INDEX

CHAPTER NO. TOPIC Pg No.

1 Introduction
1.1 Introduction
1.2 Objectives
1.3 Method of data collection
1.4 Significance of the study
1.5 Chapter scheme
1.6 Limitation of the study
2 Review of literature
2.1 Introduction
2.2 Books
2.3 Journals
3 Microinsurance
3.1 History
3.2 Need for microinsurance
3.3 Importance of microinsurance
3.4 Difference between traditional
and microinsurance
3.5 Salient features of
microinsurance
4 The demand and supply of
microinsurance
4.1 Introduction
4.2 Supply of microinsurance
4.3 Demand for microinsurance
4.4 Gaps analysis
5 Microinsurance Products
5.1 Introduction
5.2 Microinsurance products
5.3 Microinsurance and players &
products in india
1
 5.4 Microinsurance distribution
models
5.5 Channels of delivery
5.6 Best practices in
microinsurance
6 Regulations by IRDA
6.1 Introductions
6.2 Tie up between life insurer and
general insurer
6.3 Distribution of microinsurance
products
6.4 Appointments of
microinsurance agens
6.5 Employment of specified
persons by microinsurance
agents
6.6 Code of conduct
6.7 Filing of new microinsurance
product
6.8 Issuance of microinsurance
policy contract
7 Growth of microinsurance
(2015-2016)
8 Suggestions
Conclusions
Bibliography

2
 Chapter 1

INTRODUCTION

1.1 INTRODUCTION

The project is entitled as MICROINSURANCE IN INDIA

Defining microinsurance:

The term "microinsurance" was first published around 1999

and defining it has been subject of much debate and
discussion within the development environment. The
definition of microinsurance is continually evolving:

The protection of low-income people against specific perils in

return for regular premium payments proportionate to the
likelihood and cost of the risk involved (Preliminary Donor
Guidelines, 2003).

A risk transfer device characterized by low premiums and low

coverage limits, and designed for low-income people not
served by typical social insurance schemes (Micro Insurance
Academy, India, 2007).
Insurance that is accessed by the low-income population,
provided by a variety of different entities, but run in
accordance with generally accepted insurance practices.
Importantly, this means that the risk insured under a
microinsurance policy is managed based on insurance
principles and funded by premiums (International Association
of Insurance Supervisors, 2007).

3
 A mechanism to protect poor people against risk (accident,
illness, death in the family, natural disasters, etc.) in exchange
for insurance premium payments tailored to their needs,
income, and level of risk (ILO's Microinsurance Innovation
Facility, 2008).

Microinsurance is the protection of low-income people against

specific perils in exchange for regular premium payments
proportionate to the likelihood and cost of the risk involved.
This definition is essentially the same as one might use for
regular insurance except for the clearly prescribed target
market: low-income people. However, as is demonstrated in
this chapter and throughout this book, those three words make
a big difference. How poor do people have to be for their
insurance protection to be considered micro? The answer
varies by country, but generally microinsurance is for persons
ignored by mainstream commercial and social insurance
schemes, persons who have not had access to appropriate
products. Of particular interest is the provision of cover to
persons working in the informal economy who do not have
access to commercial insurance nor social protection benefits
provided by employers directly, or by the government through
employers.

1.2OBJECTIVE
To study the micro insurance industry in India
To understand the demand and supply of micro insurance in
India

4
 To examine the various micro insurance products available in
India
To look at the regulatory framework provided by IRDA

1.3METHOD OF DATA COLLECTION

The data for this project has been collected by secondary
sources like reference books, journals, newspapers, e-data, etc.

1.4SIGNIFICANCE OF THE STUDY

The project is proposed to understand the growing and
important prt of the insurance sector i.e the micro insurance
are. Although growing it has yet to unlock its full potential in
the country. This project studies the various products, players,
regulatory framework and suggestion that might enlighten the
reader towards its full growth.
1.5 CHAPTER SCHEME

CHAPTER NO. TOPIC

1 INTRODUCTION
2 REVIEW OF LITERATUE
3 MICROINSURANCE
4 DEMAND & SUPLY OF
MICROINSURANCE
5 MICROINSURANCE PRODUCTS
6 REGULATIONS BY IRDA
7 GROWTH OF MICROINSURANCE IN
INDIA(2015-2016)
8 SUGGESTIONS
CONCLUSIONS
BIBLIOGRAPHY

1.6LIMITATION OF THE STUDY

5
The project studies the history, need, importance, demand and
supply of micro insurance, its various products and regulations
by the IRDA.

Although there are many more aspects to micro insurance that

this project does not cover.

6
 CHAPTER 2

REVIEW OF LITERATURE

2.1 Introduction

2.2 BOOKS

a) Maez. M. S and Wong. S (2006), Insurance in Emerging

Markets: Sound Development

Maez. M. S. and Wong. S (2006)3 revealed that life insurance

penetration in India after all these years was still rather at a
low level of 4.1 per cent of the GDP and non-life insurance
penetration at a mere 0.60 per cent. In comparison, U.K.,
South Africa and Taiwan had a ratio between 11and 13 per
cent. The global average was 6 to 9 per cent. Only 24 per cent
of the Indian households owned life insurance. Among the
rural households, only 18 per cent had life insurance
protection. Only 14 per cent of the policy owners were
women. Among the 216 million uncovered workers, about
two-thirds were highly unlikely to think about buying an
insurance plan either because they felt they cannot afford it
(63.5%) or because they were disinclined for various other
reasons like not interested, no one has explained benefits to
me, poor investment, etc. which accounted for (36.5%).

B) Chatterjee. M and Vyas (undated), Organizing Insurance

for Women Workers: The SEWAs Experience

Chatterjee and et.al (2011)4 revealed that the clients

awareness level on life micro insurance as a financial product
7
 was low but varied widely across the regions. But it was found
that the level of awareness depends on access to financial
services, geographical proximity and exposure to insurance
companies but not as much on the economic status of low
income respondents. The authors further pointed out that
though the respondents were able to understand the risks faced
by them and the need for risk cover, life micro insurance is
regarded as a sunken expense which is unlikely to yield
returns.
b) . Gaurav. S, Anna Paola Gomez Acosta and Luis Flores
Ballesteros (2008), Innovating at the BoP: Delivering Micro
insurance in Kalahandi and Beyond
Gaurav and et al. (2008)5 found that understanding the
concept behind life micro insurance among the potential as
well as the actual clients were somewhat mixed. Where a
majority of all the households in the survey reported that they
generally understood the idea behind insurance, most of them
only referred to the case of health micro insurance, which is
well-known in the area. Accordingly, it was found that most of
the potential clients were interested in buying health micro
insurance. Further, life or other types of insurances provided
by the private sector were not very well-known. There was
also quite a share of share of clients who were unaware or
confused about the range of benefits included in their policy.
c) Ajit Kanitkar (2005), Learning from Micro Insurance for
SHGs of Pragathi
Ajit Kanitkar (2005)8 suggested that effective life micro
insurance services required greater awareness levels among

8
 the prospective SHG members and clients. He emphasized the
need to sensitise the field staff in banks, microfinance
institutions, NGOs and insurance companies to recognize the
special needs of the rural communities. The author insisted
that a comprehensive communication strategy for marketing
the concept of rural micro insurance was very much needed.
The service provider should also maintain a suitable database
of insured/uninsured SHG members based on ones own life
micro insurance needs.

2.3 JOURNALS
a) Prabhakaran (2007), Creating Consumer Awareness: Life
Insurance, IRDA Journal, November, pp. 36 - 38.
Prabhakaran (2007)2 stated in his study that the issue of
consumer awareness had a deeper significance in emerging
markets as the economic growth outweighed the social growth
due to the absence of awareness levels on the financial tools
like life micro insurance. The author also opined that creating
awareness on intangible financial services like life micro
insurance was a challenging task. He pointed out the two
facets to life insurers with reference to the need for creating
life micro insurance awareness. One was the business interests
and the other was part of their overall corporate social
responsibility. The author further revealed that awareness was
an ingredient that enhanced the acceptance levels of the life
micro insurance products.
b) Dror. D and Radermacher (2005), Integrating Health
Insurance for the Poor into the Indian Insurance Scenario,
Insurance Watch, Vol.3 (12), pp. 11 - 15.

9
 Dror and Radermacher (2005)13 mentioned the factors that
could be explored within the existing structure of open market
competition with multiple players, to make health micro
insurance more accessible to rural poor in India. The authors
highlighted that there was an untapped market due to low
penetration of health micro insurance products. The paper
recommended that the government could invest in the
environment and infrastructure building efforts to support this
sector.
c) Das (2006), Community-Based Health Insurance Services in
India: Exploring an Equitable Health Financing Mechanism,
The Journal of Insurance Institute of India, Vol. XXXII
Das (2006)18 suggested that the potential health micro
insurance market was 600 billion rupees in 2007. Since the
share of the elderly in the total population would increase to
6.9 per cent and the total number of senior citizens would
increase by 107 per cent to 113 million by 2016, immense
scope should be provided for the sectors unprecedented
growth.
d) . Ito.S and Kono (2010), Why is the take-up of Micro
insurance So Low? Evidence from a Health Insurance Scheme
in India. Developing Economies. Vol.48 (1), pp. 74 - 101.
Ito and Kono (2010)22 carried out experiments which found
that age, household size, gender, value of land assets, credit
constraints, sickness, hyperbolic risk preference, risk loving
and location dummies were factors significantly explaining
health micro insurance uptake. In their model education,
financial status, non-land asset value, piped water, sewage,

10
 toilet, having small children, periodic instalment for the
insurance and risk aversion were included but not found to be
significant.

