April 19, 2023 Driving Efficiency & Growth in Microinsurance through regulatory intervention1/16
Ayandev Saha
Driving Efficiency & Growth in
Microinsurance through regulatory intervention –
A Perspective
2012 RESEARCH CONFERENCE MICROINSURANCEApril 11 – 13, 2012
University of Twente, Netherlands
Views expressed are in the personal capacity and do not reflect the organization with which he is presently affiliated.
Driving Efficiency & Growth in Microinsurance through regulatory intervention2/16 April 19, 2023
Agenda Agenda
Background
Need for Microinsurance (MI) Regulation
MI Regulation in the Indian Context
Effectiveness of MI Regulation - India
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Learnings
Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention3/16 April 19, 2023
Opportunity rather than obligation Opportunity rather than obligation
po
vert
y lin
eMedium
to high income
Conventional insurance market
Microinsurance market
(commercially viable)
2.6 billion people
USD 33 billion market
~ USD ($) 4/day
~ $ 2/day
~$ 1.25/day
Microinsurance through aid / Government support
1.4 billion people
USD 7 billion market
Note: $ amounts refer to poverty line in 2005 Purchasing Power Parity international dollars (PovcalNet / World Bank)
Source: Swiss Re, sigma No 6/ 2010
Swiss Re: Potential market is valued at up to USD 40 bn with current penetration ~ 2% - 3%
Lloyds: Potential market in developing economies is estimated to be between 1.5 – 3 bn policies
UNDP: Potential market size in India ranges between USD 1, 298 mn to USD 1, 755 mn
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention4/16 April 19, 2023
Issues and Challenges related to microinsuranceIssues and Challenges related to microinsurance
Demand Lack of insurance awareness; socio - cultural factors; limited perceived value
Operational
Maintaining low cost operational framework; providers limited knowledge of low income
segment and lack of skilled staff and resources; non diversified risk portfolios; claims
settlement issues
Underwriting Lack of quality data; coverage for hard to insure risks; policy language
Distribution Selection of channel partners; training; motivation level
Market Skepticism about profitability; short sighted focus of providers; low renewal rate
Infrastructure Lack of quality healthcare infrastructure / providers and weather stations
Regulatory No specific provisions for microinsurance; lack of or limited government support
Insurance Over-usage, fraud, adverse selection, moral hazard and covariant risk
Source: Swiss Re Economic Research & Consulting
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention5/16 April 19, 2023
Motivation / Literature Motivation / Literature
“Microinsurance Regulation”
• Making insurance markets work for the poor: microinsurance policy, regulation and supervision, CGAP
Working Group on Microinsurance, 2009
• Facilitating an appropriate regulatory and supervisory environment for microinsurance USAID
Microinsurance NOTE 8, USAID, 2008
• Issues in regulation and supervision of microinsurance IAIS and CGAP Working Group on Microinsurance,
2007
• Regulation and Supervisionof Microinsurance, Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ)
GmbH August 2004
“Market Overview”
• Microinsurance to the Last, the Least, and the Lost, Celent, December 2011
• Swiss Re, 2010, Sigma Report No 6/10: Microinsurance: risk protection for 4 billion people
• Lloyd’s 360° Risk Insight Insurance in developing countries: Exploring opportunities in microinsurance,
2009
• UNDP “Building security for the poor – potential & prospects for micro-insurance in India”
• Microinsurance beyond Social Responsibility, LIMRA Research
• “The next 4 billion” World Resource Institute and International Finance Corporation, March 2007
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention6/16 April 19, 2023
Need for Micro Insurance RegulationNeed for Micro Insurance Regulation
Time
% U
sag
e
100%
Source: Porteous, 2005
1. Have now
2. Market can reach now
3. Market can reach in future
4. Beyond the reach of the market
Do not want
Access frontier
Regulatory changes, as well as product and distribution innovation, can be used
to extend the reach of the market to this segment.
