21250032 Micro Insurance Project Report

8/14/2019 21250032 Micro Insurance Project Report

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U N I V E R S I T Y S C H O O L O F M A N A G E M E N T S T U D I E S

G . G . S . I N D R A P R A S T H A U N I V E R S I T Y

Vi s i t

a 2 z m b a . b l o g s p o t . c o m

f o r m o r e p r o j e c t

r e p o r t s

F I N A N C E P R O J E C T

M I C R O - I N S U R A N C E I N I N D I A :

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

E X T E N S I O N

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Submitted 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 byMicro insurance team Govind Kumar Jha, Gaurav Asthana, Shiva Jangid, InduBhushan, Rakesh, Himanshu Nirwan, Deepak, Manish and Lucky Talwar.

This is to further declare that this project report is authentic and not beingsubmitted by any other student previously.

DATE:

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Contents

Foreword....................................................................................................... i

Introduction...................................................................................................1

Development of Micro-insurance inIndia........................................3

Supply and Demand SideDevelopments ........................................5

3.1 Supply of micro-insurance ..................................................................53.2 Demand for micro-insurance...............................................................6

On Extending Micro-insurance .......................................................10

4.1 Flexibility inPremium........ ................................................................11

4.2 Micro-insurance and micro-finance ...................................................16

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

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Introduction

InsuranceInsurance is an essential part of running any business. If you are operating asmall business you need more than just property insurance. Taking out theright insurance will help protect your business and minimize its exposure torisk.

Your insurance requirements will vary according to the type of business youare operating, but you should be aware that some forms of insurance arecompulsory, such as workers compensation and third party car insurance.

When youre 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 theprobability 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 andother perils such as earthquake, lightning, storms, impact, malicious damageand explosion.

Burglary

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

Business interruption or loss of profits

Covers you if your business is interrupted through damage to property byfire 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 embezzleor steal.

Machinery breakdown

Protects your business when mechanical and electrical plant and machineryat the work site break down.

Motor vehicle

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It is compulsory to insure all company or business vehicles for third partyinjury liability. Many different types of policies are available, so make sureyou understand the options before making a decision. There are four basicoptions:

1. Compulsory third party (injury) covers you for claims madeagainst 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 damageto another person or to the property of others and your legal costs. Itdoesnt include repairs to your own car if you caused an accident.

3. Third party, fire and theft - covers you against the eventscovered above, as well as fire and theft. It also insures against damagecaused if your car was stolen.

4. Comprehensive - covers you for all of the above plus damagecaused to your own car by you in an accident. If you're buying a car onan 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 compensationis covered by separate state and territory legislation.

Personal accident and illness

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If you are self employed you wont be covered by workers compensation, soyou need to cover yourself for accident and sickness insurance through aprivate insurer. There are several types of life insurance. Some areinvestment-type funds where you contribute over a certain time and getback 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 throughsickness or accident.

Trauma insurance - provides a lump sum when you are diagnosedwith one of several specified life threatening illnesses.

Term life insurance or whole of life cover - provides yourdependents with a lump sum if you die.

Total and permanent disability insurance - provides a

lump sum only if you are totally and permanently disabled beforeretirement.

SuperannuationIf you are running a business or employing people, you are likely to havesuperannuation obligations to your employees. If you are self-employed youalso need to provide for your retirement - superannuation is generally usedto 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 financialrisk of being found liable to a third party for death or injury, loss or damageof property or pure economic loss resulting from your negligence.

Professional Indemnity

Professional indemnity insurance protects you from legal action taken forlosses incurred as a result of your advice. It provides indemnity cover if yourclient suffers a loss - either material, financial or physical - directly attributedto negligent acts.

