MICRO INSURANCE

CHAPTER 1 MICRO INSURANCE-AN INTRODUCTION

1.1 INDUSTRY PROFILE (INSURANCE SECTOR) 1.2 WHAT IS MICRO INSURANCE 1.4 FEATURES OF MICRO INSURANCE 1.5 HISTORY OF MICRO INSURANCE
1.

1.6 ADVANTAGES OF MICRO INSURANCE

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1.1

INDUSTRY PROFILE (INSURANCE SECTOR)

LIFE INSURANCE In India, Insurance is a national matter, in which life and general insurance is yet a booming sector with huge possibilities for different global companies, as life insurance premiums account to 2.5% and general insurance premiums account to 0.65% of India's GDP. The Indian Insurance sector has gone through several phases and changes, especially after 1999, when the Govt. of India opened up the insurance sector for private companies to solicit insurance, allowing FDI up to 26%. Since then, the Insurance sector in India is considered as a flourishing market amongst global insurance companies. However, the largest life insurance company in India is still owned by the government. The history of Insurance in India dates back to 1818, when Oriental Life Insurance Company was established by Europeans in Kolkata to cater to their requirements. Nevertheless, there was discrimination among the life of foreigners and Indians, as higher premiums were charged from the latter. In 1870, Indians took a sigh of relief when Bombay Mutual Life Assurance Society, the first Indian insurance company covered Indian lives at normal rates. Onset of the 20th century brought a drastic change in the Insurance sector. In 1912, the Govt. of India passed two acts - the Life Insurance Companies Act, and the Provident Fund Act - to regulate the insurance business. National Insurance Company Ltd, founded in 1906, is the oldest existing insurance company in India. Earlier, the Insurance sector had only two state insurers - Life Insurers i.e. Life Insurance Corporation of India (LIC), and General Insurers i.e. General Insurance Corporation of India (GIC). In December 2000, these subsidiaries were de-linked from parent company and were declared independent insurance companies: Oriental Insurance Company Limited, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited.

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GENERAL INSURANCE The General Insurance industry in India dates back to the Industrial Revolution and the subsequent increase in trade across the oceans in the 17th century. As for Life Insurance, the British brought General Insurance to India, and a similar path was followed in the development of this industry. A number of private companies were in existence for years and years until, in 1971, the Indian Government decided that the public interest would be served by nationalizing the industry, merging all the 107 companies into four companies, depending on the sort of business transacted (Marine, Fire, Miscellaneous). Which are as follows . 1. National Insurance Company Ltd., 2. Oriental Insurance Company Ltd., 3. New India Assurance Company Ltd. 4. United India Insurance Company Ltd. The General Insurance Corporation (GIC) was set up in 1972 as a holding company, having these four companies as its subsidiaries.

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1.1 WHAT IS MICRO INSURANCE

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. Micro-insurance is a key element in the financial services package for people at the bottom of the pyramid. The poor face more risks than the well-off, but more importantly they are more vulnerable to the same risk. Usually, the poor face two types of risks idiosyncratic (specific to the household) and covariate (common, eg., drought, epidemic, etc.). To combat these risks, the poor do pro-active risk management grain storage, savings, asset accumulation (specially bullocks), loans from friends and relatives, etc. However, the prevalent forms of risk management (in kind savings, selfinsurance, mutual insurance) which were appropriate earlier are no longer adequate. DEFINITION: The draft paper prepared by the Consultative Group to Assist the Poor (CGAP) working group on micro-insurance defines micro-insurance as the protection of low income Households against specific perils in exchange for premium payments proportionate to the likelihood and cost of the risk involved. The paper deliberates on the key roles to be played by all stakeholders insurers, regulator and the Government. The working group also agrees that the cost of such cover should be affordable. microinsurance provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster. There is an overwhelming demand for social protection among the poor. Microinsurance in conjunction with micro savings and micro credit could, therefore, go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.

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1.3 HISTORY OF MICRO INSURANCE

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. During the 1980-90s 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 partnership with Opportunitys microfinance institutions, it 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 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. In 2005, the Micro Insurance Agency was founded by Opportunity International as a fully-owned subsidiary capable of offering insurance products and services to a wide range of customers.

1.4

FEATURES OF MICRO INSURANCE

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1) USAGE: Though no figures are available on the exact size of the microinsurance market in India, The low take-up can be ascribed to a general lack of awareness of insurance as a financial product, even in the high to middle-income market (a factor that emerged strongly from the focus group findings). In addition a lack of rural financial services infrastructure for distribution purposes, as well as a lack of actuarial data, inhibit the development of the microinsurance market. 2) PLAYERS: Though the state-owned insurers still have the largest market share, there are now a total of 32 licensed insurers. A feature that sets India apart from other countries is the fact that microinsurance is mostly provided by large, corporate insurers. This is due to a cautious regulatory approach in response to the fact that small and cooperative financial institutions have not performed well historically that limits the players in the non-bank field to large cap institutions. The cooperative/mutual sector therefore does not feature as a provider of microinsurance, though corporate insurers use it as a distribution channel. Informal insurance is virtually exclusively the domain of formal entities such as health insurance schemes not registered for insurance purposes, rather than community risk-pooling groups, and is estimated to only comprise 20% of the market. 3) PRODUCTS: Microinsurance in India is for the most part driven by compulsory credit life insurance on the back of microfinance. Due to the limited reach of the public health system, there is also a high natural demand for health insurance. Many MFIs therefore provide a package of compulsory insurance cover to their clients that are credit-linked this includes life, asset as well as health insurance. The cover is for the term of credit (usually 1 year). Health cover provided in such packages is not comprehensive and it covers only certain listed diseases for which hospitalization is required. Accident cover is a rider on life insurance and is a fixed payout. India is therefore fairly unique in that compulsory insurance cover extends beyond life cover. It is estimated that only 10% of microinsurance policies are sold on a voluntary basis. Of these, up to 90% are endowment products rather than pure risk products, indicating a

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preference among the lowincome population for financial products that provide some payout regardless of whether a risk event has occurred. 4) DISTRIBUTION: Distribution is an important part of the microinsurance landscape in India. Regulations were issued in 2005 to create a microinsurance agent category for the dedicated distribution of microinsurance. Currently such agents however only distribute about 20% of all microinsurance. Instead, distribution mainly takes place through MFIs who either do not qualify as microinsurance agents under the regulations or who find the regulations too restrictive, as partners or agents of formal insurers. we can distinguish four institutional models for providing microinsurance which help us to understand how corporate insurers, government bodies as well as other institutions, such as microfinance institutions (MFIs) can play a role. i) Partner Agent Model: ii) Community based Model: iii) In the in-house or full-service model:

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CHAPTER 2 HOW DOES IT WORK

2.1 MICRO INSURANCE MECHANISM 2.2 DISTRIBUTION MODEL

2.1

MICRO INSURANCE MECHANISM

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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. 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. 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, 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 1. 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 2. Collection of proposal forms 3. Collection of money for issuance of contract or remittance of premium 4. distribution of policy documents 5. The micro-insurance agent or the insurance company shall have the option to terminate the agreement/ MOU after giving a notice of three months.

