Micro Insurance Project

Micro--Insurance

A PROJECT REPORT ON “MICRO-INSURANCE” SUBMITTED TO UNIVERSITY OF MUMBAI IN THE PARTIAL FULLFILMENT OF B.B.I. DEGREE SUBMITTED BY YOGITA BANGERA T.Y.BCOM (B&I) SEMESTER- V ROLLNO- A-01 SEAT NO- 574

STUDYING AT RIZVI EDUCATION SOCIETY’S RIZVI COLLEGE OF ARTS, SCIENCE & COMMERCE BANDRA (W), MUMBAI-50

ACADEMIC YEAR (2009-2010)

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DECLARATION I, Miss Yogita Bangera, a student of T.Y.B.com (Banking & Insurance) 6th SEM of Rizvi College of Arts, Science and Commerce hereby declare that I have completed this project titled “Micro-Insurance” for the academic year 2009-2010. It is an original and true work to the best of my knowledge.

____________________ Signature of the Student [Yogita Bangera]

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CERTIFICATE I, Prof Pushaanjali Sahu hereby verify that Miss Yogita Bangera have completed this project titled “Micro-Insurance” for the academic year 2009-2010. It is an original and true work to the best of my knowledge.

____________________ Signature of the Principal [Dr.S.G.A.Zaidi]

___________________ Signature of the BBI Co-ordinater [Mr Furquan Shaikh]

__________________________

_____________________________

Signature of the Project Guide

Signature of the External Examiner

[Mrs Pushaanjali Sahu]

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Acknowledgement First and foremost, I would like to thank Almighty god for energy, strength, guidance and help that has always been with me throughout My work While presenting this project at this project at this juncture, I feel deeply obliged to our Mumbai University for providing me with an opportunity to do this project. I also extend my sincere thanks to our Principal Dr.S.G.A.Zaidi and the vice Principal Beena pant for their moral support and encouragement

I am highly grateful and express my sincere gratitude to my Prof Pushaanjali Sahu, who guided me so well before the beginning of the project. To sum up I would like to thank my Prof Furquan Shaikh (BBI Co-ordinater), who have helped me in some or other way in successfully completing this project. It has been a warming experience for me, which will surely help me in the future.

Last but not least I would like to thank my friends and family members for their continuous, patience, encouragement, support and blessings that enabled me to make this project a success.

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Micro--Insurance

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EXECUTIVE SUMMARY This project is prepared with an intention to methodically study the developments in microinsurance witnessed in India. I have tried my level best to understand the topics covered in this project. To understand the practical aspects of micro-insurance sector has changed the outlook of the poor and their contribution to socio-economic welfare of the poor.

 The potential market for insurance in developing economies is estimated to be between 1.5 and 3billion policies. There is significant demand for a range of insurance products from health and life, agricultural and property insurance, to catastrophe cover.

 Besides profits, there are several other benefits for commercial insurers providing micro-insurance: a larger and diversified risk pool, benefits to reputation, and market intelligence and innovation that can be applied to other business activities. In the longer term, the combination of first mover advantages and sustained growth in developing markets can lead to strong future business prospects.  The success of microcredit worldwide has shown that people with low incomes are a proven market for financial services and are effective consumers if given appropriate products, processes, and knowledge. In the insurance field, micro insurance can provide the specialised insurance products demanded by under-served low income markets.

 Micro insurance already covers around 135 million people, or around 5% of the potential market. In many countries, annual growth rates are 10% or higher.

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Micro--Insurance



The trends that will shape the future of micro insurance include: economic growth, urbanization, financial sector development, climate change including more extreme weather events and structural adaptation, the rapid pace of product and logistics innovation, and innovative use of communication and information technology (mobile phones, internet).

 Micro insurance is effective even in markets with little experience of insurance, as long as products, procedures and policies are simple, the premiums are low, the administration is efficient, and distribution channels are innovative. 

The main suppliers of micro insurance are commercial insurers. Most international insurers and reinsurers are involved in micro insurance initiatives or offer products directly. At the same time, International organisations, donors, non-governmental organisations (NGOs) and governments are important facilitators.

 Community-based and informal insurance schemes will prove valuable sources of innovation, but it is likely that, as communities develop, opportunities for regulated insurers with appropriate Products and processes will increase and these insurers will become market leaders.

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Micro--Insurance

Sr.No 1.

2.

Table of Content DESIGN OF STUDY  Title For The Study 

Objective

  

Scope Of The Study Methodology Limitations

11-22

Introduction Definition of Micro-Insurance History & Vision Scope and functions Types of micro insurance in India Micro-Insurance delivery models The Key Characteristics of Micro Insurance The Micro Insurance Mechanism

DEVELOPMENT OF MICRO-INSURANCE  

4.

9-10

WHAT IS MICRO-INSURANCE        

3.

Pg. No

23-26

Development of Micro-Insurance The Potential Market for Micro-Insurance in India: (The UNDP Study)

NEED FOR DEVELOPING MICRO-INSURANCE IN INDIA        

27-34

Background Development Goal Institutional Adaptation Linkage to Insurers Proposed Micro-insurance Regulations Tie-up between life insurer and non-life insurer Code of conduct of Micro insurance agents Micro-insurance agent

5.

MICRO-INSURANCE PRODUCT

35-38

6.

RESEARCH METHODOLOGY

39

7.

DATA ANALYSIS & INTERPRETATION [with pie charts]

40-45

8.

FINDINGS

46

9.

RECOMMENDATION

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10.

CONCLUSIONS

48-49

11.

BILIBOGRAPY

50

ANNUREX:-Survey Questionnaire [to customer]

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1.