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Product Liability

If you sell, supply or deliver goods, even in the form of repair or service, youmay need cover against claims of goods causing injury or damage. Productliability insurance covers damage or injury caused to another business orperson 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 thatthreaten 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 peopleagainst these losses is an important step to alleviating global poverty.Micro insurance - the protection of low-income people against specific perilsin exchange for regular monetary payments (premiums) proportionate to thelikelihood and cost of the risk involved seeks to provide a suitable solutionfor 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 accessto this critical financial service. In India and China, where organizations areestimated to serve nearly 30 million micro insurance clients each, thepercentage of poor lives insured hovers below 3%. In Africa this figure ismuch lower just 0.3% of the continents poor are insured. According torecent data, in 23 of the poorest 100 countries in the world, there is currentlyno identified micro insurance activity, representing an unserved populationof 370 million.

History and Vision

The Micro Insurance Agency has its roots within Opportunity International, alarge microfinance network motivated by Jesus Christs call to serve thepoor. With a network of 47 microfinance institutions, OpportunityInternational has been serving the entrepreneurial poor since 1971. Inpartnership with Opportunitys microfinance institutions, we began workingin 2002 on the development of a range of life, property, livestock, crop

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derivative, disability, unemployment and health insurance products to coverthe risks faced by Opportunitys loan clients.Micro Insurance Agency staff observed that the risks the poor face can oftenset them back months and years behind where their loans and savingsproducts offered by Opportunity had taken them. For instance, a death of a

family member from HIV/AIDS a pre-condition most insurance companieswould not cover would often mean expensive funeral costs and the loss of a breadwinner, resulting in increased economic hardship for the family. Inresponse, Micro Insurance Agency staff developed an affordable funeralbenefit 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 competingenvironment.

Through the experience of serving Opportunitys microfinance institutionsand their clients, Micro Insurance Agency staff observed that the productsmost 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 interms of supply. In addition, policies that are available are often based onfirst world practices and are too complex for the simple coverage demanded.Further, when offered on an individual, one-off basis, high premiumrequirements and a need to pay in a single lump sum preclude a huge sectorof the market from access. New distribution models and channels wereneeded to increase access and reduce the effective price charged to clients.In 2005, the Micro Insurance Agency was founded by OpportunityInternational as a fully-owned subsidiary capable of offering insuranceproducts and services to a wide range of customers.Our mission is to empower the materially poor to transform their lives byinsuring them against financial risk and its consequences. Specifically, weseek to serve the economically active poor who live on $4 per day or less indeveloping 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-incomepeople, 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 riskrating (as opposed to individual risk rating), active involvement of anintermediate agency representing the target community and so forth.Insurance is fast emerging as an important strategy even for the low-incomepeople engaged in wide variety of income generation activities, and whoremain exposed to variety of risks mainly because of absence of cost-effective 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 aremore vulnerable to such risks because of their economic circumstance. In thecontext of health contingency, for example, a World Bank study (Peters et al.

2002), reports that about one-fourth of hospitalized Indians fall below thepoverty line as a result of their stay in hospitals. The same study reports thatmore than 40 percent of hospitalized patients take loans or sell assets to payfor hospitalization. Indeed, enhancing the ability of the poor to deal withvarious risks is increasingly being considered integral to any povertyreduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).

Of the different risk management strategies2, insurance that spreads theloss of the (few) affected members among all the members who joininsurance scheme and also separates time of payment of premium from timeof 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 neverconsidered as an option for the poor. The poor were considered too poor tobe able to afford insurance premiums. Often they were considereduninsurable, given the wide variety of risks they face. However, recentdevelopments in India, as elsewhere, have shown that not only can the poormake small periodic contributions that can go towards insuring them againstrisks but also that the risks they face (such as those of illness, accident andinjury, life, loss of property etc.) are eminently insurable as these risks aremostly independent ,idiosyncratic. Moreover, there are cost-effective waysof extending insurance to them. Thus, insurance is fast emerging as aprepaid financing option for the risks facing the poor.

