with, sample households are categorized into some broad groups on

the basis of their major occupations, most of which are financed by microcredit

programme. The categorization was made keeping in mind distortions in household

income and employment due to their uninsured risks and their likely risk coping strategy

for income and consumption smootheing. It will also depict a broad idea about their risk,

needs for insurance and other financial services. Analysis is made at the level of seven

groups, three regions (three study areas) and total sample.

Households encounter different types of risks with different severity impact. At

household level, risks mitigation can take place at two different stages. The first stage

refers to ex-ante arrangements for exposure to risk which aims to maintain income flows

or income and expenditure smoothening in case there is income shortfalls. Measures for

lowering the ex-ante risks generally consist of conservative production decisions and

diversifying household activities (traditional farming, mixed cropping, non-farm activity,

multiple occupations, increasing working members and hours). These arrangements by

the households to cope with risks lead however, mostly to losses in the profitability of the

respective economic activities (Morduch, 1995, Ruthven and Kumar 2002).

The second stage refers to ex-post mechanism of dealing with the loss or damage. It

consists of borrowing, receiving remittance, adjustment in major consumption and other

expenditure (on education, health, food, festival), diversifying household resources

(putting women and child on work, and increasing working hours) and other measures.

77

These risk coping mechanisms can have wide and lasting adverse socio-economic impact

on poor and low-income households. Adequate and effective financial and insurance

arrangements such as saving, insurance and borrowing could be important options to deal

with such situation and damages. But formal insurance products and process are hardly

known to many poor people.

Insurance is an ex-ante risk management tool through which household hedge potential

financial losses in exchange for fixed premium payments. As access to and use of

financial services including insurance is low and irregular among low income groups,

their self-insurance arrangement determine their risk managing capability. In this

situation, the nature and quantum of social security measures do matter in managing risks

and augmenting capability of the households to cope with adverse events. In the context

of limited coverage of social safety measures and absence of household access to

adequate formal insurance, role of microinsurance could be encouraging.

Risks can be classified as idiosyncratic6 and covariant risks

7. At household level, there

are two types of risks we focus in this study that affect household income and

expenditure smoothening. One, risks related to life and life cycle events such as death,

disability and illness. Two, risks related to livelihoods such as loss of crop, livestock,

fisheries etc. Rosenzweig and Binswanger (1993) investigated the effects of risk on the

allocation of production resources among farmers, differentiated by wealth. Using the

panel data set from the ICRISAT villages in India and its information on investment,

wealth and rainfall, they examined how the composition of productive and non-

productive asset holdings varies across farmers with different levels of total wealth and

across farmers facing different degrees of weather risk. The results show that farmers in

riskier environments select portfolios of assets that are less sensitive to rainfall variation

and less profitable. Vulnerable households are more likely to diversify their plots. In

agriculture dominated economy like India, poorer households tend to choose less risky

production strategies and the tendency to shift to a less risky portfolio is greater among

6 Idiosyncratic risks are risk particular to a household

7 Covariant risks are systematic shocks common to the community or region

78

households with less inherited wealth. Households with borrowing constraints choose

less risky portfolios of crops and plots. These contexts are quite similar in our study areas

and households behave as least risk takers may be due to their own socio-economic

characteristics or due to their low access, arrangements and use of financial services such

as insurance. Under this background, we will discuss the nature of microinsurance, risk

and risk coping behaviour of household in study areas. In the next section we have

briefly analyzed features of sample households and linked it with their participation in

financial and insurance product, wherever possible.

5.1 Household Features

Household features such as family size, literacy, working members, type of house, asset

holding, occupation and other socio-economic characteristics are crucial in determining

household need for finance. It is believed that there is strong relationship between

household composition, family size and asset holding pattern and demand for different

financial products. For example, households having bigger family may be less likely to

opt for formal insurance. More educated and better-off people may go for insurance as

they can afford and are able to understand the concept and principle of insurance and its

technical procedures.

On the other hand, lower level of education associated with less productive jobs and

lower income can reduce possibility of having market based insurance. Ownership of

productive assets, land, consumer durables and house can induce demand for insurance

and other financial products. In sum, better asset-endowed households have positive

effect on taking up more and more financial products. Since most of the sample

households do not possess land, their non-land asset holding may act as an important

determinant for household participation in insurance products.

It may be seen the data presented in the table – 5.1 that average household size in the

study areas is 4.1 persons and it varies from 3.8 persons in Madurai to 4.8 persons in

Sambalpur. In activity groups, average household size is found higher in more labour

intensive and low-return activities such as handicraft (5.6 persons) agriculture (4.6

79

persons) than high-return activities like retail trading (3.6 persons) and skilled based

activities (3.8 persons). Here the possibility of using insurance will be less for households

those who are engaged in low average income and labour intensive activities as their

major occupation. We will discuss more on this topic in subsequent sections.

Table -5.1: Features of Sample Households (HH)

By Activity

HH

(Nos)

HH

(%)

HH

Size

Group

Member HH

Literacy

(%)

House Type (%)

Age

(yrs)

Literacy

(%) Kachha

Semi

Pucca Pucca Rental

Agriculture 14 21 4.6 37.6 92.9 93 50 36 14 0

Dairy 9 13 4.0 42.2 88.9 88 22 33 33 11

Handicraft 5 7 5.6 31.2 80.0 85 20 80 0 0

Hotel&

Restaurant 5 7 4.2 40.6 80.0 95 0 60 20 20

Retail Trading 16 24 3.6 35.7 93.8 94 13 31 50 6

Manufacturing 6 9 4.2 39.5 100.0 100 0 50 33 17

Skill based

activities 12 18 3.8 34.9 100.0 95 0 50 25 25

All Activities 67 100 4.1 37.2 92.5 93 18 43 28 10

By Region

Sambalpur 15 22 4.8 36.3 84.7 73 53 33 13 0

Madurai 21 31 3.8 36.8 96.3 95 0 43 43 14

Trichy 31 46 4.0 37.9 96.8 99 13 48 26 13

All regions 67 100 4.1 37.2 93.5 92 18 43 28 10

Source: Field Survey

Average age of the group members (respondents) is 37 years and it is more or less same

across the study regions. But it varies from 42.2 years in dairy to 31.2 years in

handicrafts. Overall, most of the group members were within the middle age group. There

were about 10 percent of total sample households were headed by females whose need

for insurance product is likely to be more than others.

5.1.1 House Types

House type is often viewed as a proxy for socio-economic status of the household. We

looked at three house types on the basis of quality (kaccha – low quality; semi-pucca –

medium quality; and pucca – good quality) and one on ownership (rental house). A

skewed and different distribution of house types across the three locations was observed.

80

Range of kaccha type houses vary from about 73% in Sambalpur to almost absent in

Madurai. Similarly, range of pucca houses vary from 13% in Sambalpur to 43% in

Trichy. Implication of different type of houses owned by the households is also reflected

in terms of their participation in type of economic activities and financial services.

Activity wise, half of the houses in agriculture group were kaccha and half of the houses

of those involved in trading activity were pucca. Better type of housing was negatively

associated with household size showing that families living in better houses reported

fewer numbers of members. These households are likely to have better financial services

than their counterparts in other categories. About 10 percent of total sample households

use houses on rent, mainly those who are involved in high return activities such as skill-

based activities, hotel & restaurants and manufacturing. The overall picture emerging

from the household features discussed above, is that households having better house,

smaller family size and high return activity are likely to have more financial products. In

this regard many household in Sambalpur are less likely to have more financial products,

particularly insurance product.

5.1.2 Education & Skill

Surprisingly, overall literacy rate in the study areas was reported to be very high. In

activity groups except hotel & restaurant and dairy activities, literacy rate was found

more or less same with the group members in respective activities. High female literacy

and low differences between male and female literacy rate among the sample household

was also reported. Gender neutralization in education could have positive relation with

insurance uptake and renewal. A visible gap in literacy rate between group members and

household categories across study regions is evident. For instance, literacy rate of female

group members was 85 percent in Sambalpur which is also higher than overall household

literacy rate. It was found almost full literacy (97 percent) in Trichy. In activity groups it

varies 80 percent in handicrafts, hotel & restaurant to full literacy rate in skilled based

activity and manufacturing. As regard to level of education among the group members

about 45 percent were in primary level and 28 percent were in matriculation level. The

group members having the higher level of education was found in the category of above

secondary level and only in retail trading activity (Table- 5.2).

81

Table - 5.2 Level of Education of Group Members (in %)

Illite

rates Literates

Activity

Functional

Literate@ Primary Middle Matric

Seco

ndary

Above

Seco

ndary All

Agriculture 7.1 0.0 57.1 7.1 28.6 0.0 0.0 100

Dairy 11.1 11.1 66.7 0.0 0.0 11.1 0.0 100

Handicraft 20.0 0.0 20.0 0.0 40.0 20.0 0.0 100

Hotel&

Restaurant 20.0 0.0 40.0 0.0 40.0 0.0 0.0 100

Retail Trading 6.3 0.0 37.5 18.8 25.0 6.3 6.3 100

Manufacturing 0.0 0.0 33.3 33.3 33.3 0.0 0.0 100

Skill based

activities 0.0 0.0 41.7 8.3 41.7 8.3 0.0 100

All Activity 7.5 1.5 44.8 10.4 28.4 6.0 1.5 100

By Region

Sambalpur 26.7 0.0 33.3 13.3 20.0 6.7 0.0 100

Madurai 4.8 0.0 33.3 14.3 42.9 4.8 0.0 100

Trichy 0.0 3.2 58.1 6.5 22.6 6.5 3.2 100

All regions 7.5 1.5 44.8 10.4 28.4 6.0 1.5 100

@ those who can only sign and read in local language

Source: Field survey

About one fifth of group members in handicraft and hotel & restaurant activities were

found to be illiterates. However, in contrast to the general believe of sharp gender

difference in level of education and literacy rate would discourage to participation in

insurance market seems not pronounced in the study areas. This finding demonstrates that

microcredit group members perhaps are gaining better education even in rural and poorer

families. As the level of education is often associated with the prospects of better income

and employment avenues it is worth discussing here. It is also expected that household

with higher level of education would have better risk management capability and would

opt for formal insurance products.

5.2. Household Employment Pattern

Household features and level of education considerably determine the nature of

employment and income pattern. Nature and status of employment of a household

82

influence its economic and financial behaviour. A sound employment status can induce

better saving and insurance options. It may be seen in the table – 5.3 that activities

undertaken by sample households (mostly financed by MFI, hence it is called as loan

activity) are wide spread and shows potential variations in household risk and risk coping

variations in the study areas. It may be noted that loan activities constitute a sizeable

portion of total household employment in all regions and in all activity groups. It shows

the importance of microcredit programme for low-income groups. As expected, the

dominance of female workers in these activities is evident, particularly in dairy, retail

trading, manufacturing and skill –based activity. This is also reflected in terms of average

number of employment (mandays) as discussed bellow.

Except, in agriculture, all loan activities provide more than six months of employment to

who participates in these activities. It reiterates the significance of rural mocrocredit

programme of MFI in the study areas. Depending on the nature of activity and household

strategy total employment from these activities has been shared by male and female

workers. However, feminization of labour intensive activities is depicted from the data

presented in table 5.3. Dairy, retail trading, skilled activity and agriculture are the

activities provide higher employment to female workers than their male counterparts.

Low average employment in non-loan activity (activity not directly financed by

microcredit from MFI) was found where average male employment in loan activity was

low. A positive association between high average employment (mandays) and high

dependency ratio was also found in skilled activity, manufacturing and dairy. It may be

due to higher average income expected from these activities or it could be due to high

work participation rate among working poor. High dependence ratio shows proportion of

non-working member such as school going children and elderly people are more in

numbers. High dependency ratio in agriculture with low average employment could be

due to low labour absorption in farming activity and lack of alternate avenues available to

those households. In sum, the employment scenario of the sample households discussed

above gives an indication that they are likely to be more vulnerable to income and

employment related risks and shocks.

83

Table – 5.3 Household Employment (Major Occupations) by Activity, Region & Sex

Activity

Workers in Major Activity

Employment

(Days)/Year

MFI-Loan Activity* Other

Activity

(%)

Nos of

Person/

Worker

Loan Activity* Other

Activity

(Days)

Total

(Nos)

Female

(%)

Male

(%) Female

(Days) Male

(Days)

Agriculture 26 42 36 21 2.5:1 172 157 182

Dairy 14 50 28 22 2.6:1 322 267 258

Handicraft 18 47 47 5 1.6:1 312 314 299

Hotel&Restaurant 10 45 45 9 2.1:1 362 362 296

Retail Trading 23 57 25 18 2.5:1 293 197 237

Manufacturing 9 43 21 36 2.8:1 261 270 263

Skilled Activities 16 48 29 24 2.8:1 248 222 157

All Activities 116 48 33 19 2.4:1 252 249 230

Regions

Sambalpur 40 39 43 18 1.8:1 252 262 251

Madurai 32 50 26 24 2.5:1 276 298 286

Trichy 44 55 28 17 2.8:1 270 187 168

All Regions 116 48 33 19 2.4:1 252 249 230

* Note: Employment in activity financed by MFI and undertaken by group members

Source: Field Survey,

5.3. Household Income Pattern:

Level of household income and its sources play a crucial role in the household economic

and financial decision making process. While household income flows depends on

several factors including its resource use pattern, access and use of financial products and

nature and degree of uninsured risks etc. it also shape the possible household strategy for

income and consumption smoothening during the crisis. In this context, any additional

income, irrespective of its sources is welcome and it can make a difference in household

risk coping behaviour. For instance, household receiving remittance, in spite of its

quantity, can influence household economic and financial behaviour. During the field

survey it was reported that households having regular remittance possessed formal

insurance products prior their coverage under group microinsurance by MFI. Since more

and more workers migrate for better avenues, possibility of those households

participating in insurance market may increase with increase in remittances. Household

income data presented in the table - 5.4 demonstrates some important points as discussed

below.