2.2

DISTRIBUTION MODEL

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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 partner-agent model, the providerdriven model, the full-service model, and the community-based model. Each of these models has their own advantages and disadvantages. How can microinsurance products be sold and serviced cheaply? It is a low-value, highvolume business. The following approaches have emerged in India to provide insurance to low-income populations (only regulated channels are included here, not in-house schemes): Partnership model Agency model Micro-agent model

PARTNERSHIP MODEL
The partner-agent model: How does it work? As the name implies this model involves a partnership between an insurer and an agent that provides some kind of financial service to large numbers of low -income people. This could be a microfinance organization, an NGO, or a business that supplies precuts to large numbers of low - income people, such as a fertilizer supplier. This party is an agent, selling insurance policies to the clients on behalf of the insurance provider (usually) in exchange for a commission or fee. The insurance provider utilizes the established distribution channels of this agent and its financial transactions with low-income groups, that would otherwise be too costly to set up. The partnership model uses the comparative advan tage of each partner so that each can focus on its core business: the insurance provider is responsible for designing and pricing the product, the final claims management, and the investment of reserves, and absorbs all the insurance risks. In addition to selling the policies, the agent offers its infrastructure for product servicing such as marketing the product, premium collection, and assists in claims management.

Pros and cons of the partnership model

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Pros

The system works better than in -house because the synergies are maximized, enabling both organizations to focus on their core business and expertise With a single partnership agreement it is possible to sell microinsurance to over a quarter of a million low-income people Requires fewer skills for the agent than an in-house model; Uses legally recognized insurance companies that have adequate reserves, adhere to capital requirements, employ certified insurance professionals, and operate under the insurance law Insurer has access to reinsurance The overhead costs of both the organizations, the agent and the insurance company, are reduced: the agent can use its infrastructure for collecting premiums, etc.; the insurer provides the expertise on product development, etc. It reduces the need to build the capacity of agents such as NGOs and MFIs to sell insurance because the insurer can do some of this Information asymmetries are minimized as the agent is familiar with the needs of clients and their situations, which reduces the time needed for claims verification and settlement, while receiving feedback on client satisfaction and product design, etc. The insurer assumes all the risks. The agent earns commission without risk, while the insurer earns profits. Because of the quota system, the most well-known agents are already taken and haveexisting relationships with insurers. There are still many other organizations, however,that could act within a parternship. The insurance provider is dependent on the quality of the agent NGOs in particular are often here today, gone tomorrow, relying on donor recognition and goodwill for their survival. Conflicts of interest may occur, especially when working with non -financial institutions. NGO or MFI staff or management may develop sympathy for a client and be lax about underwriting or claims verification. It should be noted that this is less likely to occur with an MFI partner that is used to financial discipline with its lending activities.

Cons

AGENCY MODEL

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The agency model: How does it work? In this model the insurer uses its normal agency office and sells microinsurance products directly. The client comes to the agency office for sales and servicing of the product. Insurers described this model but the authors could find no examples of it operating in practice. Pros and cons of the agency model: Pros Does not require much additional investment in infrastructure ; Better control of the quality of the agent than with the partnership model. Cons Difficult to reach large numbers especially in rural areas where clients may be unwilling to travel to the office Agents will need special training in dealing with low -income clients; Offices may intimidate poor clients Individual policies only would be sold; generally such microinsurance policies have not proved commercially viable.

MICRO AGENT MODEL

The micro-agent model: How does it work? While the partnership model is relatively common, the micro -agent model described below is unique. It is the invention of Tata -AIG, specifically an employee of Tata-AIG, Vijay Artherye. The central building blocks of the model are Rural Community Insurance Groups (CRIGs) supervised by rural organizations such as churches, NGOs or MFIs. CRIGs are a partnership firm formed of five women from a self -help group (SHG). The leader of the CRIG is licensed as an agent. The CRIG is a de facto brokerage firm (in the technical, not the legal sense of the term). All CRIGs in the same geographic area meet in a single centre, usually organized with the assistance of the rural organization, and receive training and assistance from Tata -AIG. This practice reduces training costs.

Micro-agent model: Profile and workings of a typical CRIG Most CRIGs consist of four to five members. These members are usually women who are pa rt of an SHG. The typical profile of a member would include

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communication skills, acceptance of insurance, preferably educated up to the 10th standard, with influence in the SHGs, and capable of doing some paperwork. The CRIG has a leader appointed by Tata -AIG on the advice of the rural organization. A typical leader will be educated to the 12th standard or above, have a good track record of past social -sector performance and integrity, be systematic and organized, with leadership qualities, and public spe aking and training skills. This leader is trained by Tata -AIG to obtain a corporate agents license. The CRIG as a whole is registered as a body under the Andhra Pradesh Societies Act (where the model is currently being used). The CRIG leader and members are involved in promotion, sales and collection of insurance proceeds and maintaining records. The CRIG leader will document all fortnightly CRIG meetings and all weekly meetings with the NGO concerned. Pros and cons of the micro-agent model Pros The model creates an insurance distribution infrastructure in low -income neighbourhoods. In addition, it creates a new profession, that of micro -agent, with new livelihood opportunities in his/her vicinity Sustainability: Because the position is a commercial on e with financial incentives, Tata - AIG believes that it will last in the long term, facilitating the sale of long -term products. As mentioned under the partner -agent model, NGOs and MFIs are often dependent on the goodwill and public recognition of aid flow s, and so their long-term existence is precarious. Chances are good that CRIGs, being registered firms, will survive, in the event of a member or leader dropping out. The leader could be replaced by another from the community, thus mitigating the risk of o rphaned policies In the event that a CRIG disbands, the orphaned policies can be taken over by another CRIG that operates under the same NGO.

Cons Training is costly, especially in relation to premium values ;

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The transaction costs of the sales agent are cheap at first but increase as soon as the agent has sold to all the peoples/he knows and needs to sell to strangers, especially to those living far away; In many cases in the partnership model, when a claim arises the MFI or NGO investigates the claim, pays the benefit immediately, and then claims it back from the insurer. Immediate payment of claims helps maintain client confidence, and this is not possible under the CRIG system This model is new, and much more experience is needed before it can be reasonably evaluated.

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CHAPTER 3 MICRO INSURANCE PRODUCTS

2.1 MICRO INSURANCE PRODUCTS LIFE INSURANCE GENERAL INSURANCE

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3.1
Life Insurance

MICRO INSURANCE PRODUCTS

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 low-income communities in developing countries. Whole life insurance is a cash-value policy that provides lifetime protection. This is hardly offered in lowincome 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.
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 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.

Property Insurance

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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 MICRO-INSURANCE 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.

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.

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 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 MICROINSURANCE only one or two crops, and in some cases / unanticipated catastrophic natural calamities.

Unemployment Insurance

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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. 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 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.

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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

MICRO INSURANCE Minimum Maximu Term

Amount of Cover m Amount of Cover of

Term of

Minimum Age

Maximu entry

at m age at

Cover Cover entry Min. Max.

Dwelling & content, or livestock or Tools or implements or other named assets/or Crop insurance against all perils Health Insurance Contract (Ind.) Health Insurance Contract (family) (Option to avail limit for Individual/Flo at on family) Personal Accident (per life/earning member of Rs. 10,000 Rs. 50,000 1 year 1 year 5 70 Rs. 10,000 Rs. 30,000 1 year 1 year Insurers discretion Rs. 5,000 Rs. 30,000 1 year 1 year Insurers discretion
Rs. 5,000 Per Rs. 30,000 Per

asset/cover asset/cover

1 year

1 year

NA

NA

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SOURCE: IRDA Micro-Insurance Regulations, 2005,
www.irdaindia.com NOTE: The minimum number of member comprising a group shall be at least twenty for group insurance.

