Lessons from Innovation in Microinsurance in India
Lessons From Innovations in Microinsurance and
Insurance Institutions in India
Talk at the IFPRI Resilience 2020 Conference,
Addis Ababa, 16th May 2014
Founder and CEO, BASIX Social Enterprise Group 1996‐ongoing
Member, Insurance Regulatory and Development Authority
(IRDA), India 2005‐2010
Chair, Consultative Group to Assist the Poor (CGAP) 2011‐13
Risks faced by the rural poor in India
are largely unmanaged
• Usually they face two types of Risk
• Idiosyncratic ‐ such as lower yield, disease in the family, theft
• Covariate – drought or flood in the area; epidemic disease
• Prevalent forms of risk management, though not efficient enough, cannot be
ignored. They do proactive risk management
• Grain storage, savings, and assets accumulation specially livestock, loan to and from
friends and relatives at no interest etc.
• Thus the poor are rational when they eschew buying insurance
• Their vulnerability to shocks is high, their income is low and variable, so they cannot invest
much in securing it
• The pay‐out of premium is for sure, but the “benefit” of claim settlement is uncertain.
• “Microinsurance (MI) is a segment of insurance products designed with
smaller premiums and less coverage to support low‐income populations that
cannot afford or do not have access to traditional plans.
• For example, MI premiums in India can be as low as INR 30 a month (USD
0.50) and cover losses around INR 2,500 rupees (USD 42.5). But due the fact
that 100s of million are covered, the MI market size now exceeds $40 billion,
according to Swiss Re and Lloyds.
• The number of people insured by microinsurance has increased from 78
million in 2007 to 500 million 2012, according to a study published by the
International Labor Organization and the Munich Re Foundation.
• There has been significant increase in insurance inclusion in India in the
decade since 2001.” *
* Source : John Hui, The Rise of Microinsurance, Risk Management Magazine, Mar 2013
Significant increase in insurance coverage since 2001.
• Life insurance density has gone up from USD 9 to USD 43 per capita,
and penetration increased by over 50% from 2.15% to 3.17% of GDP
in 2012, in spite of a set back since 2010.
• Non‐life density went up fourfold to USD 10.5 per capita and
penetration increased by about 42% from 0.55% to 0.78% of GDP
• As the opening slide showed, India is the micro‐insurance champion of
the world. New business in 2012‐13 stood at 5.04 million lives under
individual and 13.9 million lives under group life insurance policies with
a premium of Rs 318 crores (USD 53 million).
• All insurance companies were compliant with IRDA guidelines for
number of policies under rural and social obligations.
Effect of Rural and Social Obligation Policy
which requires life insurance cos to have min. 20% of policies in rural areas,
non‐life insurance cos to have min. 5% of sum assured in rural areas and
both types of cos to have at least 25000 lives covered in the social sector.
FY 2011‐12 Rural Social Total
Life 14.0 million lives 14.5 million 28.5 million
Non‐life 14.1% of premium 109.3 million policies NA
FY 2012‐13 Rural Social Total
Life 11.3 million lives 18.2 million 29.5 million
Non‐life 12.6 % of premium 203.1 million policies NA
not only the
also at the
and with the
Examples of Micro Insurance –
Health ‐ Rashtriya Swasthya Bima Yojana (RSBY)
• Launched by Ministry of Labour and Employment of Govt of India in 2008
• Objective ‐ shielding low‐income households from major health expenses.
• Provides hospitalization cover of up to INR 30,000 (USD 500) per family pa
• A network of 8,686 private and public empanelled hospitals.
• Millions of poor families have been insured by nine insurers, which
includes five private and four public sector companies.
• The annual premium per family ranges from INR 331 (USD 7), to INR 697
(USD 16), with the beneficiary paying a nominal fee of INR 30 (USD 0.67).
• Source: RSBY Working Paper, September, 2011. Performance Trends and Policy Recommendations ‐ An
Evaluation of the Mass Health Insurance Scheme of Government of India
RSBY ‐ Health
Insurance for the Poor
Total Active Smart Cards Issued
Total Hospitalisation Cases
as on 30th Apr 2014
A 2013 evaluation by GiZ shows
94% awareness levels
90% travelled less than 2 kms to
get smart card
Those without coverage spent
Rs 17,000 pa (USD 283)
Agricultural Micro Insurance in India ‐1
• Agriculture is the most important livelihood in India, as about 60% of
working population works in agriculture.
• As only a third of agriculture is irrigated, the yield is very risk prone
due to weather.
• India has had the National Agricultural Insurance Scheme (NAIS),
which was the traditional crop insurance in which claims were settled
on area yield estimation basis.
• NAIS was largely government subsidised and made losses of billions
of dollars and yet farmers were unhappy.
• GoI introduced an actuarial pricing based Modified NAIS since 2010.
