Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Micro-insurance in India Practices & Prospects<br />Premasis Mukherjee<br />
The Storyline <br />Introduction to micro-insurance<br />Micro-insurance products & challenges<br />Delivery channels in m...
Risk Management by the Poor<br />Self Insurance<br />Liquidation of  assets<br />Informal /semi-formal borrowing<br />Info...
In-efficiency of  formal economy
Resource stress on developing nations</li></li></ul><li>Defining micro-insurance<br />“Protection of low-income people…………...
Fundamental Principles of Insurance<br />
Micro-insurance Scenario : World<br />
Micro-insurance Product types <br />Loan linked insurance (Credit-life or credit-life +) <br />Health insurance<br />Long ...
Loan Linked Insurance<br />Benefit :Credit- life/Accidental disability <br />Added benefits: <br />Illness cover<br />Fune...
Loan Linked Insurance: Focus<br />Product <br />Group based<br />Term : loan schedule <br />Flexible Sum Assured<br />Pric...
Health Insurance<br />Health Service Provider<br />Insurer<br />Payment<br />Premium<br />Health care<br />Client<br />
Long term Insurance<br />Annuities <br />High actuarial expertise<br />Efficient financial management (asset-liability man...
Long term Insurance<br />Challenges with clients<br />Migration <br />Matching with transaction patterns<br />Assurance of...
The Micro-insurance Supply Chain<br />Re-insurer<br />Policy Holder<br />Covered Lives<br />Insurer<br />Delivery Channel<...
Carries risk
Manage regulation
Pays claims</li></ul>e.g. Insurance companies, CBOs, Mutual<br /><ul><li>Sells the product
Collects premium
Aids the client in settling claims</li></ul>e.g., MFIs, NGOs, CBOs, retailers , agents <br /><ul><li>Buys the product
Proposer</li></ul>e.g. Individuals, Groups <br /><ul><li>Those who have a premium paid to cover them</li></ul>e.g., family...
Partner-Agent Model<br />Selecting partner (Insurer)<br />Bidding <br />Role clarity<br />Staff training<br />Underwriting...
Micro-insurance Scenario : World<br />
The Life Insurance Preference <br />Can be easily linked with other products<br />Not dependent  on other infrastructure<b...
Indian Micro-insurance : Regulation<br />Rural sector obligation<br />
Indian Micro-insurance : Regulation<br />Social Sector<br />Unorganized workers, economically vulnerable or  backward clas...
Indian Micro-insurance Framework<br />Insurance Company<br />Rural sector Obligation<br />Social Sector Obligation<br />MI...
Issues in Indian Micro-insurance<br /><ul><li>Acquisition cost + Distribution cost
Mortality data not available
Rural channels upcoming
‘Cost of  Simplicity’</li></ul>Insurance Company<br />Rural sector Obligation<br />Social Sector Obligation<br /><ul><li>C...
Upcoming SlideShare
Loading in …5
×

