MICRO-INSURANCE

OBJECTIVES
 To understand what Micro-Insurance is.
 To recognize the Potential Market for Micro-Insurance in India.
 To identify the Key Characteristics of Micro Insurance.
 To have a look at the micro-insurance products.

METHODOLOGY
Data has been collected for the following sources:
 Primary data
 Secondary data
All the data has been collected by doing library research,
magazines, articles, visiting bank’s official websites and various
other web pages.

SCOPE OF THE STUDY

 Meaning and concept of Micro-Insurance.
 Need for developing micro-insurance in India.
 Conducted unstructured interviews sample size of 30 general
people having income less than Rs. 350 per day.
 The area which was selected for the survey is bounded by
central suburbs of Maharashtra State.
 All the data generated for primary data that was generated
directly from face to face communication.

LIMITATIONS
 Data collection was very time consuming.
 Since it is a new concept, untouched and unaware, the
information was not easily available.
 All the primary information included in the project is
completely based on the data offered by the applicants
through survey analysis. There is no alternate source for
confirmation of this information and data.

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WHAT IS MICRO INSURANCE?

On a daily basis, the poor around the world face a multitude (huge
amount) of risks that threaten to derail any progress they have
made to work their way out of poverty. The death of a family
member, loss of property and livestock, illness, and natural
disasters each pose unique dangers. Protecting people against
these losses is an important step to alleviating global poverty.
Micro insurance - the protection of low-income people against
specific perils in exchange for regular monetary payments
(premiums) proportionate to the likelihood and cost of the risk
involved – seeks to provide a suitable solution for managing these
risks.
The institutions or set of institutions implementing micro-
insurance are commonly referred to as a micro insurance scheme.

DEFINITIONS

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Micro-insurance is insurance with low premiums and low caps /

coverage. In this definition, “micro” refers to the small financial
transaction that each insurance policy generates. The Micro-
insurance Regulations, issued in 2005 by the Indian Insurance
Regulatory and Development Authority (IRDA), for example,
adopted this definition in explaining “micro-insurance products” as
those within defined (low) minimum and maximum caps. The IRDA’s
characterization of micro-insurance by the product features is
further complemented by their definition for micro-insurance
agents, those appointed by and acting for an insurer, for distribution
of micro-insurance products (and only those products).

 Micro-insurance is a financial arrangement to protect low-

income people against specific perils in exchange for regular
premium payments proportionate to the likelihood and cost of
the risk involved. The author of this definition adds that micro-
insurance does not refer to: (i) the size of the risk-carrier
(some are small and even informal, others very large
companies); (ii) the scope of the risk (the risks themselves are
by no means “micro” to the households that experience
them); (iii) the delivery channel: it can be delivered through a
variety of different channels, including small community-
based schemes, credit unions or other types of microfinance
institutions, but also by enormous multinational insurance
companies, etc.

 Micro-insurance is synonymous to community-based financing

arrangements, including community health funds, mutual
health organizations, rural health insurance, revolving drugs
funds, and community involvement in user-fee management.
Most community financing schemes have evolved in the
context of severe economic constraints, political instability,
and lack of good governance. The common feature within all,

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is the active involvement of the community in revenue

collection, pooling, resource allocation and, frequently, service
provision.

 Micro-insurance is the use of insurance as an economic

instrument at the “micro” (i.e. smaller than national) level of
society. This definition integrates the above approaches into
one comprehensive conceptual framework. It was first
published in 1999, pre-dating the other three approaches, and
has been noted to be the first recorded use of the term
“micro-insurance”. Under this definition, decisions in micro-
insurance are made within each unit, (rather than far away, at
the level of governments, companies, NGOs that offer support
in operations, etc.).