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention7/16 April 19, 2023
Microinsurance Regulations in India >>
Microinsurance Regulations in India >>
Based on the lifecycle of the insurer
− Rural defined as
% age of total policies written direct in that year (life)
% age of total gross premium income written direct in that year (general)
− Social - number of lives to be covered in the social sector
DemandDemand
SupplySupply
Known Facts
− Restricted as the largest and best known intermediaries are already taken and
have existing relationships with commercial insurers
− Limited perceived value
− Companies have preferred to sell insurance to relatively well off segment
− Products tend to address the needs of the poor only incidentally
− Perceived less as a potential business opportunity and more as a charity
oriented social obligation
Rural
Social Sectors
Obligations
2002
Rural
Social Sectors
Obligations
2002
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention8/16 April 19, 2023
>> Microinsurance Regulations in India
>> Microinsurance Regulations in India
Easing distribution challenges for inclusion
− Wider and more inclusive definition of microinsurance agents
− Allowing the same company to provide life and non-life cover
− Permitting composite products
− Revising commission structure upward
− Classification of products by fixing upper and lower coverage limits
Reducing procedural bottlenecks
− Allowing agents to distribute policy documents to clients
− Lowering the required training period for agents
− Permitting premiums to be collected and remitted by agents
− Contracts in vernacular languages
IRDA
Microinsurance
Guidelines
2005
IRDA
Microinsurance
Guidelines
2005
• MI as line of business has been able to demonstrate robust growth in the fast few years post the regulations
• In FY 2010-11, the total premium collected under life & non-life MI portfolios put together was `1,543 crore, of
which life insurance premium was `1,149 cr and non-life insurance premium was `393 cr
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
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Effectiveness of Indian Microinsurance Regulation Effectiveness of Indian Microinsurance Regulation
• Steady increase in no. of policies sold to individuals with a fall in premium collected in
FY 2010-11
• For the overall category, in FY 2010 -11, private insurers have shown negative growth
both in the no. of policies sold (by 43%) and new business premium collected (by 14%)
over the last year
• 3.6 million individual policies are mostly self-funded (individual owners) which
indicates that the targeted segments have a need and are willing to purchase
insurance
• Under Group category, in FY 2010 -11, there has been a significant decline in the
premium collected (by 57%) and lives covered (by 10%) vis-à-vis the last FY (2009-10)
• In FY 2010-11, the individual renewal premium was `181 crore while the group renewal
premium for the year was `682 crore
• There has been a constant decline in the percentage of number of micro insurance
agents added to the same percentage corresponding to the last FY
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
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Effectiveness of Indian Microinsurance RegulationEffectiveness of Indian Microinsurance Regulation
YearGross Written Premium
Gross Incurred Claims
Gross IncurredClaims Ratio (in per cent)
2009-10 193.14 126.65 65.57
2010-11 393.38 309.9 78.78
(Amount in ` crore) Source: IRDA Annual Reports
• Premium underwritten and claims paid by the non-life insurance companies
• Life insurers had 16 individual and 12 group micro insurance products in their
basket while general insurers had launched a total of 66 products
• Increasing realization that social security schemes of the Govt. are better administered
through insurers due to cost-efficiency, superior service-delivery and better accountability
(Aam Aadmi Bima Yojana (AABY), Janashree Bima Yojana and Rashtriya Swasthya Bima
Yojana (RSBY) have been handed over to insurers for administration)
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention11/16 April 19, 2023
Recommendations basis International market practicesRecommendations basis International market practices
Constraints / Challenges
Recommendations Insurer Customer Market Reference
a) Large number of
informal quasi-
insurance schemes
run by cooperatives,
churches; NGOs and
SHGs (operate in a
legal vacuum)
b) Policyholder
protection
Provision to
recognize the
informal schemes /
triggering
consolidation
activity or partnering
informal operators
with formal
underwriters
- Philippines - MBAs are
allowed to offer insurance
products under a reduced
regulatory burden and with
lower capital requirements
- South Africa - The
institutional space for
microinsurance is opened
up to friendly societies and
coop
a) High capital
requirement of over
$22 mn as per the
Indian Insurance Act
discourage
established insurers
from offering services
to low income HHs
Lower prudential
requirement or
evaluate the
minimum capital
requirements for the
locally organized
small MI institutions
- Philippines - Guaranty
fund for new / existing
MBAs has been reduced
from Pesos 125 mn to 5 mn
- South Africa – MI requires
R3 mn upfront capital (R5
mn / R10 mn for short /
long term insurers)
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention12/16 April 19, 2023
Constraints / Challenges
Recommendations Insurer Customer Market Reference
a) Limited perceived value
b) Consumer Education / Financial Literacy is more treated as a “public” good
Regulator needs to play a pivotal role to create public awareness and consumer education on various financial products and its usage.