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

MICRO INSURANCE Minimu Maximu Term

m Amount of Cover m Amount of Cover of

Term of

Minimu m Age at entry

Maximu m age at entry

Cover Cover Min. Max.

Term Insurance with or without return of premium Endowment Insurance Health Insurance Contract (Individual) Health Insurance Contract (Family) Accident Benefit as rider Rs. 10,000 Rs. 50,000 5 year 15 years 18 60 Rs. 10,000 Rs. 30,000 1 year 7 year Insurers discretion Rs. 5,000 Rs. 30,000 1 year 7 year Insurers discretion Rs. 5,000 Rs. 30,000 5 year 15 years 18 60 Rs. 5,000 Rs. 50,000 5 year 15 years 18 60

SOURCE: IRDA Micro-Insurance Regulations, 2005,

www.irdaindia.com

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NOTE: 1. Group insurance products may be renewable on a yearly basis. 2. The minimum number of members comprising a group shall be at least twenty for group insurance.

CHAPTER 4 GOVERNMENT RULES AND REGULATION

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4.1 IRDA AS A REGULATOR 4.2 IRDA MICROINSURANCE REGULATION ACT 2005

4.2 IRDA (MICROINSURANCE) REGULATION ACT 2005

Regulations on micro-insurance were officially gazette by the IRDA on 30 November 2005. The salient features of the regulation are presented below The regulation defines micro-insurance products The regulation provides definitions of micro-insurance products covering life and general insurance General micro insurance product means any health insurance contract, any contract covering the belongings, such as, hut, livestock or tools or instruments or any personal accident contract, either on individual or group basis, as per terms stated in Schedule-I appended to these regulations. Life micro insurance product means any term insurance contract with or without return of premium, and endowment insurance contract or health insurance contract, with our without an accident benefit rider, either on

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individual or group basis, as per terms stated in Schedule-II appended to these regulations. (a) micro-insurance policy means an insurance policy sold under a plan which has been specifically approved by the Authority as a micro insurance Product. (b) micro-insurance product includes a general micro-insurance product or life insurance product, proposal form and all marketing materials in respect thereof. (c) Every insurer shall be subject to the file and use procedure with the IRDA. (d) No one other than insurer be it a micro-insurance agent or anyone else can underwrite a micro-insurance proposal. (e) Rural business transacted under micro-insurance by an insurer will be counted for quota fulfillment both for rural as well as social sector obligations. It promotes the extensive use of intermediaries The micro-insurance regulations promote extensive use of intermediaries by the insurers for selling and servicing various micro-insurance products. The regulation also creates a new intermediary called the micro-insurance agent. The regulation clearly defines MI agents and has imposed minima in terms of the number of years of experience (at least 3) of working with low income groups. It also emphasized the need for such agents to have appropriate aims and objectives, a good track record, transparency and accountability stated in the bye-laws with demonstrated involvement of committed people. This has been done in order to prevent the engagement of unscrupulous operators in the activity. However, the onus for the selection of appropriate MI agents and their capacity building lies with the insurance company. Intermediary: The micro insurance agent, can be a Non-Governmental Organization (NGO), MFI or other community organization such as Self Help Groups (SHG) appointed by an insurer to distribute micro-insurance through specified persons. Micro-insurance agents enter into a deed of agreement with the insurer. They abide by the code of conduct defined by the IRDA and attend 25 hours of training (down from 100 hours originally required for conventional insurance agents but now reduced to 50 hours) in the local language at the expense of the insurer. There is no qualifying examination, unlike the case of ordinary insurance agents. According to the regulation, (a) Non-Government Organization (NGO) means a non-profit organization registered as a society under any law, and has been working at least for three

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years with marginalized groups, with proven track record, clearly stated aims and objectives, transparency and accountability as outlined in its memorandum, rule, by-laws or regulations as the case may be, and demonstrates involvement of committed people. (b) Self Help Groups (SHG) means any informal group consisting of ten to twenty or more persons and has been working at least for three years with marginalized groups, with proven track record, clearly stated aims and objectives, transparency and accountability as outlined in its memorandum, rules, by-laws or regulations, as the case may be, and demonstrates involvement of committed people. (c) Micro-Finance Institutions (MFI) means any institution or entity or association registered under any law for the registration of societies or cooperative societies, as the case may be, inter alia, for sanctioning loan/finance to its members. IRDA has recognized four categories of intermediaries: brokers, agents, corporate agents, and Micro-insurance (MI) agents. Categories other than MI agents may sell micro-insurance but they do not benefit from the concessions allowed for the MI agents. However, a micro-insurance agent shall not distribute any product other than a micro insurance product. The regulation provides for MI agents to perform the following functions (a) Collection of proposal forms (b) Collection of self declaration from the proposer that he/she is in good health. (c) Collection and remittance of premium (d) Distribution of policy documents (e) Maintenance of registers of all those insured and their dependants covered under the micro insurance scheme, together with details of name, sex, age, address, nominees and thumb impression/signature of the policyholder. (f) Assistance in the settlement of claims (g) Ensuring nomination to be made by the insured (h) Any policy administration service The regulations attempt to manage the cost of intermediation A cap has been put on commission, between 10 and 20% of premiums per year according to type and mode of insurance payment, which is in excess of what conventional agents would normally earn. The rates of commission applicable to MI agents are

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Life insurance business General insurance business

Single Premium policies 15% of the single premium Non-single premium policies 20% of 15% of the premium the premium for all the years of the premium paying term The commission rates prescribed above are more liberal than the 60% (of a single years premium) payable under ordinary business in the case of life insurance and 10% in the case of general insurance. This is based on the logic that an MI agent has to perform a number of functions which mainstream agents do not have to undertake. MI agents may thus receive commission at different rates from those applicable to other intermediaries. The commission structure is, however, changed to remove up-front payments in favour of payments upon the performance of certain functions. For group insurance products, the insurer may decide the commission subject to the overall limits specified by IRDA. MI agents may route premiums and claims payments through their books (such as receive individual premiums and pay it over as one amount). This is not allowed for other intermediaries and is considered important in managing the cost of intermediation. Collaborations between life insurers and non-life insurers The regulations allow for the bundling of life and non-life elements in one single product provided there is clear separation of premium and risk at the insurers level. Where an insurer carrying on life insurance business offers any general micro-insurance product, he shall have a tie-up with the insurer carrying on general insurance business for this purpose, and subject to the provisions of section 64 VB of the Insurance Act (governing the remittance of the premium amount to the insurance company), 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. In the event of any claim in regard to general micro-insurance, the insurer carrying on life business or the agent shall forward the claim to the insurer carrying on general insurance business. The same arrangement holds true for life claims faced by non-life vendors of a micro-insurance product. In both cases, the respective primary first

