Post on 01-Jan-2016
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 11
MICRO-INSURANCE –LIVELIHOOD NEEDS OF THE POOR
G.N. BHASKAR RAU
IIRM / HYDERABAD
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 22
INSURANCE: RURAL & SOCIAL SECTORS
What is “rural” ?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 33
INSURANCE: RURAL & SOCIAL SECTORS
Several definitions for ‘rural sector’
RBI : 4 different entities ….all based on population size only
Density or the occupations of the populations are not considered
Area with population less than 10000……….Rural
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 44
INSURANCE: RURAL & SOCIAL SECTORS
Census of India (1991) : considers size of population; occupations pursued by the population;
and also the density of the population Defines ‘urban area’ only as an area with:….
Minimum population : 5000;
75% of population of male workers engaged in non-agricultural pursuits;
population density of at least 400 / sq.km.
All other areas are rural
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 55
INSURANCE: RURAL & SOCIAL SECTORS
IRDA definition of ‘rural’ area:
Population less than: 5000;
75% of population of male workers engaged in agricultural pursuits;
population density of at least 400 / sq.km.
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 66
INSURANCE: RURAL & SOCIAL SECTORS
Insurers obligations to rural sectorLife insurer:
1st Financial year : 5% of the new policies to be sold
2ndFinancial year : 7% of the new policies to be sold
3rd Financial year : 10% of the new policies to be sold
4th Financial year : 12% of the new policies to be sold
5th Financial year : 15% of the new policies to be sold
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 77
INSURANCE: RURAL & SOCIAL SECTORS
Insurers obligations to rural sectorNon - life insurer:
1st Financial year : 2% of total gross premium written
2ndFinancial year : 3% of total gross premium written
3rd Financial year
onwards…….: 5% of total gross premium written
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 88
INSURANCE: RURAL & SOCIAL SECTORS
SOCIAL SECTOR
sub-category of ‘rural’ category
mostly economically underprivileged in rural areas
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 99
INSURANCE: RURAL & SOCIAL SECTORS
SOCIAL SECTOR
Also includes in both rural and urban areas:
unorganized sector
informal sector
economically vulnerable sector
backward classes….etc.
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1010
INSURANCE: RURAL & SOCIAL SECTORS
Insurers obligations to social sector
For both Life and Non - life insurers:
1st Financial year: 5000 new lives
2nd Financial year: 7500 new lives
3rd Financial year: 10000 new lives
4th Financial year: 15000 new lives
5th Financial year: 20000 new lives
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1111
INSURANCE: RURAL & SOCIAL SECTORS
Over the past two decadeseconomists and policy-makers
have recognized the need for a newer approach
to economically up-lift the rural masses
THE NEW VERSIONS ARE MICRO-FINANCE AND MICRO INSURANCE
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1212
MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES
THE MARKET: The size, the nature and the variety
THE ENTRY BARRIERS: The Physical barriers, the Mindsets, and
the Level of Comprehension
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1313
MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES
MICRO-INSURANCE UNITS: The Individual or the Household? Or the Guilds?
MICRO-INSURANCE TOOLS: The Basic Tools of Micro-insurance and the connected Issues
THE STRATEGIC IMPLEMENTATION: Distribution Channels, The Banking Network, The NGO Network, The Performance Process etc
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1414
MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES
MICRO-INSURANCE RISKS:
Yield Risk – Event Risk – Price Risk
MICRO-INSURANCE PERILS:
Named Perils – All Perils – Packaged Perils
MICRO-INSURANCE PRODUCTS:
Suggested Model
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1515
MICRO-INSURANCE :
THE CORE CONCEPT:
POVERTY ALLEVIATION
POVERTY MITIGATION
DISCUSSIONS ON “ANTI-POVERTY” PROGRAMS DATES BACK TO 1901.
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1616
MICRO-INSURANCE :
EARLIEST PROGRAMS:
INDEPENDENT INDIA LAUNCHED:
NATIONAL RURAL EMPLOYMENT PROGRAM
RURAL LANDLESS EMPLOYMENT GUARANTEE PROGRAM ETC.