11
 CHAPTER 3

MICROINSURANCE

3.1 HISTORY

Historically in India, a few micro-insurance schemes

were initiated by Nongovernmental Organizations (NGO) due
to the need felt in the communities in which these
organizations were involved or by the trust hospitals. These
schemes have now gathered momentum partly due to the
development of micro-finance activity, and partly due to the
regulation that makes it mandatory for all formal insurance
companies to extend their activities to rural and well-
identified social sector in the country (IRDA 2000). As a
result, increasingly, Micro-Finance Institutions (MFIs) and
NGOs are negotiating with the for-profit insurers for the
purchase of customized group or 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. The overall market is estimated to reach Rs. 250
billion by 2008 (ILO2004). The insurance regulatory and
development authority (IRDA) defines rural sector as
consisting of

i. a population of less than five thousand,

ii. a density of population of less than four hundred per
square kilometre, and

12
iii. more than twenty five per cent of the male working population is
engaged in agricultural pursuits.

The categories of workers falling under agricultural pursuits

are: cultivators, agricultural labourers, and workers in
livestock, forestry, fishing, hunting and plantations, orchards
and allied activities. The social sector as defined by the
insurance regulator consists of (i) unorganized sector (ii)
informal sector (iii) economically vulnerable or backward
classes, and (iv) 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. The rural obligations are in
terms of certain minimum percentage of total polices written
by life insurance companies and, for general insurance
companies, these obligations are in terms of percentage of
total gross premium collected. In order to fulfil these
requirements all insurance companies have designed products
for the poorer sections and low-income individuals. Both
public and private insurance companies are adopting similar
strategies of developing collaborations with the

Various civil society associations. The presence of these

associations as a mediating agency, or a nodal agency, that
represents, and acts on behalf of the target community is
essential in extending insurance cover to the poor. The nodal
agency helps the formal insurance providers overcome both

13
 informational disadvantage and high transaction costs in
providing insurance to the low-income people. This way
micro-insurance combines positive features of formal
insurance as well as those of informal insurance. In the
absence of a nodal agency, the low resource base of the poor,
coupled with high transaction costs gives rise to the
affordability issue. Lack of affordability prevents their latent
demand from expressing itself in the market. Hence the nodal
agencies that organise the poor, impart training, and work for
the welfare of the low-income people play an important role
both in generating both the demand for insurance as well as
the supply of cost-effective insurance.

Defining microinsurance:

The term "microinsurance" was first published around 1999

and defining it has been subject of much debate and
discussion within the development environment. The
definition of microinsurance is continually evolving:

The protection of low-income people against specific perils in

return for regular premium payments proportionate to the
likelihood and cost of the risk involved (Preliminary Donor
Guidelines, 2003).
A risk transfer device characterized by low premiums and low
coverage limits, and designed for low-income people not
served by typical social insurance schemes (Micro Insurance
Academy, India, 2007).
Insurance that is accessed by the low-income population,
provided by a variety of different entities, but run in
14
 accordance with generally accepted insurance practices.
Importantly, this means that the risk insured under a
microinsurance policy is managed based on insurance
principles and funded by premiums (International Association
of Insurance Supervisors, 2007).
A mechanism to protect poor people against risk (accident,
illness, death in the family, natural disasters, etc.) in exchange
for insurance premium payments tailored to their needs,
income, and level of risk (ILO's Microinsurance Innovation
Facility, 2008).

3.2 NEED FOR MICROINSURANCE

Microinsurance is the protection of low-income people against

specific perils in exchange for regular premium payment
proportionate to the likelihood and cost of the risks involved.
In other words, it is a set of market based insurance products
and processes designed to address both life and non-life risks
faced by the people at the bottom of the socioeconomic
pyramid. These products are priced at rates affordable for the
intended clients, while being financially viable for
sustainability of operations.

Microinsurance, like regular insurance, may be offered for a

wide variety of risks. These include both health risks (illness,
injury, or death) and property risks (damage or loss). A wide
variety of microinsurance products exist to address these risks,
including crop insurance, livestock/cattle insurance, insurance
for theft or fire, health insurance, term life insurance, death

15
insurance, disability insurance, insurance for natural disasters,
etc.

Microinsurance is recognized as a useful tool in economic

development. As many low-income people do not have access
to adequate risk-management tools, they are vulnerable to fall
back into poverty in times of hardship. Furthermore,
microinsurance makes it possible for people to take more
risks. When farmers are insured against a bad harvest
(resulting from drought), they are in a better position to grow
crops which give high yields in good years, and bad yields in
year of drought. Without the insurance however, they will be
inclined to be more conservative and do the opposite; since
they have to safeguard a minimal level of income for
themselves and their families, crops will be grown which are
more drought resistant, but which have a much lower yield in
good weather conditions.

The ultimate goal of microinsurance is to enable the poor to

mitigate their material risks through the insurance market in
order to reduce vulnerability, thereby increasing their welfare.
It can mitigate the most material risks of a poor client in a way
that is affordable and appropriate to the low-income market. It
may also stimulate the provision of other services that are
important to the poor, e.g. credit services or health services, as
there will be more predictable income flows to providers,

16
which in turn ensures viability of the provision of such
services to the low income market.

Government efforts through the provisions of micro-finance

opportunities to rural population is a step in the right track in
addressing poverty between its growing population though not
sufficient, hence, adequate insurance is needed to protect these
credit lines offered by micro-finance institutions and banks
otherwise beneficiaries of such facilities may possibly go back
to poverty. Rural population is exposed to such risks as health,
fire, burglary, death and family responsibilities which are
capable of eroding assets acquired over time.

Every society has dangers that should be avoided and low

income people are always vulnerable to them. Low income
people are more uncovered to such risks than the rest of the
population and most times cannot deal well with the
calamities.

These classifications of citizens therefore need insurance more

than anyone else because they lack fallback positions
whenever there is a loss. Rural people take loans from micro-
finance institutions and whenever there is sickness or accident
and they are hospitalized the next thing will be to use such
loans collected to pay for hospital bills and return to poverty
once again.

3.3 IMPORTANCE OF MICROINSURANCE

17
Poverty and vulnerability reinforce one another forming an
ever-growing downward spiral, not only the exposure to risks
results in substantial financial losses but vulnerable families
suffer the continued uncertainties about when and how loss
may occur. Due to this long-lasting concern, poor people are
less likely to take advantage of income generation
opportunities which may reduce poverty. The majority try to
manage their risks and deal with the consequences. Saving
money, working extra time on other activities and asking for
loans from friends or relations constitute some of the
strategies used to avoid financial loss which is inefficient and
exacerbates poverty.

Such informal safety procedures do not resist unexpected

serial cases before they are able to rise again from an adverse
situation, a new unforeseen event may occur with more power
throwing them back to stage one again.

Micro-insurance therefore provides cushion against such

vulnerability by offering micro-health, life, and property
insurances.

It is a usually accepted significant strategy therefore to

improve sustainable economic development and alleviate
poverty by making financial systems more comprehensive by
improving access to savings, credit and insurance.

It is important to observe that some insurers like AIG, Allianz,

Lombard And standard life have all entered in Indian

18
insurance industry venture with promising results. Yet, some
commercial insures and Policy makers still tend to believe that
providing insurance cover to the poor is the responsibilities of
the state and in practical terms it is difficult to insure poor
people on a cost covering basis. They suspect that poor
households either cannot pay for their insurances or the
informality of their living situation makes them unattractive as
clients because they do not have formal employment, have ID
cards and are illiterate.

It should however be listed that many state run schemes of

social protection in developing countries have failed as they
are poorly run, for those targeted do not benefit while those
who can afford them are the ones who access these benefits.
Also, public social security schemes where available are
delivered through formal sector employer which does not
reach the unorganized workers both employed and self-
employed in the informal economy.

On the other hand however, insurers are beginning to notice

the vast markets of low-income households but many
problems need to be overcome if micro-insurance is to be
offered efficiently and effectively in terms of distribution
system, products development and capacities

3.4 Th e d i f f e ren c e s between t r a d i t i o n al

i n s u r a n c e a n d mi c roi n s u r a n c e :

19
 TRADITIONAL MICRO INSURANCE
INSURANCE
CLIENT Low risk environment High risk
Established culture e x p o s u r e / high
environment vulnerability
Weak insurance culture
Distribution Sold by licensed Sold by non-traditional
model intermediaries or by intermediaries to clients
insurance companies with little experience
directly to wealthy of insurance
clients or companies that
understand insurance
Policies Complex policy Simple language
documents with many Few if any exclusions
Group policies
exclusions
Premium Good statistical data Little historical data
collection Pricing based on Group pricing
Very price sensitive
individual risk
market
Control of Limited eligibility Broad eligibility
insurance risk Significant Limited but effective
documentation required control
Screening such as Insurance risk included in
medical test required premium rather than
excluded
Linked to other services
like credit
Claims Complicated process Simple and fast
handling Extensive verification of procedures of small firms
documents Efficient fraud control

20
3.5 Salient features of Microinsurance:
1) USAGE:
Though no figures are available on the exact size of the
microinsurance market in India, a rough estimate would
place it at around 14m individuals, or approximately
2% of the adult population. The low take-up can be
ascribed to a general lack of awareness of insurance as
a financial product, even in the high to m i d d l e -
i n c o m e m a r k e t ( a f a c t o r t h a t e me rge d s t r o n g l y
f r o m t h e f o c u s g r o u p findings). In addition a lack of rural
financial services infrastructure for distribution p u r p o s e s ,
as well as a lack of actuarial data, inhibit
t h e d e v e l o p m e n t o f t h e microinsurance market.

2) PLAYERS:
Though the state-owned insurers still have the largest market
share, there are now a total of 32 licensed insurers. A
feature that sets India apart from o t h e r c o u n t r i e s i s
the fact that microinsurance is mostly
p r o v i d e d b y l a r g e , corporate insurers. This is due
to a cautious regulatory approach in response tithe
fact that small and cooperative financial institutions
have not performed well historically that limits the
players in the non-bank field to large cap institutions. T h e
cooperative/mutual sector therefore does not
feature as a provider o f microinsurance, though

21
corporate insurers use it as a distribution channel. Informal
i n s u r a n c e i s v i r t u a l l y e x c l u s i v e l y t h e d o ma i n o f
f o r m a l e n t i t i e s s u c h a s h e a l t h insurance schemes
not registered for insurance purposes, rather than
community risk-pooling groups, and is estimated to only
comprise 20% of the market.