This in turn will reduce any form of information asymmetries and promote market transparency, competitiveness and efficiency
- Philippines - Insurance Commission promoted MI by declaring month of Jan every year as “MI month”. Concerned regulatory authorities in coordination with the Department of Finance conduct financial literacy trainings, seminars and workshops on MI - South Africa - Consumer awareness and education campaign to be implemented by the Financial Services Board with focus on creating awareness of insurance and its value proposition - Peru - Consumer protection and financial education programs is present in the supervisor's institutional agenda
Recommendations basis International market practicesRecommendations basis International market practices
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention13/16 April 19, 2023
Constraints / Challenges
Recommendations Insurer Customer Market Reference
Low –income clients also show a disproportionately high distrust of insurers and insurance, requiring particular attention to product design, the sales process and claims payment
Claim settlement should be given a higher priority with a well defined regulatory TAT (much less as compared to mainstream insurance)
- Peru - Claims should be paid within 10 days- Mexico - Claims should be paid within 5 working days; paid through a variety of channels, e.g. microfinance networks, through utility companies, or distribution networks (traditional intermediaries)- Philippines - All entities providing MI products shall process and settle claims within 10 working days. Submission of the required documents through electronic means shall be accepted- South Africa - All valid MI claims should be paid within a period of 48 hours
Recommendations basis International market practicesRecommendations basis International market practices
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention14/16 April 19, 2023
Constraints / Challenges
Recommendations Insurer Customer Market Reference
Low renewal
rate (high
lapsation / low
persistency)
as the
policyholders
mostly have
irregular
income (or
cash flow)
In addition to
consumer education
and awareness on
insurance the
regulator should
also encourage
features such as
extended grace
period
- South Africa - As a minimum, cover
will continue for 1 month after the
due date of the premium. For
policies that have been in force for
one year or more, the grace period
will be extended by one month for
each completed twelve month period
that the policy has been in force with
no reduction in cover. However, the
maximum grace period for a policy
will be 6 months.
- Philippines - The manner and
frequency of premium collections
shall, if possible, coincide with the
cash flow of the insured and may be
collected (e.g. weekly; monthly)
whichever is applicable
Recommendations basis International market practicesRecommendations basis International market practices
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
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Constraints / Challenges
Recommendations Insurer Customer Market Reference
Products tend to address the needs of the poor only incidentally Need of more customer centric products & more importantly processes
Regulator should spell out more on product specifications and standards (to encourage more customer centric products) Faster product approval
- Peru - Deductibles / copayments are not allowed. No exclusions should be established (if necessary they should be minimum and in accordance to coverage)- Mexico - Exclusions can only be set in general and should not relate to the individual’s risk profile- South Africa - No surrender value be included in the MI product. No exclusions will be allowed for pre-existing conditions. It is proposed that micro insurers be required to submit all new MI products to the Registrar for review at least 60 calendar days before launching the products. Products may be launched if no objection is received within 60 calendar days after filing.
Recommendations basis International market practicesRecommendations basis International market practices
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention16/16 April 19, 2023
Constraints / Challenges
Recommendations Insurer Customer Market Reference
Agent /
aggregator not to
have
collaboration with
more than one life
and non-life
insurance
company acts as
deterrent to the
growth of
microinsurance
business
MI does not need the
traditional life/non-
life insurance
demarcation
- South Africa - Both life and
non-life underwriting is allowed
by a single entity.
Recommendations basis International market practicesRecommendations basis International market practices
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention17/16 April 19, 2023
Way ForwardWay Forward
• Future Research: To map the effectiveness of country specific regulations
(clause) in terms of growth of microinsurance business (premium
earned); products approved; customer benefitted
Policy:
• To create a microinsurance regulatory framework for the countries
(markets) which are presently not under any form of regulation
• There should be a common platform for regulators to exchange
experience ideas and thoughts to incorporate the learnings in their
respective regulatory framework
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention18/16 April 19, 2023
You’ll learn more about a road by
traveling on it rather than by
consulting all the maps in the
world…Views expressed are in the personal capacity and do not reflect the organization with which he is presently affiliated.