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1717
MICRO-INSURANCE MARKET :
THE SIZE:
“RURALITY” AS THE BASIS:
70 % OF INDIA’S POPULATION LIVES IN RURAL AREAS
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1818
MICRO-INSURANCE MARKET :
THE SIZE: (contd)
“POVERTY LEVEL” AS THE BASIS:
1/3 OF INDIA’S POPULATION LIVES IN POVERTY
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 1919
MICRO-INSURANCE MARKET :
THE NATURE OF THE MARKET:
AGRO-BASED
ILLITERATE
TRADITIONAL
MALNUTRITION AND HEALTH ISSUES
EXPLOITED
DISPERSED
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2020
MICRO-INSURANCE MARKET :
THE VARIETY OF THE MARKET:
WIDE VARIATIONS
FARM AND NON-FARM POVERTY
SOME PARTS PARTLY UNDER EFFECT OF “GREEN REVOLUTION”
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2121
MICRO-INSURANCE MARKET :
THE VARIETY OF THE MARKET: (contd)
VARIED SIZES OF FARM UNITS
MORE OF SMALL-SCALE FARMERS
SUBSTINENCE FARMERS
SPREAD OF UNITS
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2222
MICRO-INSURANCE MARKET :
THE VARIETY OF THE MARKET: (contd)
“RURBANS”…?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2323
MICRO-INSURANCE MARKET :
ENTRY BARRIERS :
LOW LITERACY LEVELS
LACK OF INFORMATION
LESS PRONE TO NEW CONCEPTS
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2424
MICRO-INSURANCE MARKET :
ENTRY BARRIERS : (contd)
COMMUNITY DECISIONS BY THEIR “ELDER”
SMALL AND SUBSTINENCE FARMS
LOW YIELDS AND PROFITS
INSURANCE NOT ATTRACTIVE
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2525
MICRO-INSURANCE MARKET :
ENTRY BARRIERS : (contd)
WIDE DISPERSION OF FARMS DISTRIBUTION ISSUES
LOSS ASSESSMENT ISSUES LOCAL POLITICAL INFLUENCE
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2626
MICRO-INSURANCE MARKETING
UNITS:
INDIVIDUALS?
HOUSEHOLDS?
ORGANIZATIONAL UNITS?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2727
MICRO-INSURANCE MARKETING
BASIC RISKS TO COVER:
YIELD RISK
EVENT RISK
PRICE RISK
WITH OR WITHOUT REINSURANCE ?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2828
MICRO-INSURANCE TOOLS:
PERILS:
NAMED PERILS?
ALL-PERILS?
PACKAGED PERILS?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 2929
MICRO-INSURANCE TOOLS:
PRODUCTS:
AGRICULTURAL INSURANCE RODUCTS?
CROP INSURANCE PRODUCTS?
WEATHER INSURANCE PRODUCTS?
PACKAGED / BUNDLED PRODUCTS?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3030
MICRO-INSURANCE TOOLS:
DISTRIBUTION CHANNELS:
GOVRNMENT ORGANIZATIONS?
NON-GOVERNMENT ORGANIZATIONS?
SELF HELP GROUPS?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3131
MICRO-INSURANCE TOOLS:
DISTRIBUTION CHANNELS:
FARMERS’ COOPERATIVES?
BANCASSURANCE MODELS?
MICROFINANCE COMPANIES?