3) PRODUCTS
Microinsurance in India is for the most part driven by
compulsory credit life insurance on the back of
microfinance. Due to the limited reach of the public
health system, there is also a high natural demand for
health insurance. Many MFIs therefore provide a
package of compulsory insurance cover to their clients
that are credit-linked this includes life, asset as well as
health insurance. The cover is for the term of credit (usually 1
year). Health cover provided in such packages is not
comprehensive and it covers only certain listed diseases for
which hospitalization is required. Accident cover is a rider on
life insurance and is a fixed payout. India is therefore fairly
unique in that compulsory insurance cover extends beyond life
cover. It is estimated that only 10% of microinsurance policies
are sold on a voluntary basis. Of these, up to 90% are
endowment products rather than pure r i s k p r o d u c t s ,
indicating a preference among the low-

22
i n c o m e p o p u l a t i o n f o r financial products that provide
some payout regardless of whether a risk event has occurred.

4) DISTRIBUTION:
Distribution is an important part of the
m i c r o i n s u r a n c e landscape in India. Regulations were
issued in 2005 to create a microinsurance agent
category for the dedicated distribution of
microinsurance. Currently such a g e n t s however
only distribute about 20% of all
microinsurance. Instead, distribution mainly
takes place through MFIs who either do not
qualify as microinsurance agents under the
regulations or who find the r e g ul a t i o n s too
restrictive, as partners or agents of f o r ma l
i n s u r e r s . We c a n di s t i n g u i s h f o u r institutional models
for providing microinsurance which help us to understand
how c o r p o r a t e i n s u r e r s , g o v e r n m e n t b o d i e s a s
well as other institutions.

23
 CHAPTER 4 THE DEMAND AND SUPPLY OF
MICROINSURANCE

Supply and Demand Side Developments

4.1 INTRODUCTION
This chapter studies the supply and demand side of the micro
insurance products available and demanded in the Indian
market. It also studies the gaps that exist between this demand
and supply and its various types also.
4.2 SUPPLY OF MICRO-INSURANCE
Recently, the ILO (2004) prepared a list of products of all
insurance companies, public as well as private, for the
disadvantaged groups in India. Some of the observations made
on the basis of the list are presented below:

Out of 80 listed
insurance products, 45 (55%) cover only a single risk. The
other products, covering a package of risks, mostly focus
on 2 (20%) or 3 (18%) risks.
The available products cover a wide range of risks. However,
the broad majority of the insurance products cover life (40
products or 52%) or accident-related risks. The health
coverage remains very limited (12 products). Most life
insurance products (23 out of 42) are addressed to individuals.
However, some products may be bought both by individuals
and groups.

Most life insurance products (55%) have been designed to

cover an extended contract duration ranging from 3 to 20
years.

24
 Out of 42 life insurance products, 23 are pure risk products.
The other 19 products propose various types of maturity
benefits.

Out of the 12 currently available health insurance products, 7

have been designed and are restricted to groups.

Out of the total 12 health products, 7 products propose the

reimbursement of hospitalization expenses while the other 5
have chosen to narrow down the coverage to some specific
critical illnesses.

Most of the health insurance products specifically exclude

deliveries and other pregnancy-related illnesses. Most of these
products also mention amongst their exclusion clauses,
HIV/AIDS.

Most products whether life or non-life require a single

payment of premium (i.e., a one-time payment) upon
subscription.

Private insurance companies have three times more products

than the public companies.

As per the IRDA statistics, the public insurance companies

still play a Predominant role in the present coverage of the
rural and social sectors. This is only to be expected since the

25
incumbent public insurers have been in the market for a
number of years now.

26
 4.3 DEMAND FOR MICRO-INSURANCE
On the demand side too, the ILO (2004b) has recently
prepared an inventory of micro-insurance schemes operational
in India. Based on this list some of the observations
Are made below:

The inventory lists 51 schemes that are operational in India.

Most schemes are still very young, having started their

operations during the last few years. Of the 39 schemes for
which this information is available, around 24 schemes came
up during the last 4 years, and about 7 schemes have operated
for more than a decade.

As regards the beneficiaries, the 43 schemes for which the

information is available cover 5.2 million people.

Most insurance schemes (66%) are linked with micro finance

services provided by specialized institutions (17 schemes) or
non-specialized organizations (17 schemes). Twenty two
percent of the schemes are implemented by community based
organizations, and 12% by health care providers.

Life and health are the two most popular risks for which
insurance is demanded: 59% of schemes provide life
insurance and 57% of them provide health insurance. In
SEWAs9 experience health insurance tops the list of risks for
which the poor need insurance.

27
 Twenty-five out of 37 schemes received some external funds
to initiate their schemes. Twenty out of 32 schemes received
external technical assistance in the form of advisory services,
technical services, training or even referral services for their
schemes.

In the majority of the schemes special staff had been recruited

to manage the insurance activities. The other schemes kept
relying on their regular staff while recognizing them the
additional responsibilities linked to the management of the
scheme.

Most schemes (74%) operate in 4 southern states of India:

Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%)
and Kerala (8%), and the two western states Maharashtra
(12%) and Gujarat (6%)) account for 18% of the schemes.

56% of schemes deal with one single risk.

Most schemes require single yearly premium at the time of

subscription. Of the 43 schemes, 6 use a monthly payment for
their contribution, while 2 others have linked the contributions
to some other activities developed with their members
(disbursement of loan etc.).

Most of the schemes (27) rely on voluntary contribution,

while 10 schemes imposed compulsory contributions, and 7

28
adopted a mix of voluntary and compulsory contributions
(based on the type of service provided).

Any nodal agency keen on buying insurance for their

members now have a choice of insurers and approach those
who offer them the best deal. According to the ILO inventory,
8 schemes have already entered into partnerships with at least
2 insurance companies (public or commercial), and 3 schemes
have already entered simultaneous partnerships with both
public and commercial insurance companies.

Clearly, health and life are two most important risks for which
insurance is demanded. Indeed, at low-income level, when
much of the income goes into meeting basic needs, the scope
of having varying priority needs is very limited. On the supply
side we observe that out of 80 odd products only 7 products
are health insurance products that provide for reimbursement
of hospital expenses. Admittedly, compared to life insurance,
which is a relatively straightforward business, health
insurance is a much more complex service as it involves
addressing the provision of healthcare that is location specific.
The design and sale of products are currently driven by the
objective of meeting the regulatory obligation and the making
of profits or reducing losses. In this situation, there is a danger
of certain priority needs getting neglected by the insurance
companies.

Most products require single yearly premium at the time of

subscription. It is well known that rural incomes are irregular

29
and uncertain to enable payment of premium in one go, and
more so when only a part of the remuneration is paid in cash.
In the above, we find only a few schemes offer flexibility in
paying premium. This could act as a serious drawback in
increasing the membership.
We find that most of the schemes are concentrated in the
southern region of the country. The southern regions are well
known for the social mobilization of low-income people. In
contrast, the northern region is bereft of such mobilization as
the nodal agencies are either non-existent or dysfunctional.
Creating and nurturing nodal agencies can be quite involved
and can take a long time to develop. Local government, that
can

Also perform the role of nodal agency, will take a long time to
strengthen as a result of decentralization process currently
underway in most Indian states. There has to be alternative
approaches to extending insurance in regions where nodal
agencies do not exist.

Even before insurance is bought for all important

contingencies, affordability constraint is likely to kick in,
especially for the low-income people. The issue then is how to
cover for these other important contingencies. One of the
ways suggested is to impose a tax at industry level (this could
be on the turnover or profits of the industry), and use the tax
proceeds for the benefit of workforce involved in activities
peripheral to the industry.

30
Finally, the type of contingency and the number of people
covered under it are important parameters, but so is the extent
of benefit provided should the contingency happen. Currently,
the benefit or protection provided under some insurance
schemes is quite shallow.
The attitude of insurers on these obligations has been mixed.
Some have taken a positive view of the regulatory obligations
and have made a genuine attempt to understand the rural and
low-income segment of the market. Indeed, a few insurers
have actually surpassed their obligations by a wide margin.
These companies have realised that there is potential in the
rural and low-income segment but tapping that potential
requires a different kind of approach. In some cases, insurance
companies have actually cross subsidised their micro-
insurance products while in other cases insurers have been
able to find a donor for paying premium, at least in part, on
behalf of the low-income people.
The impact of rural and social obligations on extending
insurance to the intended people has been positive. However,
development of micro-insurance needs further guidance from
the insurance regulator by way of supplementary provisions.
Sensing this, the insurance regulator has already come out
with a concept paper on micro-insurance11 in which it has
spelled out its thinking on what these supplementary
provisions could

4.4 GAPS ANALYSIS BETWEEN DEMAND AND

SUPPLY OF MICROINSURANCE

31
Microinsurance is a good step for financial inclusion and to
tackle out the problems and vulnerabilities of BPL people, but
the outreach of microinsurance is not enough to tackle it. This
section analysed the gaps between demand and supply of
microinsurance. The gaps are analysed by considering
following aspects.
4.4.1 Operational gap
4.4.2 Gap of financial illiteracy
4.4.3 Low Awareness and Gaps in Understanding Concepts
and Procedures
4.4.4 Gap in risks and vulnerabilities faced by BPL people and
covered by insurance companies
4.4.5 Gap in microinsurance policies demanded by BPL
people and provided by insurance companies
4.4.6 Gap in services provided by insurance companies to
BPL people
4.4.7 Gap in coverage of insurance companies

4.4.1 OPERATIONAL GAP

It is well known that, The plans and plannings of the
Government of India are overwhelming, but the outreach of
them are not satisfactory due to faulty system. The major gap
exists between demand and supply of microinsurance was that
the branches of insurance companies were not established in
rural areas. This research analysed that in Akola, bichpuri and
barauli aheer the branches of insurance companies were
established in very little number. The major fact is that the
private insurance companies were not established in these
areas, only LIC was established and operates.

32
So, the operation of microinsurance is limited only in urban
areas but the requirement of microinsurance is more in rural
areas not in urban areas.

