MICRO-INSURANCE

1
MICRO-INSURANCE LIVELIHOOD NEEDS OF THE POOR

• G.N. BHASKAR RAU
• IIRM / HYDERABAD

2
INSURANCE RURAL SOCIAL SECTORS

• What is rural ?

3
INSURANCE RURAL SOCIAL SECTORS

• Several definitions for rural sector
• RBI 4 different entities .all based on
  population size only
• Density or the occupations of the populations
  are not considered
• Area with population less than 10000.Rural

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INSURANCE RURAL SOCIAL SECTORS

• Census of India (1991) considers size of
  population occupations pursued by the
  population and also the density of the
  population
• Defines urban area only as an area with.
• Minimum population 5000
• 75 of population of male workers engaged in
  non-agricultural pursuits
• population density of at least 400 / sq.km.
• All other areas are rural

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INSURANCE RURAL SOCIAL SECTORS

• IRDA definition of rural area
• Population less than 5000
• 75 of population of male workers engaged in
  agricultural pursuits
• population density of at least 400 / sq.km.

6
INSURANCE RURAL SOCIAL SECTORS

• Insurers obligations to rural sector
• Life insurer
• 1st Financial year 5 of the new policies to
  be sold
• 2ndFinancial year 7 of the new policies to
  be sold
• 3rd Financial year 10 of the new policies to
  be sold
• 4th Financial year 12 of the new policies to
  be sold
• 5th Financial year 15 of the new policies to
  be sold

7
INSURANCE RURAL SOCIAL SECTORS

• Insurers obligations to rural sector
• Non - life insurer
• 1st Financial year 2 of total gross premium
  written
• 2ndFinancial year 3 of total gross premium
  written
• 3rd Financial year
• onwards. 5 of total gross premium
  written

8
INSURANCE RURAL SOCIAL SECTORS

• SOCIAL SECTOR
• sub-category of rural category
• mostly economically underprivileged
• in rural areas

9
INSURANCE RURAL SOCIAL SECTORS

• SOCIAL SECTOR
• Also includes in both rural and urban areas
• unorganized sector
• informal sector
• economically vulnerable sector
• backward classes.etc.

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INSURANCE RURAL SOCIAL SECTORS

• Insurers obligations to social sector
• For both Life and Non - life insurers
• 1st Financial year 5000 new lives
• 2nd Financial year 7500 new lives
• 3rd Financial year 10000 new lives
• 4th Financial year 15000 new lives
• 5th Financial year 20000 new lives

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INSURANCE RURAL SOCIAL SECTORS

• Over the past two decades
• economists and policy-makers
• have recognized
• the need for a newer approach
• to economically up-lift the rural masses
• THE NEW VERSIONS ARE MICRO-FINANCE AND MICRO
  INSURANCE

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MICRO-INSURANCE ISSUES, CHALLENGES AND
STRATEGIES

• THE MARKET
• The size, the nature and
  the variety
• THE ENTRY BARRIERS
• The Physical barriers, the
  Mindsets, and the Level of Comprehension

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MICRO-INSURANCE ISSUES, CHALLENGES AND
STRATEGIES

• MICRO-INSURANCE UNITS
• The Individual or the Household? Or the
  Guilds?
• MICRO-INSURANCE TOOLS
  The Basic Tools of Micro-insurance and the
  connected Issues
• THE STRATEGIC IMPLEMENTATION
  Distribution Channels, The Banking Network, The
  NGO Network, The Performance Process etc

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MICRO-INSURANCE ISSUES, CHALLENGES AND
STRATEGIES

• MICRO-INSURANCE RISKS
• Yield Risk Event Risk Price Risk
• MICRO-INSURANCE PERILS
• Named Perils All Perils Packaged Perils
• MICRO-INSURANCE PRODUCTS
• Suggested Model

15
MICRO-INSURANCE

• THE CORE CONCEPT
• POVERTY ALLEVIATION
• POVERTY MITIGATION
• DISCUSSIONS ON ANTI-POVERTY PROGRAMS DATES BACK
  TO 1901.

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MICRO-INSURANCE

• EARLIEST PROGRAMS
• INDEPENDENT INDIA LAUNCHED
• NATIONAL RURAL EMPLOYMENT PROGRAM
• RURAL LANDLESS EMPLOYMENT GUARANTEE PROGRAM
  ETC.