INTRODUCTION

Micro-insurance, the term used to refer to insurance to the low-

income people, is different from insurance in general as it is a low
value product (involving modest premium and benefit package)
which requires different design and distribution strategies such as
premium based on community risk rating (as opposed to individual
risk rating), active involvement of an intermediate agency
representing the target community and so forth. Insurance is fast
emerging as an important strategy even for the low-income people
engaged in wide variety of income generation activities, and who
remain exposed to variety of risks mainly because of absence of
cost-effective risk hedging instruments.
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. In the context of health contingency, for

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example, a World Bank study (Peters et al. 2002), 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. Indeed, enhancing the ability of the poor to
deal with various risks is increasingly being considered integral to
any poverty reduction strategy (Holzmann and Jorgensen 2000,
Siegel et al. 2001).

Of the different risk management strategies, insurance that spreads

the loss of the (few) affected members among all the members who
join insurance scheme and also separates time of payment of
premium from time of claims, is particularly beneficial to the poor
who have limited ability to mitigate risk on account of imperfect
labour and credit markets.

In the past insurance as a prepaid risk managing instrument was

never considered as an option for the poor. The poor were
considered too poor to be able to afford insurance premiums. Often
they were considered uninsurable, given the wide variety of risks
they face. However, recent developments in India, as elsewhere,
have shown that not only can the poor make small periodic
contributions that can go towards insuring them against risks but
also that the risks they face (such as those of illness, accident and
injury, life, loss of property etc.) are eminently insurable as these
risks are mostly independent or idiosyncratic. Moreover, there are
cost-effective ways of extending insurance to them. Thus, insurance
is fast emerging as a prepaid financing option for the risks facing
the poor.

HISTORY & VISION

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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 HIV/AIDS –“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-conditions, including
HIV/AIDS. This transformed the mindset of retail insurance providers
in the country, who later developed similar non-exclusive products
in light of the competing environment.

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. Health insurance, for example, is a critical need of
the poor but the most limited in terms of supply. In addition, policies
that are available are often based on first world practices and are
too complex for the simple coverage demanded. Further, when
offered on an individual, one-off basis, high premium requirements
and a need to pay in a single lump sum preclude a huge sector of
the market from access. New distribution models and channels were

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needed to increase access and reduce the effective price charged to

clients.

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.

SCOPE AND FUNCTIONS

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:-

 He shall work either for one life insurer or for one general
insurer or for one life insurer and one general insurer;

 He shall be specifically authorized to perform one or more of

the following functions:--

 Maintaining a register of all members and their dependants

covered under the insurance scheme along with details of

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name, age, address, nominees and thumb impression/

signature;

 Collection of proposal forms;

 Collection of self declaration from the member that he is in

good health;

 Collection of monies for issuance of contract or remittance of

premium;

 distribution of policy documents;

 Assistance in the settlement of claims;

 Nomination; and

 Any policy administration service.

 The micro-insurance agent or the insurance company shall

have the option to terminate the agreement/ MOU after giving
a notice of three months.

 All such agreements/ MOU must have the prior approval of the
Head office of the insurance company.

TYPES OF MICROINSURANCE IN INDIA

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

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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.

Health Insurance
Health insurance provides coverage against illness and accidents
resulting in physical injuries. MFIs have realized that expenditures
related to health problems have been a significant cause of defaults
and people's inability to continue improving their economic
conditions. Several MFIs have therefore, either started their own
health insurance programs or have linked their clients to existing
programs. While actual coverage varies, many health insurance
providers cover for limited hospitalization benefits for certain
illnesses, and for costs of physician visits and medicine. Some
insurance providers also make available primary health care
services such as immunization and contraceptives.

Property Insurance
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

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moral hazard. A few, however, do provide such coverage. SEWA in

India, for example, provides insurance against damage to home and
productive assets. Grameen Bank in Bangladesh offers its clients
insurance against the death of livestock and COLUMNA in
Guatemala provides insurance against fire damage.

Disability Insurance
Disability insurance in most cases is tied to life insurance products.
It provides protection to the policy holder and her family, should she
or some of her family suffers from a disability. This is not very
widely offered by Micro insurance providers. FINCA, Uganda and
CARD in Philippines are examples of MFIs providing clients with
disability insurance.