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insurer would render all assistance in claim settlement by coordinating with his opposite number. The limitations of the micro-insurance regulations The impact of the MI regulations is likely to be limited for a number of reasons Definition of MI agents: The regulations define MI agents to include NGOs SHGs and MFIs. The definition of MFI is, however, limited to societies, trusts and cooperatives societies and thus excludes a large proportion of MFIs operating through other legal forms (like for-profit and not-forprofit companies). The result is that all profit-driven corporate intermediaries as well as some of the largest aggregators in micro-insurance are currently excluded from benefiting from the MI regulations. Though the formalisation of MI agents as a type has been welcomed by the insurance companies as a positive beginning, the exclusion of MFIs registered under the Companies Act10 is viewed with concern Limitation on the number of insurance companies an MFI can work with: The MI Regulations restrict a MI agent to working with one life and/or one general insurer respectively. This is problematic and does not accommodate models currently used in the MI market. Most insurers do not want to underwrite all risks and tend to specialize in particular types of risk. For example if a MI agent is tied to specialized health insurer, they cannot work with another general insurer to sell other asset insurance products. Know Your Customer (KYC) / Anti Money Laundering (AML) Norms: Micro insurance agents have expressed their concern at the difficulties faced by them in accessing KYC documents from proposers in rural areas, such as electoral identity card or ration card or electricity bill which are generally accepted as proves of residence. Commission capping: MI commissions are capped at 20% per annum for life across the term of the policy. Non-MI products typically pay commission on a front-loaded basis with 30-35% in year one with 7% in year 2. The up-front structure provides little incentive for renewals, particularly as premiums have to be collected in cash/ cheque. At the same time 20% may not be enough to incentivize sales. It is a common (but illegal under Section 48 of the Insurance Act) practice for agents to use the higher first year commission to give a discount to policyholders in the first year. Some thought would need to be given to the minimum absolute cost to sell a policy and the commission structures

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needed to ensure that this could be covered. Lapse rates of 30-40% are much higher for MI than traditional policies. This is because the cost/effort of premium collection/renewal exceeds the commission. Besides, the incidence of the service tax of 12.36% payable by the agents is a further point of dissatisfaction for the MI agents, especially considering the long distance travel they have to make in rural areas to procure and service business. Conflicting regulations: Enabling provisions introduced in the MI regulations are undermined by restrictions in RBI regulations. For example, the insurance regulation allows receipt of premiums in the form of money instruments (not cash), which must be remitted within 24 hours. RBI in 2002, however, issued regulations stating that certain types of NBFCs (including most MFIs) may not route any premiums through their books. The implication is that the NBFC intermediary must make out demand drafts for individual transactions and send them to the insurer. Significant efficiencies can be gained if these intermediaries were to be allowed to process all the payments through their systems and make a single payment to insurers. Rural Regional Banks (RRB) and Cooperative Banks: It is worth further examination as to whether RRB who have been given the status of corporate agents and the cooperative banks can be brought into the ambit of MI agents in view of their outreach in rural areas. However the micro-insurance regulation has been facilitative in Reducing the mandatory training requirements for insurance agents from 50 hours to just 25 hours in the case of MI. Most insurance companies have welcomed this move but feel that the technological innovations in developing better systems at the level of the MI agent and real awareness creation amongst potential clients/policy holders are a much larger challenge that would go a long way in developing the micro-insurance market. Allowing MI agents to take greater responsibilities: The regulator has allowed MI agents to take up greater responsibilities than are permitted to mainstream agents, for example, the collection of premiums on behalf of the insurance companies and the servicing of claims. IRDA believes that if the MI agents are able to carry out these functions effectively, it will help in minimizing the transaction costs that the insurance companies have to incur, thereby leading to lower premiums for the clients in the long run.

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Treating benignly apparent infringements of the regulations by community-based organisations: There are restrictive entry norms for organizations that are explicitly licensed to provide insurance to the general public. Insurance companies need a large amount of start-up capital of Rs100 crore to get a license from the IRDA. This entry norm is applicable for community based insurance as well if they want to underwrite risk. IRDA has treated the existing cases of in-house insurance with benign neglect. Essentially, this approach is dictated by the relatively limited experience and low supervisory capacity of the IRDA. Compared to the vast numbers of people in need of social protection in India, the coverage provided by both formal and, even more so, by community insurance programmes is so low that the role of regulation seems fairly limited. The creation of a two-tier space where the insurance companies are regulated and supervised and community insurance is not is de facto recognition of this fact. The IRDAs approach is that it is pointless to have regulations that are not properly enforced as long as community insurance agencies provide cover to a limited population that is clearly defined (either geographically or socially or through other forms of association), they can be allowed to function without being regulated. It is here that the regulations are not very clear for MFIs or NGOs, where the membership cannot be clearly defined. Although generally limited within a geographical territory, the scale of some MFIs or NGOs is significant and spans across several states. Taxation issues By a notification of 16 July 2001, the Government of India brought insurance auxiliary services under the ambit of Service Tax. The following important definitions and references are relevant in this context. As per section 65(31), insurance auxiliary service means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business and includes risk assessment, claim settlement, survey and loss assessment. Taxable event and scope of service means any service provided to a policyholder or insurer by an actuary or intermediary or insurance intermediary or insurance agent, in relation to the insurance auxiliary service. The service providers are insurance agents, insurance surveyors and loss adjusters, actuaries and insurance consultants. In the case of insurance surveyors

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and loss adjusters, actuaries and insurance consultants, the service is provided mainly to the insurance companies (insurer) while in the case of insurance agents, the service is provided to both the insurer and the policy holder. Service Tax is liable to be paid by the insurance auxiliary service provider except in case of insurance agents. Insurance agents normally do not charge the policyholder. However, the insurance company pays the agent a commission (usually as a percentage of the insurance premium) on a periodic basis. In the case of an insurance agent, it has been provided in the Service Tax Rules that the person liable to pay Service Tax will be the concerned insurance company who has appointed the agent However as practised by the companies, no service tax is paid by the agents. The service tax is payable by the person whose life is assured and the current rate is 12.36 % on the premium paid to the life insurance companies. If an agents accumulated commission for the year reaches Rs 20,000 tax is deducted (at source) by the company at the rate of 11.33% (as prescribed by the income tax rules) from the commission of the agent. The service tax on premiums adds to the price of insurance. An assessment of the impact of this tax on the cost of microinsurance is needed. From the perspective of inclusion, enabling the penetration of insurance services to low income people and in rural areas, there could be a case for exempting micro-insurance from the payment of service tax.

CHAPTER 5 MICRO INSURANCE COMPANIES IN INDIA

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5.1 MAJOR PLAYERS IN MICROINSURANCE 5.2 M-I PRODUCTS AVAILABLE IN THE MARKET

5.1 MAJOR PLAYERS IN MICROINSURANCE

Life Insurance Corporation of India (LIC) Life Insurance Corporation of India (LIC) was established on 1 September 1956 to spread the message of life insurance in the country and mobilise peoples savings for nation-building activities. LIC with its central office in Mumbai and seven zonal offices at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur and Bhopal, operates through 100 divisional offices in important cities and 2,048 branch offices. LIC has 5.59 lakh active agents spread over the country. The Corporation also transacts business abroad and has offices in Fiji, Mauritius and United Kingdom. LIC is associated with joint ventures abroad in the field of

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insurance, namely, Ken-India Assurance Company Limited, Nairobi; United Oriental Assurance Company Limited, Kuala Lumpur; and Life Insurance Corporation (International), E.C. Bahrain. It has also entered into an agreement with the Sun Life (UK) for marketing unit linked life insurance and pension policies in U.K. In 1995-96, LIC had a total income from premium and investments of $ 5 Billion while GIC recorded a net premium of $ 1.3 Billion. During the last 15 years, LIC's income grew at a healthy average of 10 per cent as against the industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per cent in the US). LIC has even provided insurance cover to five million people living below the poverty line, with 50 per cent subsidy in the premium rates. LIC's claims settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of global average of 40 per cent. Compounded annual growth rate for Life insurance business has been 19.22 per cent per annum.