84

Average annual income was found much higher in dairy activity followed by hotel and

restaurant, retail trading and manufacturing. It was lowest in handicraft activity which

accounts for only half of the household income in dairy activity. Surprisingly, average

household income in skilled activities was also found low – little higher than only to

handicraft activity. It may be due to lower average return of the activity as average

number of employment is not bad. Possibility of avoiding high return high risks as a

coping strategy of such households cannot be ruled out. A higher annual average income

in non-loan activities than loan activity is reported. Similarly, average income per person

from non-loan activity was found higher than average income of female worker in loan

activities in all regions and all activities except in hotel and restaurant. Average income

of a male worker in other skilled activity was found notably higher than the

corresponding income in loan activity. It shows the lower return or average income from

loan activities, particularly for women workers. Conventionally, lower average income

does not encourage insurance uptake and renewal, particularly for females. Low average

income of loan-activities, in spite of its high employment potential, is a matter of concern

but detail analysis of this is beyond the Scope of present study. Risk of low and irregular

income of the sample households from their current occupations is evident and might

influence their participation in insurance market.

From the above discussion on household employment and income, conventional gender

inequality in income and working period is visible. This is more pronounced in skilled

activities, retail trading and manufacturing activities. It may be noted that female workers

share more number of employment (mandays) but it may not fetch them more average

income. This is found true in retail trading, skilled activities and manufacturing activities

where average employment in loan activity for female workers was high but not in terms

of average income. It implies that the rate and intensity of employment is high in case of

female workers but it does not necessarily translate into higher level of income. Low

average income in handicraft and agriculture, mostly labour intensive activity, also

corroborates this trend. Implication of this trend is it may have adverse impact on

women‘s bargaining power and household decision, especially opting for insurance

uptake and its renewal for female members.

85

Table – 5.4: Household Income (Major Occupation) by Activity, Region and Sex

Activity

Average Annual Income (Rs) of Major Activities

MFI-Loaned Activity* Non-

loaned

Activity/

Person

All Major

Activities/

Person

Total

Income/

Household

Average

Income/

Female

Average

Income/

Male

Agriculture 21607 20158 23042 22433 52879

Dairy 43369 47325 89639 70560 141119

Handicraft 18480 18715 18629 19622 70640

Hotel&Restaurant 57850 57850 51250 54250 119350

Retail Trading 45544 65961 73577 62960 110180

Manufacturing 34200 41800 56265 46809 109220

Skilled Activities 27466 70717 56054 44226 77396

All Activities 33087 43032 47626 43800 94138

Regions

Sambalpur 26322 29465 40644 36260 99805

Madurai 40220 51755 61786 51003 102006

Trichy 35986 47772 45128 45065 77046

All Regions 33087 43032 47626 43800 94138

* Note: Employment in activities financed by MFI and undertaken by group members

Source: Field survey

Note- To normalize Average HH income in Sambalpur income of 13 households has been

accounted

Interestingly, some associations between incomes from non-loan and loan activities exists

in many contexts. It shows the inter-activity linkages that may help to achieve and

maintain a desired level of household income. This is crucial for households income

smoothening and risk managing strategy. Notable differences in level of income found

across regions, activity groups, occupations and sex. This would be crucial for

determining the differences in the nature and pattern of insurance preferences and intake

among the sample households. However, evidence for income inequality found at worker

and household level within the locations surveyed, indicates inequality in household

expenditure, borrowing and saving. The likely consequence of these findings on

household participation in insurance market is that uniformly designed fixed value

insurance products may not match to the requirement of many poor households. On the

other hand, there may be some low-income households who cannot afford to pay for

insurance if it exceeds the uniformly fixed premium. With different level of income and

ability to pay among the households it would be interesting to analyze the preference and

86

uptake of uniform insurance products among the target groups. Before discussing this in

detail we highlight household borrowing and saving pattern which constitute important

part of household‘s demand for financial products. It is believed that household

participation in credit, saving and insurance markets are interlinked.

5.4. Household Borrowing & Saving Pattern

Conventionally, asset-poor and low-income groups, in rural areas, are less likely to use

credit from bank or institutional sources than depend on informal credit from local

moneylenders and others. Considering the welfare costs of exclusion from the banking

sector, especially for the rural poor are high, widespread government intervention in the

banking sector of low income countries is well document (Besley, 1995). Promoting

growth of microfinance is also an important intervention in this regard. Here we have

discussed some aspects of household borrowing and saving in the study areas and tried to

link with their participation in microinsurance. Here we have examined household

borrowing by analyzing the amount and sources of lending, rate of interest, incidence of

multiple borrowing etc. by activity groups. Household preferences for lending sources

and the gap between the credit demand and credit obtained are particularly highlighted.

Since all respondents are microcredit clients their loan activities from MFIs constitutes an

important part of total borrowing activity.

Households engaged in regular borrowing and saving activities may have better exposure

to financial markets and there is possibility that they would like to explore insurance

markets. Since our respondents are already exposed to microcredit programme and other

financial transactions their participation in insurance may be easier now. However,

availability and functioning of banking infrastructure and credit policy interventions play

a key role in household exposure to financial markets. In recent years, series of state led

credit, savings and insurance programs though a welcome step in this direction, but its

success in reaching the poor and targeted groups remains debatable.

As expected, average household loans from informal sources tend to be larger and with

very high rates of interest. It may be seen in the tables 5.5 and 5.6 that, average

87

household credit from MFI and other institutional sources such as banks and cooperatives

remain much lower than informal credit. It is mainly due to the fact that many poor

households do not qualify to avail formal credit as they fail to meet the eligibility criteria

set by the lending institutions. But interventions by microcredit programme seems to

arrest this trend and it is reflected in terms of an inverse association between average

MFI-credit and informal credit in the study areas. For example in Trichy average

household credit from MFI was Rs 17613/-, which is the highest in all three study

locations, reported lower average informal credit per household of Rs 11300/-. In

contrast, average household borrowing from informal sources in Madurai was about four

times of the average household borrowing from MFI credit. It shows the wide gap

between credit demand and supply form formal sources among households in the study

areas. This trend was also found in case of microcredit from MFI and it was very high

(about three times) in Sambalpur with SHG model.

Table – 5.5 Average Household Borrowing from MFI by Activity & Regions

Activity

Total

HH

(nos)

Borrowing

HH (nos)

Credit

Demanded

(Rs)/HH

Credit

Borrowed

(Rs)/HH

Rate of

Interest

(%)

Agriculture 14 13 13055 12901 15.1

Diary 9 9 34444 14444 14.7

Handicraft 5 5 9519 5249 20.0

Hotel &

Restaurant 5 5 11600 11200 12.0

Retail Trading 16 15 20667 15600 13.1

Manufacturing 6 6 15500 14667 12.0

Skill Activities 12 11 20091 17545 12.0

All Activities 67 64 18895 13984 13.9

By Region

Sambalpur 15 13 27593 9640 20.0

Madurai 21 19 12158 11263 12.0

Trichy 31 31 18935 17613 12.0

All Regions 67 64 18895 13984 13.9

Source: Field survey

In activity groups, gap between credit demanded and obtained from MFI was lower in

handicraft due to higher institutional borrowing (the highest among all activity groups)

and some product specific problems such as high market orientation. In dairy activity

high demand for credit from MFI was unmet. Here high value livestock (hybrid cows)

88

carry high risks and the lending institutions may be reluctant to extend credit without

adequate risk managing arrangements. Households engaged in skill based activities, retail

trading and manufacturing had higher credit from MFI due to the nature and returns of

these enterprises that involve lesser risks.

From the above discussion it appears that households who borrowed more in quantity

from both formal and informal sources were more likely to be engaged in high value and

high risk enterprises such as diary activity. But the reverse may not be true as households

engaged in low return activities such as agriculture which is also a high risk activity. In

sum, household borrowing, activities and related risk seems interlinked. Our analysis

based on major activity groups will help in understanding such links from the perspective

of insurance products.

Table –5.6 Household Borrowing from Non-MFI by Activity & Regions

Institutional Borrowing Informal Borrowing

By Activity

Groups

Borro

wing

HH

(%)

Credit

Demand

ed

(Rs)/HH

Credit

Borrow

ed

(Rs)/HH

Rate of

Interest

(%)

Borrow

ing

HH (%)

Credit

Demand

ed

(Rs)/HH

Credit

Borrow

ed

(Rs)/HH

Rate of

Interest

(%)

Agriculture 21 13333 13333 11.0 57 9563 9563 40.5

Diary 22 10500 10500 13.0 33 13333 13333 28.7

Handicraft 40 30000 30000 10.0 80 11875 9425 46.0 Hotel &

Restaurant 0 0 0 0.0 40 18500 12500 24.0

Retail Trading 13 72500 72500 11.0 31 258400 66400 61.0

Manufacturing 17 8000 8000 8.0 33 153000 28000 21.0

Skill Activities 8 5000 5000 8.5 25 318333 90000 62.3

All 16 24636 24636 10.0 40 102000 31007 43.6

By Regions

Sambalpur 20 28333 28333 10.0 67 86900 25920 34.6

Madurai 10 37500 37500 10.5 33 143857 46429 23.1

Trichy 19 19833 19833 11.1 32 11300 11300 37.3

All Regions 16 24636 24636 10.0 40 102000 31007 43.6

Source: Field Survey

Interestingly, there was hardly any credit gap (difference between credit demanded and

borrowed) in case of institutional borrowing (please see the table- 5.6) unlike the case of

89

MFI and informal sources. However, it does not imply that formal financial institutions

have met the entire credit need of these groups rather it is a part of the total credit needs

that qualify institutional credit conditions. In some of our focus group discussions (FGD)

it was reported that many households do not want to borrow from banks due to the

stringent term and conditions, timing of credit and high transaction costs that outweigh

low rate of interest. Another important point emerged here from the household borrowing

data is proportion of household borrowing from informal sources is very high in the

region where average microcredit from MFI was low. In Sambalpur about two third of

sample households borrowed from informal sources at average interest rate of 34.6

percent. It implies that although microcredit programmes become important source of

credit for the poor and low income groups it does not meet their total credit requirements.

Adequate and timely credit availability appears important than source of credit and rates

of interest. It provides an advantage to moneylenders, traders and other informal sources

to become prominent than formal creditors.

These findings indicate that the formal financial sector fail to meet the total credit

requirement of low-income groups and they continue to depend more on different

informal sources. This is substantiated from the fact that only 16 percent of sample

households borrowed from formal institutions against 40 percent of household from

informal sources in the study areas. This is not an encouraging condition for functioning

and development of low segment formal insurance markets. Unfortunately, there is

hardly any insurance service being supplied along with informal credit.

5.5. Household Saving

Household saving is directly linked with level of income, expenditure and borrowing. In

broader way, it works as proxy insurance during the contingency and plays a crucial role

in household decision making. Households borrow to invest into production and then

repay the past borrowing out of revenue and take decision on saving. However, in a

standard MFI credit-saving model, households calculate how much money to spend in

each period and how much to save. In practice, households tie the loan repayment

90

schedule to their cash flows or the income schedule. So the scope for saving remain

secondary, unless it is mandatory to save.

Under this condition, many poor and low income households often find themselves in a

low profile cycle of borrowing – production - repaying – saving. In other words a

household producing at a subsistence level finds it difficult to accumulate savings.

Therefore, household saving pattern is influenced by the nature and condition of

household borrowings. The conditions and repayment schedules within microcredit

programs (MFI) typically requires loan repayment in fixed weekly installments without a

grace period. Borrowers are often under pressure to repay as soon as the income is

earned. This in turn requires an investment that generates immediate and rapid rate of

return if repayments are to be made from the enterprise‘s income. If households fail to

make weekly repayment entirely from income arising from the loan activity, then it is

obvious the repayment to be paid from savings out of an alternate cash flow into the

household. This may limit household ability to save which may affect household‘s

borrowing and risk coping behavior. This could be one of the major reasons for poor

saving performance of the household in the study areas. It may be seen the data presented

in the table - 5. 7 that Non-MFI formal saving constitute the major part of total saving.

Only 34 percent households had formal saving (bank, cooperatives, post office etc) with

an average saving of Rs 7899 per household. In terms of value of saving, MFI-lead group

saving is a formality rather thinking it as proxy for insurance. It may be seen that average

saving per household is very low in Madurai and Sambalpur and absent in Trichy

depending on different terms and conditions of microcredit groups. Interestingly, within

formal saving, post-office saving is equally popular as saving in banks. Households in

hotel and restaurant, retail trading and dairy activities mostly save in formal forms.