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3232
MICRO-INSURANCE TOOLS:
SUGGESTED MODEL :
SUGGESTED UNITS:
ORGANIZATIONAL UNITS
Ex: Co-operatives
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3333
MICRO-INSURANCE TOOLS:
SUGGESTED MODEL : SUGGESTED UNITS:
ORGANIZATIONAL UNITS : ADVANTAGES: INCLUDE ALL THE MEMBERS EVEN THE SMALLEST FARMER EASY FOR MARKETING EASY FOR CLAIM SETTLEMENTS
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3434
MICRO-INSURANCE TOOLS:
SUGGESTED MODEL : SUGGESTED UNITS: (contd)
ORGANIZATIONAL UNITS : ADVANTAGES:
MOST OF THE ENTRY BARRIERS CLEARED
see the next slide
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3535
MICRO-INSURANCE TOOLS:
SUGGESTED MODEL : SUGGESTED UNITS: (contd)Entry barriers cleared:
LOW LITERACY LEVELS ;
LACK OF INFORMATION; LESS PRONE TO NEW CONCEPTS; DECISIONS BY THEIR “ELDER” ; SMALL AND SUBSTINENCE FARMS ; LOW YIELDS AND PROFITS; INSURANCE NOT ATTRACTIVE ; WIDE DISPERSION OF FARMS ; DISTRIBUTION ISSIES
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3636
MICRO-INSURANCE TOOLS:
DISTRIBUTION CHANNELS: (suggested)
FARMERS’ COOPERATIVES + MICROFINANCE COMPANIES
OR
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3737
MICRO-INSURANCE TOOLS:
DISTRIBUTION CHANNELS: (suggested)
FARMERS’ COOPERATIVES
+
BANCASSURANCE MODELS
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3838
MICRO-INSURANCE TOOLS:
SUGGESTED DISTRIBUTION CHANNELS: advantages: Combination of Farmers’ Cooperatives and Microfinance Companies
Microfinance companies’ credit risk gets micro-insurance cover
Micro-insurance cover for Farmers’ Cooperatives gets Microfinance benefits on better terms
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 3939
MICRO-INSURANCE TOOLS:
SUGGESTED DISTRIBUTION CHANNELS: advantages: Combination of Farmers’ Cooperatives and
Bancassurance Model
Wider Banking Network Banker of Farmers’ Coops can provide micro-
insurance Easier Accounting
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4040
MICRO-INSURANCE TOOLS:
SUGGESTED RISKS TO COVER:
YIELD RISK :
AN AGREED AMOUNT YIELD VALUE COMMENSURATE TO INPUT VALUES
IF THE FARMERS’ COOPS ARE ALSO STAKE-HOLDERS THE INPUTS VALUES AND YIELD VALUES ARE EASIER ARRIVED AT
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4141
MICRO-INSURANCE TOOLS:
SUGGESTED RISKS TO COVER:
EVENT RISK :
THE EVENT COULD BE:
CLIMATIC RISKS
WEATHER RISKS
RAINFALL – LOW / HIGH
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4242
MICRO-INSURANCE TOOLS:
SUGGESTED RISKS TO COVER:
EVENT RISK
LEADS TO
YIELD RISK
HENCE YIELD RISK IS SUGGESTED;
EASILY MEASURABLE;
VARIATION OF EVENT RISKS OVER REGIONS AVOIDED
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4343
MICRO-INSURANCE TOOLS:
SUGGESTED RISKS TO COVER:
PRICE RISK
YIELD NORMAL; PRICES CRASH; LOSS OCCURS; NEED FOR INSURANCE COVER
HENCE SUGGESTED RISKS………….
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4444
MICRO-INSURANCE TOOLS:
SUGGESTED RISKS TO COVER:
BASIC COVER ON ……YIELD RISK
AGREED AMOUNT COMMENSURATE TO INPUTS
ADDITIONAL COVER….PRICE RISK
MINIMUM GUARANTEE OF PRICE BASED OPREVIOUS YERS’ PRICES(AVERAGE)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4545
MICRO-INSURANCE TOOLS:
SUGGESTED PERILS TO COVER:
PACKAGED PERILS
Uniformity is achieved; Beneficiaries not knowledgeable to choose perils;
Pricing and costing to the yield risk coverage made easier
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4646
MICRO-INSURANCE TOOLS:
SUGGESTED PRODUCTS:
SINCE THE MODEL SUGGESTS ….
PACKAGED PERILS….