DESIGN OF STUDY

TITLE FOR THE STUDY

 ‘’ M I C R O - I N SU R A N C E ’’ OBJECTIVES

 To understand what Micro-Insurance is.  To recognize the Potential Market for Micro-Insurance in India.  To identify the Key Characteristics of Micro Insurance.  To have a look at the micro-insurance products.

SCOPE OF THE STUDY

 Meaning and concept of Micro-Insurance.  Need for developing micro-insurance in India.  Since it is a new concept, untouched and unaware, the information was not easily available.

METHODOLOGY

 Data has been collected for the following sources: 

Primary data



Secondary data

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 All the data has been collected by doing library research, magazines, articles, visiting bank’s official websites and various other web pages.

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LIMITATIONS

 Data collection was very time consuming.  Since it is a new concept, untouched and unaware, the information was not easily available.

 All the primary information included in the project is completely based on the data offered by the applicants through survey analysis. There is no alternate source for confirmation of this information and data.

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2. WHAT IS MICRO INSURANCE? On a daily basis, the poor around the world face a multitude (huge amount) of risks that threaten to derail any progress they have made to work their way out of poverty. The death of a family member, loss of property and livestock, illness, and natural disasters each pose unique dangers. Protecting people against these losses is an important step to alleviating global poverty. Micro insurance - the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved – seeks to provide a suitable solution for managing these risks. The institutions or set of institutions implementing micro-insurance are commonly referred to as a micro insurance scheme.

DEFINITIONS Micro-insurance is insurance with low premiums and low caps / coverage. In this definition, “micro” refers to the small financial transaction that each insurance policy generates. The Micro-insurance Regulations, issued in 2005 by the Indian Insurance Regulatory and Development Authority (IRDA), for example, adopted this definition in explaining “micro-insurance products” as those within defined (low) minimum and maximum caps. The IRDA’s characterization of micro-insurance by the product features is further complemented by their definition for micro-insurance agents, those appointed by and acting for an insurer, for distribution of micro-insurance products (and only those products).

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 Micro-insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. The author of this definition adds that micro-insurance does not refer to: i.

the size of the risk-carrier (some are small and even informal, others very large companies);

ii.

the scope of the risk (the risks themselves are by no means “micro” to the households that experience them);

iii.

The delivery channel: it can be delivered through a variety of different channels, including small community-based schemes, credit unions or other types of microfinance institutions, but also by enormous multinational insurance companies, etc.

 Micro-insurance is synonymous to community-based financing arrangements, including community health funds, mutual health organizations, rural health insurance, revolving drugs funds, and community involvement in user-fee management. Most community financing schemes have evolved in the context of severe economic constraints, political instability, and lack of good governance. The common feature within all, is the active involvement of the community in revenue collection, pooling, resource allocation and, frequently, service provision.

 Micro-insurance is the use of insurance as an economic instrument at the “micro” (i.e. smaller than national) level of society. This definition integrates the above approaches into one comprehensive conceptual framework. It was first published in 1999, pre-dating the other three approaches, and has been noted to be the first recorded use of the term “micro-insurance”. Under this definition, decisions in

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Micro--Insurance micro-insurance are made within each unit, (rather than far away, at the level of governments, companies, NGOs that offer support in operations, etc.).

INTRODUCTION Micro-insurance, the term used to refer to insurance to the low-income people, is different from insurance in general as it is a low value product (involving modest premium and benefit package) which requires different design and distribution strategies such as premium based on community risk rating (as opposed to individual risk rating), active involvement of an intermediate agency representing the target community and so forth. Insurance is fast emerging as an important strategy even for the low-income people engaged in wide variety of income generation activities, and who remain exposed to variety of risks mainly because of absence of cost-effective risk hedging instruments. Although the type of risks faced by the poor such as that of death, illness, injury and accident, are no different from those faced by others, they are more vulnerable to such risks because of their economic circumstance. In the context of health contingency, for example, a World Bank study (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall below the poverty line as a result of their stay in hospitals. The same study reports that more than 40 percent of hospitalized patients take loans or sell assets to pay for hospitalization. Indeed, enhancing the ability of the poor to deal with various risks is increasingly being considered integral to any poverty reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).Of the different risk management strategies, insurance that spreads the loss of the (few) affected members among all the members who join insurance scheme and also separates time of payment of premium from time of claims, is particularly beneficial to the poor who have limited ability to mitigate risk on account of imperfect labour and credit markets.

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In the past insurance as a prepaid risk managing instrument was never considered as an option for the poor. The poor were considered too poor to be able to afford insurance premiums. Often they were considered uninsurable, given the wide variety of risks they face. However, recent developments in India, as elsewhere, have shown that not only can the poor make small periodic contributions that can go towards insuring them against risks but also that the risks they face (such as those of illness, accident and injury, life, loss of property etc.) are eminently insurable as these risks are mostly independent or idiosyncratic. Moreover, there are cost-effective ways of extending insurance to them. Thus, insurance is fast emerging as a prepaid financing option for the risks facing the poor.

HISTORY & VISION The Micro Insurance Agency has its roots within Opportunity International, a large microfinance network motivated by Jesus Christ’s call to serve the poor. With a network of 47 microfinance institutions, Opportunity International has been serving the entrepreneurial poor since 1971. In partnership with Opportunity’s microfinance institutions, we began working in 2002 on the development of a range of life, property, livestock, crop derivative, disability, unemployment and health insurance products to cover the risks faced by Opportunity’s loan clients. Micro Insurance Agency staff observed that the risks the poor face can often set them back months and years behind where their loans and savings products offered by Opportunity had taken them. For instance, a death of a family member from HIV/AIDS –“precondition” most insurance companies would not cover – would often mean expensive funeral costs and the loss of a breadwinner, resulting in increased economic hardship for the family. In response, Micro Insurance Agency staff developed an affordable funeral

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Micro--Insurance benefit product that did not exclude any pre-conditions, including HIV/AIDS. This transformed the mindset of retail insurance providers in the country, who later developed similar non-exclusive products in light of the competing environment.

