WHAT IS MICROINSURANCE

• Microinsurance is “the protection of low-income people

against specific perils in exchange for regular premium
payments, proportionate to the likelihood and cost of the risk
involved”

• To serve the poor, microinsurance products must be

specifically tailored to the poor’s priority needs for risk
protection in terms of coverage types, be easy to understand,
and offer affordable premiums

 Life/Pension/Disability /health /housing /emergencies etc

 WHY MICROINSURANCE
• Low-income households are particularly vulnerable to risk
and negative external shocks (e.g., natural disaster; illness/
death of main breadwinner)

• Insurance products assume such risk thus reducing household

efficiency losses and protecting assets so that the poor can
escape poverty traps. Insurance instruments pool the risks of
individuals of a similar risk class, and transfer it to a larger
and more diverse group of market participants
 SCENARIO OF MICROINSURANCE
IN INDIA
• No licensing and less stringent training norms (only 25 hours)
for micro insurance agents

• Servicing of micro insurance products open to other existing

intermediaries also

• Non-life insurer can tie- up with a life insurer and vice-versa to

offer composite insurance product (life and non-life)

• IRDA regulation allows the MFIs and NGOs and these have the
potential to become the best ‘Rural Insurance Advisors’ on
account of their proximity and capacity to understand the needs
and fears of clients
 COMPARISON
STANDARD INSURANCE
 Targeted generally at the urban
wealthy or middle-class clients
 High level of awareness
 Markets are near; accessible and
familiar
 Most insured are aware of their
specific insurance requirements
 Small and large sums insured
MICRO INSURANCE
 Targeted at low-income small and
some living along or even below
poverty line
 Low levels of awareness
 Considered inaccessible due to
vast geographical stretch and poor
infrastructure and connectivity
 Not insurance/finance literate
 Only small sums insured
 MICRO INSURANCE
SUPPLY CHAIN
DELIVERY
INSURER CHANNEL COVERED
COVERED
POLICY
POLICY LIVES
LIVES
HOLDER
HOLDER

Carries the Sells the•

insurance risk insurance product
•Pays claims • May aid clients Buys the
•Receives premiums with, or settle product
•Manages claims Those who have a
regulatory •Collects premium paid to
compliance premiums cover them

MFIs and banks• Individuals• Policy holder

Multi-national and
• •Groups(church
•Groups(church Spouses
domestic commercial
•NGOs
•NGOs members, trade Children
•Employers
•Employers union members,
members, Group members with
insurers
insurers •Governments
•Governments employees
•Mutual
•Mutual (member- policy
•Retailers
•Retailers
Owned,
•Post
•Post offices
offices
professionally
professionally run)
run)
insurers
insurers
•CBOs
•CBOs
•NGOs
•NGOs
•Funeral
•Funeral parlors
parlors
•Informal
•Informal groups
 IMPLICATIONS FOR
PRODUCT DEVELOPMENT
• Savings, credit, emergency loans and selfinsurance are more
flexible instruments than insurance, and useful in mitigating
small loss events that occur frequently and predictably. In
contrast, only risks resulting in exceptional losses are
considered insurable

• Risk pooling allows for broader coverage

 IMPLICATIONS CONTD:-
Product development has to be
• Client-centered
• Matched to the capacity of the institutions (both insurer
and delivery institutions)

Market research should investigate the

• Regulatory environment
• Range of competing social protection instruments
• Insurance products
• Potential delivery channels
• Risk data
 RISK EVALUATION
RISK SOURCE
Natural (e.g., natural disasters- Human-induced (e.g., economic shocks
floods, drought etc)

CORRELATION
Uncorrelated and affect only Correlated among individuals from the
individual households (i.e., same locality (i.e., covariate risk which
idiosyncratic risk), as with illness or frequently lead to breakdown of
accident. community-based risk management
when all households face financial
strains simultaneously)

