Micro Insurance Project Report

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UNIVERSITY SCHOOL OF MANAGEMENT STUDIES G.G.S. INDRAPRASTHA UNIVERSITY

Visit a2zmba.blogspot.com for more project reports FINANCE PROJECT

MICRO -INSURANCE IN INDIA:

T R E N D S A N D S T RAT E G I E S F O R F U RT H E R EXTENSION

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Submitte d by:

ACKNOWLEDEGMENT

I herby offer my sincere and profound thanks to M/s Divya – our financial management teacher, who gave us such a challenging project and guided us through out our project including analysis and presentation of the same. Without her we would not been able to complete our project successfully.

I would also like to thank Mr. SHALENDRA GUPTA, Genaral Manager, TATA AIG Life Insurance, for his valuable support.

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DECLARATION I hereby declare that this project report is the result of hard core study done by Micro insurance team – Govind Kumar Jha, Gaurav Asthana, Shiva Jangid, Indu Bhushan, Rakesh, Himanshu Nirwan, Deepak, Manish and Lucky Talwar. This is to further declare that this project report is authentic and not being submitted by any other student previously.

DATE:

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Contents

Foreword........................................................................................ ............... i Introduction.................................................................................... ...............1 •

Development of India........................................3

•

Supply and Demand Developments ........................................5

Micro-insurance

in Side

3.1 Supply of micro-insurance ..................................................................5 3.2 Demand for micro-insurance...............................................................6

•

On Extending insurance .......................................................10

Micro-

4.1 Flexibility in Premium........ ................................................................11 4.2 Micro-insurance and micro-finance ...................................................16

•

Conclusions............................................................................. ..........20

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Introduction

Insurance Insurance is an essential part of running any business. If you are operating a small business you need more than just property insurance. Taking out the right insurance will help protect your business and minimize its exposure to risk. Your insurance requirements will vary according to the type of business you are operating, but you should be aware that some forms of insurance are compulsory, such as workers’ compensation and third party car insurance. When you’re in business you deal with a variety of potential risks each day. Risk is not something you can avoid, but it is something you can manage. Risk management will increase the probability of success and reduce the probability of failure of your business. Types of insurance • •

Assets & revenue insurance People insurance

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•

Liability insurance

Assets & revenue insurance To protect your assets and revenue-generating capacity, here are some of the types of insurance available:

Building and contents Covers the building, contents and stock of your business against fire and other perils such as earthquake, lightning, storms, impact, malicious damage and explosion.

Burglary Insures your business assets against burglary, and is most important for retailers or a business which maintains unattended premises.

Business interruption or loss of profits Covers you if your business is interrupted through damage to property by fire or other insured perils. Ensures your ongoing expenses are met and anticipated net profit is maintained through a provision of cash flow.

Fidelity guarantees Covers losses resulting from misappropriation by employees who embezzle or steal.

Machinery breakdown Protects your business when mechanical and electrical plant and machinery at the work site break down.

Motor vehicle

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It is compulsory to insure all company or business vehicles for third party injury liability. Many different types of policies are available, so make sure you understand the options before making a decision. There are four basic options: 1. Compulsory third party (injury) – covers you for claims made against you for personal injuries and legal costs arising from the use of your car. You must obtain this insurance to register your car. 2. Third party property damage - covers your liability for damage to another person or to the property of others and your legal costs. It doesn’t include repairs to your own car if you caused an accident. 3. Third party, fire and theft - covers you against the events covered above, as well as fire and theft. It also insures against damage caused if your car was stolen. 4. Comprehensive - covers you for all of the above plus damage caused to your own car by you in an accident. If you're buying a car on an installment basis, financiers will usually insist on this cover.

People insurance It includes: • •

Superannuation Workers compensation requirements

Insurance cover for you and your employees:

Workers Compensation You must provide accident and sickness insurance for your employees workers compensation - through an approved insurer. Workers compensation is covered by separate state and territory legislation.

