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UNIVERSITY OF MUMBAI
PROJECT ON
A STUDY ON MICRO INSURANCE
BACHELOR OF COMMERCE
BANKING & INSURANCE
SEMESTER-VI
ACADEMIC YEAR 2018-2019
IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF DEGREE OF
BACHELOR OF COMMERCE
BANKING & INSURANCE
SUBMITTED BY
VISHWAKARMA PAWAN RAMASHANKAR
ROLL NO. 1882354

GUIDED BY
MRS. BARKHA SHAMNANI
VPM’S R.Z.SHAH COLLEGE OF
ARTS, SCIENCE AND COMMERCE
MITHAGHAR ROAD, MULUND (E), MUMBAI 400081.
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DECLARATION
I the undersigned MR. VISHWAKARMA PAWAN RAMASHANKAR
here by, declare that the work embodied in this project work titled
“MICRO INSURANCE”, from my own contribution to the search work
carried out under the guidance of MRS. BARKHA SHAMNANI is a
result of my own work and has not been previously submitted to any other
university for any other Degree/Diploma to this or any other university.
Whenever reference has been made to previous works of others, it has
been clearly indicates as a such and included in the bibliography.
I, here by further declared that all information of this document has been
obtained and presented in accordance with academic rules and ethical
conduct.

Name:
Signature:

Certified by
Name and signature of the Guiding Teacher
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ACKNOWLEDGMENT

I want to thank the following people for making this project a success.
They Mean a lot to me and have bought this project into existence.
Principal DR. M.S.RAJE for allowing me to frame my talent by allowing
me to present my project in front of you.
PROF. OM P. DEWANI our course co-ordinator for providing me
constant help and support while preparing this project.
My project guide MRS. BARKHA SHAMNANI who has given shape to
this project by giving the required guidance to prepare the project as per
the requirement of university.
I would not like to forget parents who have played a vital role behind
the scenes so that the project would be worth presenting in front of
you.
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INDEX

S.NO NAME PAGE NO

1.0 INTRODUCTION 3

1.1 WHAT IS MICRO INSURANCE 6

1.2 OBJECTIVES 7

1.3 SCOPE 8

1.4 FEATURE OF MICRO INSURANCE 9

1.5 HISTORY 10

2.0 TYPES OF MICRO INSURANCE 13

3.0 THE IMPORTANCE OF MICRO INSURANCE 17

3.1 MAJOR PLAYERS IN MICRO INSURANCE 20

4.0 THE TERMINOLOGY 22

5.0 PRICING AND IMPACTS OF MICRO 35

INSURANCE

6.0 INDIANVIEW OF MICRO INSURANCE 46

7.0 GLOBAL VIEW OF MICRO INSURANCE 58

8.0 RESEARCH METHODOLOGY 61

9.0 CONCLUSION 72
5

MICRO
INSURANCE
6

MICRO INSURANCE

1.0 INTRODUCTION:
Micro-insurance is the protection of low income
households against specific perils in exchange for
premium payments proportionate to the likelihood and
cost of the risk involved. It is specifically designed for
the protection of low income people with affordable
insurance products to help them cope with and recover from common risk. A key
strategy for enhancing economic development and alleviating poverty is to make
financial systems more inclusive, for example by improving access to savings and
credit services for up and under-served markets. In part, Poverty stems from the fact
that low-income households and markets do not have the same opportunities to
finance investments accumulate capital or protect assets (including human assets).
India is enjoying rapid growth and benefits from a young population.
Its middle class is growing rapidly but 70 percent of the population is still rural,
often very poor, and handicapped by poor health and health services, and low
literacy rates. Although the type of risks faced by the poor such as that of death,
illness, injury and accident, are no different from those faced by others, they are
more vulnerable to such risks because of their economic circumstance. According
to World Bank study reports that about one-fourth of hospitalized Indians fall
below the poverty line as a result of their stay in hospitals. The same study reports
that more than 40 percent of hospitalized patients take loans or sell assets to pay
for hospitalization.
7

When a poor’s family’s income generator dies, when a child of a poor family
is hospitalized, or home of a poor family is destroys by flood, earthquake or fire.
Every illness every accident or every natural disaster leads to deeper poverty to a
poor family. That’s where micro insurance comes in.
Historically in India, a few micro-insurance schemes were initiated, either by
nongovernmental organizations (NGO) due to the felt need in the communities in
which these organizations were involved or by the trust hospitals. These schemes
have now gathered momentum partly due to the development of micro-finance
activity, and partly due to the regulation that makes it mandatory for all formal
insurance companies to extend their activities to rural and well-identified social
sector in the country (IRDA 2017).
The poorest segments do not always benefit from the subsidy, while people
who can afford insurance often find ways to access these benefits. In general,
governments have made little effort to shift the burden of risk-pooling to market-led
schemes; and the private sector (commercial insurers) seems to have little incentive
to seek out this market segment. In principle, micro-insurance works like any typical
insurance business. But there are several things that differentiate it from normal
insurance. First, it is group insurance that can cover thousands of customers under
one contract. Second, micro-insurance requires an intermediary between the
customer and the insurance company. Preferably, this intermediary is a non-
governmental organization (NGO) or microfinance institution, for example a rural
bank that can handle the whole distribution and most of the administration process.
As a result, increasingly, micro-finance institutions (MFIs) and NGOs are
negotiating with the for-profit insurers for the purchase of customized group or
standardized individual insurance schemes for the low-income people. Although the
reach of such schemes is still very limited, anywhere between 5 and 10 million
individuals.
8

The UNDP report has analysed six key issues pertinent to the growth of the
micro-insurance industry in India, capturing the concerns of different stakeholders
as indicated below:
 There are challenges in product design, which has resulted in a mismatch
between needs and standard products on offer. Efforts at product
development / diversification have been limited.
 Contrasting perspectives of the insured and the insurers, lead to low
customization of products and low demand for what is available.
 Difficulty in distribution is one of the most cited reasons for absence of rural
insurance. The high costs of penetrating rural markets, combined with
underutilization of available distribution channels, hinder the growth of rural
insurance services. This adds to costs, both, managerial and financial. Like
Inclusive credit, inclusive insurance is expected to be a “low ticket” business,
requiring volumes for viability.
 Pricing, including willingness to pay and the availability of subsidies,
influence the market. In the absence of a historical data base on claims,
premium calculations are based on remote macro aggregates and
overcautious margins. Building and sharing claims histories can help in
aligning pricing decisions with actuarial calculations, thereby reducing prices.
 There are specific reasons for low demand for insurance in spite of intense
need. Suppliers have their own concerns which help to explain why there
have been so little efforts at market development. Consequently, the rural
market is characterized by limited and inappropriate services, inadequate
information and capacity gaps.
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1.1 What is micro insurance?

Definition: Micro insurance is the protection of low -income people against specific
perils in exchange for regular premium payments proportionate to the likelihood and
cost of the risk involved. Low-income people can use micro insurance, where it is
available, as one of several tools (specifically designed for this market in terms of
premiums, terms, coverage, and delivery) to manage their risks.

In India, it is often assumed that a micro insurance policy is simply a low -premium
insurance policy. This is not so. There are a number of other important factors. Low-
income clients often:
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1.2 OBJECTIVES

 To find out benefits of insurance products the customer.


 To study the distribution models for micro-insurance.
 To study the diversity of micro-insurance.
 To study the benefits and challenges faced by micro insurance.
 To analysis the current scenario of micro insurance in india.
 To know awareness about Micro-Insurance.
 To recognize the Potential Market for Micro-Insurance in India to identify the
Key Characteristics of Micro Insurance.
 To explain the various difficulties of insurers to produce, market and
distribute different micro insurance products.
 To find out level of satisfaction among customer.
 To provide guidance to members.
 To find out benefits of insurance products the customer.
 To find the awareness of micro insurance among rural group of people.
 To find the preference of various products in Micro insurance of clients.
 To study the issues and challenges in micro-insurance.
 To study about the project in detail and majors applied in the current
scenario.
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1.3 Scope

A micro-insurance agent shall be appointed by an insurer by a deed of agreement or


memorandum of understanding which should clearly specify the terms and
conditions, duties and responsibilities of both the micro-insurance agent and the
insurer, and he shall abide by the following:

 To study higher disposal income of insurer.


 To study the scheme & benefit of micro insurance.
 He shall work either for one life insurer or for one general insurer or for one
life insurer and one general insurer.
 Collection of self-declaration from the member that he is in good health.
 Distribution of policy documents.
 To Study increase awareness among the society about micro-insurance.
 To study investment with the help of micro insurance.
 To study increasing rate of micro insurance in society.
 Collection of proposal forms.
 Collection of monies for issuance of contract or remittance of premium.
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1.4 FEATURES:

Micro insurance refers to the dealing of company with individual customer, both the
liabilities and the asset side of the balance sheet. The important products offered by
micro insurance are fixed, current/ savings account on liabilities side; and personal
insurance, household. Today’s micro insurance sector is characterised by the
following features:
1. Micro insurance industry is diverse and competitive. There are a large
number of micro insurance products that are extremely customer-friendly and
are offered by many banks.

2. Micro insurance is based on the maxim “do not keep all the eggs in one micro
insurance industry is diverse and competitive. There are a large
number of micro insurance products that are extremely customer-friendly and
are offered by much company.

3. It provides an opportunity to diversify their asset portfolio. Since loans are


given to a large number of consumers and transactions have very low value,
the risk is reduced because all the consumers do not make default in making
loan repayment at a time.

