Centre for Insurance and Risk Management

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Centre for Insurance and Risk Management

• June 4, 2008
• Rupalee Ruchismita, Executive Director

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Risks Faced By The Poor

• Low Income households are exposed to
• Risks and Income Shocks
• Systemic risks
• Vagaries of weather
• Natural calamities
• Crop failures
• Price fluctuations
• Idiosyncratic risk
• Sudden unexpected shocks that temporarily disrupt
  the ability to generate income
• Health events
• Life cycle events Marriage, Death
• Enterprise risks

MDGs would be more achievable with greater
penetration of social protection
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Informal Mechanisms of Risk Mitigation
India has an alarmingly low penetration of
insurance at premium being only 2.9of overall GDP
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Where is the micro insurance sector in its life
cycle?
ANNUAL GROWTH
INFANCY
ADOLESCENCE
MATURITY
2004
2006
???
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Thats how microfinance works
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CIRM The Mandate
Data Warehouse Veritable source of contextual data
Collaboration Insurers, Reinsurers, Research
Institutes, CBFIs and Regulator
O U T R EAC H
D E L I V E R Y
Product Development Insurance and risk
mitigating tools for vulnerable households
Training Support Ensure delivery of Safety Net
Products in a cost effective manner
Advocacy, Documentation and Dissemination Best
Practices to the entire ecosystem
INSURANCE LITERACY
POLICY ADVOCACY
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Innovations and Change makers

• Increasing retention
• OPSC cover for non claimants- Calcutta Kids,
  Micro Ensure, OIC
• Covering predictable events
• Consultation, transport, lab test (co pay 40),
  drugs (co pay 10), public hospital referral-
  CCDA, Bangladesh (1200 families)
• DRG based settlement, transportation, post
  hospitalisation Healing Fields, Foundation
• Inpatient and outpatient cover, drugs, scale
  (100,000 clients, health crads and IT Platform-
  Microcare, Uganda
• One size does not fit all
• Access through multi point-of-transaction and
  varying amounts leveraging technology- Max New
  York life
• Covering top of the pyramid
• Surgical (no co-pay), very high cover (200,000
  max.), High avg. claims (9762K) - Yeshaswini

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Health innovations from around the world
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Steps to Combat Adverse Selection

• Mandatory enrollment
• Community rate premiums
• Minimum enrollment as a percentage of total
  target population
• Enrolment during fixed window periods
• Family enrolled as a unit
• Waiting periods for pre- existing diseases,
  maternity etc. especially where product is not
  mandatory
• Renewals linked to loan renewals or at designated
  enrolment periods only

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Steps to Prevent Moral Hazard

• Product design
• Co-pay, deductibles, higher trigger of cover
  (caution for uptake)
• Inclusion of sub-limits based on unit costs
• Supplier Induced
• Use of Diagnostic related groups for provider
  payments
• On-line claims management
• Preauthorization of claims (can work both ways!!)
• Audit at hospitals, Vets, weather stations
  (cost!!)
• Beneficiary Induced
• Beneficiary Education
• Waiting time to join
• Co-payments
• Field/ Intermediary Induced
• Financial deterrents (risk layering of first
  loss)
• Monitoring

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Learnings- Distribution and Fraud Control

• Optimal use of technology (MicroCare,Uganda)
• Channels need to be credible (BASIX Royal Sun
  (India), FincaAIG(Uganda)
• Predefined groups minimize anti-selection
• Family/ all cattle should be enrolled as a unit
  (GK, IFMR Trust)
• Awareness building and Education the key
• Online administration of claims help controls in
  scaled up scenarios
• Audits at local levels to prevent provider
  induced Moral Hazard (SKDRDP, own panel of
  doctors)
• Model should include local community in the
  management (Uplift, MIA)
• Processes to control under the table or
  informal payments

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Performance Standards/ Values for Change Makers
in Micro Insurance

• Client Focus
• Welfare impacts
• Change in risk management behavior
• Consumer education
• Content, channel, models
• Product features
• Pricing Technical Ability and Ability to pay,
  options (covers)
• Distribution
• Incentives, sales, collections
• Servicing
• Claims management (management and monitoring)
• Data Management Systems
• Archiving, reliability, segregation, reporting,
  trasnsparency
• Risk Sharing and Re-insurance
• Claims projection, reserve

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Performance Standards/ Values for Change Makers
in Micro Insurance

• The risk
• Should tend to be random (an Act of god, vs.
  people want to pay for predictable events)
• The loss- Definite (Timing and amount, vs.
  value of asset (cattle type, age productivity,
  investment in health stock varies)
• Significant
• Rate of Loss calculable
• A single event should not be catastrophic to the
  risk carrier

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Performance Standards/ Values for Change Makers
in Micro Insurance

• The Data Separation
• Separate data per activity and per product
• Risk Management through information
• Relevant and accurate data- Limits Costs
• Important management tools (balancesheet, Cash
  flow, Income Statement)
• Claims Calculation
• Premium set
• Claims reserves
• Unearned Premium reserve, Incurred but not
  reported reserve, Claims in course of settlement

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Top of the pyramid cover

• Yeshasvini
• No co-payment or deductible, Surgery only Maximum
  Rs 200,000
• June 2006 to May 2007
• Incidence rate 2.11
• Average claim Rs 9,762
• Cost of claims Rs 206 (.021 X 9762) per person
• Cardiac Obstetrics and Gynecology
• Incidence 0.474 0.552
• Average claim Rs 22, 150 Rs 4,170
• Claims cost Rs 105 Rs 23

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Covering the predictable

• Healing Fields Foundation
• Co-payment of 25
• DRG plus transport benefit and post
  hospitalization, max Rs 20,000
• Jan 2007 to Sept 2007
• Incidence rate 2.21
• Average claim Rs 1,806
• Cost of claims Rs 40 (.0221 X 1806) per person

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Performance Standards/ Values for Change Makers
in Micro Insurance

• The Trends
• Claims monitoring and trend capture
• Client Data
• Incurred date, reported date, payment date,
  cause, who made the claim, limitations to claim
  time reduction
• Asset diversification
• Short term, long term
• Investment portfolio
• Technical Capacity
• Staff
• MIS
• Good Product, good value, servicing- Claims
  rejection ratio, promptness of claims settlement,
  renewal ratio, solvency ratio

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De-risking Rural Credit
Weather Hedging
Portfolio
Portfolio

• Ring fencing of rural portfolio of banking and
  financial institutions that has a weather risk
  component
• Effective risk hedging through weather
  derivatives will free up blocked capital
• Increased risk appetite coupled with weather
  derivatives will allow aggressive growth in rural
  portfolio extending credit to the vulnerable
  populations

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Where is the micro insurance sector in its life
cycle?
ANNUAL GROWTH
Need for Catalytic Infrastructure
INFANCY
ADOLESCENCE
MATURITY
2004
2007
???
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For the jump start

• Data, Data, and more Data!!
• Health Exchange, Weather Exchange
• Morbidity, weather, livestock
• Insurance Census
• Training and Education
• Building trained professionals for the sector
• Insurance Literacy material for
• Insurers
• Intermediaries (CBOs, Co-ops, MFIs)
• Beneficiaries

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ThanksPlease visit us at www.ifmr.ac.in/cirm
or email us at cirm_at_ifmr.ac.in