Personal accident and illness

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If you are self employed you won’t be covered by workers compensation, so you need to cover yourself for accident and sickness insurance through a private insurer. There are several types of life insurance. Some are investment-type funds where you contribute over a certain time and get back your investment plus interest earnings at the maturity date. Others are designed to cover risk - things that could happen to you. •

• • •

Income protection or disability insurance - covers part of your normal income if you are prevented from working through sickness or accident. Trauma insurance - provides a lump sum when you are diagnosed with one of several specified life threatening illnesses. Term life insurance or whole of life cover - provides your dependents with a lump sum if you die. Total and permanent disability insurance - provides a lump sum only if you are totally and permanently disabled before retirement.

Superannuation If you are running a business or employing people, you are likely to have superannuation obligations to your employees. If you are self-employed you also need to provide for your retirement - superannuation is generally used to provide for a retirement plan.

Liability insurance Types of liability insurance you need to consider:

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

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 - either material, financial or physical - directly attributed to negligent acts.

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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 damage or injury caused to another business or person by the failure of your product or the product you are selling.

What is Micro Insurance? On a daily basis, the poor around the world face a multitude 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 Global Landscape 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 unserved population of 370 million.

History and Vision 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 Page 10

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 – a “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 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.

Definitions of micro-insurance 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 costeffective risk hedging instruments.

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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 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 strategies2, 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 ,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. In this paper, we analyze the early evidence on micro-insurance already available in this regard, highlight the current initiatives being contemplated to strengthen micro-insurance activity in the India, and suggest specific ways that can help promote insurance to the target segment.

Development of Micro-insurance in India 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

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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 twenty five per cent of the male working population is engaged in agricultural pursuits. The categories of workers falling under agricultural pursuits are: cultivators, agricultural labourers, and workers in livestock, forestry, fishing, hunting and plantations, orchards and allied activities.

The social sector as defined by the insurance regulator consists of: • Unorganized sector • informal sector • 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 Page 13

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 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.

AN OVERVIEW OF THE MARKET

B

Wealthy

A

Middle Income D

C Poor E Severely Poor

The market for micro insurance is represented by this pyramid diagram. Formal sector insurance companies generally focus on the area identified as “A”. In this realm the customers are corporations and wealthy individuals, and the products are voluntary products such as life insurance, and obligatory products required either by law (such as motor third party liability) or by banks (such as property loss and credit life). Also offered are products covering employees and civil liability. Most of the non-auto related Page 14

commercial products are being sold within the area marked “B”. The aggregate market for microfinance providers is generally in the area identified as “C”. Some MFPs require borrowers to obtain insurance for property, or credit-life insurance as a means of protecting the institution’s interests. Area “D” indicates the broad range of products offered by the social security and public health insurance systems of developing country governments. They include coverage for pensions, disability benefits, primary health care, and medications. The weakness of this sector is indicated by the dashed line that suggests incomplete coverage. The potential market for microinsurance is indicated as “E”. This extends above the MFP range in providing access to individuals and others that cannot obtain appropriate products from the commercial sector. The microinsurance range also extends below the MFP range because it addresses agricultural coverage in some cases, and is now being sold through many delivery channels other than MFPs. Just a few of these delivery channels include: • • •

Low-income focused retailers in South Africa Post offices in Indonesia On bags of agricultural inputs or through computer kiosks in India.

Micro-insurance delivery models 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.

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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 microinsurance 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, 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.

NEW MODELS FOR POOR COMMUNITIES Much interest over the last few decades has focused on helping communities to establish mutual or community-based insurance schemes. Professionals typically manage mutual insurance companies. Community-based schemes, promoted by ILO STEP and CIDR among others, tend to be run by well meaning local people who give freely of their time, but are not insurance professionals. Often people who were simply in need of insurance end up being insurance managers with these schemes. One member of the management committee of a community- based scheme in Tanzania noted that he “wants insurance, but doesn’t want to be an insurer.” In communitybased schemes, the limited management capacity frequently leads to a range of difficulties. The key issues of concern for community-based schemes include: •

Pricing – Often the process of pricing is focused on what people say they can pay rather than being linked to the cost structure of benefits that the group wants to receive.