Microinsurance

3,381 views

Published on

A brief outline of Indian Microinsurance sector

  • Be the first to comment

Microinsurance

  1. 1. Micro-insurance in India Practices & Prospects<br />Premasis Mukherjee<br />
  2. 2. The Storyline <br />Introduction to micro-insurance<br />Micro-insurance products & challenges<br />Delivery channels in micro-insurance<br />Micro-insurance in India<br />Micro-insurance regulation and its’ impact<br />Trends in micro-insurance industry<br />Some Experiments by MFIs/ companies<br />Possible engagements of MicroSave<br />
  3. 3. Risk Management by the Poor<br />Self Insurance<br />Liquidation of assets<br />Informal /semi-formal borrowing<br />Informal savings (ROSCA/ASCA)<br />Informal Group Insurance<br />Funeral/burial societies<br />Multiple membership<br />High transaction cost<br />Mostly covering specific life risks<br />Micro-insurance<br />Social Security<br /><ul><li>Gap in intent and practice
  4. 4. In-efficiency of formal economy
  5. 5. Resource stress on developing nations</li></li></ul><li>Defining micro-insurance<br />“Protection of low-income people……………. (not having access to commercial insurance or social protection) ……………………… … ………against specific perils (that causes vulnerability in their livelihood) ……..in exchange for regular payment of premiums proportionate to the likelihood and cost of the risk involved.”<br />--- Craig Churchill<br />Micro-insurance working group, CGAP<br />Social Finance Programme, ILO<br />
  6. 6. Fundamental Principles of Insurance<br />
  7. 7. Micro-insurance Scenario : World<br />
  8. 8. Micro-insurance Product types <br />Loan linked insurance (Credit-life or credit-life +) <br />Health insurance<br />Long term insurance<br />Annuity <br />Pension<br />Endowments<br />Agriculture insurance<br />Rain fall insurance<br />Livestock insurance <br />
  9. 9. Loan Linked Insurance<br />Benefit :Credit- life/Accidental disability <br />Added benefits: <br />Illness cover<br />Funeral cover<br />Spouse cover<br />Risk borne by: MFI/Insurance company (as re-insurer)<br />Sum Assured: Outstanding loan / include accrued interest <br />Price:<br />0.2% to 8% of loan portfolio (group price)<br />Profit-sharing model <br />Term : Renewed only if loan renewed (optional)<br />Nominee : The MFI<br />Subscription : Mostly mandatory with loan<br />
  10. 10. Loan Linked Insurance: Focus<br />Product <br />Group based<br />Term : loan schedule <br />Flexible Sum Assured<br />Price<br />Affordable <br />Competitive <br />Annual review of price<br />Promotion<br />The opportunity benefit<br />Place<br />Mandatory <br />Physical Evidence<br />Process<br />Easy claim settlement<br />Least paper work<br />Group underwriting<br />Service agreement <br />Issuance <br />Addition/Deletion<br />Claim <br />Positioning <br />Least cost insurance<br />People <br />Research about options<br />The benefit of insurance is best communicated through claims<br />
  11. 11. Health Insurance<br />Health Service Provider<br />Insurer<br />Payment<br />Premium<br />Health care<br />Client<br />
  12. 12. Long term Insurance<br />Annuities <br />High actuarial expertise<br />Efficient financial management (asset-liability management)<br />Defined contribution & defined benefit pension<br />COMPFED <br />Endowments <br />Horizon issue<br />Stability and brand <br />Financial sector performance<br />
  13. 13. Long term Insurance<br />Challenges with clients<br />Migration <br />Matching with transaction patterns<br />Assurance of return<br />Challenges with intermediaries<br />High cost – high involvement proposition<br />High admin cost + distribution cost<br />Standalone MI is becoming non-profitable <br />Transfer of actuarial risk and distribution cost to companies <br />Resource intensive<br />Brand / imagery risk<br />Long term tracking of clients<br />
  14. 14. The Micro-insurance Supply Chain<br />Re-insurer<br />Policy Holder<br />Covered Lives<br />Insurer<br />Delivery Channel<br /><ul><li>Receives premium
  15. 15. Carries risk
  16. 16. Manage regulation
  17. 17. Pays claims</li></ul>e.g. Insurance companies, CBOs, Mutual<br /><ul><li>Sells the product
  18. 18. Collects premium
  19. 19. Aids the client in settling claims</li></ul>e.g., MFIs, NGOs, CBOs, retailers , agents <br /><ul><li>Buys the product
  20. 20. Proposer</li></ul>e.g. Individuals, Groups <br /><ul><li>Those who have a premium paid to cover them</li></ul>e.g., family members, group members<br />
  21. 21. Partner-Agent Model<br />Selecting partner (Insurer)<br />Bidding <br />Role clarity<br />Staff training<br />Underwriting <br />Premium collection <br />Claim processing<br />Financial Arrangement<br />Commission <br />Profit sharing<br />Premium mark-ups<br />Benefits<br />Simple & quick<br />No need for specialised manpower<br />No capital requirement<br />Additional income source<br />Constraints<br />Income only from commissions<br />Service in third party hands<br />Limitation on product offering<br />Incentive structure for staff <br />
  22. 22. Micro-insurance Scenario : World<br />
  23. 23. The Life Insurance Preference <br />Can be easily linked with other products<br />Not dependent on other infrastructure<br />The insured event is a clear cut fact<br />Easy to price <br />Resistant to moral hazard & fraud<br />Claim settlement is relatively easy<br />