In this paper, we analyze the early evidence on micro-insurance alreadyavailable in this regard, highlight the current initiatives being contemplatedto strengthen micro-insurance activity in the India, and suggest specific waysthat 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 bynon-governmental organizations (NGO) due to the felt need in thecommunities in which these organizations were involved or by the trusthospitals. These schemes have now gathered momentum partly due to thedevelopment of micro-finance activity, and partly due to the regulation thatmakes 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 arenegotiating with the for-profit insurers for the purchase of customized groupor 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. Theoverall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004).

The insurance regulatory and development authority (IRDA) defines ruralsector 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 fallingunder agricultural pursuits are: cultivators, agricultural labourers, andworkers 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. Therural obligations are in terms of certain minimum percentage of total policeswritten by life insurance companies and for general insurance companies,these obligations are in terms of percentage of total gross premiumcollected. 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 fromthe 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 therural and low-income segment. Finally, non-fulfillment of these obligationscan invite penalties from the regulator.

In order to fulfill these requirements all insurance companies have designedproducts for the poorer sections and low-income individuals. Both public andprivate insurance companies are adopting similar strategies of developingcollaborations 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 inextending insurance cover to the poor. The nodal agency helps the formal

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insurance providers overcome both informational disadvantage and hightransaction costs in providing insurance to the low-income people. This waymicro insurance combines positive features of formal insurance (pre paid,scientifically organized scheme) as well as those of informal insurance (byusing 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 affordabilityissue. Lack of affordability prevents their latent demand from expressingitself in the market. Hence the nodal agencies that organize the poor, imparttraining, and work for the welfare of the low-income people play animportant role both in generating both the demand for insurance as well asthe 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 asA. In this realm the customers are corporations and wealthy individuals,and the products are voluntary products such as life insurance, andobligatory products required either by law (such as motor third party liability)or by banks (such as property loss and credit life). Also offered are productscovering employees and civil liability. Most of the non-auto related

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commercial products are being sold within the area marked B. Theaggregate market for microfinance providers is generally in the areaidentified as C. Some MFPs require borrowers to obtain insurance forproperty, or credit-life insurance as a means of protecting the institutionsinterests. Area D indicates the broad range of products offered by the

social security and public health insurance systems of developing countrygovernments. They include coverage for pensions, disability benefits,primary health care, and medications. The weakness of this sector isindicated by the dashed line that suggests incomplete coverage. Thepotential market for microinsurance is indicated as E. This extends abovethe MFP range in providing access to individuals and others that cannotobtain appropriate products from the commercial sector. The microinsurancerange also extends below the MFP range because it addresses agriculturalcoverage in some cases, and is now being sold through many deliverychannels 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 toclients. Methods and models for doing so vary depending on the

organization, institution, and provider involved. In general, there are fourmain methods for offering micro-insurance the partner-agent model, theprovider-driven model, the full-service model, and the community-basedmodel. Each of these models has their own advantages and disadvantages.

Partner agent model : A partnership is formed between themicro-insurance scheme and an agent (insurance company,microfinance institution, donor, etc.), and in some cases a third-partyhealthcare provider. The micro-insurance scheme is responsible for thedelivery and marketing of products to the clients, while the agentretains all responsibility for design and development. In this model,micro-insurance schemes benefit from limited risk, but are alsodisadvantaged 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 fullcontrol, yet the disadvantage of higher risks.

Provider-driven model : The healthcare provider is the micro-insurance scheme, and similar to the full-service model, is responsiblefor all operations, delivery, design, and service. There is an advantageonce more in the amount of control retained, yet disadvantage in thelimitations on products and services.

Community-based/mutual model : The policyholders or clientsare in charge, managing and owning the operations, and working withexternal healthcare providers to offer services. This model isadvantageous for its ability to design and market products more easilyand 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 communitiesto establish mutual or community-based insurance schemes. Professionalstypically 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 insuranceprofessionals. Often people who were simply in need of insurance end upbeing insurance managers with these schemes. One member of themanagement committee of a community- based scheme in Tanzania notedthat he wants insurance, but doesnt want to be an insurer. In community-based schemes, the limited management capacity frequently leads to arange of difficulties. The key issues of concern for community-basedschemes include:

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

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

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available to unregulated insurance schemes thus leaving them with noability to manage cash flow deficits.