Through the experience of serving Opportunity’s microfinance institutions and their clients, Micro Insurance Agency staff observed that the products most demanded by the poor are not always the ones available. Health insurance, for example, is a critical need of the poor but the most limited in terms of supply. In addition, policies that are available are often based on first world practices and are too complex for the simple coverage demanded. Further, when offered on an individual, one-off basis, high premium requirements and a need to pay in a single lump sum preclude a huge sector of the market from access. New distribution models and channels were needed to increase access and reduce the effective price charged to clients.

In 2005, the Micro Insurance Agency was founded by Opportunity International as a fullyowned subsidiary capable of offering insurance products and services to a wide range of customers. Our mission is to empower the materially poor to transform their lives by insuring them against financial risk and its consequences. Specifically, we seek to serve the economically active poor who live on $4 per day or less in developing countries and provide a safety net to reduce economic setbacks.

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SCOPE AND FUNCTIONS A micro-insurance agent shall be appointed by an insurer by a deed of agreement or memorandum of understanding which should clearly specify the terms and conditions, duties and responsibilities of both the micro-insurance agent and the insurer, and he shall abide by the following:-



He shall work either for one life insurer or for one general insurer or for one life insurer and one general insurer;

 He shall be specifically authorized to perform one or more of the following functions:--

 Maintaining a register of all members and their dependants covered under the insurance scheme along with details of name, age, address, nominees and thumb impression/ signature;

 Collection of proposal forms;  Collection of self declaration from the member that he is in good health;  Collection of monies for issuance of contract or remittance of premium;  distribution of policy documents;  Assistance in the settlement of claims;  Nomination; and  Any policy administration service.  The micro-insurance agent or the insurance company shall have the option to terminate the agreement/ MOU after giving a notice of three months.

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 All such agreements/ MOU must have the prior approval of the Head office of the insurance company.

TYPES OF MICROINSURANCE IN INDIA i.

Life Insurance Life insurance pays benefits to designated beneficiaries upon the death of the insured. There are three broad types of life insurance coverage: term, whole-life, and endowment. Term life insurance policies provide a set amount of insurance coverage over a specified period of time, such as one, five, ten, or twenty years. This insurance is appropriate when the policyholder's need for coverage is temporary. Compared with other life insurance policies this is not very complicated for the provider to offer. This is the most widely used life insurance policy in lowincome communities in developing countries. Whole life insurance is a cash-value policy that provides lifetime protection. This is hardly offered in low-income markets in the developing countries.Endowment life insurance pays the face value of insurance if the policyholder dies within a specified period. It thus has a longer time horizon that the term life insurance. This is also not offered widely in developing countries.

ii.

Health Insurance Health insurance provides coverage against illness and accidents resulting in physical injuries. MFIs have realized that expenditures related to health problems have been a significant cause of defaults and people's inability to continue improving their economic conditions. Several MFIs have therefore, either started their own health insurance programs or have linked their clients to existing

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Micro--Insurance programs. While actual coverage varies, many health insurance providers cover for limited hospitalization benefits for certain illnesses, and for costs of physician visits and medicine. Some insurance providers also make available primary health care services such as immunization and contraceptives.

iii.

Property Insurance Property insurance provides coverage against loss or damage of assets. Providing such insurance is difficult because of the need to verify the extent of damage and determine whether loss has actually occurred. It is difficult for most MFIs to guard against such moral hazard. A few, however, do provide such coverage. SEWA in India, for example, provides insurance against damage to home and productive assets. Grameen Bank in Bangladesh offers its clients insurance against the death of livestock and COLUMNA in Guatemala provides insurance against fire damage.

iv.

Disability Insurance Disability insurance in most cases is tied to life insurance products. It provides protection to the policy holder and her family, should she or some of her family suffers from a disability. This is not very widely offered by Micro insurance providers. FINCA, Uganda and CARD in Philippines are examples of MFIs providing clients with disability insurance.

v.

Crop Insurance Crop insurance typically provides policy holders protection in the event their crops are destroyed by natural calamities such as floods or droughts. The experience with crop insurance in developing countries and even in the developed economies has had mixed results. To improve the ability of rural farmers to repay loans from agricultural development banks (ADBs), many governments developed crop insurance programs in the 1970s and 1980s. These programs typically provided loan

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Micro--Insurance repayment and occasionally income supplements to farmers suffering crop yields below an established minimum. Similar programs were developed in countries as diverse as Brazil, India, the Philippines and the USA. In each country the results were disastrous, with expenses (administrative and claims) far outstripping revenues. Reasons for the failure of crop insurance have included: bad program design (such as failure to bring into account the incentives faced by the policy holders), covariant risks typical of rain-fed agriculture systems dependent on only one or two crops, and in some cases / unanticipated catastrophic natural calamities.

vi.

Unemployment Insurance Unemployment insurance is typically offered by the public sector. Private insurance companies are usually not involved in it. This insurance provides cash relief to individuals who become unemployed involuntarily and who meet certain government requirements. It also helps unemployed workers find jobs. Unemployment insurance attempts to stabilize the economy by enabling people to maintain their purchasing power.

vii.

Reinsurance Reinsurance is the shifting of part or all of the insurance originally written by one insurer to another. This is a central feature of the operations of all commercial insurers. Reinsurance reduces an insurer's risk exposure and acts as an effective source of financing and a valuable source of actuarial expertise. Reinsurance can be used to stabilize profits, instead of having large fluctuations in financial outcomes year to year. It allows smaller insurers to share risk with other insurers in different regions or countries, effectively developing sufficient large risk pools by combining the risks of many insurers. Despite its obvious benefits reinsurance is largely unavailable for micro-insurers. Access to reinsurance can spur both the

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Micro--Insurance development of new micro-insurers and the growth of existing ones. An example of an MFI using reinsurance is that of FINCA International, Uganda which has entered a partnership with American International Group (AIG) to provide its clients life and disability insurance.