4.4.2 GAP OF FINANCIAL ILLITERACY

The literacy level of India increasing year by year. It has gone
up to 74.04% in 2011 from 65.38% in 2001, thus showing an
increase of 9 percent in the last 10 years. Despite of increasing
literacy level in India the financial illiteracy is still very low.
This research also shows that 60% respondents were literate
(see table 3.1), but still they were not aware about
microinsurance. This clearly shows the defective education
system in India. Because of financial illiteracy they were not
aware about microinsurance, benefits of microinsurance, areas
covered in microinsurance and so on.

4.4.3 LOW AWARENESS AND GAP IN

UNDERSTANDING CONCEPTS AND PROCEDURES
The major gap exists between demand and supply of
microinsurance is that, the BPL people were not aware about
microinsurance. This research analysed that, only 17%
respondents were familiar with the term microinsurance,
concepts of microinsurance, procedures involved in
microinsurance, benefits of microinsurance and so on (see
figure 3.1).
Poor people were not aware about microinsurance and until
they will not aware, they will be unable to enjoy the benefits
perceives from microinsurance.

33
4.4.4 GAP IN RISKS AND VULNERABILITIES FACED
BY BPL PEOPLE AND COVERED BY
MICROINSURANCE COMPANIES
Microinsurance is the protection of low-income people
against specific perils in exchange for regular premium
payment proportionate to the likelihood and cost of the risks
involved. As definition depicts that the microinsurance
specially designed for protecting the poor people from various
risks and vulnerabilities they faced. Poor people faced various
problems like Death of family member, Expenditure on
sickness or illness, Loss of crop, Disease or death of livestock,
Loss of business, Natural disaster and Theft/ robbery (see
table and figure 3.2). This research analysed that from these
risks and vulnerabilities, insurance companies mainly covered
only two risks and they are Death of family member,
Expenditure on sickness or illness.
So, because of covering only two risks and vulnerability by
insurance companies there exists a wide gap between demand
and supply of microinsurance in covering the risks of poor
people because they demanded insurance not only for these
two but for all those perils which they faced.
Risks and Vulnerabilities faced by poor people
1. Death of family member
2. Expenditure on sickness or illness
3. Loss of crop
4. Disease or death of livestock
5. Loss of business
6. Natural disaster
7. Theft/ robbery
Risks And Vulnerabilities covered by Insurance Companies
1. Death of family member

34
2. Expenditure on sickness or illness

4.4.5 GAP IN MICROINSURANCES POLICIES

DEMANDED BY BPL PEOPLE AND PROVIDED BY
INSURANCE COMPANIES
Microinsurnce protects poor people from various risks and
vulnerabilities they faced, by providing them claim at the time
of need, which is equal to the premium they paid.
Microinsurance has various types like- life insurance, health
insurance, crop insurance, cattle insurance, property
insurance, disability insurance, disaster insurance
unemployment and reinsurance. The effective outreach of
microinsurance is said to be when, all the insurance policies
provided by insurance companies to poor people and all the
insurance companies provides all the insurance policies to
poor people, but the truth is that, this is not true.

This research analysed that the poor people need all type of
insurance policies but insurance companies provides
insurance cover only for life and health i.e., life insurance and
health insurance. The gap between microinsurance policies
demanded by poor people and the insurance policies provided
by insurance companies is depicting below.

4.4.6 GAPS IN SERVICES PROVIDED BY INSURANCE

COMPANIES TO BPL PEOPLE
Microinsurance is good step for financial inclusion and
insured BPL people from various risks and vulnerabilities they
faced. Microinsurance ultimately designed for, insuring poor
people from various perils they faced by providing those good

35
facilities like good claim settlement, effective application
process, sufficient amount of premium, the well insurance
executives behaviour and so on.

This research analysed that the major gap exists between

demand and supply of microinsurance is that poor people were
not satisfied with the services and facilities provided by
insurance companies. They were not satisfied with the claim
settlement, application process, and amount of premium they
get, the insurance executives behaviour etc. There exists no
significant satisfaction level among those BPL people who
takes insurance policy

4.4.7 GAPS IN COVERAGE OF INSURANCE

COMPANIES
We know approximately 29% people are still live below
poverty line and they will faced various risks and
vulnerabilities like death of family member, sickness or illness
etc. (see table and figure 3.2). The condition of poor people in
our India is very life-threatening, and when these risks and
vulnerabilities occur in their life the condition of poor people
became even more vulnerable.

Microinsurance, in this case insured BPL people and covered

their risks by proving them good claim which satisfactorily
cover their risks and perils, but this is not true. This research
analysed that another gap exists between demand and supply
of microinsurance is that the BPL people were not satisfied
with coverage done by insurance companies to cover their
risks.
36
In conclusion, we can say that the microinsurance is a good
policy of government of India for financial inclusion and
empower BPL people but the outreach of microinsurance is
not effective in fact it is very poor.

This research analysed masses of gaps exists between demand

and supply of microinsurance. The major gap is that the
branches of insurance companies were not established in rural
areas, only little branches of LIC is established and operates.

Secondary BPL people were not aware of microinsurance

because of financial illiteracy. BPL people faced numbers of
risks and vulnerabilities but out them they were insured only
for two risks i.e., death of family member and sickness or
illness of family members by life insurance and health
insurance respectively.

As per researches only few people purchased microinsurance

policy and only few were satisfied with the services provided
by insurance companies and out of few BPL people who got
the claim, no one was fully satisfied with the coverage done
by insurance companies less than 2% respondents were
partially satisfied and remaining respondents were not
satisfied.

Insurance Policies demanded by BPL people

1. Life Insurance
2. Health Insurance
3. Crop Insurance
4. Cattle Insurance

37
5. Disaster Insurance
6. Disability Insurance
7. Property Insurance
8. Unemployment Insurance
9. Reinsurance
Insurance Policies provided by Insurance Companies
1. Life Insurance
2. Health Insurance

38
 CHAPTER 5
MICROINSURANCE PRODUCTS

5.1 INTRODUCTION
Microinsurance, like regular insurance, may be offered for a
wide variety of risks. These include both health risks (illness,
injury, or death) and property risks (damage or loss). A wide
variety of microinsurance products exist to address these risks,
including crop insurance, livestock/cattle insurance, insurance
for theft or fire, health insurance, term life insurance, death
insurance, disability insurance, insurance for natural disasters,
etc.

5.2 MICRO INSUARNCE PRODUCTS

Life Insurance- Life insurance pays benefits to designated

beneficiaries upon the death of the insured. There are three
broad types of life insurance coverage: term, whole-life, and
endowment. Term life insurance policies provide a set amount
of insurance coverage over a specified period of time, such as
one, five, ten, or twenty years. Whole life insurance is a cash-
value policy that provides lifetime protection. This is hardly
offered in low-income markets in the developing countries.
Endowment life insurance pays the face value of insurance if
the policyholder dies within a specified period.

Health Insurance- Health insurance provides coverage

against illness and accidents resulting in physical injuries.
MFIs have realized that expenditures related to health
problems have been a significant cause of defaults and

39
people's inability to continue improving their economic
conditions. Several MFIs have therefore, either started their
own health insurance programs or have linked their clients to
existing programs.
Problems faced-
a) High cost of Health insura0nce product as compared to life
insurance product b) Lack of interest among the members to
buy a health insurance product It also poses the question of
should the health insurance product be made compulsory and
how can government intervene to provide the insurance
benefit to the poor at an affordable cost
c) Absence of a robust MIS to track details related to insured
family members
d) Lack of competence on the part of the MFI to monitor the
cases e.g. it may not be possible for the member/ family to
report the illness to the concerned MFI person , due to which
it becomes hard to keep a track of the genuine cases
e) Inability of the MFIs to keep a track of the different
documents related to health insurance claims
f) Lack of technical competence of the MFI to understand the
treatment for the illness involved which might be inflated to
increase the cost of treatment g) Lack of proper awareness
among the MFIs members about the inclusions and exclusions
of the health insurance product
h) The tendency of the MFI members of get benefit of each
rupees spent in paying the insurance premium
i) In case of absence of networking hospitals , it might take
long time to get a approval from the insurance companies

40
 Pricing of the Micro health insurance products depends on the
difference in the incidence of illness, the cost associated with
the treatment, as well as the geographical location of the MFI.
As such the same product cannot be replicated to meet the
needs in different geographical areas. A place with high
incidence of malaria, people would like to get covered for its
treatment; however the other surrounding places might never
face such an illness and might like to go for covering some
other illness. In hilly area the risk of accidents might be high
whereas in some other area there might be high incidence of
cholera and typhoid. As such in most of the cases the products
floated are either basic in nature, ensuring the client against
the loss of daily wages during hospitalization or takes care of
the health treatment with requires minimum 24hrs of
hospitalization.
Property Insurance- Property insurance provides coverage
against loss or damage of assets. Providing such insurance is
difficult because of the need to verify the extent of damage
and determine whether loss has actually occurred.

Disability Insurance- Disability insurance in most cases is

tied to life insurance products. It provides protection to the
policy holder and her family, should she or some of her family
suffers from a disability.

Crop Insurance- Crop insurance typically provides policy

holders protection in the event their crops are destroyed by
natural calamities such as floods or droughts. To improve the

41
ability of rural farmers to repay loans from agricultural
development banks (ADBs), many governments developed
crop insurance programs in the 1970s and 1980s. Crop
insurance

In India more then 60% of the population is engaged in

farming. As such agriculture forms the backbone of the
majority of the households in rural areas and any damage of
crop due to natural calamity results in severe setback to the
entire family of the farmer. This risk can be mitigated with the
help of crop insurance. Crop insurance is not a new concept;
however there is a severe constraint on the availability of crop
insurance products.

Most of the insurance companies do not want to venture in

this area due to the magnitude of the complexities involved in
the administration of crop insurance. A few of the products
that are available have high premium which makes them
unaffordable for the poor farmers. However efforts have been
made by the government to encourage designing of the models
that can systematically tackle the problems of crop insurance.