4. Micro insurance business is an attractive market segment with opportunities


for growth and profits.

5. The micro insurance portfolio includes deposits and assets linked products as
well as other financial services provided to individuals for personal
consumption.

6. Micro insurance aims at doing business in large volume of transactions


involving low value.
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1.5 History:
The insurance industry in India, private and public, has its roots in the 19th century.
The British Government set up state-run social protection schemes for its colonial
officials, many of which evolved into the schemes that operate to this day. The first
private insurance company was the Oriental Life Insurance Company, which started
in Calcutta in 1818. The 1 9th century saw the development of a number of Indian
insurance companies including the Bombay Mutual (1871), Oriental (1874) and the
Empire of India (1897). Under British rule there were large numbers of insurance
companies operating in India. In 1938 the British passed the Insurance Act, a
comprehensive piece of legislation governing the insurance industry. The Act
remains the legislative cornerstone of the insurance industry to this day.
Regulated Indian insurers are divided into two core categories: life and general
insurance. Life insurance includes products like endowment policies and retirement
annuities. General insurance covers all other types of insurance. In 1956 the Indian
Government nationalized the life insurance industry. The reasons given at the time
were high levels of fraud in the industry

And a desire to spread insurance more widely. As Prime Minister Nehru noted at
one time in Parliament, “We require life insurance to spread rapidly all over the
country and to bring a measure of security y to our people.” The Government
combined 154 insurance providers and

Formed the Life Insurance Corporation of India. General insurance remained in


private hands until 1973 when it was nationalized.

The impact of nationalization was to create a small number of state-owned


insurance companies. Just prior to nationalization, 68 Indian (including the Life
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Insurance Corporation, LIC) and 45 non-Indian entities sold insurance. All these
organizations were absorbed into one giant corporation, the General Insured nce
Corporation (GIC) with its four subsidiaries: Oriental Insurance Company Limited,
New India Assurance Company Limited, National Insurance Company Limited, and
United India Insurance Company Limited.

When the ideological winds of change blew in the early 1990s, the Indian
Government set about liberalizing its insurance markets. It set up a commission of
enquiry under the chairmanship of R.N. Malhotra. The central outcome of the
commission was the establishment of the Insurance Regulatory and Development
Authority (IRDA) that in turn laid the framework for the entry of private (including
foreign) insurance companies.

The Micro Insurance Agency has its roots within Opportunity International, a
large microfinance network motivated by Jesus Christ’s call to serve the poor. With
a network of 47 microfinance institutions, Opportunity International has been
serving the entrepreneurial poor since 1971. In partnership with Opportunity’s
microfinance institutions, we began working in 2002 on the development of a range
of life, property, livestock, crop derivative, disability, unemployment and health
insurance products to cover the risks faced by Opportunity’s 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 –“pre-condition” 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-
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conditions, including. This transformed the mind-set of retail insurance providers in


the country, who later developed similar non-exclusive products in light of the
competing environment.

In 2017, 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.
Our mission is to empower the materially poor to transform their lives by
insuring them against financial risk and its consequences. Specifically, we seek to
serve the economically active poor who live on $4 per day or less in developing
countries and provide a safety net to reduce economic setbacks.
As in much of the developing world, India has a large number of informal quasi-
insurance Schemes: for example, households that pool rice. In addition to this, there
are small schemes run by cooperatives, churches and NGOs that may pool their
members’ incomes to create an

In spite of Nehru’s desires in the decades following nationalization, insurance


products were designed primarily for those with regular incomes, i.e., those in
formal employment. These were overwhelmingly men in urban areas. The poor,
living mostly by agriculture, were for the most part overlooked by these new
companies.
Insurance fund against a specific peril: for example, funeral costs. In a few countries,
there is specific legislation to regulate these schemes, e.g., the South African
Friendly Societies Act. In India no such law exists, and any individual or institution
conducting insurance has to comply with the stipulations of, among other
regulations, the 1938 Indian Insurance Act as amended.
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2.0 TYPES OF MICRO INSURANCE

Life
Insurance

Crop Property
Insurance Insurance

Micro Disability
Reinsurance
Insurance
Insurance

Unemploy-
Health
ment
Insurance
Insurance
Disaster
insurance

1. Life insurance:

Life insurance pays benefits to designated beneficiaries upon the death of the
insured. There are three broad types of life insurance coverage: term, whole-life, and
endowment. Term life insurance policies provide a set amount of insurance coverage
over a specified period of time, such as one, five, ten, or twenty years. This insurance
is appropriate when the policyholder's need for coverage is temporary. Compared
with other life insurance policies this is not very complicated for the provider to
offer. This is the most widely used life insurance policy in low-income communities
in developing countries.
Whole life insurance is a cash-value policy that provides lifetime protection.
This is hardly offered in low-income markets in the developing countries
Endowment life insurance pays the face value of insurance if the policyholder dies
within a specified period. It thus has a longer time horizon that the term life
insurance. This is also not offered widely in developing countries.
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2. Property Insurance
Property insurance provides coverage against loss or damage of assets.
Providing such insurance is difficult because of the need to verify the extent of
damage and determine whether loss has actually occurred. It is difficult for most
MFIs to guard against such moral hazard. A few, however, do provide such
coverage. SEWA in India, for example, provides insurance against damage to home
and productive assets. Graeme Bank in Bangladesh offers its clients insurance
against the death of livestock and COLUMNA in Guatemala provides insurance
against fire damage.

3. 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.

4. 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
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medicine. Some insurance providers also make available primary health care
services such as immunization and contraceptives.
5. Disaster insurance:
Disaster insurance is through a reinsurance arrangement that broadens the risk
pool across countries and regions, and protects insurers against catastrophic losses.

6. Unemployment Insurance
Unemployment insurance is typically offered by the public sector. Private
insurance companies are usually not involved in it. This insurance provides cash
relief to individuals who become unemployed involuntarily and who meet certain
government requirements. It also helps unemployed workers find jobs.
Unemployment insurance attempts to stabilize the economy by enabling people to
maintain their purchasing power.

7. 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
19

FINCA International, Uganda which has entered a partnership with American


International Group (AIG) to provide its clients life and disability insurance.
8. 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 only one or two crops, and in some cases /
unanticipated catastrophic natural calamities.
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3.0 THE IMPORTANCE OF MICRO INSURANCE

The term “insurance”, in common parlance is the protection of the economic value
of an asset. The key term here is protection, but the questions is, for how long the
economic value of an asset is to be protected? There would hardly be any debate to
this question, since it is a natural instinct of every human being to protect the
financial loss the near and dear ones might have to undergo due to any unfortunate
or unforeseen event. This protection, or compensation of financial loss, can be done
through life insurance.

To be precise, life insurance should be purchased keeping in view the long-


term perspective. Buying a life insurance policy or inducing someone to buy life
insurance for a shorter period of time defeats the very purpose of life insurance,
which, as the name suggests, is a long-term objective. However, what constitutes
short-term and long-term?

The IRDA (Non-Linked Insurance Products) Regulations, 2013, and IRDA


(Linked Insurance Products) Regulations, 2013, clearly stipulate that the minimum
term of such a policy should be for five years for individual product.
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So, does a five-year policy term fulfill the long-term objective of a life insurance?
Prudence dictates that the answer would perhaps not be in the affirmative.
One may, however, question whether it would be convenient for older persons to
go for life insurance for a five-year term—say, those between the 55-60 years age
bracket? Then again, for this age group, are life insurance products more suitable or
do pension products make more sense? Moreover, has proper pitching been done to
customers before selling a product?

In January 2017, the IRDA constituted a committee to make recommendations


on the amendments to be carried out on the regulations of 2013 pertaining to Non-
Linked and Linked Insurance Products. Accordingly, the committee submitted its
detailed report, dated December 7, 2017, with a review of the regulatory provisions
and its recommendations. Surprisingly, the committee has recommended that the
minimum coverage term restriction of five years should be removed for life insurers
to match different customer needs and emerging channels. This implies that insurers
can design life insurance products for a term less than five years once the new
regulations are framed. However, will this not defeat the long-term objective of life
insurance?

Offering life insurance products with lower policy term may help customers
having low and unsteady income. However, this group of customers primarily
consists of the informal sector workers, for which micro insurance appears to be a
better fit. According to the International Labor Organization, micro insurance is a
mechanism to protect the poor people against multiple risks (accident, illness, death
in the family, natural disasters, etc) in exchange for insurance premium payments
tailored to their needs, income and the level of risk. Micro insurance is aimed
primarily at the developing world’s low-income workers, especially those in the
informal economy who tend to be under-reserved by the mainstream commercial
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and social insurance schemes. In fact, the report on “Unorganized Sector Statistics”
by the National Statistical Commission (2012) states that, in India, more than 90%
of the workforce and about 50% of the national product are accounted for by the
informal economy. The report further adds that a high proportion of socially and
economically underprivileged sections of the society are concentrated in informal
economic activities, and that the high levels of growth of the Indian economy during
the past two decades are accompanied by increasing information.