The introduction of private players in the industry has added to the colors in the dull industry. The initiatives taken by the private players are very competitive and have given immense competition to the on time monopoly of the market LIC. Since the advent of the private players in the market the industry has seen new and innovative steps taken by the players in this sector. The new players have improved the service quality of the insurance. As a result LIC down the years have seen the declining phase in its career. The market share was distributed among the private players. Though LIC still holds the 75% of the insurance sector but the upcoming natures of these private players are enough to give more competition to LIC in the near future. LIC market share has decreased from 95% (2002-03) to 82 %( 2004-05). ICICI Prudential Life Insurance Company Ltd.

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ICICI Prudential Life Insurance Company is a joint venture between ICICI Bank, a premier financial powerhouse and prudential plc, a leading international financial services group headquartered in the United Kingdom. ICICI Prudential was amongst the first private sector insurance companies to begin operations in December 2000 after receiving approval from Insurance Regulatory Development Authority (IRDA). The company has a network of about 56,000 advisors; as well as 7 banc assurance and 150 corporate agent tie-ups. Birla Sun Life Insurance Company Ltd. Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a joint venture between the Aditya Birla Group, a well known and trusted name globally amongst Indian conglomerates and Sun Life Financial Inc, leading international financial services organization from Canada. The local knowledge of the Aditya Birla Group combined with the domain expertise of Sun Life Financial Inc., offers a formidable protection for its customers future.

Tata AIG Life Insurance Company Ltd. Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of life insurance products to individuals, associations and businesses of all sizes, with a wide variety of additional coverage to ensure our customers can find an insurance product to meet their needs. Tata AIG Life is a joint venture of the Tata Group and American International Group, Inc. (AIG). They operate in 11 states with a specific relationship management team for each state. A dedicated & trained sales and marketing team manages the front end of the Micro insurance program. Our micro insurance distribution model collaborates with NGOs (Non-governmental organisations) and Rural organizations with community level SHG (Self Help Group) women advisors who provide insurance advisory services to the rural customers at their doorstep.

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SBI Life Insurance Company Limited SBI Life Insurance Company Limited is a joint venture between the State Bank of India and BNP Paribas Assurance. SBI Life Insurance is registered with an authorized capital of Rs 2000 crores and a Paid-up capital of Rs 1000 Crores. SBI owns 74% of the total capital and BNP Paribas Assurance the remaining 26%. State Bank of India enjoys the largest banking franchise in India. Along with its 6 Associate Banks, SBI Group has the unrivalled strength of over 16,000 branches across the country, arguably the largest in the world. SBI Life has a unique multi-distribution model encompassing vibrant Bancassurance, Retail Agency, Institutional Alliances and Corporate Solutions distribution channels. SBI Life extensively leverages the SBI Group as a platform for cross-selling insurance products along with its numerous banking product packages such as housing loans and personal loans. SBIs access to over 100 million accounts across the country provides a vibrant base for insurance penetration across every region and economic strata in the country ensuring true financial inclusion.

ING Vysya Life Insurance Company Private Limited ING Vysya Life Insurance (ING Life), a part of the ING Group the worlds largest financial services corporation entered the private life insurance industry in India in September 2001. Headquartered at Bangalore, ING Life India is staffed by over 6,000 employees and services more than 10 lakhs customers. ING Life India is a joint venture between ING Group (ING Insurance International B.V.) & Exide Industries. ING Life has a pan India network, and distributes its products through two channels, the Tied Agency Force and the Alternate Channel. The Tied Agency force comprises of over 60,000 ING Life Advisors, spread across the country. The channel has branches in 234 cities, and 366 sales teams across the country. The Alternate Channels business within ING Life is one of the fastest growing distribution channels. The company currently has tie ups with over 200 cooperative bank across the country. The Alternate Channels division has Bancassurance (ING Vysya Bank), Referral Banks, Corporate Agents, Brokers and SMINCE.

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Allianz Bajaj Life Insurance Company Ltd. Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest Insurance Company and Bajaj Finserv. Allianz SE is a leading insurance conglomerate globally and one of the largest asset managers in the world, managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz SE has over 115 years of financial experience and is present in over 70 countries around the world. Metlife India Insurance Company Pvt. Ltd. MetLife India Insurance Company Limited (MetLife) is an affiliate of MetLife, Inc. and was incorporated as a joint venture between MetLife International Holdings, Inc., The Jammu and Kashmir Bank, M. Pallonji and Co. Private Limited and other private investors. MetLife is one of the fastest growing life insurance companies in the country. It serves its customers by offering a range of innovative products to individuals and group customers at more than 600 locations through its bank partners and company-owned offices. MetLife has more than 50,000 Financial Advisors, who help customers achieve peace of mind across the length and breadth of the country.

Aviva Life Insurance Company India Limited

Aviva India is a joint venture between one of the countrys oldest and largest groups, Dabur, and Aviva plc, the UK's largest insurance group, whose association with India dates back to 1834. With a strong sales force of over 30,000 Financial Planning Advisers (FPAs), we have initiated and pioneered many innovative sales approaches, including the concept of Bancassurance and Financial Health Check services. We are among the first companies to introduce the contemporary unit-linked products With a wide distribution network of 195 branches and close to 40 Bancassurance partnerships, we are spread across nearly 3,000 towns and cities in India. Sahara India life insurance The Sahara Pariwars latest foray is in the field of Life Insurance. The Pariwars life insurance company Sahara India Life Insurance Company Ltd.- has been

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granted licence by the insurance regulator the IRDA on 6th February 2004. With this approval Sahara India Life Insurance Company Ltd. becomes the first wholly and purely Indian company, without any foreign collaboration to enter the Indian Life insurance market. The launch is with an initial paid up capital of 157 crores. The Chairman of the company is Shri Subrata Roy Sahara who is also the Chairman of Sahara Pariwar. Shriram life insurance company Shriram Life Insurance Company is the joint venture between the Shriram Group and the Sanlam Group. The Shriram Group is one of the largest and wellrespected financial services conglomerates in India. The Group's main line of activities in financial services include chit fund, truck financing, consumer durable financing, stock broking, insurance broking and life insurance.

IDBI Fortis Life Insurance Company Ltd.

IDBI Fortis Life Insurance Co Ltd is a joint-venture of IDBI Bank, Indias premier development and commercial bank, Federal Bank, one of Indias leading private sector banks and Fortis Insurance International, a multinational insurance giant based out of Europe. In this venture, IDBI owns 48% equity while Federal Bank and Fortis own 26% equity each. Having started in March 2008, in just five months of inception we became one of the fastest growing new insurance companies to garner Rs 100 Cr in premiums. The company offers its services through a vast nationwide network across the branches of IDBI Bank and Federal Bank in addition to a sizeable network of advisors and partners.