Crop Insurance
Crop insurance typically provides policy holders protection in the
event their crops are destroyed by natural calamities such as floods
or droughts. The experience with crop insurance in developing
countries and even in the developed economies has had mixed
results.
To improve the ability of rural farmers to repay loans from
agricultural development banks (ADBs), many governments
developed crop insurance programs in the 1970s and 1980s. These
programs typically provided loan repayment and occasionally
income supplements to farmers suffering crop yields below an
established minimum. Similar programs were developed in countries
as diverse as Brazil, India, the Philippines and the USA. In each
country the results were disastrous, with expenses (administrative
and claims) far outstripping revenues. Reasons for the failure of
crop insurance have included: bad program design (such as failure
to bring into account the incentives faced by the policy holders),
covariant risks typical of rain-fed agriculture systems dependent on

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only one or two crops, and in some cases / unanticipated

catastrophic natural calamities.

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.

Reinsurance
Reinsurance is the shifting of part or all of the insurance originally
written by one insurer to another. This is a central feature of the
operations of all commercial insurers.
Reinsurance reduces an insurer's risk exposure and acts as an
effective source of financing and a valuable source of actuarial
expertise. Reinsurance can be used to stabilize profits, instead of
having large fluctuations in financial outcomes year to year. It
allows smaller insurers to share risk with other insurers in different
regions or countries, effectively developing sufficient large risk pools
by combining the risks of many insurers.
Despite its obvious benefits reinsurance is largely unavailable for
micro-insurers. Access to reinsurance can spur both the
development of new micro-insurers and the growth of existing ones.
An example of an MFI using reinsurance is that of FINCA
International, Uganda which has entered a partnership with
American International Group (AIG) to provide its clients life and
disability insurance.

MICRO-INSURANCE DELIVERY MODELS

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One of the greatest challenges for micro-insurance is the actual

delivery to clients. Methods and models for doing so vary depending
on the organization, institution, and provider involved. In general,
there are four main methods for offering micro-insurance the
partner-agent model, the provider-driven model, the full-service
model, and the community-based model. Each of these models has
their own advantages and disadvantages.

 Partner agent model: A partnership is formed between the

micro-insurance scheme and an agent (insurance company,
microfinance institution, donor, etc.), and in some cases a
third-party healthcare provider. The micro-insurance scheme
is responsible for the delivery and marketing of products to
the clients, while the agent retains all responsibility for design
and development. In this model, micro-insurance schemes
benefit from limited risk, but are also disadvantaged in their
limited control.
 Full service model: The micro-insurance scheme is in charge
of everything; both the design and delivery of products to the
clients, working with external healthcare providers to provide
the services. This model has the advantage of offering micro-
insurance schemes full control, yet the disadvantage of higher
risks.

 Provider-driven model: The healthcare provider is the

micro-insurance scheme, and similar to the full-service model,
is responsible for all operations, delivery, design, and service.
There is an advantage once more in the amount of control
retained, yet disadvantage in the limitations on products and
services.
 Community-based/mutual model: The policyholders or
clients are in charge, managing and owning the operations,

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and working with external healthcare providers to offer

services. This model is advantageous for its ability to design
and market products more easily and effectively, yet is
disadvantaged by its small size and scope of operations.

THE KEY CHARACTERISTICS

The IAIS-CGAP Joint Working Group on Micro Insurance document on

the -regulation and supervision of Micro Insurance identified the
following key characteristics of Micro Insurance:

 Inclusiveness: While formal channels of insurance business

tend to exclude low-income households, Micro Insurance
schemes generally tend to be inclusive.

 Group Coverage: Group insurance is more inclusive and cost

effective than individual coverage. Even though the informal
economy is frequently seen as disorganized, there are
groupings available, such as women's associations, informal
savings and credit groups, cooperatives, small business
associations and the like. These groups effectively by enlisting
their support in member selection and reduces insurance risks
such as fraud, over-usage and moral hazard.

 Simple Processes, Rules and Restrictions: Insurance

contracts are generally full of complex conditions and

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conditional benefits. Micro Insurance contracts have to be in

plain language (preferably local language) and kept as simple
as possible so that everyone has a clear understanding of
what is covered and what is excluded.