This huge workforce in the informal sector remains untapped and, hence, the
importance of micro insurance is undeniable. The regulator may play a pivotal role
by regulating the minimum term of a life insurance policy taking into consideration
the long-term perspective. Further, the maximum age at entry may also be regulated,
which would be suitable for a customer to enter into a life insurance contract for the
overall benefit of the life insurance industry.
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3.1 Major Players in Micro Insurance

3.2 Micro Insurance


Products in India
There are 23 life
insurance companies
are present in India but
only 14 companies are
providing micro
insurance products this
clearly give an idea of
low attraction of majority of companies towards these products.
3.3 Development of Micro-insurance in India:
Historically in India, a few micro-insurance schemes were initiated, either by
nongovernmental organizations (NGO) due to the felt need in the communities in
which these organizations were involved or by the trust hospitals. These schemes
have now gathered momentum partly due to the development of micro-finance
activity, and partly due to the regulation that makes it mandatory for all formal
insurance companies to extend their activities to rural and well-identified social
sector in the country (IRDA 2000). As a result, increasingly, micro-finance
institutions (MFIs) and NGOs are negotiating with the for-profit insurers for the
purchase of customized group or standardized individual insurance schemes for the
low-income people.
Although the reach of such schemes is still very limited---anywhere between 5 and
10 million individuals---their potential is viewed to be considerable. The overall
market is estimated to reach Rs. 250 billion.
24

The insurance regulatory and development authority (IRDA) defines rural


sector as consisting of following:
I) a population of less than five thousand, (ii) a density of population of less than
four hundred per square kilometre, and (iii) more than twenty five per cent of the
male working population is engaged in agricultural pursuits.

The categories of workers falling under agricultural pursuits are: cultivators,


agricultural labourers, and workers in livestock, forestry, fishing, hunting and
plantations, orchards and allied activities. 4 The social sector as defined by the
insurance regulator consists of (I) unorganized sector (ii) informal sector (iii)
economically vulnerable or backward classes, and (iv) other categories of persons,
both in rural and urban areas.5 The social obligations are in terms of number of
individuals to be covered by both life and non-life insurers in certain identified
sections of the society.6 The rural obligations are in terms of certain minimum
percentage of total polices written by life insurance companies and, for general
insurance companies, these obligations are in terms of percentage of total gross
premium collected. Some aspects of these obligations are particularly noteworthy.
First, the social and rural obligations do not necessarily require (cross) subsidizing
insurance. Second, these obligations are to be fulfilled right from the first year of
commencement of operations by the new insurers. Third, there is no exit option
available to insurers who are not keen on servicing the rural and low-income
segment. Finally, non-fulfilment of these obligations can invite penalties from the
regulator.
25

4.0 THE TERMINOLOGY

The following terminologies were adopted for the study. Most of the definitions
were taken from Insurance Regulatory Development Authority (IRDA) as it is
the pioneering institution in the field of providing, regulating and controlling the
business of insurance in India.

MICRO INSURANCE:
“Protection from specific risks, payoff by regular premiums, specifically
designed for low-income individuals”, Churchill (2006)2. For this study micro
insurance is insurance with a premium of less than Rs.500 per annum with an
insured benefit of Rs.50, 000 or less, targeted at low-income households

MICRO FINANCE INSTITUTION:


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.

MICRO INSURANCE AGENT:


A micro-insurance agent may be a non-government organization (NGO);
or a self-help group (SHG); or a micro-finance institution (MFI), who is
appointed by an insurer to act as a micro insurance agent for distribution of
micro-insurance products (IRDA) Regulations.

MICRO INSURANCE POLICY:


An insurance policy, sold under a plan, which has been specifically
approved by the authority as a micro insurance product.
26

NON GOVERNMENT ORGANISATION (NGO):


Non-government Organization means a non-profit organization registered as
a society under any law, 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

SELF-HELP GROUP:
A group with an average size of about 15 people from a homogenous
class. They come together for addressing their common problems. They are
encouraged to make voluntary thrift on a regular basis. They use this pooled
resource to make small interest bearing loans to their members. The process
helps them imbibe the essentials of financial intermediation including
prioritisation of needs, setting terms and conditions and accounts keeping.

LIFE MICRO INSURANCE PRODUCT:


A term insurance contract with or without return of premium, and
endowment insurance contract or health insurance contract, with or without an
accident benefit rider, either on individual or group basis.
27

4.1 INSURANCE FOR RURAL AND SOCIAL SECTOR


One of the key features of insurance sector in India is insurers have to fulfil the
social and rural sector obligation on an annual basis as defined by the regulator.
The rural and social obligations as stipulated in the IRDA Regulations, 2002
lay down the
Requirements to be complied with by the insurers during the first five years of
their operations. In case of public sector insurers, these obligations have been
linked to their performance in the year 2001-02. However, with the amendments
notified in 2007-08, the obligation of the private insurers up to the tenth year of
operations has been laid down. Simultaneously, the obligations of the public
sector insurers were also revisited. The obligations of the private insurers are as
under:

Rural sector:

 Life insurer: commencing from seven per cent of the total policies write
 Direct in the first financial year to twenty per cent in the tenth financial
 Year.

 Non-life insurer: commencing from two per cent of total gross premium
 Income written direct in the first financial year to seven per cent from
the
 Ninth financial year onwards.

 Social sector: (all insurers commencing from five thousand lives in the
first financial year to fifty five thousand lives in the tenth financial year.
28

 Though rural and social sector obligations have helped to expand


outreach of micro insurance the poor are not adequately perceived as a
potential business op-opportunity.

Micro insurance in India:

Development of micro insurance sector in India is recent phenomenon. Micro-


insurance portfolio has made steady progress during last few years after IRDA
(Micro-insurance) Regulations 2005 that allow the insurers for composite
covers or package products. According to IRDA source, more life insurers have
commenced their micro-Insurance operations and many new products have
been launched during the year 2008-09. With expansion of distribution
infrastructure and new business has shown upward trend in micro insurance
sector but it is still much smaller than the desired level.

However, micro-insurance business in India largely constitutes group portfolio.


Under the individual policy category micro insurance though more policies are
underwritten
But total premium amount is low. Among the insurers the share of LIC was
substantial in micro insurance business. As regard to infrastructure and
manpower expansion there has been increase in the number of micro-insurance
agents. By at end of March 2009 it was 7250; of which 6647 were for the LIC
and the remaining represented the private sector companies. Fifteen life insurers
have so far launched 30 micro-insurance products. Of the 30 products, 16 are for
individuals and the remaining 14 are for groups.
29

4.2 Observations & Suggestion on Micro Insurance (Biswa)

BISWA believes that poor households are especially vulnerable to risk, in both
the form of natural calamities as well as more regular occurrences of illnesses
and accidents. Micro-Finance Institutions (MFIs) have played an active role in
reducing and protecting them against such situations by providing credit for
increasing income-earning opportunities; and by providing savings services to
build up resources that can be utilized in case of emergencies. As one of its
development interventions and as a social security measure, BISWA cover its
clients in three major micro-insurance schemes. To BISWA Micro Insurance
means the insurance which their SHG members can easily afford. It is the SHG
members particularly the BPL members suffered the most due to absence of
micro insurance. As a social security measure it has paid great dividend. Many
BISWA SHG members have been benefited from three different micro insurance
products as given below available to the group members along with group loan.

* Life insurance ( from LIC and TATA-AIG),

II. Health insurance (from ICICI-Lombard and Oriental Insurance


Company Ltd.), III. Assets insurance (from Oriental Insurance Company
Ltd.).
Name of the insurance products are Janashree Bima Yojana (life) of LIC,
Nabakalyan and Sampoorna Bima Yojana with TATA-AIG (life), Health
insurance from ICICI Lombard and Oriental Insurance Company and Asset
insurance from Oriental Insurance Company. The target clients are mainly SHG
members promoted by BISWA both loaned and non-loaned groups spread across
BISWA‘s operational area and about 40% of total members are already covered.
30

Health Insurance: BISWA in collaboration with Oriental Insurance


Company Limited has launched health insurance scheme in October 2007.
Premium is Rs.325/- per annum and coverage is Rs. 15,000/ for a maximum
of 4 persons (member & 3 specified nominees). Besides, there is provision of
Rs.300/- maximum per year as transportation allowance and a maximum of
Rs.800/- per year as subsistence allowance for the insured member in case of
hospitalization only. Since beginning, leaflets in Oriya have been
Prepared and widely circulated among the members for better awareness and
proper data collection.

Assets Insurance: It has become very common that poor people are badly
affected by natural calamities every year. Hence, it is very much important to
cover their assets under insurance in order to meet financial loss. Hence
BISWA is also covering them under its various asset insurance policies such
as Live Stock Insurance, Kishan Package Policy, and Janata Personal
Accident Policy.

Claim Settlement: As a micro insurance partner, BISWA has given priority


for the settlement of claims in all Insurance Schemes. In the case of death
claims, LIC has settled 149 claims and TATA AIG has settled 55 claims till
December 2009. In health insurance claims ICICI Lombard has settled 524
claims and Oriental Insurance settled 668 claims. In asset insurance Oriental
Insurance has settled 163 claims. Usually the insurance claims are processed
by BISWA and negotiated with the respective Insurance Companies for
settlement. As per the norms of the Insurance Companies, the claim amount
is either directly given to the client‘s nominee or upon receipt, BISWA hands
over the amount to the respective nominee.
31

Other Programmes on Micro Insurance: Under Janashree Bima Yojana


(JBY) of LIC 455 students are been awarded scholarship of Rs. 240500.

Bima Village: In another effort to provide Insurance to the poor at the


doorstep four villages have been declared as Bima Villages. Every household
of these villages has been covered with a Life Insurance Policy. The names of
the villages are: Matikhai, Kankudipali and Balaranga of Sambalpur District
and Rangamatia of Bargarh District. To make insurance popular campaign for
insurance products among poor are conducted on monthly basis in different
district offices of BISWA.