Several MFIs are also trying to test out the product in

collaboration with the insurance companies. Crops insurances
are of following types The first type directly estimates the
yield per hectare and translates it into monetary terms. The
yield determines the insurance coverage. The insurance takes
care of the fluctuating prices as well as the low yield of the
crop. The assessment of the insurance claim is made by

42
 estimating the damage suffered by the crop. The second type
of crop insurance guarantees the farmer a fixed income in
spite of crop failure or fluctuations in the market price The
different types of risk perceived can be well combined into a
crop insurance package to benefit the poor and marginal
farmers.

Disaster Insurance- Disaster insurance is through a

reinsurance arrangement that broadens the risk pool across
countries and regions, and protects insurers against
catastrophic losses. Unemployment Insurance- This
insurance provides cash relief to individuals who become
unemployed involuntarily and who meet certain government
requirements. It also helps unemployed workers find jobs.

Reinsurance- Reinsurance is the shifting of part or all of the

insurance originally written by one insurer to another. This is a
central feature of the operations of all commercial insurers.

Asset Insurance Has been perceived as a latent need of the

people in certain areas which are prone to flood, cyclone, but
the insurance providers are still struggling to come up a
process of verifying and asserting the value of the asset and
evolving a simple and swift mechanisms for evaluation of
loss, especially after the calamity. Hence it can be safely
concluded that the Asset insurance is a product that has not
been common among the MFIs, due to the intricacies involved
in its operations.
43
 Livestock Insurance Livestock can be one of the important
assets owned by the poor. Loss of any such asset can be a big
financial blow to the poor household. This risk can be
mitigated by the livestock insurance. Under livestock
insurance the value of the animal serves as the insured
amount. The insured animal is diagnosed for its health and
tagged in its ear to document its insurance. Death of animal
due to sickness or accident is compensated by the claim
payout by the insurance company. Though the concept is old
but still it can be said to be in nascent stage. Insurance
companies and MFIs are working hand in hand to develop an
effective product for the poor.

5.3 MICROINSURANCE PLAYERS AND PRODUCTS

IN INDIA
There are 23 life insurance companies are present in India but
only 14 companies are providing microinsurance products this
clearly give an idea of low attraction of majority of companies
towards these products. Below is the list of micro insurance
products along with the name of companies:
S.No. Name of Insurer Name of the product Logo 1 Aviva life
ins. Co. India Pvt. Ltd. Grameen Suraksha
2 Bajaj Allianz Life Insurance Co. Ltd
Bajaj Allianz Jana Vikas Yojana. Bajaj Allianz Saral Suraksha
Yojana. Bajaj Allianz Alp Nivesh Yojana.
3 Birla Sun life ins. Co. LTD Birla Sun Life Insurance Bima
Suraksha Super. Birla Sun Life Insurance Bima Dhan
Sanchay. 4 DLF Pramerica Life Insurance Co. Ltd DLF
Pramerica Sarv-Suraksha.
5 ICICI Prudential Life Insurance Co. Ltd

44
ICICI Prud. Sarv Jana Suraksha
6 IDBI Fortis Life Insurance Co. Ltd.
IDBI Fortis Group Micro insurance Plan
7 ING Vysya Life Insurance Co. Ltd.
ING Vysya Saral Suraksha
8 Life Insurance Corporation of India
LIC's Jeevan Madhur. LIC's Jeevan Mangal.
9 Met Life India Met Vishwas
10 Sahara India Life Insurance Co. Ltd.
Sahara Sahayog (Micro Endowment Insurance without profit
plan).
11 SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti. SBI
Life Grameen Super Suraksha.
12 Shriram Life Insurance Co. Ltd. Shri Sahay. Sri Sahay
(AP).
13 Star Union Dai-ichi Life Insurance Co. Ltd.
SUD Life Paraspar Suraksha Plan.
14 TATA AIG Life Insurance Co. Ltd.
Ayushman Yojana. Navkalyan Yojana. Sampoorn Bima
Yojana. Tata AIG Sumangal Bima Yojana.

5.4 MICRO INSURANCE DISTRIBUTION MODELS

1. PARTNER-AGENT MODEL OF
MICROINSURANCE
It is a partnership between an insurer and an agent that
provides some kind of financial service to large numbers of
low-income people. This could be a microfinance
organization, an NGO, or a business that supplies products to
large numbers of lowincome people, such as a fertilizer
supplier. This party is an agent, selling insurance policies to
the clients on behalf of the insurance provider (usually) in
exchange for a commission or fee. The insurance provider
utilizes the established distribution channels of this agent and

45
its financial transactions with low-income groups that would
otherwise be too costly to set up. The partnership model uses
the comparative advantage of each partner so that each can
focus on its core business, the insurance provider is
responsible for designing and pricing the product, the final
claims management, and the investment of reserves, and
absorbs all the insurance risks. In addition to selling the
policies, the agent offers its infrastructure for product
servicing such as marketing the product, premium collection,
and assists in claims management.

Advantages and Limitation of Agent -Partner Model of

insurance delivery
The delivery system under this model is argued works better
because the synergies are maximized, enabling both
organizations to focus on their core business and expertise.
With a single partnership agreement it is possible to sell
microinsurance to more number of clients with fewer skills for
the agent than other models. Like other formal insurance
product delivery system, it is legally recognized insurance
companies and operates under the insurance laws and
regulation. Possibility of reduction of the overhead costs of
both the agent and the insurance company is better as the
agent can use its infrastructure. Information asymmetries are
minimized as the agent is familiar with the needs of clients
and their situations, which reduces the time needed for claims
verification and settlement, while receiving feedback on client
satisfaction and product design. There is some incentive for

46
the agent to earn as commission without risk, while the insurer
earns profits. Major limitation of this model is that the insurers
depend on the quality of the agent. So reputation and
performance of the agents is crucial. Conflicts of interest may
occur, especially when working with non-financial
institutions. NGOs or MFIs staff or management may develop
sympathy for a client and be lax about underwriting or claims
verification. It should be noted that this is less likely to occur
with an MFIs partner that is used to financial discipline with
its lending activities

e.g A partnership model in India BASIX is an NGO working

in livelihood promotion in several arid and backward districts
spread over seven states. BASIX works towards its mission of
livelihood promotion by providing a comprehensive set of
services, which include Livelihood Financial Services
(Savings, Credit and Insurance) and Institutional Development
Services. BASIX is headquartered at Hyderabad.
As part of its mission to deliver comprehensive financial
services to rural customers, BASIX began its initiatives to
deliver insurance services four years ag o, coinciding with the
opening up of the insurance sector. From the beginning,
BASIX has actively partnered with multiple insurance
companies to design insurance products for rural customers. In
the area of life insurance BASIX began by working with
ICICI Prudential and currently works with AVIVA Life
Insurance Company. BASIX has worked with Royal
Sundaram general insurance company for the delivery of

47
 livestock insurance and ICICI Lombard for rainfall insurance.
BASIX is also actively working with these and other insurers
to design a suitable health insurance product for its rural
clients. In 2003, BASIX was also given a Corporate Agency
license by the IRDA to distribute retail life insurance products
from AVIVA. Source: E -mail communication with authors.

Potential partners: MFIs Appendix 3 contains a list with

some contact information of MFIs in India. This is a good
starting place for potenatil providers of micro insurance
services because MFIs are already providing a financial
service to low-income clients. In addition to this list, the
ILO in New Delhi has published a comprehensive study of
all micro insurance schemes in India. 8 The market is
dynamic, however, and MFIs and NGOs frequently change
their partners when they are offered better deals from
insurers.
Potential partners: Commercial enterprises There is some
scope for working with commercial agents that sell goods and
services to low income clients. This is already being done by
IFCO Tokyo, which cooperates with fertilizer sellers. The
same is true of ITC, which has joined up with a number of
insu rers.
Potential partners: Non-financial NGOs A vast number of
non-financial NGOs have access to low-income clients. These
include lobby groups or groups that provide paralegal advice.
They would need to be considered on a case -bycase basis as

48
 they vary greatly in their capacity and desire to work with
commercial insurers. 9
Potential partners: Banks Most private banks do not lend to
low-income clients so connections like the one Bajaj Allianz
AG has with Standard Chartered Bank would not be of much
use in the low-income market. This explains the use of
microfinance institutions. But there may be some unexplored
possibilities with banks.

In India there is an important Linkage Banking programme

run by NABARD with the support of GTZ. Under the
programme, NABARD provides wholesale finance to banks
for loans given to the rural poor, who are formed into savings
and credit self -help groups (SHGs). Over the last 12 years,
NABARD has been able to increase substantially the outreach
of banking in rural India. Cumulatively, banks have lent Rs.
39.04 billion to 1,079,091 SHGs. NABARD has extended a
refinance of Rs. 7.06 billion to banks during 2003 -2004,
bringing the cumulative refinance amount to Rs. 21.24
billion.In total, there are 66,200 bank branches in India, of
which rural branches accounted for nearly half. A bank branch
serves on average about 15,000 clients. About 16 million poor
households have gained access to the formal banking system
through the SHG Bank Linkage programme. So far, SHG
savings were a route to bank loans and improved risk
management for the poor (women). A significant portion of
SHG members contacted by the GTZ NABARD project have
reported that they save between Rs. 1,000 and Rs. 5,000 per

49
year, some people having accumulated savings up to Rs.
10,000, with their SHG or in private bank accounts.At present,
NABARD operates through state-owned banks, and it requires
that insurance be sold by borrowers who take up a NABARD-
funded loan. These loans are not through self-help groups,
however, and tend to be towards somewhat wealthier farmers.
The insurance is part of the state-run National Agricultural
Insurance Scheme (NAIS) or Rashtriya Krishi Bima Yojana
(RKBY), a crop insurance scheme mentioned in the section on
products.

One private bank, Chitradurga Gramin Bank (sponsored by

Canara Bank), has sold microinsurance to SHGs, partnering
with LIC and UIIC. The scheme is a fairly typical life
insurance policy offering insurance coverage of Rs. 25,000, in
case of natural death and Rs. 50,000 in the case of accidental
death.