•

Insurance is subject to cash flow fluctuations and thus requires significant reserves. These schemes frequently have insufficient reserves or no reserves at all. Also, commercial reinsurance is rarely

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available to unregulated insurance schemes thus leaving them with no ability to manage cash flow deficits. •

Controls on management are weak and temptation is strong. Fraud by management is frequently a problem.

•

These schemes are limited in size to those people within the defined local area. This reduces their ability to diversify a rather small risk pool, and enhances the potential for adverse selection, both of which make sustainability a serious challenge for local management.

•

Finally, in many countries there is no legal framework for these schemes. Indeed regulators are often unwilling to allow such schemes for fear that they will not be able to adequately supervise many small schemes run by non-professionals. This is the case in India. Service providers, most typically hospitals and other healthcare providers have offered pre-financing mechanisms that act somewhat like insurance. These products, it is argued, will attract more people to the facility and the people who come will be able to pay for the services. Often this becomes a problem because providers have limited ability to manage the insurance administration issues. One overseer of a particular group of hospitals noted that attempting to offer microinsurance could present a dual threat to the hospital network for which he works. He noted that the hospital administrators “do not even know how to price their own healthcare services”. Therefore, they mis-price their premiums based on those prices, which are typically too low. The resulting increase in patients using the insurance leads to even higher losses, due to higher administrative costs and incorrect fees that do not cover the actual costs of services. Governments also provide a form of microinsurance through the programs they provide for lowincome Citizens. Unfortunately, in many countries these programs are simply insufficient to address the financial risks of the low- income and destitute populations. Certainly there is a population that will not be covered by commercial or other non-government microinsurance. However, if a proper balance could be found, it is possible that the combination of government programs, commercial microinsurance, mutual insurance, and traditional commercial insurance could make each of these more efficient, and make the government interventions more effective in addressing those that truly require such services.

Need for Developing Micro-Insurance in India – IRDA perspective Page 17

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. Microinsurance 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 microinsurance 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 To enable microinsurance 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.

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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 vigour of such institutions, the following alternatives have emerged, for offering strategic entry points for microinsurance development: •

Adapting formal insurance arrangements to the needs of the microeconomy.

•

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.

•

Establishing new local institutions providing microinsurance services.

The first three strategies may be inter-connected: • • •

adapting insurance companies to the requirements of the microeconomy 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

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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 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: (1) Sound financial management,

(2) Convenient and safe savings premium collection and deposit facilities, (3) Appropriate claim appraisal and processing procedures, (4) Adequate risk management, (5) Timely collection of premium installments, (6) Monitoring and

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(7) 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 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. 1. 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. 2. 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 “microinsurance product” and “micro-insurance agent” .

Micro-insurance Product

1. 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: Table A:

Type Cover

of

Term Insurance with or without return of premium Endowme nt

Minimum Amount of Cover Rs. 10,000

Maximum Amount of Cover Rs. 50,000

Term of Cover Min. 5 year

Term of Cover Max. 7 years

Minimum Age at entry

Maximum age at entry

18

60

Rs. 10,000

Rs. 50,000

5 year

7 years

18

60

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Insurance Health Insurance Contract Accident Benefit as rider

Rs. 10,000

Rs. 15,000

1 year

7 year

18

60

Rs. 10,000

Rs. 50,000

1 year

5 years

18

60

NOTE: The present average sum insured is around Rs. 5,000. This is highly inadequate to provide any tangible relief even to an individual below the poverty line. Therefore, it is suggested that the minimum amount of cover of Rs. 10,000 appear more realistic. 2. 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 B below, filed with the Authority: Table B: Type Cover

of

Hut or livestock or Tools or implement s or other assets— against all perils Health Insurance Contract Personal Accident

Minimum Amount of Cover Rs. 10,000

Maximum Amount of Cover Rs. 20,000

Term Cover Min. 1 year

Rs. 10,000

Rs. 15,000

1 year

Rs. 10,000

Rs. 50,000

1 year

of

Term Cover Max. 1 year

of

Minimum Age at entry

Maximum entry

18

70

1 year

18

60

1 year

18

60

age

at

Micro-insurance Agent •

A “micro-insurance agent” shall be a Non Government Organization (NGO) or a Self Help Group (SHG). Page 22

•

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 atleast ten for insurance of individuals, and atleast fifty for group insurance.

