BASIXEquity for Equity

D Sattaiah VP Corporate HR & Insurance

Risks faced by Rural Households and Private Sector Insurance

Initiatives in India

A paper presented on Aug 10, 2007 at Policy Forum ofAgriculture and Rural Development for reduction of poverty and hunger

in Asia: In pursuit of inclusive growth and excellence

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Indian Scenario

72.4% Population is engaged in Agriculture72.3% Households live in Rural Areas28.3% Rural poverty (27.5% overall poverty)Entire rural sector is un-organized 99% rural HH in un-organized sector Overall 92% in unorganized sector and Unorginsed sector contributes 40% of GDP

Literacy over 64%

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Indian Workforce

Workers Total Main Marginal Rural Urban

Total 401(100%)

312(78%)

89(22%)

308(77%)

93(23%)

Farmers 32% 26% 6% 31% 1%

Agri Labour 27% 16% 11% 26% 1%

HH Industries 4% 3% 1% 3% 1%

Others 38% 33% 5% 18% 20%

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Vulnerability to risks is higher for those in the lower economic rungs

Time

Households Income/Assets

Poverty Line

A dose of micro-credit/ Ag-BDS

Risk event

Hence poor household insurance needs are obvious

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Risk coping mechanism of rural poor

.

Savings – Self Insurance

Borrowings,Asset Pledging

Asset sale, Migration

Severity

Covariance

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Indian Insurance Sector Public Insurers Monopoly till year 2000. Today 24 private insurers in market

Penetration is < 3% insurable population as per GTZ study Ranks 19 in aggregate premium and 54 in penetration

Mandated target to reach under Rural sector business Life - 7% polices in year 1 to 18% in year 6; General

2% in year 1 to 5% in year 3 and so on Social Sector – 5,000 polices in year 1 to 25, 000 in year 6 for both Life &

General

IRDA Micro Insurance Guidelines Products limits defined – commission for agents enhanced – given additional

roles to mediators Micro Finance Institutions given a vital role

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Insurable Risks Faced by Rural Households

Occupation(% rural workers)

Means of Income

Risks faced Possible Insurance Products

Farmers (31% )

Farming Yield RiskCrop Insurance, Weather insurance

Price Risk

Produce damage

Implements damage Asset Insurance

Livestock Death & Disability Livestock Insurance

Labourers (26%)

Human Body Illness, Accidental injuries, Scarcity of wage employment

Health Insurance, Rainfall Insurance

Artisans Machines/Tools Breakdown & Damage Asset Insurance, Accident insurance

Traders Stock Theft, damage Fire Policy

For all households

Life Insurance, Health, Disability Insurance

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There are two types of products available

Group Products Designed and delivered to an existing group of people Such groups availability is limited Most of the time they are linked to along with other

services Operating costs are low

Retail Products Voluntary - Sold Cost of selling and servicing is disproportionately high

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Rural household common insurance needs – and retail products available

Possible Insurance Products

Public Insurers (1) Private Insurers (15)

Term Life Insurance including accidental death benefits

Only one product – Jana Shree Yojana – funded by Social Security Fund

Most of the Companies have such nominal products but with very limited out reach to poor

Health Insurance, All the 4 companies offer Universal Health Insurance Product funded by the Union Government – but with very limited out reach

- Nil-

Household item Insurance

Not being offered currently.There were few products

- Nil-

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Farmer Insurance needs & retail products available

Possible Insurance Products

Public Insurers Private Insurers

Crop Insurance Offered by only AIC - Nil-Weather Insurance Offered by AIC Only 2 companies

offer (ICICI Lombard & IFFCO Tokyo)

Electrical Electric Pump Insurance

Available but not sold actively

Only 2 or 3 companies offer this product

Livestock Insurance Offered by all 4 companies but with limited out reach

Only 2 to 3 companies offer this product (Royal Sundaram)

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Labour insurance needs and retail products available

Possible Insurance Products

Public Insurers Private Insurers

Rainfall Insurance – for wage loss compensation; community assets like ponds for fishing

-Nil- -Nil -

Accident Policy – particularly to cover the prominent risks coming out of the nature of labour engaged in

Janata Accident Policy available but wit limited reach

- Nil-

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Artisans/enterprise holder – retail products available

Possible Insurance Products

Public Insurers Private Insurers

Asset Insurance for traders, service providers and petty manufacturers

-Nil –

Has shop keepers policy where the deduction is minimum Rs 10,000, hence excludes all the tiny enterprisers

Only one company is offering the product – Royal Sundram Alliance General Insurance Company( Royal Sundaram)

Sheep insurance -Nil- -Though used to be available

One company is offering but very insignificant reach(Royal Sundaram)

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Mission of BASIX

Is to promote large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner.

BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital markets and human resources on a continuous basis.

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Our Strategy

LFS(Livelihood Financial Services)

Ag/BDS(Agriculture/ Business Development Services)

IDS(Institutional Development Services)

Livelihood

Triad

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Insurer BASIX Rural Customer

Offer products Distribute Insurance

Feedback on needsInputs for products

BASIX’s Approach to insurance services

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BASIX collaborations in insurance

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•Life Insurance -AVIVA

•Health Insurance-Royal Sundaram

•Livestock Insurance –Royal Sundaram

•Micro-Enterprise-Royal Sundaram

•Rainfall Insurance- ICICI Lombard

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Products performance as on 31-03-2007

Product Since Coverage (cum) person/policy years

Claims (cum) Premium outgo current and cumulative

Life – Group Oct-2002 500,000 1,487 93% (68%)

Health May-2005 335,000 4,033 31% (24%)

Livestock Oct-2002 34,000 1,005 98% (95%)

Rainfall June-2003 18,500 3,716 144% (87%)

M. Enterprise Mar-2006 4,500 7 144% -Too early to assess

10,248

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Technology use

Use software for insurance transactions

Se up Rural BPO for efficient transactions

Use online training facility

On line premium and claim transactions between BASIX and Insurer

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Key Innovations …Life Group product Non exclusion of suicide for benefit

Life retail product Coverage starts from 10th day of premium payment 1 year grace period for premium payment

Limited Health Insurance – Group product BASIX deployed claim facilitators who help insured to

get medical care and build claim form

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…. Key Innovations Livestock –retail product Overcome the constraint of lack of veterinarian by

Insurability certification by BASIX staff – (Non veterinarians) Claims certification by surveyor

Rainfall – retail product Product structure based on local crops, customer choice

on trigger points and premium sizes Facilitate set up the rain gauge stations by private

company NCSML

Micro enterprise – retail product Deduction of 10% of SI or 500 whichever is maximum

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Insurance –Challenges & Possible responses

Sell insurance concept to poor Educate on insurance utility Sell protection products first Demonstrate the effect of insurance; Exempt from taxes

Efficient distribution Collaborate with alternate channels and share expertise Pay remunerative commissions – a minimum level of commission to be

allowed

Come out with appropriate product and process Rationalize products , Simplify process and Adopt technology support,

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Potential Strategy for Insurers

Protection Risk to begin with and costs increasingly

Middle Income

Higher Income

Lower Income 26%

Protection+ Savings

Investment + Savings + Term

Risk, Expenses &marginal profit

Risk, Expenses & profit through product differentiation

Premium to cover Product Needs order of priority

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Thank you

dsattaiah@basixindia.comwww.basixindia.com