We consider household choice for all major financial services such as borrowing and

saving along with insurance are interconnected. Users of one service may have an

informational advantage to know about additional services. Studies show that there is

increasing participation of low-income households in financial markets but many of these

studies focused on one financial service without relating one another. However, financial

91

services can be used for income generation on the one hand and for income and

consumption smoothing on the other hand. While insurance and savings are ex-ante or

preventive strategy, consumption credit is typically used ex-post to an event. Some

possible links between household borrowing, saving, insurance and other key variables

are discussed in subsequent parts of the chapter.

5.6 Household Expenditure Pattern

Another way to look at socio-economic status of a household is its expenditure pattern. In

our study, more than half of household income was spent on food, similar to the general

trend in the country. Other major expenditure items include healthcare (19 %), travel and

transportation (6%), clothing (9%), education (6%), repayment of old debts (5%), and

housing (5%).

92

Table – 5.7: Household Saving Pattern by Activities & Regions (Annual Average Saving in Rs & Rate of Interest in %)

By Activity

Group (MFI) Bank Cooperatives Post office

All Formal saving

(Non-MFI) Informal Saving

HH

(%)

Savi

ng

(Rs)

RI

(%

)

HH

(%)

Saving

(Rs)

RI

(%

)

HH

%)

Savi

ng

(Rs)

RI

(%)

HH

(%

)

Savin

g

(Rs)

RI

(%

)

HH

(%)

Saving

(Rs)

RI

(%)

HH

(%)

Saving

(Rs)

RI

(%)

Agriculture 57 480 5.7 7 1200 7.0 - - - 14 1500 3.5 21 1400 4.7 7 12000 7.0

Diary 33 960 6.0 22 7200 6.5 - - - 11 1440 3.5 33 5280 5.5

Handicraft 100 600 6.0 0 0 - - - - -

Hotel &

Restaurant 60 480 6.0 20 6000 7.0 - - - 40 3120 3.5 60 4080 4.7

Retail Trading 38 1120 5.2 31 23400 6.4 - - - 25 2400 3.5 56 14067 5.1

Manufacturing 67 480 6.0 0 0 - - - - 17 2400 3.5 17 2400 3.5 17 2400 7.0

Skill Activities 42 480 6.0 17 5700 5.5 8 3000 9.0 8 6000 3.5 33 5100 5.9 17 60900 7.5

All Activites 51 653 5.8 16 13636 6.4 1 3000 9.0 16 2607 3.5 34 7899 5.1 6 34050 7.3

By Regions

Sambalpur 100 872 5.5 7 1200 7.0 7 1200 7.0

Madurai 90 480 6.0 19 13350 6.3 5 3000 9.0 24 11280 6.8 10 2100 7.5

Trichy 0 0 19 15900 6.3 0 35 2607 3.5 55 7299 4.5 6 66000 7.0

All Regions 51 653 5.8 16 13636 6.4 1 3000 9.0 16 2607 3.5 34 7899 5.1 6 34050 7.3

Source: Field survey

93

5.7. Asset Holding Pattern

Conventionally, diverse portfolio of asset holding, as part of household socio-economic

features, is believed to work as critical tool for managing adverse impacts of risks and

uncertainties. Diverse asset holding pattern also provides free access to a range of

consumption smoothing options. An asset-poor household may find it hard to manage

risks or lack of adequate asset can lead to perpetual poverty and vulnerability. While

household‘s diverse asset holding pattern facilitate income generating activity and

guarantee income and consumption smoothing, holding different type of assets does not

come at free of cost. The cost of holding different assets may be too high for poor rural

households. For instance, holding livestock could be proxy for insurance but it is a

costly matter for the smaller size family those who do not have agriculture. The choice

of assets holding also depends on the extent and speed with which assets can be made

liquid which is very important from insurance point of view.

Table – 5.8 Asset Holding Pattern of Sample Households in Study Areas (HH in %)

By Activity

% of Household Having Type of Assets

Agr.

Land Livestock

Farm

Asset

Non-Farm

Assets

Agriculture 93 93 64 14

Dairy 56 100 67 33

Handicraft 60 20 0 100

Hotel&

Restaurant 0 40 0 80

Retail Trading 50 63 0 50

Manufacturing 17 0 0 83

Skill based

activities 8 17 0 67

All Activity 46 58 22 52

BY Region

Sambalpur 87 60 53 53

Madurai 10 10 14 71

Trichy 52 90 13 39

All regions 46 58 22 52

Source: Field Survey

94

Household asset holding pattern in the study areas is presented in table -7 shows an

uneven distribution across region and activity group. Many sample households are land

poor. Less than half of total households owning some quantity of land do not have farm

assets other than those in agriculture and dairy activity. Interestingly, 58 percent of total

sample household possess some livestock despite of high incidence of landlessness. It

shows the importance of livestock assets for low-income and poor households. As

regard to non-farm assets most of the households possess it in all activity groups except,

agriculture (14%) and dairy (33%).

The distribution of household assets discussed above supports the general expectation

that asset poor households cannot diversify income sources to the extent as other asset-

rich households can. In this case, possibility of income shocks will be more severe for

the asset-poor households and it will have different impact on risk coping mechanisms.

Figure – 5.1

Asset Holding Pattern of Sample HH (%)

0

20

40

60

80

100

120

Agriculture

Dairy

Han

dicraft

Hotel& R

estaur

ant

Retail T

rading

Man

ufactur

ing

Skill ba

sed ac

tivities

All Activity

BY R

egion

Samba

lpur

Mad

urai

Trichy

Land

Livestock

Farm Asset

Non-Farm Assets

5.8. Household Participation in Microinsurance

95

Above analysis on major household features provides a background for better

understanding of household risk and risk coping strategy, including participation in

insurance market, in the study area. As discussed in the literature review, it is expected

that households which are more exposed to risks are more likely to opt for insurance

products. It is also expected that household risks has a positive effect on use of financial

products such as credit and saving. Uninsured households may seek loans or use their

saving to maintain consumption smoothing during post risk period. However,

households may also employ variety of indigenous ‗non-market‘ methods to cope with

risk, particularly, where credit and insurance markets are not complemented.

Keeping in mind the diverse nature of household risks and characteristics of household

activity or enterprise we discuss different household risks and risk management

strategies across activity groups in the study areas in the perspective of microinsurance.

In particular, we study household‘s participation in microcredit programme that

facilitate and expose to insurance product and subsequent household decision making.

We look at this question at ex-ante perspective, particularly when household decides to

change its economic and financial profile before the loss has occurred. As all sample

households are already covered under some insurance scheme through their access to

microcredit (MFI), it is expected that household may demand for more insurance cover

and variety of products, especially with increase in their income. Though the literature

on demand for insurance focuses on the income effect, the theoretical analysis reveals

that the effect of income on demand for insurance depends on the absolute risk aversion

(Gravelle and Rees 2004). However, there are several other factors related to the

availability, awareness, access, product design, claims settlement records, premium and

product delivery which determine the demand for insurance and which vary across

groups and regions.

The present study, despite of its limitations, attempts to analyze some of these major

issues in the broader perspective of outreach and efficacy of microinsurance in India. In

following sections we have briefly discussed household risks and risk coping

96

mechanism, participation in microinsurance market and its impact on household

decision making. The study does not consider household insurance alone but take

formal credit and saving products into consideration as household choice for different

financial products are interrelated. Household using one financial service is assumed to

be more likely to demand for additional services – such as insurance policy than a

household using no financial services. Motivation for using these financial services can

be for income generation in one hand and for income and consumption smoothing on

the other hand. While insurance and saving are ex-ante – that is used as risk coping

strategy, consumption credit is used typically ex-post – used to minimize or defuse

impacts of risks. However, household motivation for using different financial and

insurance products can be different for one product and between products. It depends on

household socio-economic-demographic features such as family occupation, asset

holding, family size, number of working members, level of skill, education etc.

Information collected about major risks and household coping strategy adopted by the

sample household during last two years prior to the field survey is presented in the table

– 5.9. As expected, sizeable portion of sample households (about one-third) have had

some kind of major risks in the recent past that has considerably affected their normal

way of life. It has distorted their consumption smoothing and major decision making.

Reported household risks were diverse in nature ranging from crop failure to risks

related to social problems. Shocks related to health was prominent and accounted for

about one-forth of total affected households. Second most important household risk was

employment related due to partial or full job loss. Surprisingly, risk events occurred due

to social factor were also substantial, which often ignored by the insurers, creditors and

policy makers.

About 14 percent of sample households suffered from risk related to their past debt.

Lower risks related to household assets reported in the study areas show low productive

asset holding for which immediate insurance need may be low. But risk occurred due to

97

crop failures (as high as 11 percent)was one-fifth of total sample household engaged in

agriculture.

In response to major risks households had followed diverse risk coping strategies

mostly of which were conventional in nature without much use of formal insurance

product. It ranges from increase in formal borrowing to withdrawal of children from

schools. Surprisingly, only three percent households had used formal insurance as major

coping strategy. It includes recently taken microinsurance with MFI loan and other

formal insurance products taken prior to microinsurance from MFI. This shows the

dismal performance of microinsurance scheme in term of its outreach, use and effect in

the study areas. Conventional means of risk coping such as informal borrowing, distress

sale of output and assets are wide spread across households, in spite of its severe

subsequent consequences.

About seven percent of households reported that they failed to manage major risks

occurred during resent past and it had severe adverse impact on their family. It reveals

that there is wide gap between severity of risk impacts and household risk coping

capability. It also indicates the urgency of adequate formal insurance cover for the poor

and low-income groups. About one – fifth of affected households had used past saving

in managing major risk events. As discussed in earlier sections that nature and quantum

of household saving found a weaker component in all financial services used by low-

income groups, it may not be adequate to neutralize the risk effects. A strong and

adequate household saving process is advocated, especially for those who are with low

or no formal insurance cover. Most importantly, major household risks and risk coping

strategy discussed above do not support it that under given condition, access to

available microcredit and some low-end microinsurance products in respective study

areas does not make much difference in handling household risks and mitigating its

negative effects.

98

Table – 5.9 Types of Risks Faced by HH & Coping Strategy Followed

Major Household Risks (during previous

two years) Major Household Coping

Strategy

Risks HH (Nos)

HH

(%) Strategy

HH

(%)

Crop Failure 5 11

Informal

Borrowing 41

Livestock 2 5 Non-Farm Activity 13

Debt 6 14 Distress Sale 11

Employment Loss 8 18 Failed to Manage 7

Loss of asset 2 5 Previous Saving 20

Health expenditure 11 25 School Dropout 5

High Education exp. 3 7 Formal Insurance 3

Social & Other Risks 7 16 All 100

44 (66 % of

sample HH) 100

Source: Field survey

Figure – 5.2

Type of Risk Faced by Household in Recent Past (HH%)

0

5

10

15

20

25

30

Cro

p Failure

Livestock

Deb

t

Emplo

yment

Los

s

Liquid

ation

of a

sset

High h

ealth

exp

.

High e

duca

tion

exp.

Social &

Oth

er R

isks

Figure – 5.3

99

Coping Strategy Followed by HH (%)

0

5

1015

20

25

3035

40

45

Informal

Borrowing

Non-Farm

Activity

Distress

Sale

Failed to

Manage

Previous

Saving

School

Droupout

We attempted to capture the overall perceptions of sample households about different

impact of risks on family members and use of microinsurance on their risk managing

capability. We enquired about who were the most affected within family, how

distribution of burden or constraints due to risk events was being shared and can it be

managed with adequate formal insurance cover. Data presented in the table –5-10

shows that women were the worse affected when households encountered with risks. It

is clear that adverse impacts of household risks are not gender neutral. Activity wise, it

was more pronounced in handicraft, hotel and restaurant and agriculture. It corroborates

with the fact that household risks affect working poor women more than their male

counterparts. An unequal sharing of risk burden by the female members during crisis

found in the study areas reveals that there is need to design insurance products to make

it more gender sensitive or women oriented, grossly missing in practice. While male

members and children below 14 years were least affected, the other category which

constitutes mainly elderly members suffered more due to any major risk events in the

family.

100

Table-5.10 Household Perceptions: Formal Insurance & Risks Management

Who gets Affected the most without

Insurance (%)

Risks could have been

Managed better with

Formal Insurance

Activity Female Male Children Other HH (%)

Agriculture 57 0 14 29 57

Dairy 33 0 0 67 89

Handicraft 100 0 0 0 60

Hotel& Restaurant 100 0 0 0 60

Retail Trading 20 20 0 60 44

Manufacturing 0 0 50 50 67

Skill based activity 29 14 0 57 58

All 44 6 6 44 58

Source: Field survey

Interestingly, about 58 percent households viewed that with adequate formal insurance

they could have managed their risks better. In activity groups household in dairy and

manufacturing reported that formal insurance is more important means to handle such

risks than their counterparts in other categories. Different perceptions about risk impacts

and formal insurance given by different household groups imply that an uniform

insurance product for all groups is perhaps not acceptable. This is mainly due to the

very different household features and the nature and pattern of activity they have

undertaken. For instance, in retail trading activity where only 44 percent households

expressed that formal insurance could be better risk coping means also experienced

least adverse impact of risk on family than other category. In this regards the

composition of household does matter.