17
MICRO-INSURANCE MARKET

• THE SIZE
• RURALITY AS THE BASIS
• 70 OF INDIAS POPULATION LIVES IN RURAL AREAS

18
MICRO-INSURANCE MARKET

• THE SIZE (contd)
• POVERTY LEVEL AS THE BASIS
• 1/3 OF INDIAS POPULATION LIVES IN POVERTY

19
MICRO-INSURANCE MARKET

• THE NATURE OF THE MARKET
• AGRO-BASED
• ILLITERATE
• TRADITIONAL
• MALNUTRITION AND HEALTH ISSUES
• EXPLOITED
• DISPERSED

20
MICRO-INSURANCE MARKET

• THE VARIETY OF THE MARKET
• WIDE VARIATIONS
• FARM AND NON-FARM POVERTY
• SOME PARTS PARTLY UNDER EFFECT OF GREEN
  REVOLUTION

21
MICRO-INSURANCE MARKET

• THE VARIETY OF THE MARKET (contd)
• VARIED SIZES OF FARM UNITS
• MORE OF SMALL-SCALE FARMERS
• SUBSTINENCE
  FARMERS
• SPREAD OF UNITS

22
MICRO-INSURANCE MARKET

• THE VARIETY OF THE MARKET (contd)
• RURBANS?

23
MICRO-INSURANCE MARKET

• ENTRY BARRIERS
• LOW LITERACY LEVELS
• LACK OF INFORMATION
• LESS PRONE TO NEW CONCEPTS

24
MICRO-INSURANCE MARKET

• ENTRY BARRIERS (contd)
• COMMUNITY DECISIONS BY THEIR ELDER
• SMALL AND SUBSTINENCE FARMS
• LOW YIELDS AND PROFITS
• INSURANCE NOT ATTRACTIVE

25
MICRO-INSURANCE MARKET

• ENTRY BARRIERS (contd)
• WIDE DISPERSION OF FARMS
• DISTRIBUTION ISSUES
• LOSS ASSESSMENT ISSUES
• LOCAL POLITICAL INFLUENCE

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MICRO-INSURANCE MARKETING

• UNITS
• INDIVIDUALS?
• HOUSEHOLDS?
• ORGANIZATIONAL UNITS?

27
MICRO-INSURANCE MARKETING

• BASIC RISKS TO COVER
• YIELD RISK
• EVENT RISK
• PRICE RISK
• WITH OR WITHOUT REINSURANCE ?

28
MICRO-INSURANCE TOOLS

• PERILS
• NAMED PERILS?
• ALL-PERILS?
• PACKAGED PERILS?

29
MICRO-INSURANCE TOOLS

• PRODUCTS
• AGRICULTURAL INSURANCE RODUCTS?
• CROP INSURANCE PRODUCTS?
• WEATHER INSURANCE PRODUCTS?
• PACKAGED / BUNDLED PRODUCTS?

30
MICRO-INSURANCE TOOLS

• DISTRIBUTION CHANNELS
• GOVRNMENT ORGANIZATIONS?
• NON-GOVERNMENT ORGANIZATIONS?
• SELF HELP GROUPS?

31
MICRO-INSURANCE TOOLS

• DISTRIBUTION CHANNELS
• FARMERS COOPERATIVES?
• BANCASSURANCE MODELS?
• MICROFINANCE COMPANIES?

32
MICRO-INSURANCE TOOLS

• SUGGESTED MODEL
• SUGGESTED UNITS
• ORGANIZATIONAL UNITS
• Ex Co-operatives

33
MICRO-INSURANCE TOOLS

• SUGGESTED MODEL
• SUGGESTED UNITS
• ORGANIZATIONAL UNITS ADVANTAGES
• INCLUDE ALL THE MEMBERS
• EVEN THE SMALLEST FARMER
• EASY FOR MARKETING
• EASY FOR CLAIM SETTLEMENTS

34
MICRO-INSURANCE TOOLS

• SUGGESTED MODEL SUGGESTED UNITS (contd)
• ORGANIZATIONAL UNITS ADVANTAGES
• MOST OF THE ENTRY BARRIERS CLEARED
• see the next slide

