Micro Insurance: An Assessment of the Scope and its Penetration in the
Indian Situation.
Sudha Rajagopal
Prof. Jain University
Abstract
Micro insurance is a technique to promote insurance density- one of the two main
metrics for assessing the insurance services- and sustainable development, and
avert the one-step forward, two step back- phenomenon, inevitable if accidents
and disasters were to strike. This is to help in the protection of the assets (both life
and non-life assets) built up with great difficulty by the people just coming out of the
poverty line and in the economically weaker sections of society,
The mandate as per the original Regulations in 2002 focused entirely on the rural
and social segments. Further in year 2005, based on the recommendations of the
Special Consulting Group, the issuance of the IRDA (Micro insurance) Regulations
was done, and it aggregated the urban small ticket size of insurance policies and
also integrating the life and non-life insurance businesses in both rural and urban
spheres into Rural and Social Sector Insurance.
The aim of this paper will be to 1. To review the actual results with the anticipated
numbers. It will further attempt to break down the numbers and review them from
the perspectives of the insurers, the insureds and the Regulators. 2. Whether the
‘Minimum Government and Maximum Governance’ has been realised in this aspect,
with specific reference, given the issuance of new regulations – and conclusions will
be drawn.
Key Words: Micro Insurance, IRDA Regulations, rural and social sectors, urban
poor, life and non life insurance.
Introduction: Micro insurance is offering insurance protection to those thus far
financially excluded, - inclusive of access to an appropriate menu of affordable social
protection, risk transfer and coping mechanism - to the poor and workers in the
informal economy and their family members. It is differentiated from the
conventional insurance – 1. by low income of insureds, “low income is defined as
under US$ 2 / diem” this amount, while contested is still accepted norm”, 2. by the
‘affordability’ problem, 3. by the small sums insured and 4. very large number of
transactions (hence costly?).
Minimum Government and Maximum Governance: Minimum Government and
Maximum Governance is exemplified by Good governance with committed
involvement of all stakeholders’, sound regulatory environment and minimal clear
simple statutes involving transactions and operations. Article 21 in the Constitution
of India 1949 guarantees protection for the individuals’ assets and Insurance
Regulatory and Development Authority- IRDA, first brought out a set of regulations
called the Obligations of Insurers to Rural and Social sectors in 2002 and then
Concept Paper on Need for Regulations on Micro-Insurance in India dated August
2004, these constitute the legal bindings for the stakeholders in the formal
Microinsurance domain. Informal microinsurance practises of religious bodies,
cooperatives and such organizations continue with their own customised protection
practises, within their limited ambit, mostly for individuals belonging to their group.
It is seen that there are very few compulsory mandates and statutes governing this
domain. The Practitioners have risen to the occasion and come forward to deliver
the goods and help improve the two major metrics of the insurance industry, the
insurance penetration levels and insurance density levels. The former measures the
ratio of insurance in percentage terms to the Gross Domestic Product figures, thus
relating it to the national economy and the latter to the per capita consumption
amounts of insurance, generally stated with reference to the United States Dollar
amount. Increases in the major insurance metrics of insurance density and
insurance penetration, indicates growth, a real development, in the developing
economy.
Minimal guidelines/mandates, has enabled the practitioners to devise and structure
their operations in a flexible appropriate manner looking to the market dynamics, to
achieve high productivity. This has so far been a sound and productive strategy, the
result being an evolution of the industry, good practises, keen competition and most
importantly steady, sustainable growth.
What is Microinsurance?: Micro Insurance is, essentially, an important tool, albeit a
low profile service than its umbrella service: the micro-finance, which majorly
features savings, investments and credit operations for the low income segment of
the populations in the developing economies across the globe. Transversing the
Globe, Central & Latin American States, most African states, many Asian states
majorly India, and its neighbours and a few island nations in the Oceania qualify for
the developing economy label and hence requiring microfinance applications for all
of their population in the low-income bracket. Micro insurance, a risk transfer
service whose time has now come, takes the ‘protection of assets’ principle in
insurance to the low income group. While accidents and disasters affect both the
rich and the poor, the rich are better able to cope as they are generally better
protected through insurance. The poor suffer as the vulnerability is increased
without any indemnification of losses. Seeing the scale of poor, low-income people
affected in the developing economies, there are a number of World Development
Organisations along with commercially inclined business houses, committed to
bringing micro finance and specifically micro insurance, to these low income
populations, all over the world.
Micro Insurance’s Network Vision: “For a world of people, across income levels, who
are more resilient and less vulnerable to daily and catastrophic risks” Director Micro
Insurance Network. The efforts are directed towards assisting the “low-income
people” grow on a sustainable basis so that they elevate themselves to the higher
plane of the middle class or advance to the new benchmark level, attracting a more
encompassing label like ‘emerging consumer’. The efforts are also directed
towards ensuring “the debt dies with the debtor”, possible with loan protection
insurance.
Micro Insurance, by having an inter-temporal spread, will give a denser “pixelated”
effect whereby a sharper and definitive image can emerge, and in this instance
indicative of a better and improved economy.
The scope for this service is enormous given that the nature of Indian Economy, as
of now, is categorized as underdeveloped or still developing economy and its
demographic profile / Population numbers of over 1.25 Bn. The nation is also prone
to accidents and disasters – both natural and man-made- on a frequent basis.
Given below is the diagrammatic representation of the current situation and the way
ahead will be to shrink the lowest band and in time eliminate it altogether and
successively growing the top two layers. The current status is that the low-income
population numbers form a major part of the flattened triangle, followed by a much