THE MICRO INSURANCE MECHANISM

Micro Insurance operates by connecting multiple small units with

larger structures and thereby creates networks which enhance both
insurance functions (through risk pooling) and support structures for
improved governance (i.e. training, data banks, research facilities,
access to reinsurance etc.). This insurance mechanism is
independent of permanent external financial support. The principal
objective of Micro Insurance is to pool both risks and resources of
whole groups for the purpose of providing financial protection to all
members against the financial consequences of mutually
determined risks. Historically, Micro Insurance products have
evolved out of community-based financing arrangements with
active involvement of the community in revenue collection, pooling,
resource allocation and, frequently, service provision.

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INTRODUCTION

Historically in India, a few micro-insurance schemes were initiated,

either by non-governmental 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 by 2008 (ILO 2004).

The insurance regulatory and development authority (IRDA) defines

rural sector as consisting of:
 a population of less than five thousand,
 a density of population of less than four hundred per square
kilometer
 More than 25% of the male working population is engaged in
agricultural pursuits. The categories of workers falling under
agricultural pursuits are: cultivators, agricultural laborers, and
workers in livestock, forestry, fishing, hunting and plantations,
orchards and allied activities.

The social sector as defined by the insurance regulator consists of:

 Unorganized sector
 informal sector

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 economically vulnerable or backward classes, and

 Other categories of persons, both in rural and urban areas.

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. 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-fulfillment of these obligations can invite penalties from the
regulator.

In order to fulfill these requirements all insurance companies have

designed products for the poorer sections and low-income
individuals. Both public and private insurance companies are
adopting similar strategies of developing collaborations with the
various civil societies associations. The presence of these
associations as a mediating agency, or what we call a nodal agency,
that represents, and acts on behalf of the target community is
essential in extending insurance cover to the poor. The nodal
agency helps the formal insurance providers overcome both
informational disadvantage and high transaction costs in providing
insurance to the low-income people. This way micro insurance
combines positive features of formal insurance (pre paid,
scientifically organized scheme) as well as those of informal
insurance (by using local information and resources that helps in
designing appropriate schemes delivered in a cost effective way). In

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the absence of a nodal agency, the low resource base of the poor,
coupled with high transaction costs (relative to the magnitude of
transactions) gives rise to the affordability issue. Lack of
affordability prevents their latent demand from expressing itself in
the market. Hence the nodal agencies that organize the poor,
impart training, and work for the welfare of the low-income people
play an important role both in generating both the demand for
insurance as well as the supply of cost-effective insurance.

POTENTIAL MARKET FOR MICRO-INSURANCE IN INDIA

: The UNDP Study

During 2005-06, the Human Development Report Unit of UNDP

conducted a study of the potential Micro Insurance market in India
on the basis of field surveys conducted in the States of Orissa, Tamil
Nadu and Rajasthan.
The UNDP report commented that the potential utility of Micro
Insurance may be even broader than that of micro-credit and may
be closer to the potential market for micro-savings, balanced by
affordability considerations in the early stages. Some 52.4 per cent
of India's population of 1.08 billion earns less than US $ 2 a day (in
terms of Purchasing Power Parity). Micro Insurance can play an
important role in protecting the income of these people.

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The UNDP report also tried to estimate the potential size of the
Micro Insurance market in India. The estimates corresponding to the
life and non-life segments are provided in Table 3. The population
used for the estimation is 40-50 percent of those earning less than
US$ 1 a day and 50-70 per cent of those earning between US$ 1 - 2
a day. The nonlife estimation included four types of coverage - milch
animals, livestock, health and crop insurance.

The Potential Market for Micro-Insurance in India

Insurance Segment Market Size (Potential)(Rs.

Millions)
Life Segment 15393-20141
Non-Life Segment 46911.70-64,126.55
TOTAL (Life and Non-Life) 62304.70-84,267.55

SOURCE: UNDP (2007). Building Capacity for the Poor Potential

and Prospect for Micro-Insurance in India. UNDP Regional Centre,
Colombo.