FREQUENCY AND INTENSITY

Low but with high economic impact High frequency with low economic
(known as catastrophic risk impact (non-catastrophic)
 PRODUCT TYPES
Microinsurance can be designed in myriad way
HEALTH INSURANCE

 Addresses Disease
 Coverage Groups (e.g., MFI clients, cooperative
members)+households
 Exclusion High-risk persons such as the elderly
LIFE INSURANCE
 Mitigate the financial shock of the breadwinner’s death, by
providing income assistance to the family; covering funeral
expenses, and debt payments and principal
 Funeral and life insurance can be delivered through
Funeral parlors or MFIs
 BAJAJ ALLIANZ LIFE
INSURANCE
ALP NIVESH YOJANA – ENDOWMENT PLAN
• Life cover and Maturity benefit equal to sum assured + vested bonus
• Guaranteed Surrender Value
• Avail additional benefits including Accidental Death Benefit & Accidental
Permanent Total / Partial Disability Benefit 

BIMA KAVACH YOJANA – MOST ECONOMICAL TERM

INSURANCE POLICY
• Return of premium on maturity
• Guaranteed Surrender Value
• Avail additional benefits including Accidental Death Benefit & Accidental
Permanent Total / Partial Disability Benefit

 JANA VIKAS YOJANA - PAY ONCE FOR A LONG TERM SECURITY

• Life Cover and Maturity Benefit of 125%of the single premium payable on
survival till the end of the policy term
• Guaranteed Surrender Value
 FULL SERVICE MODEL
• In this model, an NGO or other organization operates the
insurance scheme and fully absorbs risks, profit and loss

• This model requires substantially investment in human and

financial resources and acquisition of actu- arial expertise
before becoming operational. this sort of approach is not
widespread
 CONTD:-
• An example is SPandanain Guntur, andhra Pradesh, India
which serves poor urban women in coastal cities of that state.
SPandana became fully operational in 1998 and now has over
115,000 clients, served by 181 staff in 31 branches, covering a
total credit and insurance portfolio of over USd 12 million.
Credit life insurance (i.e., loan protection) is bundled in a
compulsory manner with the nGo’s loan products (at 1 per
cent of the loan amount), so that in the event of a female
borrower’s death or death of her husband, or in case of fire
event, the loan is written off. a nominal life insurance policy is
also included for female borrowers. they receive around USd
110 in case of the death of their husband
 PROVIDER MODEL
• Microfinance institutions and commercial banks can directly
market MI products to potential clients. this model requires a
well-established distribution network and is widely used in the
general insurance market.

• the model suffers from high transaction costs, when applied in

low-income, low-margin markets such as rural areas with
dispersed populations.
 PARTNER-AGENT MODEL
• Insurers collaborate with an MFI/NGO to develop a MI
program
• This model minimizes distribution costs, while increasing
outreach
FUNCTIONS OF MFI/NGO
• Liaise between the customer and insurance company, and
manage marketing and administration functions
• The insurer bears the risk of the insurance policy while the
MFI/ NGO utilizes its distribution channels to bring the
product to communities
• They train their clients in MFI products, are experienced in
transaction processes, and raise financial services awareness
among low-income households
 CHALLENGES

• Information deficit /documentation

• Lack of awareness
• Insurance literacy
• Highcost of reaching rural areas
• Winning trust of clients
• Highly personalized products needed
 RECOMMENDATIONS
• Simplifying and making premium payment plans flexible to
suit client needs

• Focus on volumes by targeting large groups

• Claim settlement to be timely, simple and transparent

• Maximizing the benefit of connectivity revolution in rural

India to reach the unserved markets
 CONCLUSION
• Microinsurance has been shown to be a powerful addition to
the social risk management product toolbox, and one that is
flexible enough to be successful implemented under a variety
of institutional forms
• Careful attention and expert technical input is required in
designing microinsurance products and programs
• Use of risk layering, using different forms of reinsurance to
cover the insurer is crucial from a financial sustainability
standpoint
• Microinsurance offers the potential for rural and urban
services sector development, and the extension of social
protection to underserved populations, for years to come