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.
2
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
3
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.
4
INDEX
1.0 INTRODUCTION 3
1.2 OBJECTIVES 7
1.3 SCOPE 8
1.5 HISTORY 10
INSURANCE
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.
9
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:
10
1.2 OBJECTIVES
1.3 Scope
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.
5. The micro insurance portfolio includes deposits and assets linked products as
well as other financial services provided to individuals for personal
consumption.
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
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-
15
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.
17
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
18
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
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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.
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.
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?
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
22
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.
23
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
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.
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
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.
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.
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
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.
LIABILITY INSURANCE
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
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.
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.
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
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
COMMUNITY
BASE MODEL
Micro
PARTNER Insurance POLICYHOLDE
AGENT MODEL R MODEL
Models
FULL SERVICE
MODEL
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.
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
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
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
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
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
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
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.
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.
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
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
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.
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
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:
- provide a state of the art analysis of micro insurance for a better understanding
of currently operational micro insurance schemes;
- enhance dialogue and collaboration on this topic between and within the
commercial insurance sector and the disaster risk reduction communities;
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.
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.
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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
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
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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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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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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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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55% respondents are not aware about the micro insurance and 45% respondent
45%
Yes
No
55%
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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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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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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
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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
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Most of the respondent has to pay Premium amount 59% is semi-annually. 23%
respondents have pay by annually
Payment Method
23
9
59
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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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While purchasing the policy majority respondent have expected for the higher
return, it is 42%, second factor affected is its premium amount
8
23
11
16
42
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78% respondent having satisfied with its current micro-insurance policy and rest are
not much satisfied
80 78
70
60
50
40
30
22
20
10
0
Yes No
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Major respondent have think that its beneficial (40.4%), and (5.5%) of people think
that its not beneficial
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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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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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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.
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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
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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.
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QUESTIONNAIRES
Name---------------------------------------------------------
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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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9.1 A} BIBLIOGRAPHY:
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B} WEBLOGRAPHY:
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