MICRO-INSURANCE DELIVERY MODELS One of the greatest challenges for micro-insurance is the actual delivery to clients. Methods and models for doing so vary depending on the organization, institution, and provider involved. In general, there are four main methods for offering micro-insurance the partneragent model, the provider-driven model, the full-service model, and the community-based model. Each of these models has their own advantages and disadvantages.

i.

Partner agent model: A partnership is formed between the micro-insurance scheme and an agent (insurance company, microfinance institution, donor, etc.), and in some cases a third-party healthcare provider. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients, while the agent retains all responsibility for design and development. In this model, microinsurance schemes benefit from limited risk, but are also disadvantaged in their limited control.

ii.

Full service model: The micro-insurance scheme is in charge of everything; both the design and delivery of products to the clients, working with external healthcare providers to provide the services. This model has the advantage of offering microinsurance schemes full control, yet the disadvantage of higher risks.

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Micro--Insurance iii.

Provider-driven model: The healthcare provider is the micro-insurance scheme, and similar to the full-service model, is responsible for all operations, delivery, design, and service. There is an advantage once more in the amount of control retained, yet disadvantage in the limitations on products and services.

iv.

Community-based/mutual model: The policyholders or clients are in charge, managing and owning the operations, and working with external healthcare providers to offer services. This model is advantageous for its ability to design and market products more easily and effectively, yet is disadvantaged by its small size and scope of operation

THE KEY CHARACTERISTICS The IAIS-CGAP Joint Working Group on Micro Insurance document on the -regulation and supervision of Micro Insurance identified the following key characteristics of Micro Insurance:

i.

Inclusiveness: While formal channels of insurance business tend to exclude low-income households, Micro Insurance schemes generally tend to be inclusive.

ii.

Group Coverage: Group insurance is more inclusive and cost effective than individual coverage. Even though the informal economy is frequently seen as disorganized, there are groupings available, such as women's associations, informal savings and credit groups, cooperatives, small business associations and the like. These groups effectively by enlisting their support in member selection and reduces insurance risks such as fraud, over-usage and moral hazard.

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iii.

Simple Processes, Rules and Restrictions: Insurance contracts are generally full of complex conditions and conditional benefits. Micro Insurance contracts have to be in plain language (preferably local language) and kept as simple as possible so that everyone has a clear understanding of what is covered and what is excluded.

THE MICRO INSURANCE MECHANISM Micro Insurance operates by connecting multiple small units with larger structures and thereby creates networks which enhance both insurance functions (through risk pooling) and support structures for improved governance (i.e. training, data banks, research facilities, access to reinsurance etc.). This insurance mechanism is independent of permanent external financial support. The principal objective of Micro Insurance is to pool both risks and resources of whole groups for the purpose of providing financial protection to all members against the financial consequences of mutually determined risks. Historically, Micro Insurance products have evolved out of community-based financing arrangements with active involvement of the community in revenue collection, pooling, resource allocation and, frequently, service provision.

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3. DEVELOPMENT OF MICRO-INSURANCE

INTRODUCTION Historically in India, a few micro-insurance schemes were initiated, either by nongovernmental organizations (NGO) due to the felt need in the communities in which these organizations were involved or by the trust hospitals. These schemes have now gathered momentum partly due to the development of micro-finance activity, and partly due to the regulation that makes it mandatory for all formal insurance companies to extend their activities to rural and well-identified social sector in the country (IRDA 2000). As a result, increasingly, micro-finance institutions (MFIs) and NGOs are negotiating with the forprofit insurers for the purchase of customized group or standardized individual insurance schemes for the low-income people. Although the reach of such schemes is still very limited anywhere between 5 and 10 million individuals---their potential is viewed to be considerable. The overall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004).

The insurance regulatory and development authority (IRDA) defines rural sector as consisting of:

 a population of less than five thousand,  a density of population of less than four hundred per square kilometer  More than 25% of the male working population is engaged in agricultural pursuits. The categories of workers falling under agricultural pursuits are: cultivators, agricultural laborers, and workers in livestock, forestry, fishing, hunting and plantations, orchards and allied activities.

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The social sector as defined by the insurance regulator consists of:

 Unorganized sector  informal sector  economically vulnerable or backward classes, and  Other categories of persons, both in rural and urban areas.

The social obligations are in terms of number of individuals to be covered by both life and non-life insurers in certain identified sections of the society. The rural obligations are in terms of certain minimum percentage of total polices written by life insurance companies and for general insurance companies, these obligations are in terms of percentage of total gross premium collected. Some aspects of these obligations are particularly noteworthy. First, the social and rural obligations do not necessarily require (cross) subsidizing insurance. Second, these obligations are to be fulfilled right from the first year of commencement of operations by the new insurers. Third, there is no exit option available to insurers who are not keen on servicing the rural and low-income segment. Finally, nonfulfillment of these obligations can invite penalties from the regulator.

In order to fulfill these requirements all insurance companies have designed products for the poorer sections and low-income individuals. Both public and private insurance companies are adopting similar strategies of developing collaborations with the various civil societies associations. The presence of these associations as a mediating agency, or what we call a nodal agency, that represents, and acts on behalf of the target community is essential in extending insurance cover to the poor. The nodal agency helps the formal

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Micro--Insurance insurance providers overcome both informational disadvantage and high transaction costs in providing insurance to the low-income people. This way micro insurance combines positive features of formal insurance (pre paid, scientifically organized scheme) as well as those of informal insurance (by using local information and resources that helps in designing appropriate schemes delivered in a cost effective way). In the absence of a nodal agency, the low resource base of the poor, coupled with high transaction costs (relative to the magnitude of transactions) gives rise to the affordability issue. Lack of affordability prevents their latent demand from expressing itself in the market. Hence the nodal agencies that organize the poor, impart training, and work for the welfare of the low-income people play an important role both in generating both the demand for insurance as well as the supply of cost-effective insurance.