DLF Pramerica Life Insurance Co. Ltd.

DLF Pramerica Life Insurance Company Ltd. (DPLI) is a joint venture between DLF Limited and Prudential International Insurance Holdings, Ltd. (referred to hereafter as "PIIH"). PIIH is a fully owned subsidiary of Prudential Financial, Inc. (referred to hereafter as "PFI"). The combination of the strength of the DLF brand and PFI's insurance expertise provide the strongest possible foundations for DPLI to succeed in the rapidly growing Indian life insurance market.

Star Union Dai-ichi Life Insurance Co. Ltd.,

Bank of India and Union Bank of India, two leading Public Sector Banks in India and the Dai-ichi Mutual Life Insurance Company, a leading Japanese

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Company in the Life Insurance market, have floated a Joint Venture Company, "Star Union Dai-ichi Life Insurance Co. Ltd." for undertaking Life Insurance Business in India. The Company has a capital stake of 51% by BOI, 26% by Dai-ichi Life and 23% by Union Bank. The Company has authorized capital of Rs. 250.00 Crores. Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian Financial Sector coupled with the Dai-ichi Lifes strong domain expertise is expected, to be a strong player in the Indian Life Insurance market in a short time. The Company offers various products to serve all strata of the society.

5.2 MI PRODUCTS AVAILABLE IN THE MARKET

As from above we can see there are 23 life insurance companies are present in India but only 14 companies are providing microinsurance products this clearly give an idea of low attraction of majority of companies towards these products. Below is the list of microinsurance products along with the name of companies:

Name of Insurer

Name of the Product

Product UIN No. 122N039V01 116N047V01 116N048V01 116N049V01 Bima 109N032V01

AVIVA Life Ins. Co. India Pvt. Grameen Suraksha Ltd. Bajaj Allianz Life Insurance Co. Bajaj Allianz Jana Vikas Yojana Ltd Bajaj Allianz Saral Suraksha Yojana Bajaj Allianz Alp Nivesh Yojana Birla Sun Life Insurance Co. Ltd. Birla Sun Life Insurance

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Suraksha Super Birla Sun Life Insurance Bima Dhan Sanchay DLF Pramerica Life Insurance DLF Pramerica Sarv Suraksha Co. Ltd ICICI Prudential Life Insurance ICICI Pru Sarv Jana Suraksha Co. Ltd IDBI Fortis Life Insurance Co. IDBI Fortis Group Microsurance Plan Ltd. ING Vysya Life Insurance Co. ING Vysya Saral Suraksha Ltd. LIC india Ltd LIC's Jeevan Madhur LIC's Jeevan Mangal Met Life India Met Vishwas 140N007V01 105N081V01 135N004V01 114N032V01 512N240V01 512N257V01 117N042V01 109N033V01

Sahara India Life Insurance Co. Sahara Sahayog (Micro Endowment 127N010V01 Ltd. Insurance without profit plan) SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti SBI Life Grameen Super Suraksha Shriram Life Insurance Co. Ltd. Shri Sahay Sri Sahay (AP) Star Union Insurance Co Dai-ichi Life SUD Life Paraspar Suraksha Plan 111N038V01 111N039V01 128N011V01 128N012V01 142N009V01 110N042V01 110N043V01 110N044V01 110N061V01

TATA AIG Life Insurance Co. Ayushman Yojana Ltd. Navkalyan Yojana Sampoorn Bima Yojana Tata AIG Sumangal Bima Yojana

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AVIVA Lifes Grameen Suraksha A micro-insurance rural term insurance plan for BASIX customers. This traditional term plan has been developed with the objective of giving the rural policyholder maximum benefits. the policyholder pays premium for a period of just two years and then avails the term benefit for 5 or 10 years The minimum sum assured is Rs 5,000 and the maximum is Rs 50,000. In addition, tax benefits can be availed as per Section 80C of the Income Tax Act, 1961.

Bajaj Allianz Alp Nivesh Yojana An endowment plan with Life cover and Maturity benefit equal to sum assured + Investment bonus. 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. Bajaj Allianz Jana Vikas Yojana A single premium plan with maturity benefit of 125% of the single premium payable on survival till the end of the policy term. Life Cover. Maturity Benefit of 125%of the single premium payable on survival till the end of the policy term. Guaranteed Surrender Value. Bajaj Allianz Saral Suraksha Yojana The Most economical term insurance policy with return of premium on maturity.

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Return of premium on maturity Guaranteed Surrender Value Avail additional benefits including Accidental Death Benefit & Accidental Permanent Total / Partial Disability Benefit BSLI Bima Dhan Sanchay

A Win-Win Situation Security plus Guarantee. The refund of premiums paid by you is guaranteed with 3 maturity options. Sum Assured Rs.5,000/- to Rs.50,000/Maximum Maturity age 65 years A grace period of 180 days from the premium due date will be available to you An option for additional Sum Assured is available provided the base sum assured is minimum Rs 10,000/- and the sum assured under the rider should not exceed the sum assured under the base product if the death occurs due to accident

BSLI Bima Suraksha Super BSLI Bima Suraksha Super provides you life insurance cover for which you have to pay regular premium. The nominee gets the sum assured in the unfortunate event of death. BSLI Bima Suraksha Super provides you life insurance cover for which you have to pay regular premium. The nominee gets the sum assured in the unfortunate event of death. Your premium depends on your age, gender, Sum Assured and benefit period chosen. At maturity, there is no benefit payable. An option for additional Sum Assured is available provided the base sum assured is greater than or equal to 10,000/- if the death occurs due to accident. ICICI Pru Sarv Jana Suraksha ICICI Prudential Life Insurance presents its first Micro Insurance Plan - Sarv Jana Suraksha especially designed for rural population which provides total security to you and your family, at very affordable cost.

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Min / Max entry age-18 years - 55 years Min/Max Sum Assured- Rs. 5,000 -Rs. 50,000 Policy Term -5 years Cover ceasing age -60 years

SBI Life insuances Grameen Super Suraksha and Grameen Shakti SBI Life insuances Grameen Super Suraksha and Grameen Shakti products have been designed to meet the requirements of the weaker sections of the rural population. Grameen Super Suraksha is a micro insurance pure term product and Grameen Shakti is micro insurance product with ROP. Grameen Shakti is a dual benefit life insurance product to safe guard the group member which provides Protection with maturity benefit at affordable rates. It offers to the Family of the group member Protection & it offers to the Group member survival Benefit. Duration of plan: 5 years or 10 years as per the Group Master policyholders choice. Age at entry: Minimum 18 years age last birthday. Maximum 50 years age last birthday. Sum assured: Rs.5, 000/- to Rs.50, 000/- (in multiples of 5,000) as per choice of Master Policyholder. Premium frequency: Yearly. Requirement from the Group member: Automatic acceptance linked to signature of Membership form that includes Good health declaration and nomination clause. Death Benefits: First 45 days after the cover start date or after the revival date No death claim will be accepted (inclusive of accidental death) Form 46th day from cover start date / revival date Sum assured is payable Tata AIG Life Sumangal Bima Yojana In this plan you have to pay premium for 10 years and you get insurance protection for 15 years. Enjoy total guaranteed returns of 120% of the *total policy premium at specified intervals during term of the policy.