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MICRO-INSURANCE TOOLS

• SUGGESTED MODEL
• SUGGESTED UNITS (contd)
• Entry barriers cleared
• LOW LITERACY LEVELS
• LACK OF INFORMATION
• LESS PRONE TO NEW CONCEPTS
• DECISIONS BY THEIR ELDER
• SMALL AND SUBSTINENCE FARMS
• LOW YIELDS AND PROFITS
• INSURANCE NOT ATTRACTIVE
• WIDE DISPERSION OF FARMS
• DISTRIBUTION ISSIES

36
MICRO-INSURANCE TOOLS

• DISTRIBUTION CHANNELS (suggested)
• FARMERS COOPERATIVES
• MICROFINANCE COMPANIES
• OR

37
MICRO-INSURANCE TOOLS

• DISTRIBUTION CHANNELS (suggested)
• FARMERS COOPERATIVES
• BANCASSURANCE MODELS

38
MICRO-INSURANCE TOOLS

• SUGGESTED DISTRIBUTION CHANNELS
• advantages
• Combination of Farmers Cooperatives and
• Microfinance Companies
• Microfinance companies credit risk gets
  micro-insurance cover
• Micro-insurance cover for Farmers Cooperatives
  gets Microfinance benefits on better terms

39
MICRO-INSURANCE TOOLS

• SUGGESTED DISTRIBUTION CHANNELS
• advantages
• Combination of Farmers Cooperatives
  and
• Bancassurance Model
• Wider Banking Network
• Banker of Farmers Coops can provide
  micro-insurance
• Easier Accounting

40
MICRO-INSURANCE TOOLS

• SUGGESTED RISKS TO COVER
• YIELD RISK
• AN AGREED AMOUNT YIELD VALUE COMMENSURATE TO
  INPUT VALUES
• IF THE FARMERS COOPS ARE ALSO
• STAKE-HOLDERS THE INPUTS VALUES AND
• YIELD VALUES ARE EASIER ARRIVED AT

41
MICRO-INSURANCE TOOLS

• SUGGESTED RISKS TO COVER
• EVENT RISK
• THE EVENT COULD BE
• CLIMATIC RISKS
• WEATHER RISKS
• RAINFALL LOW / HIGH

42
MICRO-INSURANCE TOOLS

• SUGGESTED RISKS TO COVER
• EVENT RISK
• LEADS TO
• YIELD RISK
• HENCE YIELD RISK IS SUGGESTED
• EASILY MEASURABLE
• VARIATION OF EVENT RISKS OVER REGIONS AVOIDED

43
MICRO-INSURANCE TOOLS

• SUGGESTED RISKS TO COVER
• PRICE RISK
• YIELD NORMAL PRICES CRASH LOSS OCCURS NEED FOR
  INSURANCE COVER
• HENCE SUGGESTED RISKS.

44
MICRO-INSURANCE TOOLS

• SUGGESTED RISKS TO COVER
• BASIC COVER ON YIELD RISK
• AGREED AMOUNT COMMENSURATE TO INPUTS
• ADDITIONAL COVER.PRICE RISK
• MINIMUM GUARANTEE OF PRICE BASED O PREVIOUS
  YERS PRICES(AVERAGE)

45
MICRO-INSURANCE TOOLS

• SUGGESTED PERILS TO COVER
• PACKAGED PERILS
• Uniformity is achieved
• Beneficiaries not knowledgeable to choose
  perils
• Pricing and costing to the yield risk coverage
  made easier

46
MICRO-INSURANCE TOOLS

• SUGGESTED PRODUCTS
• SINCE THE MODEL SUGGESTS .
• PACKAGED PERILS.
• THE SUGGESTED PRODUCT IS ALSO
• PACKAGED PRODUCT

47
MICRO-INSURANCE TOOLS

• THE RATIONALE FOR THE SUGGESTED MODEL
• RURAL POOR .BASICALLY EXPOSED TO
• CREDIT RISK
• INCURRED FOR LIVELIHOOD (PRODUCTION)

48
MICRO-INSURANCE TOOLS

• THE SUGGESTED MODEL
• THE RATIONALE (CONTD)
• CREDIT IS A DIRECT FINANCIAL RISK
• AFFECTED BY CERTAIN OTHER
• INDIRECT (NON)FINANCIAL RISKS
• WHICH ALSO REQUIRE COVER