Loan for Insurance Premium: All members who avails a loan from BISWA
got insurance cover as applicable. At the time of loan disbursement the
premium amount of the selected Insurance for one year is usually collected
and deposited with BISWA for onward transfer to the respective Insurance
Companies. Any member unable to pay premium can avail credit for premium
with same terms and conditions as the group loan.

Training: BISWA staff are given training on the Insurance products which is
conducted by the concerned Insurance Companies and the trained staff in

4.3 Micro insurance, Household Risks and Coping Strategy in Study


Areas
For the poor and low income groups protecting their incomes and assets could be
more effective way out of poverty and vulnerability. In other words protecting
their economic and financial losses through affordable and effective risk
management is as important as to generate additional employment and income
and provision of social safety measures for these sections. Although pro-poor
income-employment generation schemes are wide spread across the country, less
32

attention has been given to protect incomes of the target groups in a systematic
way. In this context, micro insurance is believed to play an important role and
can be a part of broader poverty reduction and social security policy strategy.
Recently, it has drawn attention of policy makers, development practitioners,
donors, insurers and others to discuss and debate on status, efficacy and outreach
of micro insurance. While the timing of the debate is strategic there is not enough
study on micro insurance available at micro level, especially among different
groups and regions. The present study is a modest attempt to fulfil this gap.
Households with low assets and incomes can have disproportionately large and
multiple adverse impacts with occurrence of smaller risk event. While some
sections may overcome such negative impacts with better risk management tools,
many less prepared households fail to do so. The situation can be worse for some
specific groups such as asset-poor, low-income groups and women due to their
low capacity to manage risks. This is possible, particularly, in absence of
adequate formal insurance cover. However, use of formal insurance and
institutionalization of household risk management, is abysmally low among these
groups due to several factors. One of the key factors is the nature of credit access
and occupation/enterprises of household.

Though access to financial services - credit, saving and insurance and its effects
on their risk coping behaviour have been debated in development literature it vary
widely across groups and regions. Part of this debate has focused on the potential
role of financial services in helping the affected groups to manage common risks
and prepare. Micro insurance is an important component of financial services
mainly available to the low income groups under different supply channels
involved in microcredit. In this chapter we have analysed participation of some
select women microcredit clients in micro insurance and discussed other related
issues to understand the outreach and efficacy of micro insurance. In this regard,
the relationship between household‘s major activity, differential access to
33

financial services and their risks and risk coping behaviour are highlighted. To
begin with, sample households are categorized into some broad groups on the
basis of their major occupations, most of which are financed by microcredit
programme. The categorization was made keeping in mind distortions in
household income and employment due to their uninsured risks and their likely
risk coping strategy for income and consumption smothering. It will also depict
a broad idea about their risk, needs for insurance and other financial services.
Analysis is made at the level of seven groups, three regions (three study areas)
and total sample.

Households encounter different types of risks with different severity impact. At


household level, risks mitigation can take place at two different stages. The first
stage refers to ex-ante arrangements for exposure to risk which aims to maintain
income flows or income and expenditure smoothening in case there is income
shortfalls. Measures for lowering the ex-ante risks generally consist of
conservative production decisions and diversifying household activities
(traditional farming, mixed cropping, non-farm activity, multiple occupations,
increasing working members and hours). These arrangements by the households
to cope with risks lead however, mostly to losses in the profitability of the
respective economic activities.

LIABILITY INSURANCE

Types of liability insurance you need to consider:

Public Liability

Public liability insurance protects you and your business against the financial risk of
being found liable to a third party for death or injury, loss or damage of property or
‘pure economic’ loss resulting from your negligence.
34

Professional Indemnity

Professional indemnity insurance protects you from legal action taken for losses
incurred as a result of your advice. It provides indemnity cover if your client suffers
a loss - material, financial or physical - directly attributed to negligent acts.

Product Liability

If you sell, supply or deliver goods, even in the form of repair or service, you may
need cover against claims of goods causing injury or damage. Product liability
insurance covers damager’s injury caused to another business or person by the
failure of your product or the product you are selling.

The second stage refers to ex-post mechanism of dealing with the loss or damage.
It consists of borrowing, receiving remittance, adjustment in major consumption
and other expenditure (on education, health, and food, festival), diversifying
household resources (putting women and child on work, and increasing working
hours) and other measures.

These risk coping mechanisms can have wide and lasting adverse socio-economic
impact on poor and low-income households. Adequate and effective financial and
insurance arrangements such as saving, insurance and borrowing could be
important options to deal with such situation and damages. But formal insurance
products and process are hardly known too many poor people. Insurance is an ex-
ante risk management tool through which household hedge potential financial
losses in exchange for fixed premium payments. As access to and use of financial
services including insurance is low and irregular among low income groups,
35

Their self-insurance arrangements determine their risk managing capability. In


this situation, the nature and quantum of social security measures do matter in
managing risks and augmenting capability of the households to cope with adverse
events. In the context of limited coverage of social safety measures and absence
of household access to adequate formal insurance, role of micro insurance could
be encouraging.

Risks can be classified as idiosyncratic and covariant risks. At household level,


there are two types of risks we focus in this study that affect household income
and expenditure smoothening. One, risks related to life and life cycle events such
as death, disability and illness. Two, risks related to livelihoods such as loss of
crop, livestock, fisheries etc. Rosenzweig and Binswanger (1993) investigated
the effects of risk on the allocation of production resources among farmers,
differentiated by wealth. Using the panel data set from the ICRISAT villages in
India and its information on investment, wealth and rainfall, they examined how
the composition of productive and non-productive asset holdings varies across
farmers with different levels of total wealth and across farmers facing different
degrees of weather risk. The results show that farmers in riskier environments
select portfolios of assets that are less sensitive to rainfall variation and less
profitable. Vulnerable households are more likely to diversify their plots. In
agriculture dominated economy like India, poorer households tend to choose less
risky production strategies and the tendency to shift to a less risky portfolio is
greater among.
36

4.4 HOUSEHOLD FEATURES

Household features such as family size, literacy, working members, type of


house, asset holding, occupation and other socio-economic characteristics are
crucial in determining household need for finance. It is believed that there is
strong relationship between household composition, family size and asset
holding pattern and demand for different financial products. For example,
households having bigger family may be less likely to opt for formal insurance.
More educated and better-off people may go for insurance as they can afford and
are able to understand the concept and principle of insurance and its technical
procedures.
On the other hand, lower level of education associated with less productive jobs
and lower income can reduce possibility of having market based insurance.
Ownership of productive assets, land, consumer durables and house can induce
demand for insurance and other financial products. In sum, better asset-endowed
households have positive effect on taking up more and more financial products.
Since most of the sample households do not possess land, their non-land asset
holding may act as an important determinant for household participation in
insurance products. Above analysis on major household features provides a
background for better understanding of household risk and risk coping strategy,
including participation in insurance market, in the study area. As discussed in
the literature review, it is expected that households which are more exposed to
risks are more likely to opt for insurance products. It is also expected that
household risks has a positive effect on use of financial products such as credit
and saving. Uninsured households may seek loans or use their saving to maintain
consumption smoothing during post risk period. However, households may also
employ variety of indigenous non-market ‘methods to cope with risk,
particularly, where credit and insurance markets are not complemented. Keeping
in mind the diverse nature of household risks and characteristics of household
37

activity or enterprise we discuss different household risks and risk management


strategies across activity groups in the study areas in the perspective of micro
insurance. In particular, we study household‘s participation in microcredit
programme that facilitate and expose to insurance product and subsequent
household decision making. We look at this question at ex-ante perspective,
particularly when household decides to Households are already covered under
some insurance scheme through their access to microcredit (MFI), it is expected
that household may demand for more insurance cover and variety of products,
especially with increase in their income. Though the literature on demand for
insurance focuses on the income effect, the theoretical analysis reveals that the
effect of income on demand for insurance depends on the absolute risk aversion
(Gravelled and Rees 2004). However, there are several other factors related to
the availability, awareness, access, product design, claims settlement records,
premium and product delivery which determine the demand for insurance and
which vary across groups and regions.

4.5 PERFORMANCE OF INSURANCE SECTOR IN INDIA DURING POST-


REFORM PERIOD
Performance of Indian insurance sector has been not satisfactory in comparison
to other countries in the world. It continued to lag behind the overall
performance of the economy. India accounts for less than two percent of the
world‘s insurance market (1.34) while it accommodates more than 16 percent
of total world population and sizeable portion of total world poor. Though India
ranked second, after China among emerging markets, insurance is viewed as a
tax saving instrument and risk cover in life insurance is almost incidental in the
country. Some unit-linked instruments are becoming popular but pure risk
insurance product has taken a back seat (IRDA 2009).
38

Major challenges for insurance industry in India are low insurance intake,
low renewal, and lack of awareness and delivery channels, particularly for
lower segments and in rural areas. During last few years reduced demand
particularly in non-life segment, low interest rates and the need for
additional capital by many insurance companies accentuated the
performance of the sector.

As recent global economic downturn has affected the performance of insurance


sector worldwide, it is also reflected in terms of two important insurance
performance indicators such as insurance penetration and insurance density.
Insurance penetration measures the level of insurance activity relative to the size of
the economy. As GDP per capita rises, it is expected that individuals will purchase
more insurance. The latest Swiss Re report reveals that insurance penetration in India
was 4.6 per cent in 2008 with 4.0 per cent in life business and 0.6 per cent in non-
life business

5.0 PRICING AND IMPACTS OF MICRO INSURANCE


As discussed in earlier sections, the current demand and supply gap in low
segment insurance market is a result of several factors.