THE SUGGESTED PRODUCT IS ALSO
PACKAGED PRODUCT
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4747
MICRO-INSURANCE TOOLS:
THE RATIONALE FOR THE SUGGESTED MODEL
RURAL POOR ….BASICALLY EXPOSED TO
CREDIT RISKINCURRED FOR LIVELIHOOD (PRODUCTION)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4848
MICRO-INSURANCE TOOLS:
THE SUGGESTED MODEL:
THE RATIONALE (CONTD)
“CREDIT” IS A DIRECT FINANCIAL RISK
AFFECTED BY CERTAIN OTHER
INDIRECT (NON)FINANCIAL RISKS WHICH ALSO REQUIRE COVER
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 4949
MICRO-INSURANCE TOOLS:
INDIRECT (NON)FINANCIAL RISKS
BEYOND CONTROL OF BENEFICIARY THAT AFFECT THE DIRECT CREDIT RISK
Loss of life of the beneficiary Temporary Disability due to health issues Permanent Disability due to accidents / sickness Damage to tools / equipment Fire / Theft / Storage loss due to floods or rains
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5050
MICRO-INSURANCE TOOLS:
MICRO-INSURANCE POLICY BENEFITS (SUGGESTED)
“C” IS THE BASIC AMOUNT OF BENEFIT “C” IS BASED ON (YIELD RISK + PRICE RISK)
“C” : VALUE OF THE DIRECT “CREDIT RISK” “C” : PAYABLE IF ONLY “YIELD” AND / OR
“PRICE” ARE AFFECTED
(contd)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5151
MICRO-INSURANCE TOOLS:
MICRO-INSURANCE POLICY BENEFITS:
BENEFITS FOR INDIRECT RISKS:
Loss of life: 1.5 C(The extra 0.5 C is to stabilize the family of the borrower even after the
redemption of his borrowings)
Disability Benefit (if temporary) : 0.5 C(For primary health care) (contd)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5252
MICRO-INSURANCE TOOLS:
MICRO-INSURANCE POLICY BENEFITS:
BENEFITS FOR INDIRECT RISKS:
Disability Benefit (if permanent) : 2 C(The extra C is towards provision of some interest yielding
capital to sustain the daily living of the family. The M.F.I / Bank / FC’s can provide this facility)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5353
MICRO-INSURANCE TOOLS:
RISK FINANCING: (Suggested)
THROUGH PREMIUMS Are the premiums actuarially based?
Some suggest ‘disregard to actuarial bases’ for micro-insurance…as a social security
(contd)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5454
MICRO-INSURANCE TOOLS:
RISK FINANCING: (Suggested)
THROUGH PREMIUMS
for the INDIRECT NON-FINANCIAL RISKS
this Model suggests ‘Group Life Premiums’ to be charged on actuarial principles ………..and…...
(contd)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5555
MICRO-INSURANCE TOOLS:
RISK FINANCING: (Suggested)
THROUGH PREMIUMS for the DIRECT FINANCIAL CREDIT RISKS
this Model suggests ‘Premiums’ to be charged on total actuarial liability of the entire group’s credit liability
(contd)
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5656
MICRO-INSURANCE TOOLS:
RISK FINANCING: (Suggested)
“FUNDING” BY ORGANIZATIONS
The ‘premium funding’ (mentioned earlier) may mostly be insufficient to meet the ‘pay-out’ liabilities of the group….necessitating ‘funding’ by organizations………………….like….
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5757
MICRO-INSURANCE TOOLS:
RISK FINANCING: (Suggested)
“FUNDING” BY ORGANIZATIONS …like…
CARE FOUNDATION REINSURANCE PROGRAMS GOVERNMENT SUBSIDY SOCIAL ORGANIZATIONS…... NGO’s…….etc.
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5858
MICRO-INSURANCE
CONCLUSIONCORE CONCEPT IS POVERY ERADICATION.
THEREFORE, MICRO-INSURANCE SHOULD BE PLANNED AS A SOCIAL SECURITY MEASURE….NOT AS A BUSINESS ENTERPRISE FOR MERE PROFITS
THE ‘REGULATORS’ SHOULD (IRDA, RBI & THE GOVERNMENTS) PROVIDE POSSIBLE ‘SOPS’ AND ‘CUSHIONS’
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 5959
MICRO-INSURANCE
ACKNOWLEDGEMENTS:
WORLD BANK REPORTS
SEMINAR PAPERS ON SHG-BANK LINKAGE PROGRAMME, NEW DELHI, 2002
VARIOUS PAPERS BY RESEARCHERS (Lall, Mohan, Natarajan, 2001, Ghosh 1998, and others)
WORKSHOP ON MICROINSURANCE (IRDA, IIRM, USAID), 2005
POVERTY, AGRARIAN STUCTURE, POLITICAL ECONOMY IN INDIA – PRANAB BARDHAN, OXFORD UNIVERSITY PRESS, 2003
GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 6060
THANK YOUTHANK YOUG.N. BHASKAR RAUG.N. BHASKAR RAU
IIRM / HYDERABADIIRM / HYDERABAD