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

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

Finally, in many countries there is no legal framework for theseschemes. Indeed regulators are often unwilling to allow such schemesfor fear that they will not be able to adequately supervise many smallschemes run by non-professionals. This is the case in India. Serviceproviders, most typically hospitals and other healthcare providers haveoffered pre-financing mechanisms that act somewhat like insurance.

These products, it is argued, will attract more people to the facility andthe people who come will be able to pay for the services. Often thisbecomes a problem because providers have limited ability to managethe insurance administration issues. One overseer of a particular groupof hospitals noted that attempting to offer microinsurance couldpresent a dual threat to the hospital network for which he works. Henoted that the hospital administrators do not even know how to pricetheir own healthcare services. Therefore, they mis-price theirpremiums based on those prices, which are typically too low. Theresulting increase in patients using the insurance leads to even higherlosses, due to higher administrative costs and incorrect fees that donot cover the actual costs of services. Governments also provide aform of microinsurance through the programs they provide for low-income Citizens. Unfortunately, in many countries these programs aresimply insufficient to address the financial risks of the low- income anddestitute populations. Certainly there is a population that will not becovered by commercial or other non-government microinsurance.However, if a proper balance could be found, it is possible that thecombination of government programs, commercial microinsurance,mutual insurance, and traditional commercial insurance could makeeach of these more efficient, and make the government interventionsmore effective in addressing those that truly require such services.

Need for Developing Micro-Insurance in India IRDA perspective

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Background

Micro-insurance refers to protection of assets and lives againstinsurable risks of target populations such as micro-entrepreneurs,small farmers and the landless, women and low-income people throughformal, semiformal and informal institutions. Such products are oftenbundled with micro-savings and micro-credit, thereby allocating scarceresources 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, benefitingboth the institutions and their clients. Such schemes have generallyserved two major purposes: (i) they have contributed to loan security;and (ii) they have served as instruments of resource mobilization. Thegreatest challenge for microinsurance lies in the combination of viability and sustainability with outreach.

Although introduction of sound practices such as appropriate policysizes and timely payment of installments of premium or positiveincentives to renew on time in order to avoid policy getting lapsed canbe feasible, the ultimate effectiveness of interventions focusing oninstitutional transformation and sound insurance practices will varyconsiderably, depending on the appropriateness of the regulatoryenvironment.

Development Goal

To enable microinsurance to be an integral part of a country's widerinsurance system, it is important for every insurer to adjust its costs of serving marginal clients in remote areas, collecting premiums andinstallments, and offering doorstep services. It is also important to recognizea wide network of intermediaries in the rural and social sectors and notifyregulations in order to guide and supervise the micro-insurance serviceproviders and their customers.

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Today we have a variety of microfinance institutions with national and localoutreach. Many of them have already become corporate agents or haveentered into referral

arrangements with insurers. However, semiformal institutions including

savings and credit cooperatives, NGOs and self-help groups which haveimmense potential in carrying the message of insurance as also solicitinsurance business are yet to be utilized in a manner where their truepotential can be harnessed to increase the insurance penetration levels. Thisis due to restrictions in the existing agency regulations in terms of minimumeligibility norms in order to become an agent.Depending on the existence and vigour of such institutions, the followingalternatives have emerged, for offering strategic entry points formicroinsurance development:

Adapting formal insurance arrangements to the needs of the micro-economy.

Upgrading non-formal (comprising semiformal and informal) insurancearrangements with insurance companies.

Linking formal and non formal insurance institutions with banks andself-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 micro-economy is a first step; then

Linking them as wholesale institutions to self-help groups as retailers;and finally,

Upgrading self-help groups e.g. to the level of financial cooperatives orvillage banks.

