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 SOCIETYS
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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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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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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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

47
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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 banks 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 IRDAs 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 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 Christs 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 Opportunitys 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
Opportunitys 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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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 Opportunitys 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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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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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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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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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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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.

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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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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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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 Societys 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

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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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2008-09

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 dont 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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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 didnt 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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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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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 associations 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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