On the other hand household as decision making unit assumes ex-ante costs because it

applies risk mitigating (income smoothing) techniques in trying to insure against

possible losses. Some of these costs include expenses related to the payment of

insurance premiums, reductions in the rates of return of household production activities

due to risk events and costs of investing in other risk coping mechanisms to manage

risk, such as migration and non-farm activities. Households also deal with ex-post costs

in coping with risk impacts by trying to smooth consumption. Some of these costs

101

include loss of uninsured assets, loss of human capital, liquidation of assets in order to

smooth consumption, interest rates paid on post risk borrowing, reduction in current

consumption and postponement of social expenditure

Figure – 5.4

Who Affecte Worse without Formal Insurance

0204060

80100120

Agric

ultu

reDairy

Handic

raft

Hotel&

Res

taur

ant

Retail T

radin

g

Man

ufact

urin

g

Skill b

ased

activ

ities All

Female

Male

Children

Other

Agriculture

Figure – 5.5

Can Insurance Manage the Risks (HH%)

0102030405060708090

100

Agric

ultu

reDairy

Handic

raft

Hotel&

Res

taur

ant

Retail T

radin

g

Man

ufact

urin

g

Skill b

ased

activ

ities

102

Intra-Household Risk Coping

We have also attempted to highlight some intra-household risk coping mechanism in

terms of intra-household allocation of labor, reduction in critical household

expenditures (expenditure on food, health, education) in buffering the effects of

uninsured risks. As very recently the sample households are covered only under the

group term life insurance supplied with microcredit loan from MFI we assume that most

of their risks are uninsured with few exceptions. Two basic questions addressed here

are, First, do household risks induce a reallocation of labor within family? Second, if so,

is it distressed induced and gender neutral? Exogenous risk may induce reallocation of

labor within the household resulting in redistribution of work burden and possible

reduction of household expenditure. Here, the important implication from policy point

of view is that any policy intervention to improve the household‘s ability to manage

risks may also consider the issues of intra-household resource allocation.

It is believed that an adverse income or wealth impacts of risk may reduce the

household‘s overall welfare in the utilitarian sense. In contrast to the general belief of

bias against female members we found that intra-household allocation of labor between

male and female members was undertaken more or less in balanced way. Overall,

increase in working hours was being equally shared by males and females as a

household risk-induced coping strategy (see the table – 5.11). It may be noted that

within household the risk sharing and its impacts may vary with different intensity. It is

not easy to net out to show the actual working hours or work burden of females,

particularly incase of a risk event due to several socio-cultural factors well documented

in the literature. However, a sharp gender inequality evident from the data in terms of

reduction in health expenditure for women reiterates the fact that adverse impact of

risks are not gender neutral. It is also visible in terms of reduction of education

expenditure as girls are bearing bigger part of the reduction than boys. In common

practice, girls are the first to withdraw from schools in case of household contingency.

103

Table – 5.11 Intra-Household Risk Management (HH in %)

Change

Increase in Working Period Reduction in Health Exp

Reduction in

Education Exp

Female Male

Female

Child

Male

Child Female Male

Female

Child

Male

Child

Female

Child

Male

Child

Marginal 19 16 27 31 45 48 40 36 36 33

Average 18 21 6 1 16 19 7 6 7 6

High 16 12 1 3 7 4 0 0 0 1

Very

High 24 36 7 7 15 10 9 6 18 10

No

Change 22 15 58 57 16 18 43 52 39 49

Total 100 100 100 100 100 100 100 100 100 100

Source: Field Survey

Figure – 5.6

Intra-HH Risk Mngt: Increasing Working Hrs (HH%)

0

10

20

30

40

50

60

70

Marginal Average High Very High No

Change

Female

Male

Female Child

Male Child

Marginal

Figure – 5.7

104

Intra-HH Risk Mangt: Reduction in Health Exp (HH%)

0

10

20

30

40

50

60

Marginal Average High Very High No

Change

Female

Male

Female Child

Male Child

Marginal

Figure –5.8

Intra-HH Risk Mangt:Reduction Education Exp(HH%)

0

10

20

30

40

50

60

Marginal Average High Very High No Change

Female Child

Male Child

Figure – 5.9

Intra-HH Coping Strategy: Reductionin IN Food Exp (%)

0

10

20

30

40

50

60

70

80

Marginal Average High Very High No

Change

% o

f R

esp

on

se

Female

Male

Female Child

Male Child

Table – 5.12 Intra-Household Risk Coping Strategies:

Reduction in Food Consumption (% HH)

105

Female Male Female Child Male Child

Sambalpur

Marginal 27 40 20 20

Average 7 7 0 7

High 13 0 13 7

Very High 13 0 0 0

No Change 40 53 67 67

Madurai

Marginal 48 29 19 14

Average 10 10 5 0

High 0 0 0 0

Very High 10 5 5 5

No Change 33 57 71 81

Trichy

Marginal 23 29 16 26

Average 13 16 6 0

High 3 3 0 0

Very High 13 3 3 0

No Change 48 48 74 74

All Region

Marginal 31 31 18 21

Average 10 12 4 1

High 4 1 3 1

Very High 12 3 3 1

No Change 42 52 72 75

Source: Field Survey

Nonetheless, individual private consumption seems affected by risk events. In an effort

to discuss more detail about intra-household risk sharing mechanism we examined

impacts of changes in household food expenditure on family members between normal

periods and risk-affected period. From the data presented in the table – 5.12 it may be

seen that overall 58 percent females had experienced there was a reduction in food

consumption due to risk impacts against 48 percent by their male counterparts.

Similarly, very high degree of reduction in food consumption was experienced by 12

percent female against on 3 percent male. This trend was also found in case of female

and male child. The results indicate that intensity of household risk sharing

arrangements looks harder for females. However, it may vary depending on the nature

and type of risk, coping strategy and household composition. In sum, risk induced intra-

106

household re-allocations is found very much in operation in the study areas and it was

mostly gender biased. It gets sharper if analyzed in more details and in terms of degree

and direction of risk impacts on male and female members, which may have detrimental

impact on women in particular and human development in general.

5.9. Household’s Perception about Microinsurance

As most of the sample households had some kind of exposure to risks as well as some

insurance products it becomes easier to analyze their views about the efficacy of

available insurance products and the existing gaps, which is important from policy point

of view. It may be noted that as many respondents were new to microinsurance

products, their experience about use of it as risk managing tool would be quite different.

But a broad picture about the insurance products that they are looking and group and

region specific issues such as product design, premium, claim settlement and other

issues may emerge out of their observations and views. Many low-income groups are

likely to be prone to riskier conditions and vulnerable to income and human poverty.

The route of many such households into poverty can be directly linked to their risks

when they do not have effective risk management mechanism such as formal insurance.

Unfortunately, many of them are not aware of insurance products and its processes.

From the data presented in table – 5.13 it reveals poor picture of low segment insurance

sector in the study areas. Life insurance was the known insurance product among larger

sample households because it was supplied to all group members with microcredit. But

it was not popular among them partly due to lack of understanding the product and its

use and partly due to the problems relating to premium, product design and claim

settlements. Similarly, health microinsurance was one of the least known products

among the respondents but it was also least preferred product in its current form due to

limited coverage, exclusion of common health expenditure and cumbersome claim

settlement process.

Table – 5.13 Insurance Awareness & Insurance Related Problem

107

Household Awareness & Specific Problems (%)

Type of Insurance/

Problems

Life

Health

Asset

Livestock

Crop

.

Awareness 88 30 40 43 16

Problems Related to

Premium 36 65 NA NA NA

Product design 45 85 NA NA NA

Claims Settlement 31 60 NA NA NA

NA – no idea,

Source: Field Survey

Figure – 5.10

Problems related to Microinsurance (HH in %)

0.0

20.0

40.0

60.0

80.0

100.0

Premium Product

design

Claim

settlement

Life (67 HH)

Health (15 HH)

Figure – 5.11

108

Awareness of select Household about Microinsurance (HH%)

0.0

20.0

40.0

60.0

80.0

100.0

Life (67 HH) Health (15

HH)

Asset (15

HH)

Livestock (25

HH)

Crop (31)

Figure – 5.12

HH Insurance Holding Pattern (HH %)

0

20

40

60

80

100

120

Agricul

ture

Dai

ry

Han

dicr

aft

Hot

el& R

esta

uran

t

Ret

ail T

rading

Man

ufactur

ing

Skill ba

sed

activ

ities

All Activity

BY R

egion

Samba

lpur

Mad

urai

Trichy

All MFI-Insurance

Non-MFI Insurance

Table – 5.14 Household’s Insurance Holding Pattern by Types, Activity & Regions

Activities

Insurance Products* Hold by HH

Supplied by MFI (%)

Other Insurance

Products** ever

109

Life Health Asset

All MFI-

Insurance

Hold by HH (%)

Agriculture 100 43 43 100 14

Dairy 100 22 22 100 67

Handicraft 100 100 100 100 40

Hotel& Restaurant 100 0 0 100 0

Retail Trading 94 13 13 94 50

Manufacturing 100 0 0 100 17

Skill based activity 92 0 0 92 33

All Activity 97 22 22 97 34

By Region

Sambalpur 100 100 100 100 60

Madurai 90 0 0 90 38

Trichy 100 0 0 100 19

All regions 97 22 22 97 34

* Microinsurance products supplied by MFI to its client along with Microcredit

**Includes mostly life insurance and livestock Insurance taken prior to microinsurance

Source: Field survey

5.10. Household Demand for Insurance

As discussed above household demand for insurance is interlinked with number of

factors. It can be directly related to the demand for other financial products, household

characteristics, vulnerability to different risks, asset holding pattern, nature of

occupation, family size, risk coping behaviour etc. On the supply side key factors are

product design, premium, claims settlement and delivery methods that encourage or

hinder household preference for insurance product. Lack of awareness and information

about insurance products continue to pose major challenge for low segment insurance

sector.

Under given awareness and information about microinsurance we tried to assess the

household demand for it. Though it was not easy for the respondents to understand and

answer about their insurance demands directly because it is different product and

involves some socio-economic-psychological factors. However, analysis of our primary

data shows that household demand for insurance products depends on their

110

reorganization of needs, prioritization of risks and other major economic and financial

decisions.

It may be seen from the data presented in tables 5.15 and 5.16 that household demand

preferences for insurance products vary widely across activity groups and study areas.

Assuming all the respondents were potential clients their distinctly different demand for

different insurance products was very informative, interesting and important for policy

point of view. Overall demand for insurance from low-income groups was found to be

very low across the study areas and activity groups. This inspite of the fact that there

were some differences in the type of insurance products, premium amount and mode of

payment, sum assured, insurance cover, insurers, awareness and information and other

conditions such as of microcrdit group and loan activities. However, the data show

some important trends about household priority for insurance products.

Table – 5.15: Distribution of Demand for Insurance by Type of Risks (%)

By Activity

Demand for Insurance by Type of Risks (%)

Life Health Crop

Live

stock Market Asset Others Total

Agriculture 8 21 100 20 0 20 0 21

Dairy 17 0 0 70 0 0 0 13

Handicraft 0 8 0 0 38 0 0 7

Hotel& Restaurant 0 13 0 0 13 20 0 7

Retail Trading 33 25 0 10 38 20 33 24

Manufacturing 0 13 0 0 13 20 33 9

Skill based activities 42 21 0 0 0 20 33 18

Total 100 100 100 100 100 100 100 100

BY Region

Sambalpur 0 21 60 20 63 0 0 22

Madurai 17 50 20 10 0 40 100 31

Trichy 83 29 20 70 38 60 0 46

All regions 100 100 100 100 100 100 100 100

Source: Field survey

Table – 5.16 Distribution of Demand for Insurance within Activity Group (in %)

Activity

Demand for Insurance within Activity Group (in %)

Life Health Crop

Live

stock Market Asset Others Total

Agriculture 7 36 36 14 0 7 0 100

111

Dairy 22 0 0 78 0 0 0 100

Handicraft 0 40 0 0 60 0 0 100

Hotel& Restaurant 0 60 0 0 20 20 0 100

Retail Trading 25 38 0 6 19 6 6 100

Manufacturing 0 50 0 0 17 17 17 100

Skill based activities 42 42 0 0 0 8 8 100

Total 18 36 7 15 12 7 4 100

By Region

Sambalpur 0 33 20 13 33 0 0 100

Madurai 10 57 5 5 0 10 14 100

Trichy 32 23 3 23 10 10 0 100

All regions 18 36 7 15 12 7 4 100

Source: Field survey

Little less than half of sample households in Trichy and about one-fourth of households

in retail trading had demand for insurance, which was the highest in respective

categories. Average earnings, nature of occupation and household priority for risks

seems to be the major demand side factors for study in the study areas. It may be noted

that except in the retail trading activity, demand for insurance shows a skewed

distribution. It is very much related to the nature of activity undertaken by the

household. For instance, demand for crop insurance and livestock insurance comes from

households in agriculture and dairy activities. Insurance demand for risks related to

health, market and asset though spread over more number of activity groups but it was

concentrated in few activities such as retail trading. However, health insurance is only

product demanded by all categories except in diary activity. On the other hand, demand

for asset insurance was equally distributed across those activities that require some

basic equipments or assets. Life insurance (83%), crop insurance (60%) and health

insurance (50%) were the most demanded product in Trichy, Sambalpur and Madurai

regions respectively. It shows the distinct regional specific demand for insurance.