  24. 24. Indian Micro-insurance : Regulation<br />Rural sector obligation<br />
  25. 25. Indian Micro-insurance : Regulation<br />Social Sector<br />Unorganized workers, economically vulnerable or backward classes in urban /rural<br />
  26. 26. Indian Micro-insurance Framework<br />Insurance Company<br />Rural sector Obligation<br />Social Sector Obligation<br />MI Product<br />[1-1.5% of SA]<br />Group Insurance<br />[Rs.3-5/1000SA]<br />Portfolio Security/Funder Obligation<br />Sales Force of Insurance Comp.<br />MFI<br />Commission<br />Value addition<br />Credit Coverage<br />Client<br />Savings<br />Risk Mitigation<br />
  27. 27. Issues in Indian Micro-insurance<br /><ul><li>Acquisition cost + Distribution cost
  28. 28. Mortality data not available
  29. 29. Rural channels upcoming
  30. 30. ‘Cost of Simplicity’</li></ul>Insurance Company<br />Rural sector Obligation<br />Social Sector Obligation<br /><ul><li>Credit linkage insures portfolio
  31. 31. Value addition not realised (latent demand)
  32. 32. Better Service Level Agreement
  33. 33. Not profitable due to resource intensiveness
  34. 34. The low commission is insignificant income</li></ul>Group Insurance<br />[Rs.3-5/1000SA]<br />MI Product<br />[1-1.5% of SA]<br />Funder Obligation<br />Sales Force of Insurance Comp.<br />MFI<br /><ul><li>Client’s family not getting benefit
  35. 35. Limited flexibility
  36. 36. Horizon problem/ commitment
  37. 37. Endowment product not available
  38. 38. Seen as cost of credit
  39. 39. Un-availability of integrated product</li></ul>Commission<br />Value addition<br />Credit Coverage<br />Client<br />Risk Mitigation<br />Savings<br />
  40. 40. Micro-insurance regulation <br />Enabling features <br />Critiques <br />Higher commission for prolong association<br />20% in life, 15% in general<br />Greater responsibility for MI agents<br />Qualify for both rural and social sector numbers<br />Benign negligence towards community based micro-insurance schemes<br />Definition of MI agent <br />Issues with NBFCs/Sec.25 <br />80% of clients belong to them<br />Capacity building cost less<br />Commission capping<br />Lapsation rate is high<br />NBFCs associate for long term<br />Companies prefer not to renew <br />Showing premium in books<br />Single Life & General insurer<br />Bias towards partner-agent model <br />
  41. 41. Trends Derived from MI Regulation<br />All companies have MI product (24 MI products)<br />Composite insurance absent in formal platform<br />Companies wait for better opportunity (regulatory risk)<br />Negotiation cost do not suffice benefit (wariness)<br />NBFCs not forthcoming to become MIA<br />Just in target approach by companies (Growth stagnant) <br />Apprehension of IRDA for brokering in MI space<br />Greater responsibility for MIA<br />Community health insurance increasing (benign neglect)<br />Concentration in south India<br />
  42. 42. Recent trends in micro-insurance<br />MI through Bancassurance<br />Profit sharing & shared responsibility <br />Focus on savings linked products (micro-pension)<br />Service and technology focus<br />Competition parameter <br />Increasing awareness of BoP risks by actuaries <br />Re-negotiation of price <br />Spouse cover for diversifying risks<br />Community health insurers tie up with re-insurers <br />
  43. 43. Indian Examples: VimoSEWA<br />Composite product <br />Life and non-life<br />Individual policies<br />Health claim<br />In house claim assessment<br />Cash paid in emergency<br />Preventive health care<br />TAT of 9 days <br />High claim ratio in urban areas (172% in 2008)<br />Sells to other NGOs<br />
  44. 44. Indian examples: Yeshaswini<br />
  45. 45. Indian Examples: Micro-pension<br />UTI Micro-pension<br />Rs.50 p.m as premium<br />Savings upto 55 years, payout from 58 years<br />Account convertible to annuities (SWP for UTI) <br />Invested in 60% debt+40% equity instruments<br />AamAdmiVimaYojna(GoI initiative)<br />Horizon problem + long term tracking of clients<br />Cost for intermediary not met<br />Match with transaction pattern <br />No guarantee of return<br />Demand of insurance cannot be met (COMPFED)<br />
  46. 46. Indian examples: Max Vijay <br />Investment in government securities<br />60% of 1st year premium<br />90% of subsequent premiums<br />Investment once credited, will not reduce<br />Premium from Rs.1,000-Rs. 2,500<br />Subsequent premiums Rs.10<br />No deadline of renewal , No lapsation <br />Death benefit <br />5 X/10X annual pr.+ account value (normal)<br />Term :10 years <br />Partial withdrawal after 3 years <br />Retailer channel exploited <br />
  47. 47. Donor Activities in Micro-insurance<br />
  48. 48. How MicroSavecan move ahead?<br />Technical Assistance<br />ILO’s MI Innovation facility’s TA provider scheme<br />Become an institutional TA provider (in ILO roster)<br />MFIs/insurance companies get innovation/TA grant<br />MFIs/companies contactMicroSave<br />In India only VimoSEWA and MIA are players registered<br />Research grants<br />Get our MFI network involved <br />Workshop / training <br />Further assistance for interested partners <br />What Else??<br />
  49. 49. Thank You<br />

×