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BACKGROUND

Micro-insurance refers to protection of assets and lives against

insurable risks of target populations such as micro-entrepreneurs,
small farmers and the landless, women and low-income people
through formal, semiformal and informal institutions. Such products
are often bundled with micro-savings and micro-credit, thereby
allocating scarce resources to micro-investments with the highest
marginal rates of return. Micro insurance is the most
underdeveloped part of microfinance. Yet various schemes exist
that are viable, benefiting both the institutions and their clients.
Such schemes have generally served two major purposes: (i) they
have contributed to loan security; and (ii) they have served as
instruments of resource mobilization. The greatest challenge for
micro insurance lies in the combination of viability and sustainability
with outreach.
Although introduction of sound practices such as appropriate
policy sizes and timely payment of installments of premium or
positive incentives to renew on time in order to avoid policy getting
lapsed can be feasible, the ultimate effectiveness of interventions
focusing on institutional transformation and sound insurance
practices will vary considerably, depending on the appropriateness
of the regulatory environment.

DEVELOPMENT GOAL

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To enable micro insurance to be an integral part of a country's wider

insurance system, it is important for every insurer to adjust its costs
of serving marginal clients in remote areas, collecting premiums and
installments, and offering doorstep services. It is also important to
recognize a wide network of intermediaries in the rural and social
sectors and notify regulations in order to guide and supervise the
micro-insurance service providers and their customers.

Today we have a variety of microfinance institutions with national

and local outreach. Many of them have already become corporate
agents or have entered into referral arrangements with insurers.
However, semiformal institutions including savings and credit
cooperatives, NGOs and self-help groups which have immense
potential in carrying the message of insurance as also solicit
insurance business are yet to be utilized in a manner where their
true potential can be harnessed to increase the insurance
penetration levels. This is due to restrictions in the existing agency
regulations in terms of minimum eligibility norms in order to
become an agent.
Depending on the existence and vigor of such institutions, the
following alternatives have emerged, for offering strategic entry
points for micro insurance development:

 Adapting formal insurance arrangements to the needs of the

micro-economy.

 Upgrading non-formal (comprising semiformal and informal)

insurance arrangements with insurance companies.

 Linking formal and non formal insurance institutions with

banks and self-help groups.

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 Establishing new local institutions providing micro insurance

services.

The first three strategies may be inter-connected:

 adapting insurance companies to the requirements of the

micro-economy is a first step; then
 Linking them as wholesale institutions to self-help groups as
retailers; and finally,
 Upgrading self-help groups e.g. to the level of financial
cooperatives or village banks.

If insurers are to serve customers who differ widely in terms of

service costs and risks, the only viable inducement for them is an
adequate margin, lest they exclude small farmers, - micro-
entrepreneurs and people in remote areas. Only sound social
insurance, which combines a social mandate with profit-making, has
a chance of sustainability.
INSTITUTIONAL ADAPTATION

The experience so far has been that formal financial institutions

serve but a fraction of the population, which typically lies within the
upper quartile of the social hierarchy. Through adaptation to the
microfinance market requirements, they may gradually expand into
the second-highest quartile and into segments of the lower
quartiles. Within the foreseeable future they will normally not be
able to fully serve that market.
Non formal finance mostly rests on local institutions which are
directly accessible to all segments of the population. Self-Help
Groups (SHGs) are member-owned and member-controlled local
institutions. They may either be financial groups, with financial
intermediation as their primary purpose; or non financial groups,
with financial intermediation as a secondary purpose, such as

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vendors' associations, family planning groups and numerous other

types of voluntary associations.

The functions that need to be focused must include: providing

guidance to members, collecting premium installments from
members, insurance services to members, communication and
exchange of experience, providing linkages with banks, NGOs or
donors, supporting the proposals of individual members to insurance
companies through recommendations.

LINKAGE TO INSURERS

On a modest scale, various forms of life and health insurance have

been successfully practiced by different institutions in different
countries, particularly as part of loan protection schemes. Micro-
insurance procedures and services should be set by insurers rather
than the regulator. Appropriate procedures and services should be
applied to attain:
 Sound financial management,
 Convenient and safe savings premium collection and deposit
facilities,
 Appropriate claim appraisal and processing procedures,
 Adequate risk management,
 Timely collection of premium installments,
 Monitoring and
 Effective information gathering, all of which may include
cooperation between different formal and non-formal
intermediaries in fields where each is most effective.