 Though micro insurance is believed to be a low cost product for low-


income groups, its premium and impact can influence household
insurance uptake and renewal. An attempt has been made to discuss on
the views of the respondents on pricing and impact of current insurance
products.
39

 To pay insurance premium a dependable income flow is essential.


Though it is often related to household borrowing and saving activities
some missing links were also found in the study locations.

 Though households having micro insurance product was new and not
completely voluntary in the study areas very few of them got the benefits
or used it. Many of them were not much aware of the existing insurance
products and its utility as they automatically get subscribed to it once
availed credit from the MFI.

 This perhaps has not supported the overall performance of micro


insurance. It is also reflected in terms of the wider gap between needs,
demand and supply of insurance product in study areas.

 Those who understood it had their own perspective about the product.
In sum, both supply and demand side bottlenecks found more active than
pricing of insurance product. Of course, respondents had different views
regarding premium of these products but it was found less important
than the insurance cover, product design and claim settlements which
directly link with the efficacy of such products, from insured point of
view.
40

 Demand for micro-insurance on the demand side too, the ILO has
recently prepared an inventory of micro-insurance schemes operational
in India. Based on this list some of the observations are made below

• The inventory lists 51 schemes that are operational in India.


• Most schemes are still very young, having started their operations
during the last few years. Of the 39 schemes for which this
information is available, around 24 schemes came up during the
last 4 years, and about 7 schemes have operated for more than a
decade.
• As regards the beneficiaries, the 43 schemes for which the
information is available cover 5.2 million people.
• Most insurance schemes (66%) are linked with micro finance
services provided by specialized institutions (17 schemes) or non-
specialized organizations (17 schemes). Twenty two percent of the
schemes are implemented by community based organizations, and
12% by health care providers.
• Life and health are the two most popular risks for which insurance
is demanded: 59% of schemes provide life insurance and 57% of
them provide health insurance.8 In SEWA’s9 experience health
insurance tops the list of risks for which the poor need insurance.
• Twenty-five out of 37 schemes received some external funds to
initiate their schemes. Twenty out of 32 schemes received external
technical assistance in the form of advisory services, technical
services, training or even referral services for their schemes.
• In the majority of the schemes special staff had been recruited to
manage the insurance activities. The other schemes kept relying
41

on their regular staff while recognizing them the additional


responsibilities linked to the management of the scheme.

5.1 MICRO FINANCE AND MICRO INSURANCE

Micro insurance has linkages to microfinance. The linkages prospects


safeguarding the poor from negative shocks and their consequences. In India,
since insurers are obliged to cover the rural and social sector, they (insurers) are
increasingly interested in partnership with the microfinance institutions. Links
between MFIs and MI provides extent to institutional and regulatory issues,
issues of

Financial and economic sustainability and potential for social inclusion and
exclusion embodied in MF/MI design.

Since insurers in India are required to sell a certain percentage of their policies
in the rural areas, the demand for co - operating MFIs was too strong and there
were too few reliable MFIs to work with.
42

Demand for weather insurance perhaps

The most significant innovation in India is the introduction of weather insurance


by ICICI Lombard in collaboration with BASIX, a Hyderabad -based MFI. This
is also known as index-based insurance, in this case using rainfall levels as a
claims trigger. Because clients cannot affect rainfall levels there is no moral
hazard problem. There could be fraud problems, however, if clients can affect
the reported levels of rainfall. Claims are processed as soon as the rainfall levels
are known, and clients do not need to send in claims forms. HDFC-Chubb is now
also experimenting with weather insurance. Although this is an interesting
innovation, and worthy of further investigation, national roll -out of weather
based insurance would not be immediately possible because only part of India
has reliable weather stations.

1. Demand for life and disability insurance


Life insurance is the most obvious choice for micro insurance. The consequences
of dead they are always significant for poor households so there is a constant
demand. The exclusion of suicide reduces moral hazard problems. By selling to
groups that are involved in some activity adverse selection can be reduced.
Mortality rates are often easier to obtain than, for example, rates of different
types of illnesses. A death certificate or identification of corpse makes claims
verification easy. With a one-time payout the system is relatively easy to
administrate. For this reason, the vast majority of all micro insurance products,
in India and worldwide, are life products. Because poor people are frequently
involved in hazardous jobs, there is a significant demand in India for disability
insurance.
43

5.2 DELIVERY MODELS OF MICRO INSURANCE

COMMUNITY
BASE MODEL

Micro
PARTNER Insurance POLICYHOLDE
AGENT MODEL R MODEL
Models

FULL SERVICE
MODEL

FULL - SERVICE MODEL


In this model, an NGO or other organization operates the insurance scheme and
fully absorbs risks, profit, and losses arising from the same (Sinha and Suitor,
2010)30. The micro insurance scheme is in charge of everything: both the design
and delivery of products to the clients and working with external healthcare
providers to provide services to the clients. This model is the most demanding
in an organization in terms of capacity, expertise, and investment required to
make it work, which entails the financial risk for the organization at its maximum
and are wholly responsible for all insurance related costs and losses.
PARTNER - AGENT MODEL
In “partner - agent” or “linked” model, an NGO or MFI act as the intermediary
between the end population and an insurance company. It is supreme that agents
caught up in insurance schemes have very close contact with the poor. The
advantages are that it eliminates agent risk and allows the institutions involved
44

in focusing on their particular strengths and the insurers utilize MFIs delivery
mechanism to provide sales and basic services to clients (Anne and Mallika.
SERVICE - PROVIDER MODEL
In service provider model, microfinance institutions or commercial banks
directly market their micro insurance products to their clients. The model needs
a well-established distribution network and are mostly used in the case of general
insurance. The disadvantage of this model is high transaction costs as it targets
low-
Income groups, which is a low margin market because of the geographical
spread of the client population.

GROUP POLICYHOLDER MODEL


Under this model MFI purchases a group life insurance policy from a local
insurer, markets them and sell them individually. As a group policyholder, MFI
is not responsible for any sales or product servicing activities; it simply pays
premiums and forwards applications for claims to insurer just as any
policyholder would do.

COMMUNITY - BASED MODEL (MUTUAL INSURANCE)

As per this model, the community members are the sole owners and managers
of the insurance. It is not-for-profit model and is characterized by its
participatory processes and the role of social cohesion. The policyholders or
clients are in charge of managing and owning the operations, and working with
external healthcare providers to offer services.
45

5.3 DISTRIBUTION CHANNELS


How can micro insurance products be sold and serviced cheaply? It is a low-
value, high-volume 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 pre-cuts 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 adman tag 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 Pros the system works better than in -house because the
synergies are maximized, enabling
46

 Both organizations to focus on their core business and expertise;


with a single partnership agreement it is possible to sell micro
insurance 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;

5.4 COMMON FEATURES OF MICRO INSURANCE PRODUCTS


Micro insurance product features are distinct from the general insurance
products with respect to the following points:

PRODUCT SIMPLICITY

A simple product with less coverage is easier to describe and has less
circumstances to explain to staff and clients than a more complex product. If the
client understands the product easily, then they are more probable to be pleased.
The micro insurance regulations specify that contracts for products demarcated
as micro insurance have to be issued in vernacular language that is simple and
easily understood by policyholders, separate certificates have to be provided to
each member in case of a group policy and the same may be distributed through
micro insurance agents, these agents can perform additional functions like
collection of forms, remittances of premium, distribution of policy documents,
47

assistance in the settlement of claims, and other policy administration services,


which warrant the products to be simple and easy for the clients.

CORRECT DISTRIBUTION MECHANISM

The distribution mechanism should reduce transaction costs to a level that permit
sale of very low cost insurance to the individuals. The margin involved in selling
a micro insurance policy is very low. Hence MFIs have proved to be an
important link in the provision of insurance to the poor as they group together a
large number of the poor people and have an existing infrastructure that can be
leverage.

PRICING
The pricing of the product should be done in a way to meet the required premium
by the insurer and the administrative expenses also should be affordable by the
target group. A range of products are available for the low income segment
ranging from comparatively expensive health insurance to low-priced group-
based credit/life/asset insurance. The regulation has set limits for micro
insurance products, which cannot increase more than Rs.50,000 and the policy
term not exceeding 15 years for non-life and for life, the term is annual.
48

PRICING

YOUR
RESERVING ACTUARY REINSURANCE

PRODUCT
DESIGN

5.5 ADVANTAGES OF LIFE MICRO INSURANCE

Life micro insurance is a key element in the economic services package for
people at the bottom of the social pyramid. Life micro insurance offers
pioneering ways to combat poverty by helping the rural poor systematically
manage financial risks to their livelihoods and lives. The poor face more risks
than the well-off, but they are more vulnerable to the same risk. Without suitable
insurance services, a vast majority of the poor turns to moneylenders or
temporarily migrates for work. The overall size of the Indian micro insurance
market is restricted by general lack of awareness about the benefits of insurance
amongst the low income segments of population. Without access to life micro
insurance, many poor people are trapped in the vicious cycle of poverty, wherein
shocks and debt thwart them to raise on the steps of economic affluence states
in his study that bundled product delivers a more comprehensive risk protection
package with reduced expenses since marginal costs of additional benefits are
minimum in this case.
49

5.6 STATUS OF LIFE MICRO INSURANCE IN INDIA

When the Life Insurance Corporation was formed on September 1, 1956 the then
Union Finance Minister CD Deshmukh gave a call to take life insurance to every
nook and corner of the country. However when the insurance industry was
denationalised in 1999-2000 after 44 years and opened to the private sector, the
Insurance Regulatory and Development authority was formed. The situation of
reaching every nook and corner was a far cry and it was one of the reasons for
the government to take this crucial decision. IRDA after overseeing the life
insurance sector for five years issued Micro insurance Regulations – 2005 since
that was the only option to compel the life and non-life insurers to turn towards
the downtrodden and the lowly or in the words of the management Guru C K
Prahlad – “The People at the Bottom of the Pyramid”.