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 microinsurance 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:--

a) Maintaining a register of all members and their dependants covered under the insurance scheme alongwith details of name, age, address, nominees and thumb impression/ signature; b) Collection of proposal forms; c) Collection of self declaration from the member that he is in good health; d) Collection of monies for issuance of contract or remittance of premium;

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e) distribution of policy documents; f) Assistance in the settlement of claims; g) Nomination; and h) Any policy administration service. i) The micro-insurance agent or the insurance company shall have the option to terminate the agreement/ MOU after giving a notice of three months. j) All such agreements/ MOU must have the prior approval of the Head office of the insurance company.

Initiative Taken By Private Sectors

Tata AIG Life - First insurance company to launch Micro Insurance •

First major Micro Insurance initiatives venture by an Indian insurance company

•

Launches three new Micro Insurance products and five Micro Insurance branches

•

Adopts a tailor made rural communication strategy to reach out to the rural community

American International Group, Inc. (AIG) American International Group, Inc. (AIG), world leaders in insurance and

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financial services, is the leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG's common stock is listed in the U.S. on the New York Stock Exchange, as well as the stock exchanges in London, Paris, Switzerland and Tokyo.

Micro Insurance is the process of delivering and servicing relevant and affordable life insurance products to the low-income socio economic strata. The focus of Tata AIG Life’s Micro insurance program is rural India, where traditionally the far-flung, lower and lower middle-income segments have had limited access to life insurance services.

Cost of plans: Tata AIG Life Micro insurance plans are available with or without survival benefits and with death benefits ranging from Rs.5, 000 to Rs.50, 000. With premiums as low as Rs.5** per month, there is now an affordable life insurance product for nearly every rural household in India.

Policies Available: The following special Micro Insurance products from Tata AIG Life are now available for the rural population at the bottom of the pyramid. • • •

Navkalyan Yojana Ayushman Yojana Sampoorn Bima Yojana

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NAVKALYAN YOJANA

A regular premium payment, low cost term plan for the rural adults who seek life insurance protection without any maturity benefit.

Key features include: • • • • • •

Policy Term : 5 years Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/Premium payment frequency : Monthly, quarterly, half yearly & yearly Death Benifit : Sum assured to the policyholder’s nominee Maturity benefit : None Rider : Option to attach Accident Death Benefit Rider for issue ages 18 to 55 years at a nominal extra charge.

Tax Benefits and Age Eligibility •

Premiums paid under this plan are eligible for tax benefits as per the Income Tax Act, 1961 and are subject to any amendments made therein from time to time.*

Anyone between ages 18 and 60 can apply for this policy.

AYUSHMAN YOJANA

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A single premium plan where the policyholder pays the premium at the beginning of the policy term. This is especially useful for those rural people who have a seasonal income.

Key features include: • • • •

Policy Term : 10 years Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/Death Benifit : Sum assured to the policyholder’s nominee Maturity benefit : On survival, 125% of the single premium paid.

Tax Benefits and Age Eligibility •

Premiums paid under this plan are eligible for tax benefits to the extent of 20% of Sum Assured as per the Income Tax Act, 1961 and are subject to amendments made therein from time to time.*

Anyone between ages 18 and 60 can apply for this policy.

SAMPOORNA BIMA YOJANA

A low cost insurance plan where the policyholder receives all the premiums paid during the policy term upon survival until the term of the policy. Premiums are payable for only 10 years, while the coverage is up to 15 years.

How do we operate?

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We operate in 11 states with a specific relationship management team for each state. A dedicated & trained sales and marketing team manages the front end of the Micro insurance program. Our micro insurance distribution model collaborates with NGO’s (Non-governmental organizations) and Rural organizations with community level SHG (Self Help Group) women advisors who provide insurance advisory services to the rural customers at their doorstep. The grassroots level agents explain the product details in the local language of the customer, thereby enabling the customer to make a decision. The training programs, brochures, contract documents, and application forms are available in 8 different languages other than English and Hindi

Key features include: • • • • •

Policy Term : 15 years Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/Maximum Death Benefit (Sum Assured): Rs.50,000/Premium payment frequency : Monthly, quarterly, half yearly & yearly Death Benifit : Sum assured is paid to the policyholder’s nominee Maturity benefit : At the end of the 15 years, all the premiums paid will be returned to the policyholder.