thinner band of middle income population topped with a small short triangle
comprising of high income group.
Diagram 1. Representation of the current segmentation of the population with reference to
Financial / Insurance Services.
HI
Slab
Middle-Income
Slab
Huge
Low-Income
Slab
Global Initiatives, A Brief Look at Opportunities at the Bottom of the Pile: United
Nations Capital Development Fund – UNCDF has set its mission as Doubling
Financial Inclusion 2020 based on the four pillars of 1. Policy & Advocacy, 2.
Research & Data Analytics, 3. Capital and 4. Capacity Development.
Microinsurance Catastrophe Risk Organisation –MiCRO, a section of the
International Financial Corporation is committed to spreading of basis risk across
geographies and enabling the stability of the base micro insurance product lines.
Micro Insurance Center institutes studies and reports to map the status of the
operations and the challenges faced and identify the gaps in the coverage and
delivery and outreach. Even at the national level micro finance and its element micro
insurance is studied to make it fully applicable to the Indian economy. Suitable
frameworks and options are to be evolved such that the Millennium Development
Goals are achieved.
Global Facility for Disaster Risk Reduction, GFDRR’s Disaster Risk Financing and
Insurance- DRFI Program assists developing nations to help increase the financial
resilience especially of the financially excluded and disadvantaged population to face
natural disasters. The interventions take the form of microinsurance facilitation,
intermediating between governments, Insurance Companies and Institutions, and
even facilitating the transfer of risk to International Capital Markets. GFDRR is set to
innovate on each of the identified challenges, (detailed below in page no. 6) to be
able to mitigate the financial impact of disasters on all stakeholders: individuals (rich
and poor), Small and Medium Enterprises, Agricultural Participants, Manufacturing
Industry and even Governments.
Organizations like the International Cooperative and Mutual Insurance Federation,
ICMIF, Working group on Microinsurance of the Consultative Group to Assist the
Poor, CGAP, (a consortium of donors including World Bank), Munich Re Foundation,
Regulators and Practitioners are a few among the many that are engaged in bringing
forth effective and appropriate solutions to alleviate poverty of the poor through
suitable product designs, supporting Capital and enabling provisions. These
Organisations confer at Forums such as Micro Insurance Conference (in Munich,
Germany- October 18th to the 20th 2005,) to identify challenges, review models that
have performed, other models that need better processes, have dialogues with the
Governments, Regulators & Developmental Authorities and how to push forward the
Micro finance movement to the fullest extent such that the “low income” population
could be elevated to the middle income group or higher, achieving societal growth
and development.
Asia, primarily India and China, has been considered as one of the biggest market
opportunities, world-wide, for financial services in the micro domain due to its big and
poor population and forward looking, progressive, regulatory framework and to an
extent inherent culture of the people.(Reinhard, Dirk, Chairman, Munich Re
Foundation -2013) .
Study Statistics: Some key measures are captured in the Table given here: Annual
Report 2013: MIC report score card for Asia and Oceania.
Table 1: Microinsurance Study in Asia and Oceania, 2013 - some key points
Countries Evaluated
Countries with
Microinsurance
No of Respondents
No. of Providers
031
024
No. of Products
No. of people reached
No of lives covered
No. of Health Risk
Covered
507
170.4 mn
083.9 mn
029.2 mn
No. of people covered for
Accidents
No of properties Covered
No. of Agri Risks Covered
077.8 mn
250
228
007.7 mn
023.8 mn
India Coverage
Comm. Insurers in Joint
Ventures, MFI linked
Organisations,
Government Schemes
acting simultaneously
Most of 507 product range
111.1 mn
111.1 mn
Mainly composite form of
insurance covering life,
health and accident
negligible
Jointly with refinancing
India is the largest of the micro-insurance market around the globe, as in the number
of lives insured, with more than 60% of the insurance companies operating in Indian
sphere, the largest bouquet of products, and showed a robust growth rate of more
than 200%!! since introduction. Indian microinsurance industry is showing steady
evolution and development together with growth.
While the India numbers seem impressive, set against the backdrop of India’s
demography, business done accounts for only 65.4% of the population, the coverage
is at 9% of the entire population and a 14.6% of the microinsurance market, way
behind Philippines market coverage of 20.7% but just ahead of Thailand coverage
percentage of 13.9%. The premium growth rate is good at 80% compared to the
neighbouring countries which are registering around 50%. While life risk is the most
popular on a stand-alone basis, health and agriculture risk covers demanded are fast
catching up with the prime product while the maximum demand is for a composite
cover of life and accident.
Some India Numbers: The individual new business premium under microinsurance in
the year gone by 2012-2013, was INR 109.67 Crs on 50.36 lakh new policies, (IRDA,
Annual Report 2012 - 2013). The respective figures for group business was nearly
double at INR 218.02 Crs on 1.39 Cr lives, (IRDA, Annual Report 2012 - 2013). The
insurers fulfilled the year-wise targets, set in advance by IRDA, the national
Regulator, both in terms of percentage of business from the Social and Rural sectors
and in terms of number of policies and number of lives covered. The industry figures
for the same period stood at penetration level of 3.96 %, density of USD 53.2,
divided as 3.17% penetration for life insurance and 42.7 USD density and the
corresponding figures for non-life insurance stood at penetration of 0.78% and USD
10.5 density. All the figures show a declining trend after peaking during 2010 and
2009.
These overall figures disguise the ground realities of financial exclusion. The
insurance “have-nots” are more in numbers in the low income segment, (thus
lending themselves more to the microinsurance program) than in the higher level
income individuals and groups. Overall people outside of the insurance services in
the Indian, low-income bracket, is still more than 68%. (World Development Report
2014). This yawning gap is sought to be bridged by the industry policy makers
(IRDA in India) by specific provisions labelling them under social and rural segment,
within the broader umbrella of micro insurance combining within its fold both life and
non-life insurance.
Way Forward in the Indian Context: The challenges in the microinsurance market
are too numerous for a complete enumeration but to mention a few of the most
important and basic ones are:

Significant dependency on a single source of income / one breadwinner

Inconsistent cash flows because of having irregular pay-cycles, making
premium payment a difficulty

Mobility issues: consumers face distant commutes to the premium payment
centres / distant from the work spot / inconvenient payment timings, work spot
changes and not matching portability in the insurance policy papers

Lack of awareness of the concept of insurance and its workings, misguided
understanding of the benefits of insurance, etc

Lack of Trust – insurance being an intangible product and unfamiliarity with
the workings render the sales and purchases of insurance policies very
unusual and whimsical for companies.
Action Plan: Having identified the challenges, steps are then initiated to overcome or
best manage each of these challenges. Innovative steps could be in the form of
organisation, product design, pricing, core expertise domains, delivery channels
partnered and media leverages, and such others, to be able to take the innovations
to the ‘last mile’
1. Forms of Organisations in this Domain: The practitioners and Corporates
involved could have varying Organisational forms, like a pure commercial
organisation, a Self Help Group, a Social Enterprise, An Academic Oriented
Research / Training Expert, or various shades of Government participation, as
in a Department of the Government or a Government Corporation or a form of
a Public Sector Undertaking.
2. Product Design: Innovations to accommodate the shortcomings of a single
income, irregular income and such related issues are carried out with
appropriate product designing and a varying product bouquet. A thorough
understanding of the needs of the consumers is got through quantitative and
qualitative research. The need has been established as a simple product,
which is easy to communicate in a few sentences and understood easily by
the insurance purchaser. While the need, a simple product, is easy to define,
designing such a product which will be productive and sustainable for the
insurers also is very difficult to make up. Simple products, so will mean
policies that cover fewer perils but more completely, lesser number of
exclusions, fewer loadings and riders, a insured-friendly pricing, and such.
3. Delivery Channels and Outreach: The delivery models (of varying efficacy)
found in the Indian Insurance Industry are