By type of insurance, health insurance was most demanded product in all contexts

except dairy activity in spite of the fact that it was not adequately supplied across study

areas. While life insurance product is widely supplied it was mainly preferred by

households involved in skill based activity (42%) followed by retail trading (25%),

dairy (22%) and agriculture (7%). Market related risk was perceived more by the

112

households engaged in handicrafts because the production is largely external market

oriented. It was reflected in terms of their high demand for insurance to cover market

risks. But there was hardly any such insurance available to low income groups.

In many contexts, demand for health insurance is pronounced than life insurance. On

the other hand, production oriented and need specific insurance demand was found to be

substantial in the study areas. For instance, high demand for livestock insurance among

households involved in diary activity shows their customized insurance needs. It gives

some market signal that can be used by the insurance companies. It is possible that in

the absence of customized insurance products, many households would tend to depend

upon less formal coping mechanisms. Similarly, market related risks affect some groups

more than others depending on several factors but there was no such provision to cover

market risks as perceived by the households.

From the above discussion, it is evident that there is diverse demand for insurance

product at low segment market mainly coming out of the household‘s features and their

priorities. Since available insurance products are mostly supply driven and limited

variety, a huge gap in low segment insurance market is visible. It appears that there is

either poor understanding about low segment insurance market or there are some other

issues such as infrastructure, cost of operation and technology use, policy interventions

etc. affecting the functioning of this market.

Figure – 5.13

113

HH Demand for Life & Health Insurance by Activity (%)

010203040506070

Agr

icultu

re

Dairy

Hand

icra

ft

Hote

l& R

esta

urant

Reta

il Tra

ding

Man

ufact

uring

Skill bas

ed ac

tivities

Total

Life

Health

Figure – 5.14

Distribution of Insurance Demand (%) by Products

0

5

10

15

20

25

30

35

40

Life Health Crop Livestock Market House Others

As discussed in earlier section that household demand for insurance also influenced by

their demand for borrowing and saving it is crucial to link it here. Under the given

insurance market conditions for the low-income groups and their priorities for insurance

demand it is expected that households having experienced major risk in recent past

114

would be less likely to opt for insurance than arranging for a loan to manage the risk

outcome. It may be noted that in case of diary activity high average borrowing is

followed by the low demand for insurance other than livestock insurance. Even though

there was higher average income in this activity but it failed to induce household

demand for non-customized insurance products. In fact, livestock insurance was not

available in the study regions. On the other hand, high informal borrowing, despite of

its reasons, is likely to discourage demand for the insurance products. It holds true when

inadequate microcredit loan from MFI prompts the client for more informal borrowing.

However, closer and stronger ties with relatives and good social net working that

accommodates some risk sharing may discourage household go for insurance services

in its present forms.

As regard to household saving and demand for insurance, it was not found that low

level and irregular saving activities of many households looks not effective to induce

the demand. However, many household opted for informal saving options or non-

financial saving such as livestock would continue to be a part of household risk coping

strategy. Interestingly, households receiving regular remittance reported having high

average saving and their demand for insurance was relatively higher.

There are some direct links between household expenditure and demand for specific

insurance product. For instance, with household size the demand for health insurance

increases mainly due to higher health expenditure. It was also found true in case of

higher family size, for example in handicraft activity and in Sambalpur where higher

average family size was reported. Other factors, such as level of education, proximity to

the service providing institutions, level of trust on insurance company and its staff etc.

emerged important factors that influenced household demand for insurance.

As expected, in some cases higher average income of household and the demand for

insurance is positively related, for example retail trading activity, It was however

reverse incase of dairy and hotel & restaurant activities. Lower average income and low

115

insurance demand in some groups such as handicraft activity shows that pricing of

insurance products is a sensitive matter, even if it is offered at lower price. In fact,

some low-income households believed that payment of premium during a crisis period

itself is a risk. However, during our survey we came across of number of people who

were keen to pay the prescribed price or even more for a well customized insurance

product, particularly for health risks that will take care of their specific needs. On the

other hand, a higher insurance demand with relatively lower average income, as the

case of skill based activity, shows the household high priority for the formal insurance

for risk management. Here, household features such as level of education and small

family size also matter in shaping household insurance demand.

Regarding the level of household income and their participation in insurance market, as

discussed earlier, does not hold stronger, especially where household income from non-

loan activities is not high. In contrast to some common believe that MFI‘s microcredit

programme and its income generating effect would induce increase in insurance uptake

among its clients may not be always true. It may be noted that microinsurance and

microcredit programme in study areas are closely related in terms of access, premium

payment, claim settlement and other services. From the above discussion it appears that

to meet the twin objectives of outreach and efficacy of microinsurance in the current

form is under doubt. Though much is not known about all contexts of microinsurance

and it is also not appropriate to generalize with the findings of smaller study like the

present one but some important trends emerging from this study may be used by

different stakeholders.

We have tried to capture some degree and direction of relationships among major

variables that influence directly and indirectly household risk coping behaviour and

other economic decision making. The correlation results are presented in the correlation

given below. As discussed above, there is high and significant positive correlation

between households exposed to risk and informal borrowing which reemphasizes that

informal household borrowing continues as key risk aversion tool. Other key factors

116

such as formal borrowing, income from major activity, total household income and

saving are negatively related with household risks showing some kind of risk reduction

role played by these variables but at insignificant level.

On the other hand, household demand for insurance significantly related to household

income and saving. Though this trend seems not match with some general observations

of sample households, as discussed elsewhere, the difference in nature and earning

pattern of major activity/occupation might be reflected here. In other words, households

involved in a high-return activity having relatively higher surplus may opt for variety of

financial product including insurance, unlike the households engaged in low-return

activity.

Intra-household risk-sharing and gender variables are positive and significant in many

contexts. This substantiates the argument that in case of risk events females, particularly

female working members are likely to share more burden than their male counterparts.

This reflected in terms of high and positive correlation between size of working

members, female worker and family size. It may be noted that the formal borrowing and

demand for insurance shows high positive association as compared to informal

borrowing, but it is found insignificant. In sum, the overall trends emerged from our

discussions based on sample households‘ observations and perceptions are more or less

similar to the results presented in the correlation table given below.

117

Table – 5.17 Correlations Tables

Exposu

re to

Risk

HH Demand

Insurance

Informal

Borrowin

g

Formal

borrowin

g

income

Major

activity

Househol

d Total

Income

HH

Saving

Size of

Working

member

Female

working

Members

Intra-HH

risk Sharing

Family

size

HH

Exposure to

Risk

R 1 -.030 .705(**) -.065 -.090 -.224 -.167 .053 .058 .098 .188

Sig. (2-tailed) . .808 .000 .748 .472 .068 .178 .676 .645 .440 .129

N 67 67 64 27 66 67 67 64 65 64 67

HH Demand

for

Insurance

R -.030 1 -.166 .089 .536(**) .330(**) .598(**) -.083 -.077 -.197 -.168

Sig. (2-tailed) .808 . .191 .660 .000 .006 .000 .514 .542 .119 .173

N 67 67 64 27 66 67 67 64 65 64 67

Informal

Borrowing

R .705(**)

-.166 1 -.074 -.269(*) -.132 -.277(*) .169 .173 .205 .351(**)

Sig. (2-tailed) .000 .191 . .727 .033 .298 .027 .193 .178 .113 .005

N 64 64 64 25 63 64 64 61 62 61 64

Formal

borrowing

R -.065 .089 -.074 1 .325 .088 .307 -.107 -.107 -.026 -.026

Sig. (2-tailed) .748 .660 .727 . .099 .662 .120 .597 .597 .899 .899

N 27 27 25 27 27 27 27 27 27 27 27

income from

Major

activity

R -.090 .536(**) -.269(*) .325 1 .132 .903(**) -.179 -.167 -.135 -.190

Sig. (2-tailed) .472 .000 .033 .099 . .291 .000 .161 .188 .290 .127

N 66 66 63 27 66 66 66 63 64 63 66

Household

Total

Income

R -.224 .330(**) -.132 .088 .132 1 .542(**) .211 .212 -.051 -.028

Sig. (2-tailed) .068 .006 .298 .662 .291 . .000 .094 .090 .688 .823

N 67 67 64 27 66 67 67 64 65 64 67

HH Saving

R -.167 .598(**) -.277(*) .307 .903(**) .542(**) 1 -.082 -.072 -.148 -.182

Sig. (2-tailed) .178 .000 .027 .120 .000 .000 . .519 .569 .244 .140

N 67 67 64 27 66 67 67 64 65 64 67

Size of

Working

members

R .053 -.083 .169 -.107 -.179 .211 -.082 1 .550(**) .542(**) .522(**)

Sig. (2-tailed) .676 .514 .193 .597 .161 .094 .519 . . .000 .000

N 64 64 61 27 63 64 64 64 64 63 64

Female

working

Members

R .058 -.077 .173 -.107 -.167 .212 -.072 .550(**) 1 .543(**) .514(**)

Sig. (2-tailed) .645 .542 .178 .597 .188 .090 .569 . . .000 .000

N 65 65 62 27 64 65 65 64 65 64 65

Intra-HH

risk Sharing

R .098 -.197 .205 -.026 -.135 -.051 -.148 .542(**) .543(**) 1 .992(**)

Sig. (2-tailed) .440 .119 .113 .899 .290 .688 .244 .000 .000 . .000

N 64 64 61 27 63 64 64 63 64 64 64

Family size

R .188 -.168 .351(**) -.026 -.190 -.028 -.182 .522(**) .514(**) .992(**) 1

Sig. (2-tailed) .129 .173 .005 .899 .127 .823 .140 .000 .000 .000 .

N 67 67 64 27 66 67 67 64 65 64 67

** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed).

118

5.11. Pricing and Impacts of Microinsurance Insurance

As discussed in earlier sections, the current demand and supply gap in low segment

insurance market is a result of several factors. Though microinsurance is believed to be

a low cost product for low-income groups, its premium and impact can influence

household insurance uptake and renewal. An attempt has been made to discuss on the

views of the respondents on pricing and impact of current insurance products. To pay

insurance premium a dependable income flow is essential. Though it is often related to

household borrowing and saving activities some missing links were also found in the

study locations. Though households having microinsurance product was new and not

completely voluntary in the study areas very few of them got the benefits or used it.

Many of them were not much aware of the existing insurance products and its utility as

they automatically get subscribed to it once availed credit from the MFI. This perhaps

has not supported the overall performance of microinsurance. It is also reflected in

terms of the wider gap between needs, demand and supply of insurance product in study

areas. Those who understood it had their own perspective about the product. In sum,

both supply and demand side bottlenecks found more active than pricing of insurance

product. Of course, respondents had different views regarding premium of these

products but it was found less important than the insurance cover, product design and

claim settlements which directly link with the efficacy of such products, from insured

point of view.

Many households go by the present utility of their money. They see insurance as a type

of saving and they want the premium amount to be returned in case there is no

eventuality during the policy term. Endowment type of insurance product was generally

preferred across the groups and regions. Some households expressed to pay more for the

insurance product they are looking for. Data on average premium and sum assured for

different insurance products are presented in table - 5. 17 and 5.18 are self-explained.

119

Table - 5.18 Average Premium per Person (Rs) by Activity & Regions

By Activities

Average Premium for Microinsurance

supplied through MFI (Rs) Average

Premium for

Non-MFI

Insurance(Rs)

Total

Average

Premium

(Rs) Life Health Asset

All MFI-

Insurance

Agriculture 175 325 167 386 2150 607

Dairy 166 325 250 294 3309 1500

Handicraft 347 325 107 779 80 579

Hotel &

Restaurant 56 56 56

Retail trading 127 325 172 194 3026 1179

Manufacturing 52 52 700 145

Skill based /

Service 93 93 4034 1144

All 142 325 159 253 2842 930

By Region

Sambalpur 344 325 159 828 3278 1747

Madurai 33 33 2691 820

Trichy 111 111 2388 480

All 142 325 159 253 2842 930

Source: Field survey

Figure – 5.15

Average Premium of HH Insurance (Rs)

0500

10001500200025003000350040004500

Agr

icul

ture

Dairy

Han

dicr

aft

Hot

el /

Res

tore

nt

Ret

ail tra

ding

Man

ufac

turin

g

Skill ba

sed

/ Ser

vice A

ll

By Reg

ion

Sam

balpur

Mad

urai

Trichy

All MFI-Insurance

Non-MFI Insurance

Total

120

From the data presented in Table – 5.18, it can be that average premium of

microinsurance products looks affordable but it was not found demand-driven.

However, despite of the fact that current microinsurance products are not client friendly,

both suppliers and supply agents (MFIs) claim their own success in terms of out reach

and efficacy of microinsurance. While comparing these claims with the views and

perceptions of our sample households a much wider gap in low segment insurance

sector is visible. Under the given institutional arrangement for distribution of insurance

products, as reported in this study, one would expect that dire credit needs of poor and

low-income microcredit client is the driving force behind the current outreach of

microinsurance rather their than demand for such products. In this context, inter-

linkages between households demand for different financial services explain different

situation as discussed in the literature.

