INSURANCE II

ASSIGNMENT
ON THE TOPIC
“MICROINSURANCE – TRENDS & Strategies”

Submitted to
Prof. s.s. ahmed

Institute of management & information science

Bhubaneswar

Submitted by,

SUMIT KUMAR(09df060)
K.PREMNATH(09df025)
ABHISHEK Kr. ROHIT(09df003)
PUNAM PATEL(09df042)
AVINASH KUMAR(09df018)

DEFINITION OF IRDA
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
low income people through formal, semi-formal and informal institutions .

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)

COVERAGE

 It is as low as 2.26 percent for life /0.62 for non life . The per capita insurance
premium is as low as $16.4 for both life and non life put together .

 If you take out life then the per capita is very low at $ 4 .The only country to lag
behind India is Bangladesh in the entire region (0.2 %).

SUPPLY OF MICRO-INSURANCE

 Out of 80 listed insurance products, 45 (55%) cover only a single risk. The other
products, covering a package of risks, mostly focus on 2 (20%) or 3 (18%) risks.

 The available products cover a wide range of risks. However, the broad majority
of the insurance products cover life (40 products or 52%) or accident-related
risks.

 The health coverage remains very limited (12 products).

 Most life insurance products (23 out of 42) are addressed to individuals.
However, some products may be bought both by individuals and groups.

 Most life insurance products (55%) have been designed to cover an extended
contract duration ranging from 3 to 20 years.

 Out of 42 life insurance products, 23 are pure risk products. The other 19
products propose various types of maturity benefits.

 Out of the 12 currently available health insurance products, 7 have been

designed and are restricted to groups.

 Out of the total 12 health products, 7 products propose the reimbursement of

hospitalization expenses while the other 5 have chosen to narrow down the
coverage to some specific critical illnesses.
  Most of the health insurance products specifically exclude deliveries and other
pregnancy-related illnesses. Most of these products also mention amongst their
exclusion clauses, HIV/AIDS.

 Most products whether life or non-life require a single payment of premium ( i.e.,
a one-time payment) upon subscription.

 Private insurance companies have three times more products than the public
companies.

DEMAND OF MICRO-INSURANCE

 As regards the beneficiaries, the 43 schemes for which the information is

available cover 5.2 million people.
 Health and life are two most important risks for which insurance is demanded.
59% of schemes provide life insurance and 57% of them provide health
insurance. In SEWA’s experience health insurance tops the list of risks for which
the poor need insurance.
 Most of the schemes are concentrated in the southern region of the country. The
southern regions are well known for the social mobilization of low-income people.
In contrast, the northern region is bereft of such mobilization as the nodal
agencies are either non-existent or dysfunctional.
 Most schemes (74%) operate in 4 southern states of India: Andhra Pradesh
(27%),Tamil Nadu (23%), Karnataka (17%) and Kerala (8%), and the two
western states(Maharashtra (12%) and Gujarat (6%)) account for 18% of the
schemes.
 Most insurance schemes (66%) 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.
IDRA (Micro-Insurance) Regulations, 2005

The Insurance Regulatory and Development Authority has notified the Insurance
Regulatory and Development Authority (Micro-Insurance) Regulations, 2005. This
Regulation permits an insurer carrying on life insurance business to offer life micro-
insurance products as also general micro-insurance products, as provided herein.
Similarly, an insurer carrying on general insurance business may offer general micro-
insurance products as also life micro-insurance products, as provided herein. The
salient features of the Regulations are given below:

 Tie-up between life insurer and non-life insurer: 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 for this purpose.

 Appointment of Micro Insurance Agents: The Regulations provide for the

appointment of micro insurance agents for distribution of micro insurance
products. For this purpose, the term “micro-insurance agent” means:

A Non-Government Organization (NGO); or a Self Help Group (SHG); or a

Micro-Finance Institution (MFI), who is appointed by an insurer to act as a micro-
insurance agent for distribution of micro-insurance products. A code of conduct
has also been laid down for micro insurance agents.

 Obligations of Insurer : Every insurer shall ensure that all transactions in

connection with micro-insurance business are in accordance with the provisions
of the Act, the insurance Regulatory and Development Act and the rules and
regulations made there under. Further, every insurer is required to furnish
information in respect of micro-insurance business in such form and manner and
containing such particulars, as may be required by the Authority from time to
time.

 Handling of complaints: It shall be the responsibility of the insurer to handle

and dispose of complaints against a micro-insurance agent with speed and
promptitude. Further, every insurer shall send a quarterly report to the Authority
regarding the handling of complaints/grievances against the micro-insurance
agents and where in a particular quarter, there are no complaints/grievances, a
“Nil” report shall be sent.
MICRO INSURANCE MODELS

1. DIRECT MARKETING BY THE INSURANCE COMPANY: Identification of

clients, selling of policies, collection of premium, receipts of claims and
settlement of claims etc., all are done by the insurance companies. Outreach to
provide micro insurance to poor through this model has been very limited.