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Policy Term : 15 years Premium Paying term : 10 years

Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.30,000/-

Premium payment frequency : Monthly, quarterly, half yearly & yearly Survival Benefit: We shall pay you the survival benefits as below, if you have paid all due premiums. Tata AIG Life Sampoorn Bima Yojana A low cost insurance plan where the policyholder receives all the premiums paid during the policy term upon survival until the term of the policy. Premiums are payable for only 10 years, while the coverage is up to 15 years. Policy Term : 15 years

Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/-

Premium payment frequency : Monthly, quarterly, half yearly & yearly Death Benifit : Sum assured is paid to the policyholders nominee Maturity benefit: At the end of the 15 years, all the premiums paid will be returned to the policyholder. Tata AIG Life Sampoorn Bima Yojana A low cost insurance plan where the policyholder receives all the premiums paid during the policy term upon survival until the term of the policy. Premiums are payable for only 10 years, while the coverage is up to 15 years. Policy Term: 15 years

Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/-

Premium payment frequency : Monthly, quarterly, half yearly & yearly Death Benifit : Sum assured is paid to the policyholders nominee Maturity benefit: At the end of the 15 years, all the premiums paid will be returned to the policyholder.

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Tata AIG Life Navkalyan Yojana A regular premium payment, low cost term plan for the rural adults who seek life insurance protection without any maturity benefit. Policy Term : 5 years

Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/-

Premium payment frequency : Monthly, quarterly, half yearly & yearly Death Benifit : Sum assured to the policyholders nominee Maturity benefit : None Rider: Option to attach Accident Death Benefit Rider for issue ages 18 to 55 years at a nominal extra charge. IDBI Fortis Group Microsurance Plan The first of its kind group that will be benefited by this unique plan is Samhita Community Development Services, announced officially by IDBI Fortis Life Insurance Co Ltd at a press conference held at Bhopal today. This tie-up will insure 13,356 poor members for a Sum Assured of over Rs. 7cr in the rural and urban areas of Madhya Pradesh. The plan provides affordable life insurance cover to groups offering great value to Micro Finance Institutions, Self-Help Groups and NGOs. Not only does the plan insure the lives of their group members and thus provide security to the group members families, it can also be used for providing protection from loan liabilities in the unfortunate event of the death of the main bread-winner. Aviva Grameen Suraksha Grameen Suraksha is a life insurance plan that helps you protect your family's future. While there can be no compensation for the loss of life, Grameen Suraksha ensures that their financial needs are met when something unfortunate happen to you. Entry Age: 18 to 45 years Policy Term: 5 and 10 years Premium Paying Term: 2 years (payable in yearly mode only) Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only) A grace period of one month is allowed for payment of premium.

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LIC's Jeevan Madhur Jeevan Madhur, is available to both male & female without any medical examination and is a simple saving related life insurance plan covering individuals in the age group of 18 to 60 years. Minimum sum assured under the plan is Rs. 5000 and maximum sum assured is Rs. 30000. Mode of payment of premium can be even weekly/fortnightly in addition to other regular modes to suit the needs of people with low income. Minimum premium is Rs. 25/- per week, Rs. 50/- per fortnight, Rs. 100/- per month which is expected to be well within reach of the targeted group. The term of policy ranges between 5 to 15 years. The policy, if kept in full force, is entitled to the simple reversionary bonuses depending upon Corporations experience. Accident benefit is also applicable as per terms and conditions of the policy. After premiums are paid for 2 years, Auto Cover facility i.e., continuance of cover even in case of inability to pay premium up to 2 years from the date of First Unpaid premium is available to take care of contingencies and uncertainties of income. LIC's Jeevan Mangal Aterm assurance plan with return of premiums paid on maturity. The Micro Insurance Plan Jeevan Mangal launched today is a term assurance plan with return of premium on maturity providing for a sum assured (risk cover) ranging from minimum of Rs.10, 000/- to maximum of Rs.50, 000/- with an optional accident benefit rider, together providing for total death benefit equal to double the sum assured, on death due to accident

Met Vishwas
It is a life insurance plan that protects you in case of death at a nominal cost when you survive the term of the policy you get back up to 125% of premium(in case of coverage term 10 years) Maturity benefit: 110% of the single premium paid for a 5 year coverage term 125% of the single premium paid for a 5 year coverage term

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Entry Age: 18 to 60years Policy Term: 5 or 10 years Premium Paying Term: 2 years (payable in yearly mode only) Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only) A grace period of one month is allowed for payment of premium.

SUD Life Paraspar Suraksha Plan The scheme has been specifically designed for the weaker sections of the society and those from the rural areas. The scheme covers the groups of 200 and or members. The scheme is to provide life cover at low cost to groups of persons engaged in a common economic activity like those financed by an NGO, MFI or Banks in rural or urban areas. Entry Age: 18 to 50years Group size : minimum-100, maximum no limit Premium Paying Term: Minimum premium- single premium-162.50, annual premium-33.50 Maximum premium- single premium-1625.0, annual premium-335.0 Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)

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CHAPTER 7 OTHER TOPICS

5.1 UNDP STUDY 5.2 RECOMMENDATION

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5.1 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 micro-savings, 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. 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.

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The Potential Market for Micro-Insurance in India Insurance Segment Life Segment Non-Life Segment TOTAL (Life and Non-Life) Market Size (Potential)(Rs. Millions) 15393-20141 46911.70-64,126.55 62304.70-84,267.55

SOURCE: UNDP (2007). Building Capacity for the Poor Potential and Prospect for Micro-Insurance in India. UNDP Regional Centre, Colombo.

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5.2 FUTURE OF MICROINSURANCE

Leveraging Existing Network for Micro-Insurance 11.12 It would be difficult for the insurers to establish a vast network for distribution of micro-insurance products. They need to utilize existing Government organizations, banks, MFIs, NGOs and SHGs to increase the outreach of microinsurance to the poor. The advantages of these entities are that they find greater acceptability among the financially excluded, and with a better understanding of their needs are well equipped to advise them on the choice of products. In India with a vast rural population characterized by challenges and complexities, it makes sense to latch on to an existing mechanism operating in these segments to lower costs and to help the insurer to leverage on the faith already generated by the entity. Hence it would be prudent to choose a partneragent model for delivery where the insurer underwrites the risk and the distribution is handled by an existing intermediary. This model keeps the cost of insurance attractive enough for the poor to enter and remain in its fold even while addressing the concern of the insurers about the low returns of microinsurance. Linking Micro-credit with Micro-insurance 11.13 It is becoming increasingly clear that micro-insurance needs a further push and guidance from the Regulator as well as the Government. The Committee concurs with the view that offering microcredit without microinsurance is bad financial behaviour, as it is the poor who suffer on account of such bad product design. There is, therefore, a need to emphasise linking of microcredit with micro-insurance. 11.14 Linking micro-insurance with microfinance makes good business sense. Further, as it helps in bringing down the inherent risk cost of lending, the Committee feels that NABARD should be regularly involved in issues relating to rural and micro insurance to leverage on its experience of being a catalyst in the field of micro-credit. Implementation Strategy for Micro-Insurance