POTENTIAL MARKET FOR MICRO-INSURANCE IN INDIA: (The UNDP Study)

During 2005-06, the Human Development Report Unit of UNDP conducted a study of the potential Micro Insurance market in India on the basis of field surveys conducted in the States of Orissa, Tamil Nadu and Rajasthan.

The UNDP report commented that the potential utility of Micro Insurance may be even broader than that of micro-credit and may be closer to the potential market for microsavings, balanced by affordability considerations in the early stages. Some 52.4 per cent of India's population of 1.08 billion earns less than US $ 2 a day (in terms of Purchasing Power Parity). Micro Insurance can play an important role in protecting the income of these people.

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The UNDP report also tried to estimate the potential size of the Micro Insurance market in India. The estimates corresponding to the life and non-life segments are provided in Table 3. The population used for the estimation is 40-50 percent of those earning less than US$ 1 a day and 50-70 per cent of those earning between US$ 1 - 2 a day. The nonlife estimation included four types of coverage - milch animals, livestock, health and crop insurance

The Potential Market for Micro-Insurance in India Insurance Segment

Market Size (Potential)(Rs. Millions)

Life Segment

15393-20141

Non-Life Segment

46911.70-64,126.55

TOTAL (Life and Non-Life)

62304.70-84,267.55

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4.

NEED FOR DEVELOPING INSURANCE IN INDIA

MICRO-

BACKGROUND Micro-insurance refers to protection of assets and lives against insurable risks of target populations such as micro-entrepreneurs, small farmers and the landless, women and lowincome people through formal, semiformal and informal institutions. Such products are often bundled with micro-savings and micro-credit, thereby allocating scarce resources to micro-investments with the highest marginal rates of return. Micro insurance is the most underdeveloped part of microfinance. Yet various schemes exist that are viable, benefiting both the institutions and their clients. Such schemes have generally served two major purposes: i.

They have contributed to loan security; and

ii.

They have served as instruments of resource mobilization.

iii.

The greatest challenge for micro insurance lies in the combination of viability and sustainability with outreach.

Although introduction of sound practices such as appropriate policy sizes and timely payment of installments of premium or positive incentives to renew on time in order to avoid policy getting lapsed can be feasible, the ultimate effectiveness of interventions focusing on institutional transformation and sound insurance practices will vary considerably, depending on the appropriateness of the regulatory environment.

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DEVELOPMENT GOAL To enable micro insurance to be an integral part of a country's wider insurance system, it is important for every insurer to adjust its costs of serving marginal clients in remote areas, collecting premiums and installments, and offering doorstep services. It is also important to recognize a wide network of intermediaries in the rural and social sectors and notify regulations in order to guide and supervise the micro-insurance service providers and their customers.

Today we have a variety of microfinance institutions with national and local outreach. Many of them have already become corporate agents or have entered into referral arrangements with insurers. However, semiformal institutions including savings and credit cooperatives, NGOs and self-help groups which have immense potential in carrying the message of insurance as also solicit insurance business are yet to be utilized in a manner where their true potential can be harnessed to increase the insurance penetration levels. This is due to restrictions in the existing agency regulations in terms of minimum eligibility norms in order to become an agent. Depending on the existence and vigor of such institutions, the following alternatives have emerged, for offering strategic entry points for micro insurance development:

 Adapting formal insurance arrangements to the needs of the micro-economy.  Upgrading non-formal (comprising semiformal and informal) insurance arrangements with insurance companies.

 Linking formal and non formal insurance institutions with banks and self-help groups.

 Establishing new local institutions providing micro insurance services. 30 | P a g e

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The first three strategies may be inter-connected:

 adapting insurance companies to the requirements of the micro-economy is a first step; then

 Linking them as wholesale institutions to self-help groups as retailers; and finally,  Upgrading self-help groups e.g. to the level of financial cooperatives or village banks. If insurers are to serve customers who differ widely in terms of service costs and risks, the only viable inducement for them is an adequate margin, lest they exclude small farmers, micro-entrepreneurs and people in remote areas. Only sound social insurance, which combines a social mandate with profit-making, has a chance of sustainability.

INSTITUTIONAL ADAPTATION The experience so far has been that formal financial institutions serve but a fraction of the population, which typically lies within the upper quartile of the social hierarchy. Through adaptation to the microfinance market requirements, they may gradually expand into the second-highest quartile and into segments of the lower quartiles. Within the foreseeable future they will normally not be able to fully serve that market. Non formal finance mostly rests on local institutions which are directly accessible to all segments of the population. Self-Help Groups (SHGs) are member-owned and membercontrolled local institutions. They may either be financial groups, with financial intermediation as their primary purpose; or non financial groups, with financial intermediation as a secondary purpose, such as vendors' associations, family planning groups and numerous other types of voluntary associations.

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The functions that need to be focused must include: providing guidance to members, collecting premium installments from members, insurance services to members, communication and exchange of experience, providing linkages with banks, NGOs or donors, supporting the proposals of individual members to insurance companies through recommendations.

LINKAGE TO INSURERS On a modest scale, various forms of life and health insurance have been successfully practiced by different institutions in different countries, particularly as part of loan protection schemes. Micro-insurance procedures and services should be set by insurers rather than the regulator.

Appropriate procedures and services should be applied to attain:

 Sound financial management,  Convenient and safe savings premium collection and deposit facilities,  Appropriate claim appraisal and processing procedure  Adequate risk management,  Timely collection of premium installments,  Monitoring and  Effective information gathering, all of which may include cooperation between different formal and non-formal intermediaries in fields where each is most effective.