Table – 5.19 Average Sum Assured per person (Rs) by Activity & Regions

By Activities

Average Sum Assured per Person for

Microinsurance supplied by MFI (Rs)

Average Sum

Assured for

Non-MFI

Insurance

(Rs)

Total

Average

Sum

Assured

(Rs) Life Health Asset

All MFI-

Insurance

Agriculture 14571 15000 15000 27429 57500 31188

Dairy 16889 15000 25000 25778 82500 48467

Handicraft 10000 15000 7300 32300 30000 31643

Hotel&

Restaurant 15200 - - 15200 - 15200

Retail Trading 20533 15000 15000 24533 82500 44696

Manufacturing 14667 14667 15000 14714

Skill based

activity 21818 - - 21818 95000 41333

All Activity 17200 15000 13767 23838 75000 37210

By Region

Sambalpur 10000 15000 13767 38767 60000 46729

Madurai 12000 12000 85000 33630

Trichy 23871 23871 84167 33649

All 17200 15000 13767 23838 75000 37210

Source: Field Survey

121

Table - 5. 20 Preferences to Continue with Current Insurance Product

Activity

Willing to Renew of current

insurance policy (HH in %)

Agriculture 79

Dairy 89

Handicraft 80

Hotel& Restaurant 80

Retail Trading 81

Manufacturing 67

Skill based activities 83

All 81

Source: Field Survey

Table - 5.21 Likely Impacts/Expectations from Microinsurance:

(Responses of sample households as % of total HH in respective groups)

By Activity

Reduction in

Employment

Risks

Help in

decision

making

Expansion

of Current

Activity

Security

for

children

education

Reduction

of

vulnera

bility

Agriculture 29 21 21 57 36

Dairy 67 56 67 56 67

Handicraft 40 20 20 40 0

Hotel&

Restaurant 40 40 40 40 0

Retail Trading 69 69 69 69 19

Manufacturing 50 50 33 50 0

Skill based

activities 67 58 75 83 8

All 54 48 51 61 22

Source: Field Survey

122

Figure – 5.16

Inpact of Microinsurance: HH Perception (%)

0102030405060708090

Agricultu

reD

airy

Han

dicraft

Hot

el& R

estaur

ant

Ret

ail T

radin

g

Manu

fact

uring

Skill b

ased a

ctiv

ities All

Reduction in Employment

& Income Risks

Help indecision making

Expansion of Current

Activity

Security for children

education

Despite complicated procedures for getting an insurance product, paying premium,

claim settlement seen in the study areas and which often discouraged new policy uptake

and renewal. More than four-fifth of respondents agreed to continue with current

insurance. It includes their earlier insurance policy prior to microinsurance. Very high

response to continue with current insurance could have positive and negative impacts on

households. Some households wanted it as an investment/saving option as sizeable

portion of respondents look it as support for their growing children. On the other hand

some fear that they may be deprived of getting a group loan from MFI without

microinsurance as it is mandatory in most cases. Though this trend seems in contrast to

the over all views and observations about microinsurance discussed before, it shows a

positive attitude towards market supplied insurance product which is important.

However, an increasing outreach of insurance products not necessarily translated into

the desired outcome or efficacy. This is reflected in terms of the household expectations

form microinsurance presented in the table 5.20.

123

Summary:

The analysis on household risks, risk coping strategy and participation in

microinsurance in the study areas shows some trends may be useful for different

stakeholders. It indicates that many low-income households who experienced some

major risks in recent past followed multiple informal risk management tools and there

was very low incidence of use of market based insurance. However, household‘s

participation in insurance market considerably depends on their household feature,

major occupation and prioritization of risks. In contrast to the common belief positive

association between such participation with the demand for other financial products

such as credit and saving was not clear. There is huge gap in awareness and information

about insurance. Current microinsurance products are largely involuntary in nature as it

comes with microcredit group loan from MFI. Poor product design, limited insurance

coverage, cumbersome claim settlement and other problems are more or less common

across groups and region. The analysis confirms that there is huge need for insurance by

the low-income groups but they do not demand current insurance products due to low

customization to meet their needs. Choice for health insurance found profound in all

contexts followed by insurance for market related risks and livestock. Different intra-

household coping mechanism found very much in operation in the study areas but it was

not gender neutral. Given the insurance choice, most of households would use it for

education and better life of their children.

In contrast to our expectation, household features such as borrowing and saving pattern,

family size, level of education, asset holding etc. seem not much associated with

household participation in insurance market but it gives a broader idea about household

prioritization for risk and risk coping management. Household depend more on informal

borrowing in the event of crisis. The wide gap between the household credit demand

and credit obtained is evident in the study. So, arranging credit to meet current needs

seems given priority than actual need for insurance.

124

Nature and structure of household activity or enterprise seems to influence demand for

insurance products showing the need for group specific insurance product design. Our

analysis across the activity groups helps in understanding the nature of household

participation and diversity in insurance needs. Income from multiple activity,

remittance and high income activity induce insurance uptake and renewal. However,

access to better and preferred insurance products may carry higher costs and hence it

remains out of reach of the low-income groups. It is also possible that household may

undertake conventional risk aversion activities like crop diversification, seasonal

migration, non-farm activity and use of community property resources. Under given

condition, as discussed above, wider outreach of microinsurance may be easier to meet

some quantitative targets but the desired outcome and efficacy of microinsurance looks

a distance goal.

However, our analysis does not support the argument that a household‘s exposure to

risks would automatically prompt it to participate in insurance market. With some

exception, household exposed more to risks than other were less likely to use insurance

products. This finding is in contrast to our earlier expectation, particularly in low

income less endowed households. In spite of low pricing of insurance products many

respondents viewed that use of current insurance product is an additional risk. However,

there was high demand for customized health insurance and endowment or money back

type of insurance product as many people look insurance as saving or investment

option. It may be due to the fact that the relationship between the household risk

assessment and participation in insurance is simply the other way around.

Though some of the findings are in contrast to the conventional belief about low-

income group‘s participation in financial markets but the visible gap in low segment

insurance market as discussed in this chapter is found common with earlier studies.

125

Chapter – 6

Conclusions & Policy Suggestions

The study intends to contribute to understanding and the current discussion and debate

on microinsurance in India with focus on its outreach and efficacy and participation of

the target groups. It has achieved its goal to the satisfactory level and come out with

some important findings about microinsurance programme in India at regional or sub-

national level. By examining and analyzing the process, products, observations and

other aspects of microinsurance programme in select areas study concludes that in many

contexts the existing microinsurance products are not demand driven in both high and

low outreach areas. There is lack of understanding, awareness, extension services and

development of insurance market that grossly affect wider use of insurance products

and its uptake, particularly, among low-income groups. Our analysis, based on primary

household data and information collected from other stakeholders, has come out with

some important findings from policy point of view. However, these findings need to be

considered with required caution as data used may be constrained by several subjective

and endogenous problems. There are also other limitations of the study such as smaller

sample size and groups of respondents.

The study affirmed some common notions that poor and low income groups face

multiple risks and are more vulnerable than their better-off counterparts. Two broad

types of household risks are considered here. First, risks specific to a particular

household depending on its major activity, asset holding and socio-economic and

demographic features called idiosyncratic risk. Second, risks common to a particular

region such as drought, flood, epidemic etc. called covariate risks. To cope with these

risks many households generally used different informal coping tools than uptake and

renewal of formal or market based insurance products. However, most of the informal

126

risk coping mechanism followed by the household found neither strong enough to avoid

adverse risk impacts as found in other studies Jowett (2003) nor it encouraged uptake of

formal insurance products.

It appears that there is lack of pro-active risk management among the sample

households with an adequate market based insurance products. Risk management via

diversification or entry into low risk, low return activities, reduction of household

expenditure were found which supports the earlier studies (Morduch 1995; Dercon

2005). Evidence of use of assets to smooth consumption, and informal sharing of risk

within family also found common in the study areas.

About one-fourth of sample households had faced some major risks during past two

years prior to the field survey such as health shocks, personal accident, crop loss, loss of

livestock , market related risks and social problems such as divorce. About one-fifth of

household risks were related to employment followed by sudden health expenditure,

loss of livestock, bad market conditions resulting in loss of income, social problems and

other type of risks. Interestingly, risk related to mortality was reported abysmally low

though in almost all cases life insurance products were on offer.

The coping strategy adopted in response to these risks in the study areas were mostly

conventional and it includes informal borrowing (42%), saving (18%), off-farm

activities (16%) and distress sale of assets (14%). While desperate risk management

among the sample households is evident some degree of association between financial

products also emerged in our study. Diversification of family labour and intra-

household risk coping was found to be common. However, it was not gender neutral as

female members of the affected households had to share disproportionately higher

burden due to risk events in terms of increasing in working hours and reduction in basic

expenditure including food and health. Children were pushed to work more or less

127

equally during a risk event but in case of reduction in expenditure on health and

education, a visible gender bias was reported. It indicated the unequal impact of risks on

gender which is detrimental for the household and human development.

As regard to access to and use of insurance products many household were first timers

with lack of awareness and information. Those who had some information about

insurance products and used it were not very satisfied with the current product design

(85%), premium related (65%), claim settlement (60%) and offered insurance cover.

Not-covering spouse and other family members in the life and health insurance schemes

was one of the major discouraging factors for insurance demand among sample

households. On supply side, high male mortality, two to four times higher than female

mortality, was one of the key factors for not covering spouse in low-cost

microinsurance schemes. Similarly, complaints about age-specific differential premium

was also reported. The current claim settlement process was widely objected due to its

lengthy and cumbersome documentation processes and resultant delay in payments,

particularly in the case of health insurance claims. This was also true in case of

livestock insurance claim.

One of the merits of this study is its analysis of microinsurance based on activity based

groups to capture the different occupation and livelihood linked risks and risk coping

management of the households. It also shows the household‘s priority regarding risks

and risk management which is crucial for all stakeholders. As the nature and pattern of

household activity or enterprise pose major threat for household income and

consumption smoothing it is important to understand the risks originated from

household‘s occupations. Our analysis across the activity groups helps in understanding

it and offers some important aspects of household‘s needs and participation in

insurance. Income from sources other than the activity for which loan was taken from

which MFI gives loan, remittance, seasonal livestock activity etc. found crucial factors

128

for uptake of insurance. However, level of income seems less active than the

beneficiaries‘ insurance need for customized product. Similarly, household feature like

size, age, asset holding and education level etc though influence the participation in

insurance market but found not significant in some contexts. In case of larger family

size households lesser interest in insurance was reported, particularly for health

insurance. It is possible that, risk impacts may be shared by larger numbers of family

members unlike the case of smaller family. Under this condition, efforts to enhance

outreach of microinsurance may result in meeting some quantitative targets without

much efficacy and desired outcome.

A customized insurance product for family health care, covering common diseases and

illness, was the most preferred insurance product across activity groups and regions. It

shows multiple negative impacts of health related problems, particularly where

affordable health care facility is poor. It is substantiated with our finding that demand

for health insurance was high where average annual household income was low,

particularly household engaged in low-return activity like handicraft and agriculture.

Despite of its need there was low uptake of available health insurance in the study areas

that match to the findings of some recent study (Ito & Kono; 2010). Health

microinsurance in some study areas seem not cover against payments for day to day

common health care expenditures and hence failed to reduce out of pocket expenditures

of the households. This is in contrast to earlier arguments for success of insurance in

offering ex-post risk coping (Dror et al. 2007).

About 18 % households expressed their demand for life insurance followed by 12 %

households for livestock insurance products on offer. While it shows low preferences of

the target groups for the current insurance products offered to them, a good number of

households were willing to pay even more than the present premium for well designed

insurance products that meet their needs. Their expectation from insurance also includes

129

some assured return at the end of the policy term. However, willing to pay premium

varies across groups and regions. It shows that uniform insurance product has limited

uptake in low segment insurance market. This finding matches to the earlier study

The study provides some insights into the link between microinsurance and microcredit

programme and participation of the poor and low income groups in financial products.

Though access to microinsurance has been largely due access to microcredit loan from

MFI individual stakeholders‘ perspective seems outweigh the core objective of

microinsurance programme. In many cases uptake of insurance product was involuntary

in nature and it was considered more as a saving than a tool for risk management.

Findings of our analysis do not support the argument that a household‘s exposure to

risks would have visible impact on participation in insurance market. With few

exceptions, it was reported that households exposed to more risks are less likely to use

insurance products than others. Some believed that taking insurance product itself as an

additional risk. It may be due to the fact that the relationship between the household

risk assessment and participation in insurance is simply the other way around.

Adequate awareness, information and use of insurance products are grossly lacking in

the study areas. Cumbersome and lengthy process of documentation and claim

settlements, inconvenient premium payment system, lack of proximity to the financial

institution and lack of trust on staff of the providers are some key factors that

discourage uptake and renewal of microinsurance among low-income groups.