49
MICRO-INSURANCE TOOLS

• INDIRECT (NON)FINANCIAL RISKS
• BEYOND CONTROL OF BENEFICIARY THAT AFFECT
• THE DIRECT CREDIT RISK
• Loss of life of the beneficiary
• Temporary Disability due to health issues
• Permanent Disability due to accidents / sickness
• Damage to tools / equipment
• Fire / Theft / Storage loss due to floods or
  rains

50
MICRO-INSURANCE TOOLS

• MICRO-INSURANCE POLICY BENEFITS (SUGGESTED)
• C IS THE BASIC AMOUNT OF BENEFIT
• C IS BASED ON (YIELD RISK PRICE RISK)
• C VALUE OF THE DIRECT CREDIT RISK
• C PAYABLE IF ONLY YIELD AND / OR
• PRICE ARE AFFECTED
• 
  (contd)

51
MICRO-INSURANCE TOOLS

• MICRO-INSURANCE POLICY BENEFITS
• BENEFITS FOR INDIRECT RISKS
• Loss of life 1.5 C
• (The extra 0.5 C is to stabilize the family of
  the borrower even after the redemption of his
  borrowings)
• Disability Benefit (if temporary) 0.5 C
• (For primary health care)
• 
  
  (contd)

52
MICRO-INSURANCE TOOLS

• MICRO-INSURANCE POLICY BENEFITS
• BENEFITS FOR INDIRECT RISKS
• Disability Benefit (if permanent) 2 C
• (The extra C is towards provision of some
  interest yielding capital to sustain the daily
  living of the family. The M.F.I / Bank / FCs can
  provide this facility)

53
MICRO-INSURANCE TOOLS

• RISK FINANCING (Suggested)
• THROUGH PREMIUMS
• Are the premiums actuarially based?
• Some suggest disregard to actuarial bases
  for micro-insuranceas a social security
• 
  (contd)

54
MICRO-INSURANCE TOOLS

• RISK FINANCING (Suggested)
• THROUGH PREMIUMS
• for the INDIRECT NON-FINANCIAL RISKS
• this Model suggests Group Life Premiums to
  be charged on actuarial principles ..and...
• 
  (contd)

55
MICRO-INSURANCE TOOLS

• RISK FINANCING (Suggested)
• THROUGH PREMIUMS
• for the DIRECT FINANCIAL CREDIT RISKS
• this Model suggests Premiums to be charged
  on total actuarial liability of the entire
  groups credit liability
• 
  (contd)
  

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MICRO-INSURANCE TOOLS

• RISK FINANCING (Suggested)
• FUNDING BY ORGANIZATIONS
• The premium funding (mentioned earlier) may
  mostly be insufficient to meet the pay-out
  liabilities of the group.necessitating funding
  by organizations.like.

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MICRO-INSURANCE TOOLS

• RISK FINANCING (Suggested)
• FUNDING BY ORGANIZATIONS like
• CARE FOUNDATION
• REINSURANCE PROGRAMS
• GOVERNMENT SUBSIDY
• SOCIAL ORGANIZATIONS...
• NGOs.etc.

58
MICRO-INSURANCE

• CONCLUSION
• CORE CONCEPT IS POVERY ERADICATION.
• THEREFORE, MICRO-INSURANCE SHOULD BE PLANNED AS A
  SOCIAL SECURITY MEASURE.NOT AS A BUSINESS
  ENTERPRISE FOR MERE PROFITS
• THE REGULATORS SHOULD (IRDA, RBI THE
  GOVERNMENTS) PROVIDE POSSIBLE SOPS AND
  CUSHIONS

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MICRO-INSURANCE

• ACKNOWLEDGEMENTS
• WORLD BANK REPORTS
• SEMINAR PAPERS ON SHG-BANK LINKAGE PROGRAMME, NEW
  DELHI, 2002
• VARIOUS PAPERS BY RESEARCHERS (Lall, Mohan,
  Natarajan, 2001, Ghosh 1998, and others)
• WORKSHOP ON MICROINSURANCE (IRDA, IIRM, USAID),
  2005
• POVERTY, AGRARIAN STUCTURE, POLITICAL ECONOMY IN
  INDIA PRANAB BARDHAN, OXFORD UNIVERSITY PRESS,
  2003

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THANK YOU

• G.N. BHASKAR RAU
• IIRM / HYDERABAD