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PROPOSED MICRO-INSURANCE REGULATIONS In order to introduce the concept micro-insurance it is necessary to draft suitable bring in suitable regulations to enable insurers to design and distribute and service micro-insurance products and discharge their obligations to the rural and social sectors as per provisions of the Insurance Act, 1938.

 It is proposed that an insurer transacting life insurance business shall be permitted to provide life micro-insurance products as well as general micro-insurance products provided it ties up with an insurer transacting general insurance business for the general micro-insurance products, and vice versa.

 In addition to an insurance agent or corporate agent or insurance broker who are authorized to solicit and procure insurance business, including micro-insurance business with an insurer in accordance with the provisions of the Insurance Act, 1938 and the regulations made there under it is also proposed to introduce the concepts of “micro-insurance product” and “micro-insurance agent” .

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TIE-UP

BETWEEN

LIFE

INSURER

AND

NON-LIFE

INSURER i.

An insurer carrying on insurance business may offer life micro-insurance products as also general micro-insurance products, as provided herein. 

Provided that where an insurer carrying on life insurance business offers any general micro-insurance product, he shall have a tie-up With an insurer carrying on general insurance business tor this purpose, and subject to the provisions of section 64VB of the. Act, the premium attributable to the general micro insurance product may be collected from the prospect (proposer) by the insurer carrying on life insurance business, either directly Or through any of the distributing entities of micro-insurance products as specified in regulation 4, and made over to the insurer on

general

insurance business. 

Provided further that in the event of any claim in regard to general microinsurance products, the insurer carving on life insurance business or the distributing entities of micro-insurance products, as the case may be, as may be specified in the tie-up referred to in the first proviso, shall forward the claim to the insurer carrying on general insurance business and offer all assistance for the expeditious disposal of the claim.

ii.

An insurer carrying on general insurance business may offer general microinsurance products as also life micro-insurance products, as provided herein. 

Provided that where an insurer carrying on general insurance business offers any life micro- insurance product, he shall have a tie-up with an insurer carrying on life insurance business for this purpose, and subject to the

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Micro--Insurance provisions of section 64VB of the Act, the premium attributable to the life micro insurance product may he collected from the prospect (proposer) by the insurer carrying on general insurance business, either directly or through any of the distributing entities of micro-insurance products as specified in regulation 4, and made over to the insurer carrying on life insurance business 

Provided further that in the event of any claim in regard to life microinsurance products, the insurer carrying on general insurance business or the distributing entities of micro- insurance products, as the case may be, as may be specified in the tie-up referred to in the first proviso, shall forward the claim to the insurer carrying on life insurance business and offer all assistance for the expeditious disposal of the claim.

CODE OF CONDUCT OF MICRO INSURANCE AGENTS  Every micro-insurance agent and specified person employed by him shall abide by the code of conduct as laid down in Regulation 8 of the Insurance Regulatory and Development Authority (Licensing of Insurance Agents) Regulations, 2000, and the relevant provisions of Insurance Regulatory and Development Authority (Insurance Advertisements and Disclosure) Regulations, 2000.Provided that he insurer shall ensure compliance of the code of conduct, advertisements and disclosure norms by every micro-insurance agent.

 Any violation by a micro-insurance agent of the code of conduct and/or advertisement or disclosure norms as aforesaid shall lead to termination of his

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Micro--Insurance appointment. In addition to penal consequences for breach of code of conduct and/or advertisement or disclosure norms pursuant to the provisions of subregulation (1).

MICRO-INSURANCE AGENT  A “micro-insurance agent” shall be a Non Government Organization (NGO) or a Self Help Group (SHG).

 Explanation: For the purposes of this regulation:

 A Non Government Organization (NGO) shall be a registered non-profit organization under the Society’s Act, 1968 with a proven track record of working with marginalized groups with clearly stated aims and objectives, transparency, and accountability outlined in its memorandum, rules and regulations and demonstrates involvement of committed people.

 Self Help Group (SHG) may be an informal group or registered under Societies Act, State Co-operative Act or as a partnership firm, consisting of 10 to 20 with a proven track record of working with marginalized groups with clearly stated aims and objectives, transparency, and accountability outlined in its memorandum, rules and regulations and demonstrates involvement of committed people.

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 The minimum number of members comprising a group should be at least ten for insurance of individuals, and at least fifty for group insurance.

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5. MICRO-INSURANCEPRODUCT GENERAL MICRO-INSURANCE PRODUCT A “general micro-insurance product” means any health insurance contract, any contract covering the belongings such as hut, livestock, any personal accident contract, or tools or instruments, either on individual or group basis, as per terms stated in the Table below, filed with the Authority:

Type of Cover

Dwelling & content, or livestock or Tools or implements or other named assets/or Crop insurance against all perils Health Insurance Contract (Ind.)

Min Amt of Cover

Max Amt of Cover

Term of Cover Min.

Rs. 5,000 Rs. 30,000 Per Per 1 year asset/cover asset/cover

Rs. 5,000

Health Insurance Contract (family) (Option to avail limit for Rs. 10,000 Individual/Float on family) Personal Accident (per life/earning member of Rs. 10,000 family)

Term Min Max of Age at age at Cover entry entry Max.

1 year NA

NA

Rs. 30,000

1 year

1 year Insurers’ discretion

Rs. 30,000

1 year

1 year Insurers’ discretion

Rs. 50,000

1 year

1 year 5 70

SOURCE: IRDA Micro-Insurance Regulations, 2005, www.irdaindia.com NOTE: i.

The minimum number of member comprising a group shall be at least twenty for group insurance.