Agricultural Micro Insurance in India
• Basix pioneered the concept of weather index based crop insurance, in 2003
with support from the World Bank’s Commodity Risk Management Group.
The Harvard Businsss School wrote a case study on it.
• ICICI Lombard offered to carry the risk and Swiss Re reinsured it. The idea
grew slowly from just 300 farmer to a few thousand covered
• Govt of India adopted the idea in 2007 and decided to subsidise the premium.
Since then it has spread widely, as seen below:
Insurance Scheme No of farmers
covered in million
NAIS 15.63 (avg pa last 12 years) 19.00 80%‐150%
Modified NAIS pilot 0.59 (2011‐12) 1.45 73%
Weather based 8.37 (2011‐12) 14.01 60‐90%
Reasons for Progress in Micro‐Insurance Coverage in India
1. Overall size and buoyancy in Indian economy since the mid
1990s has helped!
2. A new Insurance Law was enacted in 1999
3. A new generation regulator – Insurance Regulatory and
Development Authority (IRDA) – was established in 2001
4. The IRDA formulated Rural and Social Sector Obligations
right at outset, making it clear to new players that inclusion is central to
Reasons for Progress in Micro Insurance Coverage in India
5. IRDA became the global pioneer in Micro‐Insurance by setting out Micro
Insurance regulations in 2005
6. IRDA has worked on inclusion in partnership with Industry – both public and
private insurers, as can be seen by the compliance to rural/social.
7. Use of new distribution channels was encouraged for reaching the poor and
the excluded – Microfinance Institutions, Self‐Help Groups, Micro Insurance
8. Use of government subsidies and cross‐subsidies – particularly in crop
insurance and in third party motor insurance.
Areas needing improvement
1. Pre‐insurance risk mitigation – for health, crop and livestock
2. Improving data gathering and analytics, to reduce premiums
3. Service levels – lowering mis‐selling and lapsation rates (policies
requiring premium payment over multiple years lapse if premium
payment is stopped)
4. Claim settlement – increasing awareness, lowering delays and
repudiation rates (when an insurance co declares claim invalid).
5. More judicious use of subsidies – such as in crop insurance
6. Consumer protection – overhaul of Ombudsman system
Lessons for other developing countries
• It is possible to both liberalise the insurance sector and attract multinational
companies and yet meet national social goals through Rural and Social
• The Rural and Social Obligations policy of the IRDA India has managed to ensure
coverage to a large number of target group as compared to the micro‐insurance
• MI outreach has been limited as the remuneration levels (@20% of premium)
are inadequate to meet the marketing and transaction costs.
• The natural distributors – microfinance institutions (MFIs) – were not permitted
by IRDA to be micro‐insurance agents.
• So MFIs were distributing affordable insurance policies under group insurance
schemes, acting as “group administrators.” In 2013, IRDA imposed severe limits
on what group administrators could charge to group customers and also opened
a new channel (CSCs – IT Kiosks) for on‐line issuing of MI policies. This will
perhaps change the game in favour of MI.
• Regulating prices and limiting foreign capital participation leads to setbacks
Role played by BASIX in Insurance Inclusion in India
1. Pioneer in Micro Insurance ‐ began in 2002, three years before
IRDA laid out Micro Insurance Regulations. At peak, covered 3.8
million lives, and also hospitalisation cash for them, plus 200,000
others for crop, livestock and microenterprise assets.
2. Helped formulate IRDA Micro Insurance Regulations, 2005 through
a working group.
3. Played an active role in the IRDA – BASIX group CEO Vijay Mahajan
was part‐time Member, IRDA from 2005‐10 and also member of
Consumer Protection Committee which overhauled the grievance
redressal system (set up toll free 155255 and also firstname.lastname@example.org)
Role played by BASIX in Insurance Coverage in India
3. Product, channel and service innovation – pioneered the use of micro‐credit
borrowers groups for mass life and hospitalisation insurance; pioneered the
concept of weather‐index based crop insurance since 2003
4. Established long‐term stable partnerships – with Aviva for life, Royal
Sundaram for Hospitalisation and for Livestock and with ICICI Lombard for
weather/crop; and jointly set standards for agent training and claim settlement
5. Policy activism in India and globally – BASIX has worked with GoI and the AIC
to encourage weather index based crop insurance. Has spread the idea of
weather insurance in developing countries through policy consultancies.
6. Working on design of risk cover in face of Climate Change Risks.
Basix Consulting’s Partners in Insurance Work
• Aviva Life Insurance Co Ltd, India
• Royal Sundram General Insurance Co Ltd, India
• ICICI Lombard General Insurance Co Ltd, India
• Agricultural Insurance Co of India Ltd.
• Weather‐Risk Management Services Pvt Ltd, India www.weather‐risk.com/
• MicroEnsure, UK and worldwide www.microensure.com
• Micro Insurance Academy, India https://www.microinsuranceacademy.org/
• Basix Consulting