2. PARTNER-AGENT MODEL: Approved intermediary organisations act as

insurance agents. Identify the customers, negotiate with insurance companies
about the adequacy of products and premium rates to be paid, collect the
premium. Assist in clients in claim processing and settlement

3. DE-LINKED MODEL: Community based insurance facility where NGO/MFI or

federation of the groups act as insurer. Coverage of risk remains with the insurer.
Sum insured, design and pricing of products, adverse selection, collection, claim
verification and settlement data collection and maintenance, assessing client
satisfaction etc are undertaken internally by the insurer.

4. SERVICE PROVIDER MODEL: NGOs generally provide basic health care

facilities to the rural population since necessary amenities were simply not
present in their area of operation. Instead of premium, the service providers
charge a membership fees to partly cover their costs

CHALLENGES IN MICRO INSURANCE PENETRATION

 Designing of products suiting the rural market

 Using the right distribution channel mix to reach the potential customer

 Intermediaries being able to build personal credibility with the clients

DISTRIBUTION CHANNELS

 Agents: Agents are Prime channel for insurance distribution in urban areas.
Postman, School teacher, shopkeeper, gram sevikas, gram sahayaks. Training &
educating poses is a challenge for the company in case of agents. It is not an
optimum channel as 42 % of 600,000 villages have population of less than 500.

 Formal Banks: 27 PSBs have19, 104 rural branches and 30 Pvt.SBs 1,111
Private banks are constrained by their lack of reach and meager branch strength.
Banking sector has shown propensity towards the larger size accounts. Within
the foreseeable future they will normally not be able to fully serve that market.

 Regional Rural Banks: 177 RRBs together with14,150 branches cover 516
districts and serve a client base of close to 62.70 million. RBI has permitted
RRBs to undertake insurance business as corporate agent without risk
participation. Chitradurga Gramin Bank has -in close cooperation with the
NABARD GTZ-Project- introduced a new deposit scheme for SHGs called
“Rakshith” Savings Bank Scheme in tie up with LIC and UIICo. Ltd.

 Cooperative Banks: ST structure comprises of 30 SCBs, 367 DCCBs and over

112,309 PACS. RBI has allowed scheduled licensed SCBs and licensed DCCBs
having a networth of Rs. 500 million to undertake insurance business as
corporate agents without risk participation.Given their poor governance
structures it is unlikely that they would emerge as efficient distribution channels

 SHGs & their Federations: 1.6 million SHGs comprising 24.1 million families are
linked to banks.Rapidly growing year after year. Many SHG promoters have
formed federations.Federations provide both financial and non-financial
services. Federations promoted by DHAN Foundation are participating in Mutual
Insurance Scheme as well as intermediary.

 NGOs & MFIs: Large number of NGOs and MFIs are involved in social as well as
financial services intermediation. Out of 61 sample MFIs studied by Sa-Dhan 34
were providing insurance services. While all 34 MFIs provided life insurance
products, only 9 facilitated non life insurance products. The most significant
range in amount of cover was in the category of Rs.10,000 and above.
  Post Offices: There are about 129,000 rural post offices. Post Office itself is
offering insurance products to the poor. Its efficacy as an intermediary channel
needs to be explored.

 Internet & Rural Kiosks & Rural Knowledge Centers: Using net for transactions
has been catching up in urban areas. Many banks provide online banking. Most
of the insurance companies have product information and/or illustrative tools on
the web. In rural areas too rural knowledge centers are being set up to bring
information close to the people. The insurance companies can use these centers
to create awareness about insurance. Can only be enablers for the human
channels.

Micro-insurance and micro-finance:

Micro-finance activity in the country is leading to the spread of micro-insurance among

its members/clients. For MFIs, integrating insurance with their credit and savings
activities makes logical sense as it helps them to reap scale economies in financial
management, provides them with a captive market, and enables them to use their
existing network and distribution channels to sell insurance. Besides, linking micro-
insurance with micro-credit makes it cheaper for the borrower to have both these
financial services. Indeed, the natural linkage between micro-insurance and micro-
finance is well reflected in the ILO inventory referred to earlier. Not only is the
specialized microfinance organizations the most numerous in initiating the micro-
insurance schemes, but many organizations involved in other activities are also
providing micro-finance services
to their target groups.

Conclusion:

 micro Finance sector is in evolving phase

 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
 Clients should also receive price differentials for using different channels
 Groups & their promoters can provide ideal platform to kick start the micro
insurance