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LIFE MICRO-INSURANCE PRODUCT A “life micro-insurance product” means any term insurance contract with or without return of premium, any endowment insurance contract or health insurance contract, with or without an accident benefit rider, either on individual or group basis, as per terms stated in the Table A below, filed with the Authority:

Type of Cover Minimum Maximum Term of Term Amount of Amount of Cover of Cover Cover Min. Cover Max. Term Insurance with or without Rs. 5,000 Rs. 50,000 5 year 15 return of years premium Endowment 15 Insurance Rs. 5,000 Rs. 30,000 years Health Insurance Rs. 5,000 Rs. 30,000 1 year 7 year Contract (Individual)

Minimum Maximum Age at age at entry entry

18

60

18

60

Insurers’ discretion

Health Insurance Rs. 10,000 Rs. 30,000 1 year 7 year Insurers’ discretion Contract (Family) Accident Benefit as Rs. 10,000 Rs. 50,000 5 year 15 18 60 Rider years SOURCE: IRDA Micro-Insurance Regulations, 2005, www.irdaindia.com NOTE: i.

Group insurance products may be renewable on a yearly basis.

ii.

The minimum number of members comprising a group shall be at least twenty for group insurance

LIST OF MICRO-INSURANCE PRODUCT 40 | P a g e

Micro--Insurance Financial Year 2007-08 2007-08 2007-08 2007-08 2007-08 2007-08 2008-09 2007-08

Name of the Product

Bajaj Allianz Jana Vikas Yojana Bajaj Allianz Saral Suraksha Yojana Bajaj Allianz Alp Nivesh Yojana Grameen Suraksha Birla Sun Life Insurance Bima Suraksha Super Birla Sun Life Insurance Bima Dhan Sanchay ICICI Pru Sarv Jana Suraksha ING Vysya Saral Suraksha

Product UIN No.

In operation

116N047V01

From (opening date) 4-Apr-07

116N048V01

4-Apr-07

116N049V01

4-Apr-07

122N039V01 109N032V01

16-Mar-07 13-Aug-07

109N033V01

13-Aug-07

105N081V01

2-Jun-08

114N032V01

3-Sep-07

2006-07 2009-10

LIC's Jeevan Madhur LIC's Jeevan Mangal

512N240V01 512N257V01

14-Sep-06 4-May-09

2008-09

Met Vishwas

117N042V01

2-Jun-08

2007-08

SBI Life Grameen Shakti SBI Life Grameen Super Suraksha Ayushman Yojana Navkalyan Yojana Sampoorn Bima Yojana Tata AIG Sumangal Bima Yojana Sahara Sahayog (Micro Endowment Insurance without profit plan) Shri Sahay Sri Sahay (AP)

111N038V01

6-Sep-07

111N039V01

6-Sep-07

110N042V01 110N043V01 110N044V01

30-May-06 30-May-06 2-Jun-06

110N061V01

3-Jun-08

127N010V01

21-Apr-2006

128N011V01 128N012V01

7-Feb-07 24-Apr-07

135N004V01

5-Nov-08

140N007V01

16-Mar-09

2007-08 2006-07 2006-07 2006-07 2008-09 2006-07 2007-08 2007-08 2008-09 2008-09

IDBI Fortis Group Microsurance Plan DLF Pramerica Sarv Suraksha

Remarks, if any, by IRDA

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SUD Life Paraspar Suraksha Plan

142N009V01

17-Mar-09

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6. RESEARCH METHODOLOGY

Data collection For data collection, we developed a well defined questionnaire as a research instrument, consisting questions aimed to measure the people perception about insurance, their need and problems. We conducted unstructured interviews sample size of 30 general people having income less than 350 bugs per day like vendors, rickshaw-wala, milkman, cobbler etc. Survey location was Mumbai etc. All the data generated was primary data that was generated directly from face to face communication.

Data analysis The data collected based on structured questionnaire is recorded on an excel sheet and with the help of pie chart analysis along with pillar data analysis is generated and based on this findings a qualitative inferences are made for each analysis. The same is being presented in form of graphs and tables

Survey Results The following are my findings regarding the survey conducted. The following graphs show the potential depth from different perspectives, as shown below:

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7. DATA ANALYSIS AND INTERPRETATION

Chart 1: Age of the respondents

Inference: The above reveals the fact that Majority of the respondents, about 47% belong to the category of 35-40 ages and 21% belong to the category of 25-35 of age, 18% belong to category 30-34 and 14% belong to the category 20-25 of age.

Chart 2: Educational Qualification

Inference: The above result reveals that majority of respondents i.e. 54% were educated till higher secondary and the percentage of primary and graduation is very close i.e. 21% & 25%.

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Chart 3: Account Holder

Inference: The above result reveals that 11% of respondent don’t have any account any where while majority of the applicants [43%] have post office account, 32% have their Bank a/c and only 14% have both the accounts.

Chart 4: No. of family members

Inference: Above result reveals that majority of respondents 50% have 4 members in a family which is ideal whereas only 7% live with joint family or have big size of family.

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Chart 5: No. of earning member

Inference: From the above result it can be clearly seen that about 68% of the respondent were the only earning member of their family, 32% have 2 earning member because of size of family.

Chart 6: Income level

Inference: The above result reveals that 68% of respondent have income level between 7000-10000 while 32% have income level between 5000-7000 and no one below it.

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Chart 7: No. of dependent

Inference:

The above result reveal that majority of respondent 39% have 3 no. of

dependent where as only 4% have 5 dependents.

Chart 8: Expense Pattern

Inference: From the above result we can see that out of the three clothing expense is more; least expense is health and expense in travelling is nil but travelling is the highest at number 6th place

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Micro--Insurance Inference: From the graph we can say that out of the three; Rent & Electricity is the highest expense and then comes Education. Least expense is on Drinks & Entertainment but it is highest at 5th place.