Tax Benefits and Age Eligibility Premiums paid under this plan are eligible for tax benefits as per the Income Tax Act, 1961 and are subject to any amendments made therein from time to time.* Anyone between ages 18 and 60 can apply for this policy.

RESEARCH OBJECTIVE To find out potential depth in society for providing opportunities for further extention for micro insurance

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Sub objective:  Determine need and ability of people segment whose per day income is less than 100 bugs. What really matters to him or her while think about insurance.  Determine awareness about insurance among them. if aware then source of information  To determine the govt. and private sector proceeding in this area and extent of their success

RESEARCH METHODOLGY 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, bottleneck why hadn’t insured, and target to find out opportunities for further extention of micro insurance. We conducted unstructured interviews (sample size) of 52 general people having income even less than 100 bugs per day like vendors, rickshaw wala, coolies etc. at survey location (Kashmiri gate, old Delhi railway station, prostitutional area 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

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of graphs and tables

SURVEY RESULTS The following are our findings regarding the survey conducted by us. The following graphs show the potential depth from different perspectives, as shown below:

ANALYSIS AND INTERPRETATION Table 1: Gender of the respondents

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S. No.

Sex

No of Respondents

Percentage

1.

Male

50

91

2.

Female

05

09

Total

55

100

Chart 1: Gender of the respondents No of Respondents

9%

0%

1 2 3 4 5 6 7 8 9 91%

10

Inference: The above reveals the fact that Majority of the respondents, about 91% belong to the category of male and 9% belong to the category of female.

Table 2: Age of the respondents

Chart 2: frequency 17%

12%

AGE 1 2 3

38% 33%

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25

20

4

Inference: The above reveals the fact that Majority of the respondents, about 38% belong to the category of 2 age and 33% belong to the category of 3 of age, 17% belong to category 2 and 12% belong to the category 1 of age.

Table 3: Educational Qualification

Chart 3:

no.of respondent

Educational Qualification

Frequency 2%

28

30

2%

22

20

1

10

1

2

42%

1

0 1

2

3

4

5

6

7

8

9

54%

10

3 4

catagory of education

Inference: The above result reveal that majority of respondents (22+28)% were either uneducated or educated only upto primary level

Table 4: No. of family members

Chart 4:

no.of respondent

family size

0%

freq

30 20

1

f req

10

45% 55%

0 1

2

3

4

5

6

7

8

9

2 3 4

10

age catagory

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Inference: Above result reveals that majority of respondent 55% live with joint family or have big size of family

Table 5: No. of earning member no.of respondent

earning member 40

Chart 5:

Series1

2%

Series2

freq

4%

Series3

33

Series4

30 16

20 10

Series5

1

31%

2

Series6

2 1

0

3

Series7 freq

Series8

earning member/family

Series9

63%

4

Series10

Inference: From the above result it can be clearly seen that about 63% of the respondent were the only earning member of their family, 31% have 2 earning member because of size of family.

Table 6: Income level no.of respondent

income level 30

12%

Series2

freq

Series3

24 22

Series4

20 10

Chart 6: Series1

Series5

6

46%

Series6

2

Series7

0 freq

Series8

incom e catagory

Series9

1

42%

Series10

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3

Inference: The above result reveals that 46% of respondent have income level 1 while 42% and 12% have income level 2 and 3 respectively.

Table 7: Account Holder

Chart 7:

account map

freq

33

40 30 20 10 0

no.of account holder

15%

11

1

8

2

21% 1

2

3

4

5

6

7

8

9

10

64%

3

no.of account

Inference: The above result reveals that 64% of respondent don’t have any account any where while 36% have their own bank or post office account.

Table 8: Background

Chart 8: freq

no.of respondent

background

19%

36

40 30 20

10

10

12%

6

1 2 3

0 1

2

3

4

5

6

7

8

9

10

69%

background catagory

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Inference: The above result reveals that majority of respondent belong to the background of type 3(69%), then type 1 (19%) and type 2(12%).