Correcting problems may translate insurance needs of many low-income households

into potential demand. Lack of effort by insurers and MFI staff to explain products in a

way that is understandable for the target groups is evident in the present study as found

by others (UNDP 2007; Chankova et al. 2008). Similarly, factors influencing insurance

uptake were level of income, education of household head, occupations and asset

holding which corroborate arguments of Chankova et al.(2008); Gine et al. (2007b).

130

MFIs as distribution channels of microinsurance though found sound in delivery of the

product but without much action in provision of pre-insurance arrangement and post-

insurance services. It appears that there is poor coordination between insurers and MFIs.

While partner-agent model offers an opportunity to reduce administrative costs for both

stakeholders their poor coordination and planning may lead to underutilization of MFIs

as distribution of channel. Though MFIs enjoy flexibility to choose insurance partner

frequent changes in insurance partners, as reported in the study, can cause confusion

among the clients and staff.

The study concludes with some important issues relating to microinsurance in policy

perspectives. Major findings of the study reveal that the usage of microinsurance was

low and less effective. In many cases it was involuntary among low income microcredit

clients of MFIs. Factors which influenced the demand for insurance were diverse at

group and regional level not adequately considered while designing the insurance

product. Household having different activity or enterprise exhibited differently in

prioritizing risks and risk coping and insurance uptake. While low demand for insurance

is largely due to low customization of products contrasting perspectives of insurance

clients, MFIs and insurers is reflected in the analysis. Some trend in demand for

insurance emerge from the analysis are high preference for comprehensive health

insurance and money back or endowment type of insurance products. This will meet

some expectation of the target groups who are looking for good value for money spent

on insurance products.

From regulation policy point, the rural and social sector obligations imposed on formal

insurers seems helped in expanding outreach of microfinance. The experiment with new

distribution models through MFIs also looks sound but impacts of such expansion have

not been impressive in many contexts. Under this situation, existing microinsurance

seems not turned out to be a win-win situation for the all major stakeholders – insurers,

131

MFIs and the poor. It may be too early to arrive at any concrete outcome as many of

microinsurance schemes were started only few years back with inadequate

infrastructure and other arrangements. It is also not appropriate to generalize the

findings of a study based on smaller samples like the current one. However, the study

has come out with some important findings and observations which can be used by

different stakeholders.

Policy Suggestions

The timing of this study is strategic when there is a renewed policy interest in

microinsurance sector in India to achieve variety of socio-economic goals. Some

important liberal regulatory policy initiatives have been introduced recently to improve

outreach and growth of the sector. Insurers are now permitted to deal in both life and

non-life products. Microinsurance industry in India poised for faster growth. But at the

micro level, situations specific to different groups and regions, looks different with

different perspectives of stakeholders. It may need more attention. Based on the major

findings of the study the following policy suggestions are offered for better outreach

and efficacy of microinsurance in regional and group perspective.

I. Response to clients‘ needs and preferences across groups and regions need to be

considered along with affordability and simplicity aspects while designing

insurance products. Hence, well designed and simple insurance product with

lasting effects and matching to the needs of target population is emphasized. For

instance, comprehensive health insurance that covers additional family members

and common local health problems are suggested.

II. While designing new insurance products regular consultations with all

stakeholders is crucial for better customization and to minimize the differences

in stakeholders‘ perspectives.

132

III. The issue of affordability should be factored into product customization.

Selection of partners and distributive channels should be more competitive and

to ensure it suitable guidelines should be prescribed.

IV. Understanding local conditions, adequate awareness and information, effective

customer orientation practices can translate many insurance needs of low-

income groups into an insurable proposition as insurers are often not completely

aware about local conditions and needs.

V. Product pricing should be done by needs and aligning with risks to make it feel

more affordable and induce client‘s willingness to pay for the service.

VI. Microinsurance as a pro-poor risk coping tool may be integrated with social

security measures. Possibility of such integration can be explored in the areas of

women entrepreneurship development, poverty reduction measures, public

health programme etc.

VII. As intermediaries of microinsurance,‘ like MFIs prioritize to protect their assets

rather than looking for a long term insurance business. They may be involved as

a business partner rather as intermediaries on some commission basis.

Possibility of involving local institutions such as post-office, RRBs and

community-based organization may be experimented as distribution channel.

VIII. Capacity building for MFIs, insurance agents and others is an important area for

policy action. Many field level staffs are not well trained to deal with important

insurance matters and often lose trust of the clients. Training and awareness

programme should be conducted on regular basis.

IX. Partial abolition of service tax on microinsurance products and provision of

performance-based incentives may be considered to motivate intermediaries and

their field staffs.

X. MFIs may be assigned more role as a partner and it should obtain clients feed-

back on regular basis and use it in negotiations with the insurers.

133

At macro level some key policy suggestions include building competitive business

environment in microinsurance sector for innovations and designing (products,

pricing, distribution, documentation processes), making it more gender neutral

tool for risk management, provision of required infrastructure etc. Lack of

availability of relevant insurance data is a serious issue. Investment in insurance

data collection and use of technology in handling such data and other key

information such as claim settlement need to be addressed on priority.

In sum, estimating actual market potential of microinsurance sector under the given

condition may be erroneous because of the actual demand is miss-matched with the

needs of the target groups and the supply is grossly influenced by suppliers perceptions

rather willingness and ability to pay by the potential clients. There is an enormous

market potential for customized microinsurance products and a huge space for

innovation. In order to realize macro impacts of microinsurance, wider outreach is

desirable but its effectiveness is equally importance. However, more region and group

specific policy attentions are urged to improve the efficacy of microinsurance sector

without compromising its out reach.

134

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103:56-78.

Ruthven, O. and S. Kumar. (2002). ‗Fine-Grain Finance: Financial Choice and Strategy

among the Poor in Rural North India‘, in Institute for Development Policy and

Management (ed.) Finance & Development Research Programme Working

Paper Series, Vol. 57, Manchester, University of Manchester.

Schreiner, M. (2002). Aspects of outreach: A framework for the discussion of the social benefits of microfinance. Journal of International Development, 14, 1-13.

Swiss Reinsurance Company, (2008). ―Sigma Report 3/2008.‖ Zurich, Switzerland.

UNDP (2007), ‘Building Security for the Poor Potential and Prospects for

Microinsurance‘, Human Development Report Unit, UNDP Regional Centre,

Colombo

UNDP, GTZ and Allianz AG (2006), Microinsurance: Demand and Market prospects -

India,

137

Appendix - I

Case Study: Understanding Insurance Products and its Use

__________________________________________________________________

Chinnaponnu an active lady starts her day with sorting and grading vegetable to

sell in nearby town. At end of the day she relaxes with her daily earnings and plans for

the next day. She is residing at Keerikalmedu, Innamkulathur (PO), Srirangam (TK),

Trichy District and a member with Grama Vidiyal for the last six years. Her husband

Thirumalai is running a teashop near to her village. Her son Shanmugam, a tea master

in another teashop, contributed larger share to the family budget. This made her family

move from below poverty level to a lower middle class.

She got her first loan from Grama Vidiyal (MFI) for buying and selling leafy

vegetables at local market. She earned about Rs.100/- per day excluding some rainy

days. Second loan from Grama Vidiyal helped to open a Tea Stall for her husband and

he earned about Rs.150/- per day.

She had one more son and one daughter namely Murugesan and Sulokchana

respectively. Tamilarasi is her daughter-in-law and having two sons namely, Ganesh

and Duraira studying 9th

and 5th

standard respectively. Murugesan is working in a cotton

mill in Karur. Having small but multiple family incomes Chinnaponnu has managed

many incidence that distort her family‘s income and expenditure. Suddenly her elder

son fell sick due to Brain Fever and somehow got admitted in a government hospital to

avoid expensive treatment at private hospital. Unfortunately, he died on 22.11.2009 by

leaving behind his wife (daughter-in-law) and two children. Chinnaponnu now lost her

confidence, accumulated over years, to meet the challenge. She cannot protect her

family with her earnings.

One day she found a LIC receipt in her locker and showed the same to near by

LIC agent who told her that it is too late to expect anything from the insurance policy.

138

He had made several futile efforts get the claims. Some say they will help her in getting

the claim amount and it is in-process and others say she could have got handsome

amount but now every thing is lost. Chinnaponnu still can actively calculate, predict and

plan about her vegetable market, price and customer but failed to understand nuances of

insurance – whether it is micro or macro.

Name: Chinna Ponnu, Place: Keerikalmedu, Chozhan Nagar, Trichy, Tamilnadu

Appendix - II

Some Socio-Economic Features of Selected States in India

Indicators Orissa Tamil Nadu All India

Population 37 million 62 million 1008

million

Sex Ratio 972 987 933

Average HH Size 4.8 4.3 5.3

Urbaization 15 44 29

Female Literacy 51 65 48

% of Informal Employment

among female

98 94 96

Infant Mortality 97 43 62

Rural Poverty 46 21 27

Absolute nos of Poor 18.41 million 18.62 million 315.48

million

GSDP Growth (%) 3.53 6.47 6.60

Percapita Income Rs. 5264 25965 23241

Natural Risks Cyclone,

Flood, Drought

Cyclone Drought Most

types

Organization deal with

Insurance

BISWA,

BASIX,

Parivartan

ASA,

SHEPHERD,

MAHASEMAM

Major Insurer deal with

Microinsurance

Tata AIG,

Bajaj Allianz,

ICICI, LIC,

OIC

LIC, Bajaj

Allianz, ICICI,

Tata AIG

Source: Compiled from Census of India 2001, HDI (Panning Commission) and

Field Survey

Appendix – III

Schedule No: Date:

139

Household Questionnaire: CMR Study on Micro Insurance

Village/Ward Gram Panchayat Block/Taluk District

9. Name of the head of the household:

10. Name of the respondent (if respondent is not HH head)

11. Relation with HH head:

12. Name of the caste you belong to (write the caste):

13. What type of house you own: i. Kacha, ii. Semi-pacca, iii. Pacca, iv. No house

14. If any family member is a member of Credit/Saving/insurance/other group give

Details of the Group

Name of Group/SHG Promoted by (NGO/GO) Date of Group

formation

Name of

Centre

Branch

i. Group Details

Nos of Group

members (present)

Members dropped

out in last 2 years

Activities of group

members

Borrowing

Institution(s)

Insurance

Covered by

ii. Details of the Group Member

Date of Joining

the group

Activities

undertaken

Amount borrowed from the

Group/ promoting MFI/NGO

Amount

outstanding

Amount deducted

for insurance

from loan amount

iii. Details of Insurance Cover of the group member & her family

Insurance products Date of Insurance

cover started

Sum Assured Annual Premium Insurer

15. Household‘s Demographic Features

140

Sl.N

o

Name

Sex

Male

Female

Age Marital Status

1) Unmarried

2) Married

3) Widowed

4) Divorced

5) Separated

6) other, specify

Education

(exact

qualificatio

n current or

completed)

*

Formal

education

(Give nos

of Years

spent)

Skill

Possess

ed

* In case of those continuing their education, put ‗C‘ in bracket.

16. Details of Occupations/Employment of Household Members

141

HH

members

with Sl

No as in

Qn. No.7

Major Occupation* Subsidiary Occupation (if more than one

consider the most important one)

Activities

Code

Duration

(maydays

)

Avg.

Earning /

wage Rs.

Work-

place

Activities

Code

Duration

(maydays

)

Avg.

Earning /

wage Rs.

Work

place

*Accounting for more than 50 % of member‘s income

Work Place Code: 1-within village/ward, 2-Neighbouring areas, 3-Out of dist, 4-Out of state, %-

other

Activity Code:

1) Self-cultivation,/Cultivator 7) Other manufacturing (Specify) 13) Trade &

Business (seasonal)

2) Livestock/Dairy 8) Caste based Services (barber, washer man) 14) Forest

based activity

3) Allied agriculture works 9) Skill based Services (mechanics, driver) 15) Migration

4) Agriculture wage labour 10) Regular Services in public or private sector) 16) Other

Activity (Specify)

5) Agricultural Product Processing 11) Trade & Business (retail – grocery, snack/tea stall, vendors)

6) Caste based Manufacturing (Goldsmith, blacksmith,) 12) Trade & Business (wholesale)

17. Give the following details on land holding in acres (if information is provided in

local units, convert the same into acres):

Particulars Irrigated Dry

Total Agricultural land owned

Land currently cultivated

Land currently mortgaged in

Land currently mortgaged out

Total Non-Agricultural land owned

18. Household Assets:

Livestock Assets

142

Animals Number Present value (in Rs.)

Total

Birds Number Present value (in Rs.)

Total

Households Assets: Farm assets

Farm Assets Amount spent

(in Rs.)

Present value

(in Rs.)

1) Self use

2) Rent

Total

Non-Farm Assets Amount spent

(in Rs.)

Present value

(in Rs.)

2) Self use

2) Rent

Total

Household Assets: Consumer durable & other Assets

Particulars 1) Yes

2) No

Number Amount spent

(in Rs.)

Present

value

Cycle

Radio

Tape

TV

Wall clock

Cooler

Refrigerator

Ceiling fan

Table fan

Iron box

Kerosene stove

Gas stove

Telephone/Mobile

Scooter/Motor cycle

Electric motor for drinking water

Any other (specify)

143

19. Household Borrowing & Saving Activities during last five years

Borrowing

Sources

(see the

Code) *

Year Purpose Demanded

Amount

(in Rs.)