Banks, at this point state banks, are thus an important potential

partner for insurance companies (at this point only state
insurance companies). In sum, they reach large numbers of
low-income clients through the SHG linkage model, and they
accept savings that can be used to pay premiums. The success
of SHG Banking depends to a large degree on the staffs
participative role in handling the new SHG window.
Banking with self -help groups is different from individual
banking, and there are still some problems getting staff fully
trained to deal with SHGs.

50
Moreover, banks cannot establish such a costly service
structure for offering integrated insurance services to the
poor.10 Health insurance and hospitalization insurance require
special care and supervision and an indemnity regulation
system that would overcharge the banking system completely.
Those banks with substantial experience with a new group of
clients, particularly the self-organized women from the poorer
strata of the population, have not yet applied those insurance
systems for their new SHG clients. They found it difficult to
identify, design and sell adequate insurance products on their
own or in cooperation with insurance companies.

As banks are selling agricultural (individual) insurance linked

with livestock loans, they could, however, start selling group
microinsurance for similar products (e.g., for cattle).

Recommendations regarding banks At the moment, state

banks are working with public insurers. This may be
changing, and Allianz AG and similar institutions should
monitor the situation (with the Reserve Bank of India, the
IRDA and NABARD). As far as private banks go, few reach
the social sector (although many reach the rural sector). (For
sector definitions, see Appendix III.) LIC has broken new
ground in reaching the social sector via its link-up with the
Chitradurga Gramin Bank. Allianz AG should see if any other
private banks begin to service the social sector and then
explore partnering with such banks.

51
Banks that work with SHGs are important potential partners.
It would be useful to create awareness of the potential among
state banks and to help build their capacity to deliver
microinsurance to SHGs.

Many NGOs and MFIs that partner with insurer s are in need
of capacity-building to help ensure that (a) they get the best
deal from the insurer and (b) manage the relationship
efficiently. In order to get the best deal from insurers, NGOs
and MFIs need to know exactly how much it will cost them to
do the agency work. Very few NGOs and MFIs cost their
activities effectively, and this adversely affects their
sustainability. It would be useful to assist them in costing their

activities. The Consultative Group to Assist the Poor, a multi

-donor group (www.cgap.org), has developed a detailed,
costing training course for MFIs.

In the Concept Paper on Microinsurance the IRDA envisages

a minimum training requirement for MFI and NGO agents.
Although most of the work of th e agents will be related to the
specific product they sell and the specific relationship they
have with the insurance company, there will be a minimum
core common to all agents, for example, the basic principles
of insurance and selling techniques. As such material would
benefit all parties, it would be useful to hold a workshop with
insurers and MFIs, decide what training would be useful for
all, and then develop training materials on the common
themes.

52
2. AGENCY MODEL The agency model:
How does it work? In this model the insurer uses its normal
agency office and sells microinsurance products directly.
The client comes to the agency office for sales and
servicing of the product. Insurers described this model but
the authors could find no examples of it operating in
practice.

Pros and cons of the agency model:

Pros

Does not require much additional investment in

infrastructure
Better control of the quality of the agent than with the
partnership model.

Cons

Difficult to reach large numbers especially in rural

areas where clients may be unwilling to travel to the
office;
Agents will need special training in dealing with low
-income clients;
Offices may intimidate poor clients;
Individual policies only would be sold; generally such
microinsurance policies have not proved commercially
viable.
3. MICRO-AGENT MODEL:
How does it work? While the partnership model is relatively
common, the micro -agent model described below is unique. It
is the invention of Tata-AIG, specifically an employee of Tata-

53
AIG, Vijay Artherye. The central building blocks of the model
are Rural Community Insurance Groups (CRIGs) supervised
by rural organizations such as churches, NGOs or MFIs.
CRIGs are a partnership firm formed of five women from a
self-help group (SHG). The leader of the CRIG is licensed as
an agent. The CRIG is a de facto brokerage firm (in the
technical, not the legal sense of the term). All CRIGs in the
same geographic area meet in a single centre, usually
organized with the assistance of the rural organization, and
receive training and assistance from Tata -AIG. This practice
reduces training costs.

Micro-agent model Profile and workings of a typical CRIG

Most CRIGs consist of four to five members. These members
are usually women who are part of an SHG. The typical
profile of a member would include communication skills,
acceptance of insurance, preferably educated up to the 10th
standard, with influence in the SHGs, and capable of doing
some paperwork. The CRIG has a leader appointed by Tata
-AIG on the advice of the rural organization. A typical leader
will be educated to the 12th standard or above, have a good
track record of past social-sector performance and integrity, be
systematic and organized, with leadership qualities, and public
speaking and training skills. This leader is trained by Tata
-AIG to obtain a corporate agents license. The CRIG as a
whole is registered as a body under the Andhra Pradesh
Societies Act (where the model is currently being used).

54
 The CRIG leader and members are involved in promotion,
sales and collection of insurance proceeds and maintaining
records. The CRIG leader will document all fortnightly CRIG
meetings and all weekly meetings with the NGO concerned.

Pros and cons of the micro-agent model

The model creates an insurance distribution infrastructure

in low -income neighbourhoods. In addition, it creates a
new profession, that of micro -agent, with new livelihood
opportunities in his/her vicinity;
Sustainability: Because the position is a commercial one
with financial incentives, TataAIG believes that it will last
in the long term, facilitating the sale of long -term
products. As mentioned under the partner-agent model,
NGOs and MFIs are often dependent on the goodwill and
public recognition of aid flows, and so their long-term
existence is precarious. Chances are good that CRIGs,
being registered firms, will survive, in the event of a
member or leader dropping out. The leader could be
replaced by another from the community, thus mitigating
the risk of orphaned policies;
In the event that a CRIG disbands, the orphaned policies
can be taken over by another CRIG that operates under the
same NGO.

Cons

Training is costly, especially in relation to premium values

;

55
 The transaction costs of the sales agent are cheap at first
but increase as soon as the agent has sold to all the
peoples/he knows and needs to sell to strangers, especially
to those living far away;
In many cases in the partnership model, when a claim
arises the MFI or NGO investigates the claim, pays the
benefit immediately, and then claims it back from the
insurer. Immediate payment of claims helps maintain
client confidence, and this is not possible under the CRIG
system;
This model is new, and much more experience is needed
before it can be reasonably evaluated.

Mutuals, cooperatives, and other community-based models

In the mutual model, the insurer is owned by clients
(members), who share in the benefits and costs of the
insurance operations, often with members liability limited to
their premium contributions. Cooperative insurers may, but
need not, be owned by clients. These models have similar
characteristics, including involvement of insurance clients in
management, and often serve pre-existing groups of clients,
such as borrowers from a credit and savings cooperative or
MFI, or residents of a limited geographic area.

Lending organisations often offer borrower's insurance

contracts that cover the balance of a loan to be paid back.
They also often offer life insurance, and more rarely provide
housing, funeral, invalidity, and accident policies. These

56
products come in addition to mainstream credit and savings
services.
In the countries of Sub-Saharan Africa, many mutualised
health insurances have also been created on the basis of a
voluntary membership. In exchange for the premiums they
send to a fund, policyholders are entitled to certain benefits.
The community has an important role in designing and
managing the programme.

5. THE ALL IN ONE INSURANCE MODEL

Different organisations - MFIs, insurance companies, etc.
can also sell their policies directly to the poor through agents
who are paid by salary, sales commission, or both. In this
model, the same entity (sometimes a licensed insurer and
sometimes not) bears all costs and risks associated with the
product and also performs all distribution and servicing
functions

6. THE FRANCHISE MODEL

In this model, the professional insurer franchises his/her
license, assigning part of his/her capital to the licensee
through a reinsurance treaty. The licensee is charged with
designing the product, setting the prices, and handling the
losses and gains.

7. The supplier model

This model implies that the insurer (whether formal or

57
informal) provides all or part of the covered services, such as
health-care or funeral services. By providing a tool to finance
use of the covered services, the supplier is able to increase
access to, and demand for, these services. At the same time, as
the supplier, it has control of the quality of the service
provided, which is a crucial element in client satisfaction and
retention. The major drawback of this model is the potential
inadequacy of the service provider to bear the necessary risk
or perform other functions required of an insurer, particularly
if it is informal. In certain countries regulatory restrictions to
this model exist.

5.5 CHANNELS OF DELIVERY

Delivery channels are crucial in meeting the demands of the

rural as well as urban population. The choice of the delivery
channel to a great extent affects the sales volume. Till date
insurance industry has mainly relied on the agents, corporate
agents, MFIs/NGOs and banks. But even these channels are
not used to their full potential owing to their own set of
complexities involved. In order to role out micro insurance on
large scale we need to make effective use of existing channel
and lay emphasis on development of new channels. One of the
models can be selling micro-insurance through client groups.
This method clearly has many benefits including reducing
adverse selection and moral hazard, improving transaction
efficiencies, and providing some leverage for low-income
people to obtain better products and service. New

58
 technological solutions may simplify outreach to large
numbers, but lack many of the benefits of group-based
products.

The formal channels for delivery of insurance products can be

listed as follows:- Corporate and micro-insurance Agents
Cooperatives SHGs & their Federations NGOs/MFIs/CBP
Formal Banks and RRBs Post Offices Internet & Rural
Kiosks

1) CORPORATE AND MI AGENTS

Though corporate agents can sell all kinds of insurance

products (life and non life) to rural as well as urban areas,
micro-insurance agents are only licensed to sell micro-
insurance products. They are the prime delivery channels as
far as urban areas are concerned but their penetration in rural
areas seems to be quite limited. The micro-insurance agents
are mostly local people who have good rapport in their
community, e.g. school teachers, shopkeepers, local leaders,
and gram sevaks. They are trained by the insurance companies
on the different micro-insurance products. Though they have
been instrumental in selling micro-insurance product but their
reach is restricted by the fact that in rural areas, the
settlements are highly scattered. It takes excessive time and
energy to reach out to people. However the micro-insurance
agents being local people help the insured in their area avail
the benefits of insurance.