Chart 9: Faced problem with health or asset

Inference: Above result shows that 36% of respondent didn’t face any problem related with health or asset but 64% faced a serious or minor health or asset loss in past of their life.

Chart 10: Awareness about insurance

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Micro--Insurance Inference: Above result reveals that each and every applicant is aware about what the insurance is.

Chart 11: Source of information

Inference: The result above reveals that 30% of the respondent got the information about insurance from newspaper, 20% got info from T.V, least from Banners & Hoardings and remaining from the source pattern shown above.

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8. FINDINGS  Study reveals that majority of people whose daily income is less than 350 bugs have ideal family.

 Earning members in majority of family are two so that they are able to survive and meet their daily requirements.

 Income level lies between 150-350 bugs per day.  Majority of respondent had post office account and very less had both bank as well as bank account.

 Majority of respondent have more spending on rent & Education, after that on food & cloth and Medicare & entertainment.

 Majority of respondent are the only earning member in family size of 4-5.  Majority of them managed critical financial problem from their savings and even borrowed some money. Only few had insurance or taken loan.

 All of them are aware about insurance but not about micro insurance and best source of information medium found to be newspaper, television and from friends & relatives.

 Many of respondents were not insured just because of either high premium or lack of complete information.

 Majority of respondent shows keen interest in micro-insurance policy in life and health, some were very sensitive toward education and like to have education insurance as well.

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9. RECOMMENDATIONS Some of the recommendations could be:  Simplification of products and bundling where requires making them easy to

  

understand, easy to use, sill and service. Simplifying and making premium payment plans flexible to suit the needs. Focus on volumes by targeting large groups. Innovations are required at all stages for products, in pricing policy and in delivery channels

 Success of marketing micro insurance depends on understanding the social and 

cultural needs of the target population Integrating micro finance activities with micro insurance for a most beneficial

 

outcome. Claim settlement to be timely, simple and transparent. Maximizing the benefit of connectivity revolution in rural India to reach the un-



served markets. Using additional innovative distribution channels to achieve cost-efficiency in agricultural markets.

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10. CONCLUSION We all know insurance is a very old concept. But the demand for insurance was increased from a decade. Middle class people take insurance policy according to their ability & capacity to pay premium to secure their life. When we talk about poor people a question comes in mind Do poor people have any security? What if they face any risk? Who is going to look after them? Their family members? Do they have any insurance policy? Are they capable to pay the premium? The answer for this is Micro Insurance. THE MICRO INSURANCE IS BECOMES MICRO ENSURE ‘’A new name and tagline to reflect our positioning and mission to the poor’’ Micro Insurance is designed keeping in mind to poor people. Like everybody else, the poor people face a variety of risks such as risk of death, illness, disability, accident, income & property & so on. Like all other, they also need to be protected from these risks. Policy-induced and institutional innovations are promoting insurance among the lowincome people who form a sizable sector of the population and who are mostly without any social security cover. Although the current reach of ‘micro-insurance’ is limited, the early trend in this respect suggests that the insurance companies, both public and private, operating with commercial considerations, can insure a significant percentage of the poor. Serving low-income people who can pay the premium certainly makes a sound commercial sense to insurance providers. To that extent imposing social and rural obligations by insurance regulator (IRDA) is helping all insurance companies appreciate the vast untapped potential in serving the lower end of the market.

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Micro--Insurance Although micro insurance is unlikely to ever be the major focus of more than a few insurers, many insurers have found micro insurance to be profitable if they operate simply and efficiently on all levels, respond to market needs, and access large numbers of low income people.

Investments in micro insurance have diverse returns that evolve over time: reputational gains in the short term, knowledge in the medium term and growth in the long term. If we view insurance as a sector in which knowledge is a decisive resource, then micro insurance can be viewed as a driver of local learning and ultimately economic growth. It is becoming increasingly clear that micro-insurance needs a further push and guidance from the regulator as well as the government.

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11. BILIBOGRAPY The following companies and association’s web sites were referred while collecting information used in the research.

INTERNET SOURCE  www.irdaindia.com  www.irdaindia.org  www.banknetindia.com  www.microinsurancecentre.org  www.economist.com  www.businessworld.in

BOOKS/MAGAZINES REFFERD ON THE BASICS OF MICRO-INSURANCE  Protecting the poor: A micro insurance compendium ---Authors Craig F. Churchill ON MICRO-INSURANCE REGULATION

 Making insurance markets work for the poor: micro-insurance policy, regulation and supervision ---CGAP Working Group on Micro-insurance, 2009

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SURVEY QUESTIONNAIRE Personal Profile 1) Name: _________________________________________ 2) Age: A) 20-25

B) 25-30

C) 30-35

D) 35-40

3) Educational qualification: A) Up to primary B) Higher sec C) Graduation 4) Do you have:

A) Bank a/c

B) Post office a/c

C) Both

5) No. of members in family __________________________________ 6) No. of earning members ___________________________________ 7) Monthly Income: A) 0-3000 B) 3000-5000 C) 5000-7000 D) 7000-10000 8) No. of dependents

A) 1-2

B) 2-3

C) 4-5

D) 6-above

9) Expense pattern (please mention no.) (1-highest & 6-lowest) A) Travelling ___

B) Clothing ___

E) Rent & electricity ___

C) Health ___ D) Education ___

F) Drink & entertainment___

10) Did you faced any problem in family health or asset A) Yes

B) No

If yes, then how did you managed it __________________________ _______________________________________________________________ 11) Do you know about insurance? A) Yes

B) No

If yes, then any known insurance company __________________________ _______________________________________________________________ 12) If yes source of information of the insurance company A) TV

B) Hoardings

C) Cinema halls

F) Company agents G) Friends

D) Banners E) Radio

H) Relatives I) Magazine J) Newspaper

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