There are 60 million poor households and another 60 million rural households
in India. A majority of them are not covered by any sort of protection. The
market is so large but still no insurer has plans to reach them although a few of
them have some products to cater this population. Even if 50 per cent of these
people are insured with a premium of Rs.500 per head, the potential is Rs.125
billion as a premium income.

IRDA permitted for the first time composite products in the sense that one life
insurer and one non – life insurer can join hands and bring out a plan with life
coverage and health cover. The Central Government as well as the state
government are also eager to do something in this regard. Many NGOs, MFOs
and SHGs are ready to join in bandwagon but still little progress has been made
in the right direction.
50

6.0 INDIANVIEW

In India development of micro insurance sector and related policy


discussions has started few years back. Within very short period, the sector has
drawn attention of policy makers due to its importance both at household level
and the economy as a whole. Two major and recent studies by the ILO. Depict
broad picture of micro insurance sector in India. As regard to the micro
insurance products the study highlights that out of 80 listed insurance products
45 cover only a single risk and only two or three products cover multiple risks.
Majority of the insurance products cover life (52%) or accident-related risks
and addressed to individuals. Out of the 12 currently available health insurance
products seven products have been designed and restricted to groups and five
products have chosen to coverage to some critical illness at individual level but
not the reimbursement of hospitalization expenses. Most of the products require
a single payment of premium (i.e., a one-time payment) upon subscription.
Private insurers had three times more products than their public counterparts.
Some important observations about the demand for micro insurance in India are
made in a recent study by ILO. The study provides details of micro-insurance
schemes operational in India. Out of 51 schemes that are operational in India
most schemes have started operations during the last few years. As regards to
beneficiaries, about 43 schemes, for which the information is available, cover
5.2 million people. About 66% of the micro insurance schemes are linked with
micro finance services provided by specialized institutions (17 schemes) or
non-specialized organizations (17 schemes). Twenty two percent of the
schemes are implemented by community based organizations, and 12% by
health care providers.
51

Life and health are the two most popular risks for which insurance is demanded.
Twenty-five out of 37 schemes received some external funds to initiate their
schemes. Twenty out of 32 schemes received external technical assistance in
the form of advisory services, technical services, training or even referral
services for their schemes. As regard, to the regional distribution of micro
insurance outreach about 74 % of total schemes operate in 4 southern states
constituting Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%) and
Kerala (8%). Two western states Maharashtra (12%) and Gujarat (6%) account
for 18% of the schemes. About 56% of schemes deal with one single risk. This
shows low outreach and unequal distribution of micro insurance in the country.
The study also reflects the linkage between micro-insurance and micro-finance.

Development of micro insurance is often related to microcredit, particularly in


developing countries like India. Though microcredit has dominated in
microfinance market the entry of micro insurance is only in recent past. In India
micro insurance is a relatively new financial service and its outreach is rather
limited and unevenly distributed across states. The overall performance of
micro insurance in India is not very encouraging. According to a recent study
by UNDP, the outreach of micro insurance is around 5 million people covering
only 2 percent of the poor in the country. It shows there is huge potential for
micro insurance market in the country. A conservative estimation of size of
micro insurance market (both life and non-life) in India
Historically, a few micro-insurance schemes were initiated in India, either by
non-governmental organizations (NGO) or by the charitable trust hospitals. It
gathered momentum partly due to the development of micro-finance activity,
and partly due to the regulation that makes it mandatory for all formal insurance
companies to extend their activities to rural and well-identified social sector in
the country (IRDA 2000).
52

One recent study by UNDP, GTZ and Allianz AG finds that India has the most
dynamic micro insurance sector in the world. Liberalization of the economy and
the insurance sector has created new opportunities for insurance to reach the
vast majority of the poor, including those working in informal sector. However,
the insurance market penetration is largely driven by supply and not by demand.
Available micro insurance products tend to be supply driven or compulsory in
nature and more recently, driven by the quota system imposed on insurers under
rural and social sector obligations (UNDP, 2007). Micro insurance in India has
valuable lessons for rest of the world, particularly in the regulation of the
industry. The study suggests some key determinants of micro insurance
development in India which is different from commonly assumed that a micro
insurance policy is simply a low-premium insurance policy. Some of the key
factors that hinder growth of micro insurance are remote location of clients,
illiteracy and unfamiliar with the insurance products, illness due to poor food
consumption pattern, work conditions and lack of regular medical check-ups
and lack of access to formal financial services. Higher transaction costs on the
part of policyholders in terms of premium deposit, claim settlement and other
matters is often considered as major factor preventing growth of micro
insurance in the country.

In a pioneering study by UNDP, pro-poor insurance sector growth in


India was discussed with some key issues and constraints, pertinent to the
growth of the micro insurance sector.

 There are specific reasons for low demand for insurance in spite of
intense need. Suppliers have their own concerns, which help to explain
why there has been slow development in micro insurance market. The
rural financial markets characterized by limited and inappropriate
53

services, inadequate information and capacity gaps also hinder growth


of rural insurance market.

 There are challenges in insurance product design, which result in a mismatch


between client‘s needs and standard products on offer. Inadequate effort in
product development could be due to different perspective of stakeholders.

 Absence of adequate and suitable insurance data is a major concern. In


the absence of a suitable insurance database calculation of premium,
costs, benefits, willingness to pay, based on macro aggregates may not
give actual insights. Building and sharing claims histories can help in
aligning pricing decisions with actuarial calculations, thereby reducing
price.

 Difficulty in distribution is one of the most cited reasons for absence of


rural insurance. The high costs of penetrating rural markets, combined
with underutilization of available distribution channels, hinder the
growth of rural insurance services.

 Cumbersome and inappropriate procedures inhibit the development of this


sector. Contrasting perspectives of the insured and the insurers, lead to low
customization of products and low demand for what is available
6.1 Micro insurance & Social Security

Social protection measure is often related with micro insurance for the poor
and low income groups. Micro insurance can play a crucial role as a
comprehensive tool to reduce poverty, inequality and vulnerability,
54

particularly where public social protection measures are inadequate and


unevenly distributed. Unfortunately, more than half of the world‘s total poor
do not benefit from any form of social protection measures. Since micro
insurance is designed for the protection of low-income people to cope with
common risks, it can also strive to cover the excluded such as poor, women
and workers in informal sector. In many developing countries like India, the
proportion of informal workforce in total workforce is substantial and there
is increasing tendency towards casual nature of labour. Under this situation,
it becomes daunting task on the part of the government to provide social
security to all. About 90 percent of the working population of India is
employed in the informal sector and about thirty percent of the unorganized
workers are very poor who needs public social security supports. Although
current social protection measures consist of health, disability, death, old age
and economic risks are prioritized, its funding and implementation remain
challenging. In India social protection being a concurrent subject, it has its
own political economy. So in the absence of a dependable social protection,
the importance of micro insurance becomes interminable.
With inherent limitations of the existing social protection measures in the
country, there is also a high demand to combat the adverse impacts of natural
disasters such as drought, floods, cyclone etc. Unfortunately, the ex-post coping
mechanisms primarily supported by the Government are not sufficient and do
not cover all groups in all sectors. Though India has exhibited with series of
pro-poor anti-poverty measures oriented towards reduction of risks and
vulnerability, micro insurance can contribute indirectly as it often exclude
covariant risks from their portfolio.

Employment Guarantee Scheme (NREGS), Astray Swarthy Bema Yolanda


(RSBY), Astray Health Mission (RHM), Aim Adam Bema Yojana (AABY),
India Awas Yojana (IAY), Public Distribution (PDS), old age allowances,
55

drought relief etc. which have facilitated the improvement of income levels of
poor households. The public-package of ―Doubling Flow of Agricultural
Credit‖ has also enabled greater institutional credit flow for agriculture and
allied activities. However, all these policy interventions, though ambitious in
stated intent, only incidentally address household risks. The most vulnerable
rural population, particularly women, older people and rural people are mostly
excluded from the insurance market. It implies the need of this segment of
population for protection of their lives / income-generating assets against
various perils. At present, Personal Accident Insurance Scheme (PAIS) which
is being provided as a bundled offering along with the Kisan Credit Card (KCC)
Scheme and the Rashtriya Krishi Bima Yojana (RKBY) for insuring crops are,
probably, the only borrowed-linked risk mitigation mechanisms available to
rural households. Similarly, the progress in enrolment of the poor in the
Rashtriya Swarthy Bima Yojana (RSBY) in its third year of operation does not
seem to meet the target to cover all poor.