2) COOPERATIVES

59
 They have come along way in insuring their members by tying
up with a suitable insurer or a insurance provider. One of the
examples can be the health insurance provided by the
Yeshasvini Trust, of Karnataka. Here the cooperatives act as a
channel for delivery of health insurance. The main target
being the members of the cooperative. Since cooperatives
have a good network that can ensure the insurance reaches to a
larger group of people, they have been identified as main
sources or channels for delivery of micro-insurance product.

3) SHGS & THEIR FEDERATIONS

SHGs and their federation are another reliable channel of

delivery, which ensures a wide reach. Few examples are
VIMO SEWA, composite insurance scheme. These SHG
federations can negotiate with insurers to introduce composite
products which are demanded by their members. The
established faith of the SHG members in their federation helps
in selling the insurance products.

4) NGOS/MFIS/CBP

The MFIs/NGOs have been identified as main delivery

channels by most of the insurance companies. These have a
large network, catering to huge number of clients. However
most of the MFIs have limited ability to process the insurance
claims as such they try to customize the insurance product in
order to simplify the operational process involved. This might
also limit the benefits of the customized package.

60
 As far as Formal Banks and RRBs, Post Offices and Internet
& Rural Kiosks are concerned they have not developed their
potential in delivering the insurance product.

5.6 BEST PRACTICES IN MICRO INSURANCE

There are some of the general practices as related to

loan/credit insurance and health insurance which determine
the success of the process. The practices discussed can be
modified by the MFI/ NGOs to meet their requirements.

DESIGNING THE PRODUCT

Before trying to design a new customized product the MFIs

should conduct the initial survey of the area of their operation
to ascertain the needs of the people with respect to insurance.
The survey would also help understand the affordable
premium rates and payment mode (weekly or monthly
payment). It also needs to understand how the entire insurance
process would ultimately gel with their existing micro
insurance operations and should it be made compulsory for the
clients.

EDUCATING AND INSURING THE MEMBERS

a) During group formation and loan disbursement the

members should be read the terms and conditions involved in
the process of Rnrolment for micro-insurance product

b) A small documentary picture can also be used to educate

the client

61
 c) It would also be distributed in local language to the
members so that they comprehend and avail the benefits
mentioned in the document.

d) The point of contact should be clearly mentioned

e) As far as health insurance is concerned a member from the

group can act as a facilitator and be trained by the MFIs to
understand the inclusions and the exclusion clause

f) More complex insurance products like health, livestock and

asset insurance should be introduced to client after
establishing in a particular area as good rapport with the
client. That will help in easy selling of the insurance product.

PREMIUM COLLECTION

a) Premium collection is done based on the initial survey

conducted by the MFIs.

b) In areas where the main source of income is agriculture the

premium can be collected after every six months.

c) In areas where people are employed in small businesses,

weekly repayment can be designed.

d) In case of NGOs involved in thrift and credit, the premium

can be linked to the saving account/ fixed deposit of the
members.

e) In many of the cases where the insurance is made

compulsory with the loan product, a part of the loan can be
deducted as premium upon disbursement.

62
 f) In case of inhouse insurance a part of the loan is covered as
insurance fees, which is then used to create a pool for paying
the claims

PRODUCT FEATURES

a) Providing funeral expense to meet the immediate

requirement in case of life insurance

b) Writing off the principle amount and payout of the repaid

principle amount

c) Tying up with good network hospitals to help members

avail the cashless facility

d) Providing daily wage compensation for the number of days

hospitalized

PROCESSES

a) The insurance receipt given to the members should be in

local language

b) Proposal forms and claim forms are in local language

c) A percentage of the expense incurred during the

hospitalization to be borne by the clients

d) Designing a robust insurance module, that can help reduce

the turn around time

e) Refining of the existing product based on the feedback from

the members.

CLAIM ADMINISTRATION

63
a) A facilitator at branch office level to take care of the reported
claims in case of life insurance
b) b) Branch to be responsible for collection of relevant
documents from the clients for processing the claims
c) c) Payout in the center meetings
d) d) Use of TPS or rural BPO to take care of the claims in case
of health insurance. This saves the MFIs from the
complexities of the health insurance claims

SCHEMES LISTED ON IRDA WEBSITE

NAME OF INSURER NAME OF PRODUCT

AVIVA Life Ins. Co. India Aviva Nayi Grameen
Pvt. Ltd Suraksha-Micro Insurance
Product
AVIVA Life Ins. Co. India Credit plus
Pvt. Ltd.
Bharti AXA Life Insurance Bharti AXA Life Jan
Co. Ltd Suraksha
Birla Sun Life Insurance Co. BSLI Bima Kavach Yojana
Ltd.
Birla Sun Life Insurance Co. BSLI Bima Suraksha Super
Ltd.
Birla Sun Life Insurance Co. BSLI Bima Dhan Sanchay
Ltd.
Birla Sun Life Insurance Co. BSLI Grameena Jeevan
Ltd. Raksha Plan
Canara HSBC Oriental Bank Canara HSBC-Sampoorna
of Commerce Life Insurance Kavach Plan
Company Ltd.
DHFL Pramerica Life DHFL Pramerica Sarv
Insurance Co. Ltd Suraksha
64
Edelweiss Tokio Life Edelweiss Tokio Life -
Insurance Co. Ltd Raksha Kavach (Micro
Insurance Plan
Edelweiss Tokio Life Edelweiss Tokio Life - Dhan
Insurance Co. Ltd Nivesh Bima Yojana
HDFC Standard Life HDFC SL Sarvgrameen
Insurance Co. Ltd. Bachat Yojana
ICICI Prudential Life ICICI Pru Sarv Jana Suraksha
Insurance Co. Ltd.
ICICI Prudential Life ICICI Pru Anmol Bachat
Insurance Co. Ltd.
IDBI Federal Life Insurance IDBI Federal Group
Co. Ltd. Microsurance Plan
IDBI Federal Life Insurance IDBI Federal Termsurance
Co. Ltd. Sampoorn Surksha Micro
Insurance Plan
Kotak Mahindra OM Life Kotak Sampoorn Bima
Insurance Ltd. Micro-Insurance Plan
PNB MetLife India Insurance Met Grameen Ashray
Co. Ltd.
Sahara India Life Insurance Sahara Surakshit Pariwar
Co. Ltd Jeevan Bima
SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti
SBI Life Insurance Co. Ltd. SBI Life Grameen Super
Suraksha
SBI Life Insurance Co. Ltd. SBI Life Grameen Bima
Shriram Life Insurance Co. Shri Sahay
Ltd
TATA AIA Life Insurance Co. TATA AIA Life Insurance
Ltd Navkalyan Yojna - Micro
Insurance Product
Life Insurance Corporation of LIC's New Jeevan Mangal

65
India
Life Insurance Corporation of LIC's Bhagya Lakshmi
India

66
 CHAPTER 6

REGULATIONS BY IRDA

6.1 INTRODUCTION

Insurance Regulatory and Development Authority of India

(IRDAI) has created a special category of insurance policies
called micro-insurance policies to promote insurance
coverage among economically vulnerable sections of society.

6.2 TIE UP BETWEEN LIFE INSURER AND GENERAL

INSURER

3. (I) An insurer carrying On life insurance business may offer

life micro insurance products as also general micro- insurance
products, as provided herein:

Provided that where an insurer carrying on life insurance

business Offers any general micro-insurance product, he shall
have a tie-up With an insurer carrying on general insurance
business for this purpose, and subject to the provisions of
SectiM1 of the Act, the premium attributable to the general
micro insurance product may be collected from the prospect
by the insurer carrying on life insurance business, either
directly Or through any Of the distributing entities of micro-

67
insurance products as specified in Regulation (4) and made
over to the insurer carrying on general insurance business:

Provided further that in the event Of any claim in regard to

general micro insurance products, the insurer carrying on life
insurance business or the distributing entities Of micro-
insurance products, as the case may be, as may be specified in
the tie-up referred to in the first proviso, shall forward the
claim to the insurer carrying on general insurance business
and offer all assistance for the expeditious disposal of the
claim.

For the purpose Of these Regulations, the General Insurer

includes Health Insurer.

6.3 DISTRIUTION OF MICRO INSURANCE

PRODUCTS

4 (l) In addition to an insurance agent or agent or broker

appointed registered under the Act, read with the regulations
concerned made by the Authority for appointing registering
individual or corporate agents, Or insurance brokers, as the
case may be and such other insurance intermediaries that are
68
allowed to solicit the insurance business by the regulations
notified by the Authority, micro-insurance products may be
distributed through the micro-insurance agents:

Provided that a micro-insurance agent shall not distribute any

insurance product other than a micro insurance product

(2) For the purpose of distributing the General Micro

Insurance Products referred at Regulation 2 (d) (i);

(a) A General Insurance Company has the option of appointing

Micro Insurance Agent to any one of the sectors of;

Micro Enterprises or Small Enterprises or Medium Enterprises

or for all three sectors or any combination of two sectors

(b) A General Insurance Company has the option of

appointing Micro Insurance Agents for various lines of
business either independently to each line of business or any
combination thereof or to all lines of General Insurance
business

(c) A General Insurance Company has the option of appointing

Micro Insurance Agents in these combinations either in the
Manufacturing Sector or in the Service Sector or both.

6.4 APPOINTMENT MICRO INSURANCE AGENTS

69
5. (I) A micro-insurance agent shall be appointed by an insurer
by entering into a deed Of agreement, which shall clearly
specify the terms and conditions Of such appointment,
including the duties and responsibilities Of both the micro-
insurance agent and the insurer:

(2) A micro insurance agent may work with One Life

Insurance Company and one General Insurance Company. In
addition to this a Micro Insurance Agent may also work With
Agriculture Insurance Company Of India Ltd and With any
one Of the health insurance companies registered with the
Authority.

(3) The deed of agreement referred to in sub-regulation (I)

shall specifically authorize the micro-insurance agent to
perform one or more Of the following additional functions,
namely

(a) collection of proposal forms;

(b) collection Of self-declaration from the proposer that he/she

is in good health

(c) collection and remittance Of premium.