If insurers are to serve customers who differ widely in terms of service costsand risks, the only viable inducement for them is an adequate margin, lest

they exclude small farmers, - micro-entrepreneurs and people in remoteareas. Only sound social insurance, which combines a social mandate withprofit-making, has a chance of sustainability.

Institutional Adaptation

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The experience so far has been that formal financial institutions serve but afraction of the population, which typically lies within the upper quartile of thesocial hierarchy. Through adaptation to the microfinance marketrequirements, they may gradually expand into the second-highest quartileand 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 directlyaccessible to all segments of the population. Self-Help Groups (SHGs) aremember-owned and member-controlled local institutions. They may either befinancial groups, with financial intermediation as their primary purpose; ornon financial groups, with financial intermediation as a secondary purpose,such as vendors' associations, family planning groups and numerous othertypes of voluntary associations.

The functions that need to be focused must include: providing guidance tomembers, collecting premium installments from members, insurance

services to members, communication and exchange of experience, providinglinkages with banks, NGOs or donors, supporting the proposals of individualmembers to insurance companies through recommendations.

Linkage to Insurers

On a modest scale, various forms of life and health insurance have beensuccessfully practiced by different institutions in different countries,particularly as part of loan protection schemes. Micro-insurance proceduresand services should be set by insurers rather than the regulator. Appropriateprocedures 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 cooperationbetween different formal and non-formal intermediaries in fields where eachis most effective.

Proposed Micro-insurance Regulations

In order to introduce the concept micro-insurance it is necessary to draftsuitable bring in suitable regulations to enable insurers to design anddistribute and service micro-insurance products and discharge theirobligations to the rural and social sectors as per provisions of the InsuranceAct, 1938.

1. It is proposed that an insurer transacting life insurance business shallbe permitted to provide life micro-insurance products as well asgeneral micro-insurance products provided it ties up with an insurertransacting general insurance business for the general micro-insuranceproducts, and vice versa.

2. In addition to an insurance agent or corporate agent or insurancebroker who are authorized to solicit and procure insurance business,including micro-insurance business with an insurer in accordance withthe provisions of the Insurance Act, 1938 and the regulations madethere under it is also proposed to introduce the concepts of micro-insurance product and micro-insurance agent .

Micro-insurance Product1. A life micro-insurance product means any term insurance

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

Table A:

Type of Cover

MinimumAmount of Cover

MaximumAmountof Cover

Term of Cover Min.

Term of Cover Max.

Minimum Ageat entry

Maximum age atentry

TermInsurancewith or withoutreturn of

premium

Rs. 10,000 Rs. 50,000 5 year 7 years 18 60

Endowment

Rs. 10,000 Rs. 50,000 5 year 7 years 18 60

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Insurance

HealthInsuranceContract

Rs. 10,000 Rs. 15,000 1 year 7 year 18 60

Accident

Benefit asrider

Rs. 10,000 Rs. 50,000 1 year 5 years 18 60

NOTE: The present average sum insured is around Rs. 5,000. This ishighly

inadequate to provide any tangible relief even to an individual belowthe

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 insurancecontract, 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 of Cover

MinimumAmountof Cover

MaximumAmount of Cover

Term of Cover Min.

Term of Cover Max.

MinimumAge at entry

Maximum age atentry

Hut or livestock or Toolsor implements or other assets against all

perils

Rs. 10,000 Rs. 20,000 1 year 1 year 18 70

HealthInsuranceContract

Rs. 10,000 Rs. 15,000 1 year 1 year 18 60

Personal

Accident

Rs. 10,000 Rs. 50,000 1 year 1 year 18 60

Micro-insurance Agent

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

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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 theoption to terminate the agreement/ MOU after giving a notice of threemonths.

j) All such agreements/ MOU must have the prior approval of the Headoffice of the insurance company.

