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

OR



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



SUGGESTED PRODUCTS:

SINCE THE MODEL SUGGESTS ….

PACKAGED PERILS….

THE SUGGESTED PRODUCT IS ALSO

PACKAGED PRODUCT



THE RATIONALE FOR THE SUGGESTED MODEL

RURAL POOR ….BASICALLY EXPOSED TO

CREDIT RISKINCURRED FOR LIVELIHOOD (PRODUCTION)



THE SUGGESTED MODEL:

THE RATIONALE (CONTD)

“CREDIT” IS A DIRECT FINANCIAL RISK

AFFECTED BY CERTAIN OTHER

INDIRECT (NON)FINANCIAL RISKS WHICH ALSO REQUIRE COVER



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



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)



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)



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)



RISK FINANCING: (Suggested)

THROUGH PREMIUMS Are the premiums actuarially based?

Some suggest ‘disregard to actuarial bases’ for micro-insurance…as a social security

(contd)




THROUGH PREMIUMS

for the INDIRECT NON-FINANCIAL RISKS

this Model suggests ‘Group Life Premiums’ to be charged on actuarial principles ………..and…...

(contd)




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)




“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….




“FUNDING” BY ORGANIZATIONS …like…

CARE FOUNDATION REINSURANCE PROGRAMS GOVERNMENT SUBSIDY SOCIAL ORGANIZATIONS…... NGO’s…….etc.


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’


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


THANK YOUTHANK YOUG.N. BHASKAR RAUG.N. BHASKAR RAU

IIRM / HYDERABADIIRM / HYDERABAD

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

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