Direct Sales

Agent/cy Model

Partner , Agent Model

MFIs, Credit Unions, SHGs, Cross selling Financial Service providers

Community-based Models
The Direct Sales and Agency Models are conventional models deployed in the
routine insurance markets which may not deliver to the fullest extent in the micro
insurance, low-income category of market because of the low interest, awareness,
capacity of the insureds. The other three models have been found to be productive
in breaking down barriers in insurance-related perception of the people, building trust
bank and having suitable outreach.
3.1 Case Study -Tata-AIG Insurance Company: Prime example of Partner / Agency
model, at the grassroot level is the Tata-AIG practice (Case Study reviewed by
International Association for the Study of Insurance Economics, or more popularly
known as The Geneva Association, 2012). Tata-AIG, a private sector Joint Venture
company has very successfully established growing business in the micro insurance
segment through the Partner Agency model. It has partnered with a Social
Enterprise to creating a lasting impact on the community it serves while achieving
sustained growth in its business also. It has deployed covers for various perils in an
effort t to achieve financial resilience for its policy holders. Success is due to the
correct identification of requirements and customising delivery systems, knowledge
and trust deficit to overcome issues.
3.2 Case Study - Life Insurance Corporation: Life Insurance Corporation, on the
other hand, has had success in its traditional Agency model because of its wide
branch, agency and established mature network. It has benefitted by (a) the
localised nature of its operations, locally placed agents, locally approachable offices
and thus well integrated into the local community. LIC’s (b) core competencies of
handling the complete chain of insurance business processes is time tested and well
in place. The (c) near ‘monolithic’ character of LIC also helped in consumers
accessing its products. (d). Its identification of oneness with the Government helped
overcome the trust deficit.
Perusing the two diametrically opposite insurance business models, it can be seen
that the deficiency may not be on the model per se but in leveraging it to suit the
local conditions and clientele.
4. Target Realisation - Can clientele count surpass a billion by 2020?: A billion
of the till now, financially excluded be brought into the system to harness their
financial strength also? It is very evident that there is considerable work
happening on ground, well enabled by the minimal government and maximum
governance principles in place. But Placing the business captured, till now, in
the organized microinsurance sector, against the available unexploited
business potential, it is clear that the available microinsurance business is still
very very large.
In the Asia and Oceania regions, India and China are in the lead as far as Number of
Lives insured are considered. But while comparing with the Latin American or most
African States, India fares poorly in all counts like number of lives insured and also in
terms of premium collected or in reference to the sum assured (Microinsurance
center Report).
It is imperative that the benefits of insurance mechanism accrue not only at the
individual level but also for the nation as a whole and this aspect is highlighted and
made clear to the population. The concept of insurance, the idea of its’ functioning,
whether in a micro scale or catering to the middle and high income individuals, as an
important, powerful financial resilience tool should be explicitly explained. It is
equally relevant and applicable to various stakeholders of the economy like
individuals, industry and even to the Government itself.
5. An Innovative Government Sponsored Initiative: The recently announced
Prime Minister’s Jan Dhan Plan-PMJDY- has decided to correct the situation
of financial exclusion in a concerted, time bound manner. This measure is to
prevent leakages and unwarranted fund diversions in the system. While the
primary objective of this drive/ Plan is to afford banking service combined with
a debit card to a total of 7.5 Crs of people within a 5/6 months period starting
August 28th 2014, there are two covers of the complementary insurance
service also offered. A couple of insurance benefits come embedded in the
PMJDY, like the benefits of an accident insurance cover of INR one lac and
an additional life insurance cover of INR 30,000. The launch has been
extremely successful with over a 1.5 crs accounts having been opened in a
day, nation-wide. This marks a huge leap in vision and scale of operations,
for the very first time in Indian Economy. Duly monitored and tracked, this
yojana should yield validateable data.
Conclusion: Microinsurance is still in a nascent stage and evolving steadily. With
this Government initiative of PMJDY, the industry should get a fillip, positive
boost to scale of operations. As for innovations in the systems and procedures, it
should be viewed as an on-going process. Microinsurance industry is still a “work
in progress”.
Microinsurance industry should gear itself to deliver services to between 1.5 and
3 billion people worldwide, and close to one billion in the Indian context itself.
Insurance Product cover competencies should range from the common Life to
health, agriculture, property, loan protection and even catastrophe covers.
It needs to be viewed holistically and not just in the narrower sense of being a
protection and risk management mechanism, disbursing financial compensation
when accidents and disasters strike. The view that needs to be taken is that
micro/insurance is a complementary service to banking, making financial
inclusion complete and total. For Enterprise and Economy to grow and prosper,
Insurance is more of a “partnership that allows individuals and businesses to
spread their wings and go where they might otherwise not have dared to go”,
(Geneva Association Report 2012).
References
Consultative Group to Assist the Poor, (World Bank Associated body) – Working
Group on Microinsurance
GFDRR-DRFI Report
Geneva Association, Special Report on Microinsurance – 2012
ILO Study - 2007
IRDA, Annual Report 2013
IRDA, Regulations called the Obligations of Insurers to Rural and Social sectors 2002
IRDA, Concept Paper on Need for Regulations on Micro-Insurance in India, August
2004
Lloyd’s 360 Risk Insight
MicroInsurance Center Report
Munich Re Foundation, Compiled Conference Papers, 2005
Reinhard, Dirk, 2013, The Landscape of Microinsurance in Asia and Oceania 2013
Roth, McCord and Liber 2007, The Landscape of Microinsurance in the World’s 100
Poorest Countries
UNCDF
World Development Report 2014