Table 9: No. of dependent

Chart 9:

dependent members 12% respondent

15

16%

15

5

8%

18

20

10

freq

8

1 2

6

4

3

29%

0

4 1

2

3

4

5

6

7

8

9

10

5

no. of de pendent/family

35%

Inference: The above result reveal that majority of respondent (35+29)% have no. of dependent more than 1 and less than 4. 16% have only 1 dependent and 12%have 4 or more than 4 dependent in their family.

Table 10: Whether has ID proof

Chart 10:

no.of respondent

ID proof 27.5 27 26.5 26 25.5 25 24.5 24

freq

1 2

0%

27

3

48% 25

52%

4 5 6 7

1

2

3

4

5

6

7

8

9

8

10

9

1-yes ,2-no

10

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Inference: Above result reveals that 52% have ID proof but almost there were equal no that hadn’t any id proof.

Table 11: Faced prob with health or asset

Chart 11: Freq

health/asset problem faced responses

23%

60

40

40

12

20

1 2

0 1

2

3

4

5

6

7

8

9

10

1-yes, 2-no

77%

Inference: Above result shows that 23% of respondent didn’t face any problem related with health or asset but 77% faced a serious health of asset loss in past of their life.

Table 12: If yes how they managed

Chart 12:

monetory management

response

20

way of monetary management

19

2%

21%

15

15

10

40%

10 3

5

6% 2

3

4

2 3

1

0 1

1

4

5

31%

w ay of m anage

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5

Inference: The above result reveals that majority of the respondent 40% managed their financial problem by way 1, 31% by way2 and 21% by way4 and rest managed their problem by pattern of ways shown above in chart12.

Table 13: How many times fell ill

Chart 13: illness map

illness

response

30

7%

28

26%

20

11

10

1

3

2

0 1

2

3

4

5

6

7

8

9

67%

10

3

times fell ill/month

Inference: The result above reveals that 67% of the respondent don’t have serious health problem and they hardly use to fell ill once in a month. But beside of this some sector 26% and 7% respectively are those who use to fall twice or thrice in month.

Table 14: Risk on job

Chart 14: risk on job

risk on job

response

28

27

48%

27 26

25

52%

25 24 1

2

3

4

5

6

1-yes, 2-no

7

8

9

10

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1 2

Inference: The above result reveals that 52% of the respondent didn’t had any risk on job but almost equal proportion 48% who had serious job risk.

Table 15: Risk toward assets

Chart 15:

risk toward asset

response

40 30 20

risk toward asset

35

33%

17

1

10

2

0 1

2

3

4

5

6

7

8

9

67%

10

1-ye s, 2-no

Inference: Above result reveals that a majority of respondent 67% don’t have any risk toward their asset while 33% were those who have. Reason might be because of their low income they hadn’t had any significant asset.

Table 16: Awareness about insurance awareness about insurance

response

60

Chart 16: awareness about insurance

8%

48

40 20

1

4

2

0 1

2

3

4

5

6

1-ye s, 2-no

7

8

9

10

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92%

Inference: Above result reveals that majority of respondent 92% were awared of insurance but 8% were also there who even didn’t know what the insurance is.

Table 17: Source of information

Chart 17:

source of information

source of information 11%

responses

30

0% 1%

11%

25

22

1% 0% 3%

20 8

10

1

0

2

2

3

4

0 1

8

5

5

6

7

8

0

1

9

10

35%

31%

source

7%

Inference: The result above reveals that 35% of the respondent got the information about insurance from source 7, 31% got info. from source 5 and remaining from the source pattern shown above.

Table 18: No. of insurance taken

Chart 18:

insurance taken

responses

40

insurance tak en

2% 31

30

38%

20

1

20 10

60% 2

1

3

0 1

2

3

4

5

6

7

8

9

10

no.of insurance taken

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Inference: Above shown result reveals that a majority of respondent 60% were not insured from any where , 38% had taken life insurance but 2% were also there who were very well awared and had 2 or more than 2 insurance.

Table 19: Why not insured?