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11.15 Keeping in view the various issues dealt with earlier in this Chapter, the Committee has identified five major areas for formulation of strategies for effective implementation of micro-insurance programmes. These are explained in the following paragraphs : Human Resources Requirement and Training 11.16 As indicated earlier, the UNDP report states that there is a huge untapped market of around 950 million people and nearly US$2 billion for insurance in India. IRDA may consider putting in place an appropriate institutional structure for deciding on service packages including premia and formulating strategies for effective promotion of micro insurance. There is also a felt need for development, of both fulltime and part-time staff, thru effective training in insurance marketing and servicing concepts. Operations and Systems 11.17 To address the requirements of the huge market potential available, appropriate systems should be evolved for tracking client information, either manually or using technology. While a technology platform may take time for setting up, in the long-run, the same will be cost-effective and reliable. Similarly, the procedures for premium payments, claims and other services should be formalized along with increased customization of products to stimulate demand. Development of Adequate Feedback Mechanism 11.18 Keeping in view the diverse nature of market requirements, suitable mechanisms to collect market intelligence, collating and interpretation of the same, in a formally structured manner, is important for product development and process refinement. Insurance companies should go beyond devising new products to improving their processes for building awareness, marketing enrollment, premium collection, claim settlement and renewal. For this they need use innovative channels such as business correspondents, SHGs, NGOs and MFIs as also cooperatives and mutual associations. Further, the use of technology such as mobile phones and ATMs for premium collection should be encouraged to keep transaction costs low. Development of Data Base 11.19 High costs of penetration and acquisition often leads to higher pricing of products, thereby impacting client outreach and market depth. Building up historical data base on risk profiles, claims, settlement ratios, etc., will facilitate in better pricing of products, based on actual rather than presumed risks. Besides enabling cost reduction, warehousing of such data will make the market more transparent for entry of more operators. The IRDA and the Government

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should help in provision of data such as human mortality and morbidity, weather parameters and livestock mortality/morbidity, on a timely, large sample and regular basis. This will lead to finer pricing on actuarial basis and eventually cut costs of insurance. Consumer Education, Marketing and Grievance Handling 11.20 The micro-insurance sector is unique in the sense that there is an ongoing challenge to explain the concept and benefits to the insured. Creating awareness thru use of pictorial posters, local folk arts and street theatres might be useful to explain the mechanisms of insurance. Local community-based organisations could organize premium collections, as they have better access to the local people. To make it more acceptable to the people, micro-insurance products, apart from covering only risks, should also provide an opportunity for providing long term savings (endowment).

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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. 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. Policyinduced 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 microinsurance 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. At present microfinance business in the country is unregulated. Regulation of MFIs is needed not only to promote micro-finance activity in the country but also to promote the linking of microinsurance with micro-finance. It is becoming

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increasingly clear that micro-insurance needs a further push and guidance from the regulator as well as the government.

Case study on Annapurna Parivar

Annapurna Pariwar as is known today is a group of 6 Non-Govt. organizations working in Mumbai and Pune for the urban slum dwellers. The first organization in Annapurna Pariwar is Annapurna Mahila Mandal, Mumbai. An organization working for the inn-runners since 1975. Annapurna Mahila Mandal, Mumbai was set up by Padmashree Prematai Purao and Com. Dada Purao in the year 1975, which was the International Year for Women. Padmashree Prematai Purao is a freedom fighter from Goa, was a leading woman activist in the sixties and a recipient of many national and international awards. Com. Dada Purao was a Trade Union Leader. 18 years later the daughter of Padmashree Prematai Purao and Com. Dada Purao, Dr. Medha Purao Samant set up Annapurna Mahila Mandal, Pune in 1993. She formed a group of 9 vegetable vendors who were borrowing from the private money lenders at

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exorbitant rates of interest . They were under the clutches of local money lenders in spite of presence of many banks and financial institutions in Pune. She gave the initial capital of Rs. 9000/- as the first loan to the members of the first group of borrowers in Pune. Annapurna Pariwar started in the course of time a package of various services for the benefit of the slum dwellers, which are completely need- based.

Artha-Udyam-Purna, a poor women and mens economic empowerment program throughMicro Finance. This started as a project in July 1993 in Pune. Annapurna Mahila Co-Op. Credit Society was registered in Mumbai in 1985 and got a multi-state license in 1998. The Micro Finance activities in Pune and Mumbai started in under this coop. society from 2000.

Sandhi-Tantra-Purna, was started as a Vocational Training and Job Placement Program for Dropout Adolescents, in June 2001. Annapurna Mahila Industrial Co-op. Society was registered in 2000. This program got integrated in this co op society.

Swasthya-Purna started as a project under which two aspects were dealt with..Health problems and Sudden Death in the family of borrowers. To overcome these two major problems pushing the poor back into the debt trap the two solutions were provided. - Health Mutual Fund started as a project in April - 2003Family Security Fund started as a project in October 1998 The borrowers of Annapurna Mahila Co-Op. Credit Society came together and registered a Non Profit company in 2003 under Section 25 of the Companies registration Act.These two projects were Merged in this

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company named as Annapurna Pariwar Vikas Samvardhan which is run and owned by the members. This is a pioneering example inCommunity Based Health Insurance.

The first Day Care Center started in 2003 in Karvenagar slum in Pune. The main trigger was a rape case on a 6 year old girl whose mother was a single woman. Thereafter Vatsalya-Purna started as a chain of low cost Day Care Centres for children of poor working women who were borrowers of Annapurna Mahila Co-Op. Credit Society. Vatsalya-Purna Co. op Soc was registered in 2007 by all the Creche Conductors.

Vidya-purna started in 2003 as an educational sponsorship program for the children of single mothers who are borrowers of Annapurna Mahila Co Op Credit Society. Annapurna Mahila Mandal, Pune, registered as a trust in the year 2000 is running this educational sponsorship program. The single poor women find it difficult to educate their children with their meager income. So this program helps them.

Annapurna Mahila Mandal, Mumbai was registered as a trust in the year 1975. It started catering activities with poor women in 1980. It also runs a Working Womens Hostel in New Mumbai. There is a huge problem of single destitute women and on the other hand the single working women need a safe place to stay and homely food in big cities like Mumbai. So the Working Womens Hostel provides a solution to this.

Today Annapurna Pariwar has 6 independent bodies working under it. The various projects which render a package of various services to the urban slum dwellers are run under these 6 organizations.

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ACHIEVEMENTS

Healthy Society is the foundation of all-round progress and an acute need was felt for health insurance for an unorganized sector forming a large cross-section of our Society. With this social aim in mind, more than 14,000 families with 54,000 individuals in Pune and 8,000 families with 28,000 individuals in Mumbai have so far been provided the safety of health insurance.

As a Micro health insurance initiative, this Organization has created an extensive network of 190 Hospitals in Pune and 90 in Mumbai. All beneficiaries of health insurance can take advantage of healthcare services provided by these hospitals.

Services Rendered :
Health Counselling Assistance and Referral for health related problems. Arranging Awareness program on all issues including Health, Cleanliness, Hygiene Data Management and Product designing by UPLIFT India (another Sec 25 co)

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Financial assistance on events like hospitalisation, death, disability All financial claims are settled in a monthly meeting of Community Representatives (CRs).