Initiative Taken By Private Sectors

Tata AIG Life - First insurance company to launch MicroInsurance

First major Micro Insurance initiatives venture by an Indian insurancecompany

Launches three new Micro Insurance products and five Micro Insurancebranches

Adopts a tailor made rural communication strategy to reach out to therural 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 withoperations in more than 130 countries and jurisdictions. AIG companiesserve commercial, institutional and individual customers through the mostextensive worldwide property-casualty and life insurance networks of anyinsurer. In addition, AIG companies are leading providers of retirement

services, financial services and asset management around the world. AIG'scommon stock is listed in the U.S. on the New York Stock Exchange, as wellas the stock exchanges in London, Paris, Switzerland and Tokyo.

Micro Insurance is the process of delivering and servicing relevant andaffordable life insurance products to the low-income socio economic strata.

The focus of Tata AIG Lifes Micro insurance program is rural India, wheretraditionally the far-flung, lower and lower middle-income segments havehad 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. Withpremiums as low as Rs.5** per month, there is now an affordable lifeinsurance product for nearly every rural household in India.

Policies Available:

The following special Micro Insurance products from Tata AIG Life are nowavailable for the rural population at the bottom of the pyramid.

Navkalyan Yojana Ayushman Yojana Sampoorn Bima Yojana

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http://www.tata-aig-life.com/MicroInsurance/AyushmanYojana/solutionAyushmanYojana.htmhttp://www.tata-aig-life.com/MicroInsurance/SampoornBimaYojana/solutionSampoornBimaYojana.htmhttp://www.tata-aig-life.com/MicroInsurance/SampoornBimaYojana/solutionSampoornBimaYojana.htmhttp://www.tata-aig-life.com/MicroInsurance/AyushmanYojana/solutionAyushmanYojana.htm


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NAVKALYAN YOJANA

A regular premium payment, low cost term plan for the rural adults who seeklife 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 policyholders 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 theIncome Tax Act, 1961 and are subject to any amendments madetherein 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 thebeginning of the policy term. This is especially useful for those rural peoplewho 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 policyholders nominee Maturity benefit : On survival, 125% of the single premium paid.


Premiums paid under this plan are eligible for tax benefits to theextent of 20% of Sum Assured as per the Income Tax Act, 1961 andare 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 premiumspaid 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 15years.

How do we operate?

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We operate in 11 states with a specific relationship management team foreach state. A dedicated & trained sales and marketing team manages thefront end of the Micro insurance program. Our micro insurance distributionmodel collaborates with NGOs (Non-governmental organizations) and Ruralorganizations with community level SHG (Self Help Group) women advisors

who provide insurance advisory services to the rural customers at theirdoorstep. The grassroots level agents explain the product details in the locallanguage of the customer, thereby enabling the customer to make adecision. The training programs, brochures, contract documents, andapplication forms are available in 8 different languages other than Englishand 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 policyholders nominee Maturity benefit : At the end of the 15 years, all the premiums paid will

be returned to the policyholder.


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 timeto 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 hadnt insured,

and target to find out opportunities for further extention of micro insurance.

We conducted unstructured interviews (sample size) of 52 general peoplehaving 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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S. No. Sex No of Respondents Percentage

1. Male 50 91

2. Female 05 09

Total 55 100

Chart 1:Gender of the respondents

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:

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No of Respondents

91%

9% 0%0%0%0%0%0%0%0% 1

2

34

5

6

7

8

9

10

frequency12%

38%33%

17%

1

2

3

4

AGE

25


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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:

Inference:

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

Table 4: No. of family members Chart 4:

Page 32

Frequency2%

54%

42%

2%

1

2

3

4

freq

45%

55%

0%0%

1

2

3

4

Educational Qualification

1

2822

10

10

20

30

1 2 3 4 5 6 7 8 9 10

catagory of education

n o . o

f r e s p o n

d e n

t

family size

0

10

20

30

1 2 3 4 5 6 7 8 9 10

age catagory

n o . o

f r e s p o n

d e n

t

freq


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Inference:

Above result reveals that majority of respondent 55% live with joint family orhave big size of family

Table 5: No. of earning member Chart 5:

Inference:

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

Table 6: Income level Chart 6:

Page 33

freq

63%

31%

4%

2%

1

2

3

4

freq

46%

42%

12%

1

2

3

earning member

33

16

2 10

10

20

3040

freq

earning member/family

n o . o

f r e s p o n

d e n

t

Series1

Series2

Series3Series4

Series5

Series6

Series7

Series8

Series9

Series10

income lev el

24 22

6

0

10

20

30

freq

income catagory

n o . o

f r e s p o n

d e n

t

Series1

Series2

Series3

Series4

Series5

Series6

Series7

Series8

Series9

Series10


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Inference:

The above result reveals that 46% of respondent have income level 1 while42% and 12% have income level 2 and 3 respectively .

Table 7: Account Holder Chart 7:

Inference: The above result reveals that 64% of respondent dont have any account anywhere while 36% have their own bank or post office account.

Table 8: Background Chart 8:

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freq

64%

21%

15%

1

2

3

freq19%

12%

69%

1

2

3

account map

33

11 8

010203040

1 2 3 4 5 6 7 8 9 10

no.of account

n o . o

f a c c o u n

t

h o

l d e r

background

106

36

0

10

20

30

40

1 2 3 4 5 6 7 8 9 10

background catagory

n o . o

f r e s p o n

d e n

t


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

Table 9: No. of dependent Chart 9:

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 and12%have 4 or more than 4 dependent in their family.

Table 10: Whether has ID proof Chart 10:

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freq8%

16%

35%

29%

12%

1

2

3

4

5

freq

48%

52%

0%0%0%0%0%0%0%0%

1

2

3

4

5

6

7

8

9

10

dependent members

4

8

1815

6

0

5

10

15

20

1 2 3 4 5 6 7 8 9 10

no. of dependent/family

r e s p

o n

d e n

t

ID proof

27

25

2424.5

2525.5

2626.5

2727.5

1 2 3 4 5 6 7 8 9 10

1-yes,2-no

n o . o

f r e s p o n

d e n

t


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Inference:

Above result reveals that 52% have ID proof but almost there were equal nothat hadnt any id proof.

Table 11: Faced prob with health or asset Chart 11:

Inference:Above result shows that 23% of respondent didnt face any problem relatedwith 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:

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Freq

77%

23%

1

2

health/asset problem faced

40

12

0

20

4060

1 2 3 4 5 6 7 8 9 10

1-yes, 2-no

r e s p o n s e s

way of monetary management

40%

31%

6%

21% 2%1

2

3

4

5

monetory management

1915

3

10

10

5

10

15

20

1 2 3 4 5

way of m anage

r e s p o n s e


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Inference:

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

Table 13: How many times fell ill Chart 13:

Inference:

The result above reveals that 67% of the respondent dont have serioushealth 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 orthrice in month.

Table 14: Risk on job Chart 14:

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illness map

67%

26%

7%

1

2

3

risk on job

48%

52%1

2

illness

28

11

3

0

10

20

30

1 2 3 4 5 6 7 8 9 10

times fell ill/month

r e s p o n s e

risk on job

25

27

24

25

26

27

28

1 2 3 4 5 6 7 8 9 10

1-yes, 2-no

r e s p o n s e


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Inference:

The above result reveals that 52% of the respondent didnt had any risk on job but almost equal proportion 48% who had serious job risk.

Table 15: Risk toward assets Chart 15:

Inference:

Above result reveals that a majority of respondent 67% dont have any risktoward their asset while 33% were those who have. Reason might bebecause of their low income they hadnt had any significant asset .

Table 16: Awareness about insurance Chart 16:

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risk toward asset

33%

67%

1

2

awa reness about insurance

92%

8%

1

2

risk toward asset

17

35

0

10

20

30

40

1 2 3 4 5 6 7 8 9 10

1-yes, 2-no

r e s p o n s e

awareness about insurance

48

4

0

20

40

60

1 2 3 4 5 6 7 8 9 10

1-yes, 2-no

r e s p o n s e


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Inference:

Above result reveals that majority of respondent 92% were awared of insurance but 8% were also there who even didnt know what the insuranceis .