PROPOSED MICRO-INSURANCE REGULATIONS

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In order to introduce the concept micro-insurance it is necessary to

draft suitable bring in suitable regulations to enable insurers to
design and distribute and service micro-insurance products and
discharge their obligations to the rural and social sectors as per
provisions of the Insurance Act, 1938.

 It is proposed that an insurer transacting life insurance

business shall be permitted to provide life micro-insurance
products as well as general micro-insurance products provided
it ties up with an insurer transacting general insurance
business for the general micro-insurance products, and vice
versa.

 In addition to an insurance agent or corporate agent or

insurance broker who are authorized to solicit and procure
insurance business, including micro-insurance business with
an insurer in accordance with the provisions of the Insurance
Act, 1938 and the regulations made there under it is also
proposed to introduce the concepts of “micro-insurance
product” and “micro-insurance agent” .

TIE-UP BETWEEN LIFE INSURER AND NON-LIFE INSURER

 An insurer carrying on insurance business may offer life

micro-insurance products as also general micro-insurance
products, as provided herein.

Provided that where an insurer carrying on life insurance

business offers any general micro-insurance product, he
shall have a tie-up With an insurer carrying on general
insurance business tor this purpose, and subject to the
provisions of section 64VB of the. Act, the premium

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attributable to the general micro insurance product may be

collected from the prospect (proposer) by the insurer
carrying on life insurance business, either directly Or
through any of the distributing entities of micro-insurance
products as specified in regulation 4, and made over to the
insurer on general insurance business. Provided further
that in the event of any claim in regard to general micro-
insurance products, the insurer carving on life insurance
business or the distributing entities of micro-insurance
products, as the case may be, as may be specified in the tie-
up referred to in the first proviso, shall forward the claim to
the insurer carrying on general insurance business and offer
all assistance for the expeditious disposal of the claim.

 An insurer carrying on general insurance business may offer

general micro-insurance products as also life micro-
insurance products, as provided herein.

Provided that where an insurer carrying on general

insurance business offers any life micro- insurance product,
he shall have a tie-up with an insurer carrying on life
insurance business for this purpose, and subject to the
provisions of section 64VB of the Act, the premium
attributable to the life micro insurance product may he
collected from the prospect (proposer) by the insurer
carrying on general insurance business, either directly or
through any of the distributing entities of micro-insurance
products as specified in regulation 4, and made over to the
insurer carrying on life insurance business.

Provided further that in the event of any claim in regard to

life micro-insurance products, the insurer carrying on

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general insurance business or the distributing entities of

micro- insurance products, as the case may be, as may be
specified in the tie-up referred to in the first proviso, shall
forward the claim to the insurer carrying on life insurance
business and offer all assistance for the expeditious disposal
of the claim.

CODE OF CONDUCT OF MICRO INSURANCE AGENTS

 Every micro-insurance agent and specified person employed

by him shall abide by the code of conduct as laid down in
Regulation 8 of the Insurance Regulatory and Development
Authority (Licensing of Insurance Agents) Regulations, 2000,
and the relevant provisions of Insurance Regulatory and
Development Authority (Insurance Advertisements and
Disclosure) Regulations, 2000.

Provided that the insurer shall ensure compliance of the code

of conduct, advertisements and disclosure norms by every
micro-insurance agent.

 Any violation by a micro-insurance agent of the code of

conduct and/or advertisement or disclosure norms as
aforesaid shall lead to termination of his appointment. in
addition to penal consequences for breach of code of conduct
and/or advertisement or disclosure norms pursuant to the
provisions of sub-regulation (1).

MICRO-INSURANCE AGENT

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 A “micro-insurance agent” shall be a Non Government

Organization (NGO) or a Self Help Group (SHG).