Amount

obtained

(in Rs.)

Rate of

interest

Collatera

l given

Date of

application

Date of

sanctio

n

No.

of

visits

Exp.

Incurred

to get

loan

Loan

outstan

ding

Mod

e of

repay

ment

**

Saving

Forms of

saving

Source of

saving

Period of

saving

Avg

savin

g /

mont

h

Total saving

(in Rs.)

Amount used

(in Rs.)

Net saving Rate of

interest

Purpose

Group

Bank

Co-operatives

Informal Saving

Specify)

Other

Codes for sources: [1] Group (MFI) /SHG [2] Co-operatives [3] Commercial bank including RRB [4] Moneylender

[5] Large farmers [6] Employer [7] Relatives [8] Trader/Shopkeeper [9] Others (specify)

Codes for mode of repayment: [1] Cash [2] Kind [3] Both cash and kind

144

20. Give Details of the Activity (s) Undertaken after Joining the Group

i. Name of the activity: ___________________, Annual/Monthly Turn Over Rs. ___________

ii. Nature of the Activity:

1. As major occupation, 2. Supplementary occupation 3. Sesonal

iii. Reason for selecting this activity?

1. Pervious work experience, 2. Suit to family, 3. Motivated by MFI or peer group members

4. Any other reasons_____________________________

iv. Major constraints to run this activity: 1_________________, 2________________, 3_________________

v. Is this activity covered under insurance? Yes/No,

vi. Who else from your family involve in this activity? ___________________

vii. Amount borrowed from group/MFI for this activity and amount outstanding:

1st ____________, 2

nd _____________, 3

rd _____________, 4

th _____________,

Total amount Borrowed till date _____________ Total Outstanding at Present__________

viii. Amount borrowed from other sources for this activity: Total _______________, Rate of interest(%)__________

ix. Employment and earning details of this Activity

Employment Average man hours/day Man days per week Avg. Earning / day (Rs.) Work-place

Self-Employment

Family Member Employed

(spouse/children/others)

Hired Labour Employed

Others (specify)

145

21. What are major risks/shocks/problems relating to your livelihood and life you have

encountered during last 5 years? Explain briefly

Risks/Shocks Nature of risks/shocks

(mention the period)

Major reasons Major Coping

Strategy

Employment

Income

Life

Crop

Livestock

Health

Education

Assets

(specify)

Credit/

Borrowing

Market

related

Remittance

Disability

Familial

(divorce/

separation)

Other

(specify)

146

22. How do you manage following contingencies without formal insurance cover? (use

separate sheet if required)

(i) Crop failure: (food, fodder, fuel security):

(ii) Loss of Livestock activities: (disease, surge in fodder cost):

(iii) Debt: (distress sale of output & assets, fresh borrowing)

(iv) Loss of Employment/ Income: (migration, non-farm activities, short term borrowing)

(v) Liquidation of Assets: (distress sale, mortgage)

(vi) High Health exp: (critical health problem, loss of life, disability)

(vii) High Education exp: (dropout, quality education)

(viii) Social exp:

(ix) Other (specify)

23. Do you think some insurance/microinsurance cover could have helped you to manage

shocks/problems as mentioned above? Yes / No If yes, explain briefly

____________________________________________________________________

24. What do you understand by insurance or microinsurance?

____________________________________________________________________

25. In your view who gets affected the most without insurance or microinsurance?

____________________________________________________________________

26. In your understanding, which year you had (i) Normal/stable

production/income/employment?________

(ii) Risky/affected/unstable

income/production/employment: _____

Why? ________________________________________________

27. Do you ever have insurance or insurance products before joining the group? Yes / No

If yes, name of the policy holder _________________________

147

28. What type of insurance policy you have availed till now, Give details

Name of

Insurance

Products &

Insurer

Coverage:

1-self,

2- with

spouse,

3- with

children

4-All family

Date of

policy

started

Date of

maturity

Premium

Amount

Mode of

payment*

Sum

Assured

Present

status of

the policy

1-contine

2-lapsed

Nominee

1-spouse

2-daughter

3-son

4-

parents/others

Types of risks

not covered

Health

Life

Assets

(specify)

Crop

Livestock

Others

(Specify)

1-debit from saving, 2- debit from loan amount, 3-self payment, 4- partially contributed by MFI/Govt/others, 5-fully paid by

MFI/Govt/other

148

29. Would you like to continue with your current insurance policy? Yes / no if no why?

30. What are the impacts of your current insurance policy/product on subsequent production and on your life and livelihood?

How it benefit you?

Yes/No Suggestion/Remarks

Reduction of risks of employment & income

Empowering Decision making

Expansion of present activity

Provides Security for children education

Reduce vulnerability

Reduce impact of seasonality

Other (Specify)

31. Major difficulties/problems related to existing insurance/microinsurance policy

products Awareness/

Product

Information

Premium related Product design Claim

settlements

Others Suggestion/

Remarks

Life

Health

Crop

Livestock

Assets

specify)

Market

Other

(specify)

149

32. Have you made insurance claim incase of eventuality/incident? Yes/ No, If yes give details

Date of Eventuality:_________________ Reasons_____________________

Claim made________________ Claim Settled ______ Any Difficulty faced___________________________

Sum Assured Rs._______ Amount Received after deduction of loan, if any, Rs_________________

33. Any other insurance product you would like to have which has not yet supplied/available. If yes Suggest followings

Specify Products/

Areas for which

you need Insurance

Suggest the

Product design

Payment of

Premium

Insurance

cover

Sum Assured/

Money Back

Claim

settlements

Suggestion/

Remarks

150

34. Intra-household Risk/Uncertainty Management Strategy during Normal & Affected Year/Case

HH Risk Aversion Strategy in

Normal Year/case

Adult

female

Adult

male

Children Old Members Others

Female Male

Increase in Working period

Reduction in Health exp

Reduction Exp on cloth & other

Reduction in Exp. On food &

Beverage

Reduction Exp on Education

Other strategy

HH Risk Aversion Strategy Affected year/case

Increase in Working period

Reduction in Health exp

Reduction Exp on cloth & other

Reduction in Exp. On food &

Beverage

Reduction Exp on Education

Other strategy

*Use Code: [1] Marginal (<5%), [2]Average (5-15%), [3] High (>15%), [4] (>25%) [5] No change, Alternative income/employment

151

27. Benefited/Participated in any Social Security/ Development Programme/Activity* during last five years

Activities / Programme

Participated/benefited

Employment

Availed (Nos. of

Man days)

Wage income

received (Rs)

Benefits

received in

Kind (value in

Rs)

Monetary

Benefits

Received

Any Subsidies

Availed

(value in Rs)

Total Amount

Received (Rs)

*(Aam Admi Bima Yojana, ICDS, Old Age Pension, PDS, Food for work, NREGS, Drought proofing, Watershed Development

152

Appendix – II

Questionnaire for Credit/Insurance Institutions Dealing in Micro Insurance Products

35. Name & Address the Institution:

36. Type of Institution: Trust/MFI/NBFC/Insurance/NGO/Others

37. Date of Operation: Date of Registration:

38. Details of Staffs & Existing Staff Structure: (Use separate sheet if

needed)

Staff involved in Microinsurance Operation

Total

39. Activities/ Operations Starting with Micro insurance by the

MFI/NBFC/NGO:

Activities/Operation Date of

operation

Coverage:

Client/members

Coverage:

Geographical

Sponsorer/Partner

Organization

Annual

Turn

over

40. Fund Partners/Funding Agencies/Sponsoring Organization

Activities/Operation Sponsorer/Fund Partners Annual Turn over

41. Detail of Microinsurance Activities/Products Undertaken

Activities/Product

& Coverage

Date of

operation

Nos of Client/

members

Premium

per unit*

Sum Assured

per unit*

Insurer/

Insurance

Companies

Specify the unit used for calculation of premium and sum assured

Schedule No: Date:

‗

153

42. How do you define micro insurance?

43. Who gets suffered the most in absence of micro insurance?

44. What are the microinsurance products deal in and who are the target

clients/group/areas for it?

45. To what extent you have succeeded in achieving microinsurance cover?

46. Major constraints of Micro insurance spread

Product/Activities Constraints Suggestion

Life

Health

Livestock

Assets

Crop

Others

47. Specific Issues Relating to Microinsurance:

a) Products Product design

Product/Activities Existing Suggestions

Life

Health

Asset/Others

154

b) Premium

Product/Activities Existing Suggestions

Life

Health

Asset/Others

c) Claim Settlements

Product/Activities Existing Suggestions

Life

Health

Assets/Other

d) Transaction Cost

Product/Activities Existing Suggestions

Life

Health

Assets/Other

e) Dropout/Discontinuation

Product/Activities Existing Suggestions

Life

Health

Assets/Other

f) Data & MIS System

g) Audit & Account

h) Details about the Negotiation with Insurance insurance/Credit organization Company

155

Glossary

Adverse Selection – Tendency of persons who present a poorer-than-average risk to

apply for, or continue, insurance. If not controlled by underwriting, it results in higher-

than-expected loss levels.

Agent – Licensed person or organization authorized to sell insurance by and on behalf of

an insurance company; the intermediary between the insurer and the insured client.

Beneficiary – Person who receives a life insurance benefit in the event of the

policyholder‘s death.

Broker – Licensed firm or individual that designs, negotiates, and services insurance

programs on behalf of the insurance buyer.

Claim – Request for payment under terms of an insurance contract when an insured event

occurs.

Claims Processing – System and procedures that link the occurrence of an insured event

with a payout. Processing should be quick and efficient so payouts can be made as

quickly as possible.

Compulsory Cover – Insurance that an individual is required to purchase, either because

of government mandate (e.g., third party liability auto insurance) or as a condition for

accessing another service (e.g., credit life insurance that is required when an individual

takes a loan). Compulsory cover can control adverse selection and significantly reduce

administrative costs.

Covariant Risk – Peril that affects a large number of the policyholders at the same, e.g.,

an earthquake; or several risks that consistently occur together (at the same time or under

the same circumstances).

Cover or Coverage – Scope of protection provided under an insurance contract.

Death Risk – The chance that a borrower will die with a loan outstanding.

Health Insurance – Coverage for illness, accidents and other health-related risks.

Insurance – System under which individuals, businesses, and other entities, in exchange

for a monetary payment (a premium), are guaranteed compensation for losses resulting

from certain perils under specified conditions.

Insurers – Commercial regulated and licensed insurers with no particular focus on the

low income market.

156

Insurance Supervisor – Refers to either the insurance and reinsurance regulator or the

insurance and reinsurance supervisor in a jurisdiction.

Insurance Intermediary – Any natural person or legal entity that engages in insurance

intermediation. Intermediaries are generally divided into separate classes. The most

common types are ―independent intermediaries‖ who represent the buyer in dealings with

the insurer (also known as ―independent brokers‖) and ―agents‖ (which generally include

multiple agents and sub-agents) who represent the insurer.

Life Insurance – Coverage providing for payment of a specified amount on the insured‘s

death, either to the deceased‘s estate or to a designated beneficiary; or in the case of an

endowment policy, to the policyholder at a specified date.

Life Savings – Life insurance product with the benefit linked to the amount of savings

that a person has in an account. Popularized by credit unions as a means to promote

savings, premiums on this group policy are paid by the financial institution to an insurer

based on a multiple of the total value of savings accounts.

Microinsurers – A microinsurer is an insurer that is either entirely focused on the low-

income market or an institution that has a specific product line targeted at this market.

Some microinsurance providers are small or informal; others are large, commercial or

government-backed insurers.

Moral Hazard – Occurs when insurance protection creates incentives for individuals to

cause the insured event; or a behavior that increases the likelihood that the event will

occur, for instance bad habits such as smoking in the case of health insurance or life

insurance.

Policyholder – Party to whom the contract of insurance is issued by the insurance

company.

Premium – Amount paid by the policyholder for coverage under the contract, usually in

periodic installments.

Property Insurance – Provides financial protection against loss or damage to the

insured‘s property caused by such perils as fire, windstorm, hail, etc.

Regulated Microinsurer – Licensed by the insurance supervisor to operate as an insurer

with a focus on the lower income market either in full or as a product line.

Regulation – Government-defined requirements for an insurer, such as minimum capital

requirements and necessary expertise; also provides consumer protection through the

oversight of insurers, including pricing policies, form design and appropriate sales

practices.

157

Reinsurance – Insurance that is purchased by insurance companies for their own

protection. The risk of loss is spread so that a disproportionately large loss under a single

policy doesn't fall on one company. Reinsurance enables an insurance company to

expand its capacity; stabilize its underwriting results; finance its expanding volume and

secure catastrophe protection against shock losses.

Term Insurance – Life insurance payable to a beneficiary only when the insured person

dies within a specified period.

Underwriting – Process by which an insurance company evaluates and selects risks to be

insured and determines terms and conditions under which they will accept the risk.

Unregulated Providers – These are subdivided into two categories: a) formal providers

(established under any other law/regulation) such as cooperatives or microfinance

institutions, and b) the entirely informal providers which are under no legal provision at

all, such as informal funeral societies.