Table 17: Source of information Chart 17:

Inference:

The result above reveals that 35% of the respondent got the informationabout insurance from source 7, 31% got info. from source 5 and remainingfrom the source pattern shown above.

Table 18: No. of insurance taken Chart 18 :

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source of information11%

1%0%3%

31%

7%

35%

11% 0%1%

insurance take n

60%

38%

2%

1

2

3

source of information

81 0 2

22

5

25

8

0 10

10

20

30

1 2 3 4 5 6 7 8 9 10

source

r e s p o n s e s

insurance taken

31

20

10

10

20

30

40

1 2 3 4 5 6 7 8 9 10

no.of insurance taken

r e s p o n s e s


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Inference:

Above shown result reveals that a majority of respondent 60% were notinsured from any where , 38% had taken life insurance but 2% were alsothere who were very well awared and had 2 or more than 2 insurance.

Table 19: Why not insured? Chart 19:

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 Chart 20:

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reason for no i nsurance

44%

15%

41%

1

2

3

insurance like to have

46%

31%

14%

9%

1

2

3

4

reason for no insurance

17

6

16

0

5

10

1520

1 2 3 4 5 6 7 8 9 10

reason

r e s p o n s e s

insurance like to have

27

18

8 5

0

10

20

30

1 2 3 4 5 6 7 8 9 10

type of insurance

r e s p o n s e s


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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 awaredtoward their child education and like to have education insurance, whilesome 9% want to minimize risk toward their assets and like to have assetinsurance as well.

Table 21: Premium ready to pay Chart 21:

Inference:

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

Table 22: How many members like to insured Chart 22:

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members like to be insured

2%

35%

59%

2%

2%

1

2

3

4

5

premium ma

24%

29%20%

27%

1

2

3

4

premium map

1215

1014

0

5

10

15

20

1 2 3 4 5 6 7 8 9 10

type of premium

r e s p o n s e s

members like to be insured

1

18

31

1 10

10

20

30

40

1 2 3 4 5 6 7 8 9 10

members/family

r e s p o n s e s


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Inference:

The above shown result reveals that majority of respondent 59% like toinsured two members of their family apart from self but 35% were those whocant bear even so less premium of micro insurance product and like toinsure only one member apart from self rest are distributed as shown above .

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

Inference:

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

Table 24: Insurance Duration Chart 24:

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facility location

0% 7%

64%

16%

4% 9%1

2

3

4

5

6

insurance duration

21%

38%12%

29%1

2

3

4

facility location

04

36

92 5

0

10

20

30

40

1 2 3 4 5 6 7 8 9 10

location catagory

r e s p o n s e s

insurance duration

11

20

6

15

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10


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Inference:

The result found above reveals that a majority of respondent 38% like theinsurance for the duration of 5-10 years, 29% upto 15-20 years, 12% upto10-15 years but some were also those 21% who cant bear even so lesspremium 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 didnt 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 hadnt significant asset Majority of them managed critical financial problem from some lender like

master of their service They hadnt 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 premiumor lack of complete information.

Some complaint about bad approachability of insurance provider companyto them as well.

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Majority of respondent shows keen interest in micro-insurance policy in lifeand health , some were very sensitive toward education and like to haveeducation 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 beinsured They are ready to pay premium 15-20 years.

CONCLUSION:

From the above statistical interpretation it could be concluded that potentiallies in the society. There is a large segment of the population whose incomelevel lies under the boundary line of poverty and since micro insurancetarget to those people whose income level is even less than 100 bugs perday, it can penetrate population very well. Many of our target segments haverecommended many other facilities with micro insurance which found to bereally concernable. Micro insurance product should be manufactured in sucha way that those respondents who had denied for having insurance for allfamily members only just because of premium, can also get access throughit.

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21250032 Micro Insurance Project Report

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