 Explanation: For the purposes of this regulation:

 A Non Government Organization (NGO) shall be a registered

non-profit organization under the Society’s Act, 1968 with a
proven track record of working with marginalized groups with
clearly stated aims and objectives, transparency, and
accountability outlined in its memorandum, rules and
regulations and demonstrates involvement of committed
people.

 Self Help Group (SHG) may be an informal group or registered

under Societies Act, State Co-operative Act or as a partnership
firm, consisting of 10 to 20 with a proven track record of
working with marginalized groups with clearly stated aims and
objectives, transparency, and accountability outlined in its
memorandum, rules and regulations and demonstrates
involvement of committed people.

 The minimum number of members comprising a group should

be at least ten for insurance of individuals, and at least fifty
for group insurance.

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GENERAL MICRO-INSURANCE PRODUCT

A “general micro-insurance product” means any health
insurance contract, any contract covering the belongings such as
hut, livestock, any personal accident contract, or tools or
instruments, either on individual or group basis, as per terms stated
in the Table below, filed with the Authority:

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Type of Minimum Maximu Term Term Minimu Maximu

Cover Amount m of of m Age m age at
of Cover Amount Cove Cove at entry entry
of Cover r r
Min. Max.
Dwelling &
content, or
livestock or Rs. 5,000 Rs.
Tools or Per 30,000 1 1 NA NA
implements asset/co Per year year
or other ver asset/co
named ver
assets/or
Crop
insurance
against all
perils
Health
Insurance Rs. 5,000 Rs. 1 1 Insurers’ discretion
Contract 30,000 year year
(Ind.)
Health
Insurance
Contract
(family) Rs. Rs. 1 1 Insurers’ discretion
(Option to 10,000 30,000 year year
avail limit for
Individual/Flo
at on family)
Personal
Accident (per
life/earning Rs. Rs. 1 1 5 70
member of 10,000 50,000 year year
family)

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SOURCE: IRDA Micro-Insurance Regulations, 2005,

www.irdaindia.com
NOTE: The minimum number of member comprising a group shall
be at least twenty for group insurance.

LIFE MICRO-INSURANCE PRODUCT

A “life micro-insurance product” means any term insurance

contract with or without return of premium, any endowment
insurance contract or health insurance contract, with or without an
accident benefit rider, either on individual or group basis, as per
terms stated in the Table A below, filed with the Authority:

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Type of Minimu Maximu Term Term Minimu Maximu

Cover m m of of m Age m age at
Amount Amount Cove Cove at entry entry
of Cover of Cover r r
Min. Max.
Term
Insurance
with or Rs. Rs. 5 15 18 60
without 5,000 50,000 year year
return of s
premium
Endowmen 15
t Insurance Rs. Rs. 5 year 18 60
5,000 30,000 year s
Health
Insurance Rs. Rs. 1 7 Insurers’ discretion
Contract 5,000 30,000 year year
(Individual)
Health
Insurance Rs. Rs. 1 7 Insurers’ discretion
Contract 10,000 30,000 year year
(Family)
Accident
Benefit as Rs. Rs. 5 15 18 60
rider 10,000 50,000 year year
s

SOURCE: IRDA Micro-Insurance Regulations, 2005,

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

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RESEARCH METHODOLOGY

Data collection
For data collection, we developed a well defined questionnaire as a
research instrument, consisting questions aimed to measure the
people perception about insurance, their need and problems. We
conducted unstructured interviews sample size of 30 general people
having income less than 350 bugs per day like vendors, rickshaw-
wala, milkman, cobbler etc. Survey location was Thane and Mulund
etc. All the data generated was primary data that was generated
directly from face to face communication.

Data analysis
The data collected based on structured questionnaire is recorded on
an excel sheet and with the help of SPSS software a pie chart
analysis along with pillar data analysis is generated and based on
this findings a qualitative inferences are made for each analysis.
The same is being presented in form of graphs and tables

Survey Results
The following are my findings regarding the survey conducted. The
following graphs show the potential depth from different
perspectives, as shown below:

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ANALYSIS AND INTERPRETATION

Chart 1: Age of the respondents

Inference: The above reveals the fact that Majority of the

respondents, about 47% belong to the category of 35-40 ages and
21% belong to the category of 25-35 of age, 18% belong to category
30-34 and 14% belong to the category 20-25 of age.

