GNBRAU/IIRM/HYDERABAD1 MICRO-INSURANCE – LIVELIHOOD NEEDS OF THE POOR G.N. BHASKAR RAU IIRM /...

GNBRAU/IIRM/HYDERABADGNBRAU/IIRM/HYDERABAD 11

MICRO-INSURANCE –LIVELIHOOD NEEDS OF THE POOR

G.N. BHASKAR RAU

IIRM / HYDERABAD

INSURANCE: RURAL & SOCIAL SECTORS

What is “rural” ?

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

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

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.

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

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

SOCIAL SECTOR

sub-category of ‘rural’ category

mostly economically underprivileged in rural areas

SOCIAL SECTOR

Also includes in both rural and urban areas:

unorganized sector

informal sector

economically vulnerable sector

backward classes….etc.

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

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

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

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

MICRO-INSURANCE RISKS:

Yield Risk – Event Risk – Price Risk

MICRO-INSURANCE PERILS:

Named Perils – All Perils – Packaged Perils

MICRO-INSURANCE PRODUCTS:

Suggested Model

MICRO-INSURANCE :

THE CORE CONCEPT:

POVERTY ALLEVIATION

POVERTY MITIGATION

DISCUSSIONS ON “ANTI-POVERTY” PROGRAMS DATES BACK TO 1901.

MICRO-INSURANCE :

EARLIEST PROGRAMS:

INDEPENDENT INDIA LAUNCHED:

NATIONAL RURAL EMPLOYMENT PROGRAM

RURAL LANDLESS EMPLOYMENT GUARANTEE PROGRAM ETC.

MICRO-INSURANCE MARKET :

THE SIZE:

“RURALITY” AS THE BASIS:

70 % OF INDIA’S POPULATION LIVES IN RURAL AREAS

THE SIZE: (contd)

“POVERTY LEVEL” AS THE BASIS:

1/3 OF INDIA’S POPULATION LIVES IN POVERTY

THE NATURE OF THE MARKET:

AGRO-BASED

ILLITERATE

TRADITIONAL

MALNUTRITION AND HEALTH ISSUES

EXPLOITED

DISPERSED

THE VARIETY OF THE MARKET:

WIDE VARIATIONS

FARM AND NON-FARM POVERTY

SOME PARTS PARTLY UNDER EFFECT OF “GREEN REVOLUTION”

THE VARIETY OF THE MARKET: (contd)

VARIED SIZES OF FARM UNITS

MORE OF SMALL-SCALE FARMERS

SUBSTINENCE FARMERS

SPREAD OF UNITS

THE VARIETY OF THE MARKET: (contd)

“RURBANS”…?

ENTRY BARRIERS :

LOW LITERACY LEVELS

LACK OF INFORMATION

LESS PRONE TO NEW CONCEPTS

ENTRY BARRIERS : (contd)

COMMUNITY DECISIONS BY THEIR “ELDER”

SMALL AND SUBSTINENCE FARMS

LOW YIELDS AND PROFITS

INSURANCE NOT ATTRACTIVE

ENTRY BARRIERS : (contd)

WIDE DISPERSION OF FARMS DISTRIBUTION ISSUES

LOSS ASSESSMENT ISSUES LOCAL POLITICAL INFLUENCE

MICRO-INSURANCE MARKETING

UNITS:

INDIVIDUALS?

HOUSEHOLDS?

ORGANIZATIONAL UNITS?

MICRO-INSURANCE MARKETING

BASIC RISKS TO COVER:

YIELD RISK

EVENT RISK

PRICE RISK

WITH OR WITHOUT REINSURANCE ?

MICRO-INSURANCE TOOLS:

PERILS:

NAMED PERILS?

ALL-PERILS?

PACKAGED PERILS?

PRODUCTS:

AGRICULTURAL INSURANCE RODUCTS?

CROP INSURANCE PRODUCTS?

WEATHER INSURANCE PRODUCTS?

PACKAGED / BUNDLED PRODUCTS?

DISTRIBUTION CHANNELS:

GOVRNMENT ORGANIZATIONS?

NON-GOVERNMENT ORGANIZATIONS?

SELF HELP GROUPS?

DISTRIBUTION CHANNELS:

FARMERS’ COOPERATIVES?

BANCASSURANCE MODELS?

MICROFINANCE COMPANIES?

SUGGESTED MODEL :

SUGGESTED UNITS:

ORGANIZATIONAL UNITS

Ex: Co-operatives

SUGGESTED MODEL : SUGGESTED UNITS:

ORGANIZATIONAL UNITS : ADVANTAGES: INCLUDE ALL THE MEMBERS EVEN THE SMALLEST FARMER EASY FOR MARKETING EASY FOR CLAIM SETTLEMENTS

SUGGESTED MODEL : SUGGESTED UNITS: (contd)

ORGANIZATIONAL UNITS : ADVANTAGES:

MOST OF THE ENTRY BARRIERS CLEARED

see the next slide

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

DISTRIBUTION CHANNELS: (suggested)

FARMERS’ COOPERATIVES + MICROFINANCE COMPANIES

DISTRIBUTION CHANNELS: (suggested)

FARMERS’ COOPERATIVES

BANCASSURANCE MODELS

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

SUGGESTED DISTRIBUTION CHANNELS: advantages: Combination of Farmers’ Cooperatives and

Bancassurance Model

Wider Banking Network Banker of Farmers’ Coops can provide micro-

insurance Easier Accounting

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

EVENT RISK :

THE EVENT COULD BE:

CLIMATIC RISKS

WEATHER RISKS

RAINFALL – LOW / HIGH

EVENT RISK

LEADS TO

YIELD RISK

HENCE YIELD RISK IS SUGGESTED;

EASILY MEASURABLE;

VARIATION OF EVENT RISKS OVER REGIONS AVOIDED

PRICE RISK

YIELD NORMAL; PRICES CRASH; LOSS OCCURS; NEED FOR INSURANCE COVER

HENCE SUGGESTED RISKS………….

BASIC COVER ON ……YIELD RISK

AGREED AMOUNT COMMENSURATE TO INPUTS

ADDITIONAL COVER….PRICE RISK

MINIMUM GUARANTEE OF PRICE BASED OPREVIOUS YERS’ PRICES(AVERAGE)

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/HYDERABAD1 MICRO-INSURANCE – LIVELIHOOD NEEDS OF THE POOR G.N. BHASKAR RAU IIRM /...

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