Under this situation, prospect of micro insurance is expected to be much wider


and challenging, especially with huge network of financial infrastructure in the
country. For instance, many commercial banks have partnered foreign
insurance companies for providing life insurance policies. Thus, banking
outlets (which number close to 70,000) and more than 1 lakh cooperative
societies could provide the needed outreach to purvey micro-insurance facilities
without much addition to transaction costs. Unfortunately, the desired outreach
and efficacy of micro insurance sector in India has not been achieved.

In this section, we have summarized findings and major issues of some


important studies and reports on micro insurance in general and in India in
particular with focus on Household risks and risk managing strategy outreach
of micro insurance products, major policy regulation and constraints. It helps
56

us to develop a framework for analysis of the present study which is presented


in subsequent chapters. Available literature evaluating the impact of insurance
in low-income countries is limited. There is also unbalance between different
types of insurance products. Overall, the emphasis is concentrated on different
health insurance schemes, and their impact on health care-utilization, out-of-
pockets expenditure or social inclusion. Very few studies evaluate the impact
of insurance on household income, nutrition, or other dimensions of welfare
than those directly related to the insurance. Study on other insurance products
are also limited and hindered by the lack of systematic baseline data on
individual beneficiaries and groups.

Cohen and Sestet highlighted the need to carefully study of clients


‘insurance needs before introducing a new product, where market research
can include studying (I) clients ‘needs, (ii) specific products, or (iii) the size
of the potential market. Analysing insurance demand from Uganda, Malawi,
Philippines, Vietnam, Indonesia, Lao P.D.R., Georgia, Ukraine and Bolivia
they found that the most prevalent risks relate to health and loss of wage
earners. In a recent study by Ito and Kono on health micro insurance in
Karnataka, India found that take-up rates of micro insurance have been low
despite its perceived need and the enthusiasm of microfinance practitioners.
They found some evidence that people behave in a risk-loving way when
facing the risk of losses.
However, despite these patterns, households ‘priorities regarding demand
for insuring risks are nevertheless context specific. More research is
essential to understand and identify the means for increasing insurance take-
up rates and decreasing dropout rates. A general understanding about
attributes of micro insurance products from a client perspective is
awareness, easy to understand, simple, affordable, and valuable and trust.
57

These factors are determinants of uptake and therefore, determine the impact
of micro insurance at household level.
LOW INCOME LOW RISK

MICRO
MIDDEL INCOME INSURANCE MIDDEL RISK
UNIT

HIGH RISK
HIGH INCOME

6.2 THE OPPORTUNITIES AND CHALLENGES OF MICRO


INSURANCE

Micro insurance is a term increasingly used to refer to insurance characterized


by low premium and low caps or low coverage limits, sold as part of typical
risk-pooling and marketing arrangements, and designed to service low-income
people and businesses not served by typical social or commercial insurance
schemes.

As a relatively new field, few studies evaluating the impact of micro insurance
projects exist. Of these, even fewer have a rigorous methodology leading to
reliable results. Our research aimed to:

- examine the viability of micro insurance as a mechanism of risk transfer and


tool for risk management in developing countries;
58

- provide a state of the art analysis of micro insurance for a better understanding
of currently operational micro insurance schemes;

- reflect on the opportunities and challenges of micro insurance in developing


countries, highlighting both the potential benefits and limitations of micro
insurance as an instrument for transferring risk;

- consider the interests and perspectives of different stakeholders and the


incentives and disincentives for participating and investing in a micro-insurance
scheme;

- enhance dialogue and collaboration on this topic between and within the
commercial insurance sector and the disaster risk reduction communities;

- Assess the opportunity of introducing micro insurance in Romania.

Reflecting on the opportunities and challenges of introducing micro insurance


in Romania, there is absolutely necessary to understand both the supply side
(current insurance market) and the demand side (risks faced by low-income
persons and the coping strategies used to manage these risks). The majority of
the primary research was conducted on-site in Romania, in Oradea and its
environs, during the month of December. Qualitative research techniques were
utilized, including focus group discussions (FGD) and guided individual
interviews with members of both the public and private sector, as well as with
international non-governmental organizations, such as the World Bank, and
IMF.
59

6.3 Insurance Sector in India and Outreach of Micro insurance

Insurance sector in India started in the nineteenth century and it progressed


in the early twentieth century with incorporation of National Insurance
Company Ltd. in 1906 and New India Assurance Company Ltd. in 1919.
Later other insurance players joined the industry. The formal insurance
industry started in 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta. General insurance business (non-life) came into
existence in 1850 with the commencement of the Triton Insurance
Company. The first Insurance Act was formulated in the pre-independence
period in 1938. After merging of 240 private insurance companies, the first
public sector insurance company called Life Insurance Corporation of India
(LIC) was set up in 1956. Non-life insurance companies were nationalized
in 1972 and were taken over by General Insurance Corporation (GIC) and
its four subsidiaries - United India Insurance Company Limited, Oriental
Insurance Company Limited, National Insurance Company Limited and
New India Assurance Company Limited.

The insurance sector has undergone some notable changes during last
few decades with more policy emphasis on growth and efficiency. The broad
objective of these policy changes is to achieve inclusive financial
development by enhancing risk managing capability of people with rural and
pro-poor focus.

A special committee (The Malhotra Committee) was appointed in 1993 to


look into the insurance industry to make recommendations for the expansion
of this sector. The recommendations of The Malhotra committee were
focused on efficiency and growth of insurance sector. One of the most
60

important outcomes of the committee recommendations was the Insurance


Regulatory and Development Authority (IRDA) legislation passed in 1999
and the Insurance Regulatory and Development Authority was established
in 2000. Since then continuous efforts have been made to bring about
changes in policy regulations and promotion of insurance sector. The IRDA
has enacted 27 regulations on a number of issues such as registration of
insurers, regulation of
Agents, solvency margins, re-insurance, obligation of insurers to rural and
social sectors, investment and accounting procedures, and protection of
client interests till

In 2003, Govt. of India constituted a Consultative Group on Micro-Insurance to


examine existing insurance schemes for rural and urban poor with specific
reference to outreach, pricing, products, servicing and promotion. It also
attempted to examine existing regulations with a view to promoting micro-
licensing, monitoring and review.
One of the key issues featured in the consultative group report was that micro-
insurance is not as viable as a standalone insurance product and it has not
penetrated rural markets. Traditional insurers have not made much headway in
bringing micro-insurance products to the poor in rural as well as urban areas.
However, the committee viewed that the partnership between insurer and
organisation like NGO would be desirable to promote micro-insurance by
drawing on their mutual strengths. It re-emphasized on the design of micro-
insurance products that must have the features of simplicity, availability,
affordability, accessibility and flexibility. Unfortunately, overall insurance
industry in India has been dismal despite the fact that the country has a large
population base and insurable risks (UNDP, 2007). While it shows an enormous
potential for growth of insurance sector, much is not known about lower
segment insurance market across regions and groups.
61

7.0 GLOBALVIEW:

The Micro Insurance Agency has its roots within Opportunity International, a large
microfinance network motivated by Jesus Christ’s call to serve the poor. With a
network of 47 microfinance institutions, Opportunity International has been serving
the entrepreneurial poor since 1971. In partnership with Opportunity’s microfinance
institutions, we began working in 2002 on the development of a range of life,
property, livestock, crop derivative, disability, unemployment and health insurance
products to cover the risks faced by Opportunity’s 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 “pre-condition” 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, through the experience of serving Opportunity’s microfinance
institutions and their clients, Micro Insurance Agency staff observed that the
products most demanded by the poor are not always the ones available.

It is estimated that only eighty million out of the world's 2.5 billion poor are
now covered by some form of micro insurance. Most remain without access to this
critical financial service. In India and China, where organizations are estimated to
serve nearly 30 million micro insurance clients each, the percentage of poor lives
insured hovers below 3%. In Africa this figure is much lower – just 0.3% of the
continent’s poor are insured. According to recent data, in 23 of the poorest 100
countries in the world, there is currently no identified micro insurance activity,
representing an unnerved population of 370 million.
62

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 single lump sum preclude a huge sector of the market from access. 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. Our mission is to empower the materially poor to transform their
lives by insuring them against financial risk and its consequences. Specifically, we
seek to serve the economically active poor who live on $4 per day or less in
developing countries and provide a safety net to reduce economic setbacks

The origin of micro insurance is similar to that of micro-credit. According to


Churchill, micro insurance has existed since at least the 1800s, when mutual
protection schemes co-insured the poor workers. In several countries micro-
insurance schemes were already a part of the process of designing and
implementing increasingly more consistent and incorporated social protection
systems. In Senegal micro insurance schemes were mentioned in the national
social protection strategy as

Key mechanism. In Rwanda and Ghana, the state implemented nation-wide


social protection schemes on health that are built on direct and community based
mutual organizations. In Bangladesh, Grameen bank had established a separate
wing called Grameen Kalyan (village welfare) which implemented micro
insurance schemes through women groups in the villages. Micro insurance
Centre had estimated that around 135 million of the low-income people in
developing countries have used micro insurance products. The insurance
penetration level in some of the Asian countries is presented.
63

Health insurance is common in many developing countries, but it is generally offered


by community based organizations. Formal social security systems do not touch
workers in the system. In developing countries, only 5 to 10% benefit from any kind
of social protection. The informal sector is not covered at all. Therefore, there are
grassroots organizations are organized to respond to the needs of the community.
Generally there is no regulation of these community-based organizations, but health
ministries in most countries are supportive and cooperate with institutions and
agencies who wish to promote such initiatives.

ILO conducted some studies at the end on innovative Micro-insurance products.