Chart 2: Educational Qualification

Inference: The above result reveals that majority of respondents

i.e. 54% were educated till higher secondary and the percentage of
primary and graduation is very close i.e. 21% & 25%.

Chart 3: Account Holder

Inference: The above result reveals that 11% of respondent don’t

have any account any where while majority of the applicants [43%]
have post office account, 32% have their Bank a/c and only 14%
have both the accounts.

Chart 4: No. of family members

Inference: Above result reveals that majority of respondents 50%
have 4 members in a family which is ideal whereas only 7% live with
joint family or have big size of family.

Chart 5: No. of earning member

Inference: From the above result it can be clearly seen that about
68% of the respondent were the only earning member of their
family, 32% have 2 earning member because of size of family.

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Chart 6: Income level

Inference: The above result reveals that 68% of respondent have

income level between 7000-10000 while 32% have income level
between 5000-7000 and no one below it.
Chart 7: No. of dependent

Inference: The above result reveal that majority of respondent

39% have 3 no. of dependent where as only 4% have 5 dependents.

Chart 8: Expense Pattern

Inference: From the above result we can see that out of the three
clothing expense is more; least expense is health and expense in
travelling is nil but travelling is the highest at number 6th place.

Inference: From the graph we can say that out of the three; Rent &
Electricity is the highest expense and then comes Education. Least
expense is on Drinks & Entertainment but it is highest at 5th place.

Chart 9: Faced problem with health or asset

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Inference: Above result shows that 36% of respondent didn’t face

any problem related with health or asset but 64% faced a serious or
minor health or asset loss in past of their life.

Chart 10: Awareness about insurance

Inference: Above result reveals that each and every applicant is

aware about what the insurance is.

Chart 11: Source of information

Inference: The result above reveals that 30% of the respondent

got the information about insurance from newspaper, 20% got info
from T.V, least from Banners & Hoardings and remaining from the
source pattern shown above.
FINDINGS
 Study reveals that majority of people whose daily income is
less than 350 bugs have ideal family.
 Earning members in majority of family are two so that they
are able to survive and meet their daily requirements.
 Income level lies between 150-350 bugs per day.
 Majority of respondent had post office account and very less
had both bank as well as bank account.
 Majority of respondent have more spending on rent &
Education, after that on food & cloth and Medicare &
entertainment.
 Majority of respondent are the only earning member in family
size of 4-5.

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 Majority of them managed critical financial problem from their

savings and even borrowed some money. Only few had
insurance or taken loan.
 All of them are aware about insurance but not about micro
insurance and best source of information medium found to be
newspaper, television and from friends & relatives.
 Many of respondents were not insured just because of either
high premium or lack of complete information.
 Majority of respondent shows keen interest in micro-insurance
policy in life and health, some were very sensitive toward
education and like to have education insurance as well.

CONCLUSION
We all know insurance is a very old concept. But the demand for
insurance was increased from a decade. Middle class people take
insurance policy according to their ability & capacity to pay
premium to secure their life.
When we talk about poor people a question comes in mind

Do poor people have any security?

What if they face any risk?
Who is going to look after them?
Their family members?
Do they have any insurance policy?
Are they capable to pay the premium?

The answer for this is Micro Insurance. Micro Insurance is designed

keeping in mind to poor people. Like everybody else, the poor
people face a variety of risks such as risk of death, illness, disability,
accident, income & property & so on. Like all other, they also need
to be protected from these risks.

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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. To that extent imposing
social and rural obligations by insurance regulator (IRDA) is helping
all insurance companies appreciate the vast untapped potential in
serving the lower end of the market.

At present microfinance business in the country is unregulated.

Regulation of MFIs is needed not only to promote micro-finance
activity in the country but also to promote the linking of micro-
insurance with micro-finance. It is becoming increasingly clear that
micro-insurance needs a further push and guidance from the
regulator as well as the government.

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

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 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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