Chart 19: reason for no insurance

reason for no insurance 17

responses

20

16

41%

15 10

44% 1

6

2

5 0 1

2

3

4

5

6

7

8

9

3

15%

10

reason

Inference: The result got above reveals that 44% were not insured because of reason1, 41% because of reason3 and 15% were not insured because of reason 2.

Table 20: Kind of insurance like to purchase insurance like to have

responses

30

Chart 20: insurance like to have 9%

27

14%

18

20

8

10

1 5

46%

2 3

0 1

2

3

4

5

6

7

8

9

10

4

type of ins urance

31%

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Inference: Above result reveals that 46% of respondent like to have life insurance, 31% like to have health insurance but there are some 14% who are awared toward their child education and like to have education insurance, while some 9% want to minimize risk toward their assets and like to have asset insurance as well.

Table 21: Premium ready to pay

Chart 21:

premium map

responses

20 15

12

15

p re miu m map

24%

27%

14

1

10

10

2

5

3

0 1

2

3

4

5

6

7

8

9

20%

10

4

29%

type of prem ium

Inference: Above result reveals that in this particular sector all the respondent were almost have equally distributed opinion about premium package. 24% were ready to pay a sound premium, majority were aligned toward premium package 2, 20% were ready to pay premium 3, while 27% agreed to pay premium package 4.

Table 22: How many members like to insured

Chart 22: members like to be insured

members like to be insured

2%

responses

40

31

2%

30 18

20 10

2% 35%

1 2 3

1

1

1

4

5

4

59%

0 1

2

3

6

7

8

9

10

members/family

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5

Inference: The above shown result reveals that majority of respondent 59% like to insured two members of their family apart from self but 35% were those who can’t bear even so less premium of micro insurance product and like to insure only one member apart from self rest are distributed as shown above.

Table 23: From where you like to Purchase Ins. Policy

Chart 23:

facility location 36

40 responses

facility location 4%

30

9%

1

0% 7%

2

16%

20 10

4

0

0

9

1

2

2

3

4

5

3

5 6

4 7

8

9

64%

10

5 6

location catagory

Inference: The result above reveals that a majority of respondent 64% believes on facility location 3 and likes to have insurance from there, 16% believe on facility location 4 and rest are shown above.

Table 24: Insurance Duration

Chart 24:

insurance duration

insurance duration

25 20 15

29%

20

21% 1

15

2

11

10

3

6

12%

5 0 1

2

3

4

5

6

7

8

9

10

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38%

4

Inference: The result found above reveals that a majority of respondent 38% like the insurance for the duration of 5-10 years, 29% upto 15-20 years, 12% upto 10-15 years but some were also those 21% who can’t bear even so less premium and want to have insurance policy upto duration of 0-5 years.

FINDINGS • Study reveals that majority of people whose daily income is less than 100 bugs have big family • Earning member in majority of family is only male. • Income level lies between 100-200 bugs per day • Majority of respondent didn’t had any saving account because of no ID proof • Majority of respondent have more spending on travel & rent, after that on food & cloth and Medicare & entertainment • Majority of respondent are the only earning member in family size of 5-8. • Majority of respondent hadn’t significant asset • Majority of them managed critical financial problem from some lender like master of their service • They hadn’t any significant job risk but yes they had asset loss risk • Many of them awared about insurance but not of micro insurance and best source of information medium found to be “Radio” and “advertisement banners”. • Many of respondents were not insured just because of either high premium or lack of complete information. • Some complaint about bad approachability of insurance provider company to them as well.

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• 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 • Because of low income they are ready to pay 150-200 bugs per year for insurance and like to have atleast one more member of their family to be insured • They are ready to pay premium 15-20 years. CONCLUSION: From the above statistical interpretation it could be concluded that potential lies in the society. There is a large segment of the population whose income level lies under the boundary line of poverty and since micro insurance target to those people whose income level is even less than 100 bugs per day, it can penetrate population very well. Many of our target segments have recommended many other facilities with micro insurance which found to be really concernable. Micro insurance product should be manufactured in such a way that those respondents who had denied for having insurance for all family members only just because of premium, can also get access through it.

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