Various examples were identified, and there is considerable scope for follow-up.
About 30 examples of community based insurance schemes were identified, but
subsidy factor has not been addressed.

Towards the disadvantaged, low-income population especially in rural areas.


64

8.0 RESEARCH MERTHODOLOGY

“A Study on Micro insurance with special reference to LIFE INSURANCE


CORPORATION OF INDIA (LIC)”

STATEMENT OF THE PROBLEM


As there are immense opportunities of the micro insurance in India. This Dissertation
is on the issues and challenges in the micro insurance because of the competition of
the various banks and the customer satisfaction of the services which the banks are
providing and at the same time to solve the complaints of the customer and
maintaining the sound relationship for the future and by this way to estimate the
future growth of the micro insurance.

OBJECTIVES
 To study the issues and challenges in micro insurance.
 To study the recent trends in micro insurance.
 To ensure high satisfaction level and reduce percentage of complaints of
customers in micro insurance.
 To estimate the future growth of Indian micro insurance.
 To understand Optimization of micro insurance channels.
 To suggest strategies for improvement in Customer Service.

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DATA COLLECTION

Data was collected from two sources-primary and secondary sources.

1. Primary data collection- The primary data was collected by means of survey.
It was collected from different customers through questionnaire. And by
visited in LIC office of thane.
2. Secondary data collection-This data was collected from Internet, Company’s
websites & Magazines.
SAMPLE SIZE
Sample size was restricted to 50 respondents, since it was not possible to cover
the whole universe in the available time period.

SAMPLING METHOD

For this research Non- Probability Convenience Sampling has been used because
time limit for the completion of the work is limited and also managers and employees
were not available all the time.
3. Area of Study- THANE
4. Duration- 2 months

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66

8.1 DATA ANALYSIS AND INTERPRETATION


Majority of the respondent was belongs to 64% male and 36% Female

Gender

36%
Male
Female
64%

Majority of the respondent was belongs to age group of 25-35 years say 41. Only 18
respondents are more than age 45

Age Group
50
41
40
30
22
19 18
20
10
0
Below 25 25-35 35-45 More Than 45

Respondant

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67

Majority of the respondents were educated till S.S.C. Higher secondary and the
percentage of graduation and post-graduation is about to 30%, 21%, 7%

Education

45 42
40
35
30
30
25
21
20
15
10 7
5
0
Up To S.S.C H.S.C Graduate Post Graduate

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68

39% of the respondent got the information about insurance from Watching TV, 31%
got from Newspaper, and 17% respondents got it from the company agent least from
Banners & Hoardings, friends, relatives and other from 13%.

Sources of Information

13

39
17
Television

Newspaper

31
Company Agent

Other

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69

55% respondents are not aware about the micro insurance and 45% respondent

Awarness of Micro Insurance

45%
Yes
No

55%

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70

47% of respondents are ready to invest monthly more than 5000 Rs. for investment
in insurance, 37 % of respondents wants to pay 3000 to 5000 Rs for premium,
premium amount between 1000-3000 is chosen by only 9 respondents.

Premium Of Respondant

50 47
45
40
35
35
30
25
20
15 12
10 6
5
0
Less than 1000 1000-2000 2000-3000 More than 3000

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71

Only 17% respondents have the micro insurance policy and others do not hold policy

Holder Of Policy
90
83
80

70

60

50

40

30

20 17

10

0
Yes No

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72

Major respondent have choose micro-insurance policy for death benefit say 35%,
19% have for retirement benefit and 21% for their children’s future

Respondent's View

16

35
7

19

21

Death Benefit Children’s Future Retirement Planning Tax Planning other

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73

Maximum respondents have the ULIP policy and 27% have included both type of
policy. They also hold separate Unit Linked and Traditional also

Type of Policy

27

53

20

Only Unit Linked Only Traditional Both

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74

Most of the respondent has to pay Premium amount 59% is semi-annually. 23%
respondents have pay by annually

Payment Method

23
9

59

Annual Semi annually Quartely Monthly

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75

Major respondent have investing their amount in order like Bank deposit (46%),
Insurance (25%) and in the mutual Fund Investment (9%).

Investment View

9
17

Mutual Fund
Insurance
25
Post Office
Bank Deposit
Other

46

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76

While purchasing the policy majority respondent have expected for the higher
return, it is 42%, second factor affected is its premium amount

Factor affecting while taking policy

8
23
11

16

42

Premium Return Safety Liquidity Market Condition

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77

78% respondent having satisfied with its current micro-insurance policy and rest are
not much satisfied

No. of Respondents are Satisfy


90

80 78

70

60

50

40

30
22
20

10

0
Yes No

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78

Major respondent have think that its beneficial (40.4%), and (5.5%) of people think
that its not beneficial

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79

Major respondent have think that it trustable and non trustable (59.6%), and (8.3%)
of people think that its not trustable

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80

Recommendation & Suggestion


The micro insurance frame work in India needs a deeper reach so that it can help the
most needed people, following suggestion can make the regulation more effective.
Leveraging Existing Network for Micro-Insurance
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 micro insurance 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 partner-agent model for delivery where the insurer underwrites
The risk and the distribution are 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
micro-insurance.

8.2 Linking Micro-credit with Micro-insurance


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 micro-insurance 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.
Linking micro-insurance with micro-finance makes good business sense. Further, as
it helps in bringing down the inherent risk cost of lending, the Committee feels that
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81

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.

IRDA’s Regulations on Micro-Insurance


Building on the recommendations of the consultative group, IRDA notified Micro-
Insurance Regulations on 10th November 2005 with the following key features to
promote and regulate micro-insurance products. The regulations focus on the
direction, design and delivery of the products:

a. A tie-up between life and non-life insurance players for integration of


product to address risks to the individual, his family, his assets and
habitat,
b. Monitoring product design through “file and use”,
c. Breakthrough in distribution channels with inclusion of NGOs, SHGs, MFIs
and PACS to provide micro-insurance, with appropriate compensation for
their services,
d. Enlarged servicing activities entrusted to micro-insurance agents,
e. Issue of policy documents in simple vernacular language.

Currently the IRDA regulations do not favour composite insurance (i.e., life and
non-life insurances by the same company) and also limit the agency tie-up to one
life and one non-life insurer. However, in recognition of the uniqueness of micro102
insurance, these regulations enable life and non-life companies to tie-up for offering
a combined policy in rural areas. Further, the IRDA has allowed insurers to issue
policies with a maximum cover of Rs. 50,000 for general and life insurance under

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82

these regulations. The regulations have also eased the norms for entry of agents
relating to training and pre-recruitment examination. As an attraction, remuneration
to agents has also been levelled across the term of the policy.

Some of the recommendations could be:

 Simplification of products and bundling where requires making them easy to


understand, easy to use, sill and service.
 Simplifying and making premium payment plans flexible to suit the needs.
 Focus on volumes by targeting large groups.
 Innovations are required at all stages for products, in pricing policy and in
delivery channels
 Success of marketing micro insurance depends on understanding the social
and cultural needs of the target population
 Integrating micro finance activities with micro insurance for a most beneficial
outcome.
 Claim settlement to be timely, simple and transparent.
 Maximizing the benefit of connectivity revolution in rural India to reach the
un-served markets.
 Using additional innovative distribution channels to achieve cost-efficiency
in agricultural markets.

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83

Field Visit:

The first place I was visited in life insurance corporation of India thane west
The first field visit was in early November 2018 for a week. Lasted for three
weeks during late November to December 2018. The objective was to gather
primary data and interaction with different stakeholders according to the
systematic methods presented above. For field data collection a team of
research investigators was selected and trained by the researcher prior to
household survey in the study areas.

9.0 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 low income people a question comes in mind

* Do poor people have any security?

* What if they face any risk?

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84

* 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.

Policy-induced and institutional innovations are promoting insurance among


the low-income people who form a sizable sector of the population and who are
mostly without any social security cover. Although the current reach of ‘micro-
insurance’ is limited, the early trend in this respect suggests that the insurance
companies, both public and private, operating with commercial considerations, can
insure a significant percentage of the poor. Serving low-income people who can pay
the premium certainly makes a sound commercial sense to insurance providers.

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85

QUESTIONNAIRES

 Name---------------------------------------------------------

 Which gender are you?


 male
 female

 Which age group are you in?


 18-25
 26-30
 31-45
 46 and above

 Are you aware of "micro insurance"?


 yes
 no

 If yes, how do you know?


 family or friends
 social circle
 internet

 What are your estimated expenses on medical (monthly)? >


 100
 200
 500
 1000
 2000
 other

 Do you think that micro health insurance is beneficial?


 yes
 no

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86

 Do you trust on micro insurance provider?


 yes
 no

 Number of family members (if married)?


 2
 3
 4
 5
 6
 more than 6

 Do you think that Insurance is a way to protect in hard times?


 yes
 no

 Do you think that insurance is necessary for an individual?


 Yes
 No

 Are you aware that many private life insurance companies are providing life
insurance coverage to the people apart from LIC of India?
 Yes
 No

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87

9.1 A} BIBLIOGRAPHY:

 Micro Insurance in India Social Finance.


 Micro Finance Concepts’, System, Etc.
 Insurance Principles and Practice.
 Fundamentals of Risks and Insurance.

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88

B} WEBLOGRAPHY:

o WWW.GOOGLE.CO.IN( micro insurance in India )


o WWW.SHODHGANGA.COM
o WWW.MICROINSURANCENETWORK.ORG
o WWW.SCHOLERGOOGLE.COM

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