Driving Efficiency & Growth in Microinsurance through regulatory intervention19/16 April 19, 2023
New Business Microinsurance Policies (Individual)
0.70
2.95
0.61
1.00
0.080.85
1.99
1.54
0.94
2.15
2.98
3.65
0
0.5
1
1.5
2
2.5
3
3.5
4
2007-08 2008-09 2009-10 2010-11
Mill
ions
Private LIC Total
New Business Microinsurance Premium (Individual)Premium in ` lakh
7.355.38 8.40
2.10
123.06
16.13
149.83
31.1918.23
36.57
158.22
130.41
0
20
40
60
80
100
120
140
160
180
2007-08 2008-09 2009-10 2010-11
Hu
nd
red
s
Private LIC Total
Policies Premium
Insurer 2007-08 2008-09 2009-10 2010-11 2007-08 2008-09 2009-10 2010-11
Private 83153 610851 998809 699733 209.74 537.81 839.78 735.09
LIC 854615154121
81985145 2951235 1613.36 3118.74 14982.51 12305.76
Total 937768215206
92983954 3650968 1823.1 3656.55 15822.29 13040.85
Source: IRDA Annual Report (Premium in ` lakh)
New Business under Microinsurance Portfolio (Individual) New Business under Microinsurance Portfolio (Individual)
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention20/16 April 19, 2023
Lives Covered (Group Policies)
13.28
15.26
0.87 1.50 1.90 1.98
11.0511.37
14.95
16.84
12.24 12.55
0
2
4
6
8
10
12
14
16
18
2007-08 2008-09 2009-10 2010-11
Lives Covered
Mill
ions
Private LIC Total
Premium in ` lakh (Group Policies)
138.04155.23
8.7133.27
14.72 17.19
172.69192.56
228.70
243.42
201.27 205.95
0
50
100
150
200
250
300
2007-08 2008-09 2009-10 2010-11
Premium
Hun
dred
s
Private LIC Total
Lives Covered Premium
Insurer 2007-08 2008-09 2009-10 2010-11 2007-08 2008-09 2009-10 2010-11
Private 874901 1498994 1895143 1983537 871.23 3326.8 1472.09 1719.14
LIC 11367126 11052815 14946927 1327546419256.2
317268.5
422869.7
213803.67
Total 12242027 12551809 16842070 1525900120127.4
620595.3
424341.8
115522.81
Source: IRDA Annual Report (Premium in ` lakh)
New Business under Microinsurance Portfolio (Group) New Business under Microinsurance Portfolio (Group)
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention21/16 April 19, 2023
79418 603 770 758
1232
4166
6647
7906
9724
1311
4584
7250
8676
10482
0
2000
4000
6000
8000
10000
12000
2006 -07 2007-08 2008-09 2009-10 2010-11
Private LIC Total
Micro Insurance Agents of Life Insurers (Additions)
06 -07 07-08 08-09 09-10 10-11
Private 79 341 281 309 139
LIC 1232 2934 2482 2071 2171
Total 1311 3275 2763 2380 2310
As on March 31st of the respective year
(Source: IRDA Annual Reports)
Micro Insurance Agents of Life Insurers Micro Insurance Agents of Life Insurers
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
Driving Efficiency & Growth in Microinsurance through regulatory intervention22/16 April 19, 2023
Consumer Education / Financial Literacy is a “public” good Consumer Education / Financial Literacy is a “public” good
Trust
Belief
BrandAwareness
Budgeting & Lifestyle
Financial Instruments & Concept of Insurance
Policy T & CProduct & Services
Consu
mer A
ware
ness
Fin
anci
al Li
tera
cy
Financial planning & cash managementRegulator
Build awareness& trust
(perception of value)
Creating a market place
Insurer and distribution
channel
Creating a customer base
Background MI Regulation Indian Context Effectiveness Learnings Way Forward
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