70
(i) Where the micro insurance agents are authorized to collect
and remit the premiums, they shall be mandated by the
insurers for issuing acknowledgements on collection Of
premiums and every Insurer shall put in place procedures to
enable Micro Insurance Agents issue such acknowledgments.

(ii) Insurers are accountable to such premium

acknowledgements issued by the Micro Insurance Agents.

(d) distribution of policy documents;

(e) maintenance of register of all those insured and their

dependants covered under the micro-insurance scheme,
together with details of name, sex, age, address, nominees and
thumb impression/signature of the policy holder

(f) assistance in the settlement Of claims;

(g) ensuring nomination to be made by the insured;

(h) any policy administration service.

(4) The micro-insurance agent or the insurer shall have the

option to terminate the agreement referred to in sub-regulation
after giving a notice of three months by the party intending to
terminate the agreement:

71
Provided that no such notice shall be necessary, where the
termination is account of any misconduct or indiscipline Or
fraud committed by the micro insurance agent.

(a) An insurer may appoint a person or entity whose micro

insurance agency was terminated, other than on the grounds
Of fraud / misconduct, and enter into a deed of agreement in
accordM1ce to the provisions Of Regulation.

(5)(1) only after the expiry of 3 months from the date Of

termination of the said agreement by previous insurer. No
Insurer shall re-appoint a Micro Insurance Agent whose
agency was terminated on grounds Of fraud or misconduct till
such person / entity is exonerated of charges.

(b) In case Of termination of a Micro Insurance Agent, the

lapsed Micro Insurance policies of the terminated

Micro Insurance agent may be allotted to another in force

Micro Insurance Agent of the same insurer by obtaining the
prior consent of such in-force micro insurance agent, by
specifying that the Objective of the allotment is to Conserve
and render policy service to the Micro Insurance
policyholders. Micro Insurance agent who is allotted such
lapsed Micro Insurance Policies is entitled to remuneration /
commission as per the File and Use of the respective micro

72
 insurance product. Remuneration Commission shall be
payable only on

receipt of micro insurance premium.

(5) Every Insurer shall carry out due diligence before

appointing a Micro Insurance Agent with regard to the
reputation, track record and ability to function in compliance
with the regulations and in the best interests of policy holders.

6.5 EMPLOYMENT OF SPECIFIED PERSONS BY

MICRO INSURANCE AGENTS

6 (I) A micro insurance agent shall employ specified persons

with the prior approval of the insurer for the purpose of
discharging all or any of the functions stated in sub-regulation
(3) of regulation -5.

Provided that corporate agents, insurance brokers and such

Other insurance intermediaries that allowed to solicit the
insurance business and procuring micro insurance business
shall continue to governed by the respective regulations issued
by the Authority and as amended time to time.

i. A specified Person who resigned from a Micro Insurance Agent

shall bc eligible for reappointing as a specified person or other
Micro Insurance Agent only after the expiry of 3 months from
the date of resignation.

73
ii. No Micro Insurance Agent shall employ the specified working
for another Micro Insurance Agent.

iii. No Micro Insurance Agent shall employ the individual insurance

agents who are working with any insurer, specified persons of
corporate agents who are working with any insurer and
employees of Insurance Brokers.

6 (2) Where a Micro Insurance Agent is an individual

appointed by an insurance company he shall not employ
Specified person.

6.6 CODE OF CONDUCT OF MICRO INSURANCE

AGENTS

7(1) Every micro insurance agent and specified person

employed by him shall abide by the Code Of Conduct as laid
down in regulations applicable for insurance agents issued by
the Authority and as amended from time to time and the
relevant provisions of Regulation or guidelines issued by the
Authority in relation to the Insurance Advertisements and
Disclosure as modified from time to time:

74
Provided that the insurer shall ensure compliance Of the Code
of Conduct, advertisements and disclosure norms by every
micro Insurance agent.

(2) Any violation by a micro-insurance agent of the Code of

Conduct and/or advertisement or disclosure norms as
aforesaid shall lead to termination of his appointment, in
addition to penal consequences for breach Code of Conduct
and/or advertisement disclosure norms pursuant to the
provisions of sub regulation ( I ) ,

6.7 FILING OF NEW MICRO INSURANCE PRODUCT

8. (I) Every shall subject to "file and us" procedure with

respect to filing of micro insurance products with the
Authority.

(2) Every micro-insurance product which is cleared by the

Authority for the purpose of micro-insurance shall
prominently carry caption "Micro lnsurance Product".

(3) Life Micro Insurance products filed with the Authority

under these regulations shall be subject to the norms stipulated

Under schedule Ill Of these Regulations.

75
6.8 ISSUANCE OF MICRO INSURANCE POLICY
CONTRACTS

9. (I) Every insurer shall issue insurance contracts to the

individual micro insurance policyholder in the languages
recognised in constitution of India which is simple and easily
understood by the policyholders.

Provided that where issuance of policy contracts in the

languages recognised in the constitution of India is possible,
the insurer shall as far as possible issue a detailed write-up
about the policy details in the respective language.

(2) Every insurer shall issue insurance contracts to the group

micro-insurance policyholder in an unalterable form along
with a schedule showing the issue separate certificate, each
such individual evidencing proof of insurance, containing
details of validity period of cover, name of the nominee. and
addresses of the underwriting office and the servicing office,
where both offices are not the same.

76
(3) Notwithstanding the provisions of Regulation 9(1) the
insurers may also allow the Micro Insurance Agents to print
the policy contract on a plain A 4 size paper for Onward
transmission to Micro Insurance Policy holder. The evidence
of payment of policy stamp may be shown on the printed
policy document.

UNDERWRITING

10. No insurer shall authorize any micro-insurance agent Or

any Other outsider to underwrite any insurance proposal for
the purpose of granting insurance cover.

CAPACITY BUILDING

11 (l) Every insurer shall impart at least twenty-five hours Of

training at its expense and through its designated officer(s) in
the languages recognised by the Constitution Of India to all
micro-insurance agents and their specified persons in the areas
of insurance selling, policyholder servicing and claims
administration.

Provided those micro insurance agents who are appointed to

distribute General Insurance policies to MSME sector in

77
accordance to Regulation 4(2) Of these regulations in those
lines Of business to which Such Micro insurance Agent is
appointed shall undergo additional 25 hours of the 'raining at
the expenses of the insurer.

(2) Not less than half of the number of hours of training

referred at Regulation 11(l) shall be imparted as refresher
training on the expiry of every spell of three years from the
date of entering into the agreement.

(3) As part of training programme, the Micro Insurance

Agents shall be apprised of their Obligation to intimate the
insurer in the event of occurrence of contingent event covered
in the underlying policy of micro insurance which is to their
knowledge.

REMUNERATION/COMMISION

12. (I) A micro-insurance agent may be paid, remuneration for

all the functions rendered as outlined in regulation 5 and
including commission by an insurer, and that the same shall
not exceed the limits as stated below :

78
(a) For Life Insurance Business:

Single Premium policies - Ten per Cent Of the Single

premium

Non-single premium policies - Twenty per Cent Of the

premium for the years paying

(b) For General insurance Business: Fifteen Cent Of premium.

(2) Where the agreement between the micro-insurance agent

and insurer is terminated for any reason whatsoever, no future
commission/remuneration shall be payable,

(3) For group insurance products, the insurer may decide the
commission subject to overall limit as specified in sub-
regulation (1).

(4) The remuneration under Micro Insurance products payable

to registered Insurance Intermediaries other than the Micro
Insurance Agents shall be in accordance to the provisions of
the respective applicable Regulations/provisions of the
Insurance Act, 1938 as amended from time to time.

COMPLIANCE TO THE ACT REGULATIONS

79
13, (I) Every insurer shall ensure that all transactions in
connection with micro-insurance business are in accordance
with the provisions Of the Act as amended from time to time
the Insurance Regulatory and Development Act, 1999, and the

and regulations made there under.

Notwithstanding the provisions of Regulation (13)(1)

(2)The provisions of IRDA (Standard Proposal Form for Life

Insurance) Regulations, 2013 are not applicable to Life Micro
Insurance products approved under these Regulations.

OBLIGATIONS TO RURAL SOCIAL SECTOR

14. (I) All micro-insurance policies may be reckoned for the

purposes of fulfilment of social obligations by an insurer
pursuant to the provisions of the Act as amended from time to
time and the regulations made there under.

(2) Where a micro-insurance policy is issued in a rural area

and falls under the definition of sector, such policy may be
reckoned for both under rural and social obligations
separately.

HANDLING OF COMPLAINTS / GRIEVANCES

80
15. (I) It shall be the responsibility of the insurer to handle and
dispose of complaints against a micro insurance agent with
speed and promptitude.

(2) Every insurer shall send a quarterly report to the Authority

regarding the handling of complaints/grievances, if any,
against the micro-insurance agents.

INSPECTION BY AUTHORITY

The Authority may cause inspection Of the office and records

Of any micro insurance agent, at any time. It is deemed
necessary.

SUBMISSION OF INFORMATION

17 Every insurer shall furnish information in respect of micro

insurance business in such form and manner and containing
such particulars as may be required by the Authority from
time-to-time.

For the purpose of forwarding business/claims data on Micro

Insurance Business under these Regulations, the business /

81
 claims figures relating to social security schemes of
State/Central Government and administered on behalf of any
Government Shall be excluded.

Schedule II

1. The sum assured under an Insurance product Offering Life Or

pension or Health benefits shall not exceed an amount Of Rs.
200000.

2. The Annual premium Shall not exceed R.s. 6000 p.a. in a

Micro Variable Non Linked Par platform.

3. Add on riders may be offered in accordance to the provisions

of the extant Regulations.

4. Micro Insurance schemes marketed to Groups with a

minimum Group Size of 5.

SCHEDULE - III

NORMS FOR LIFE MICRO INSURANCE PRODUCT

(I) Notwithstanding anything contrary to the provisions of any

other regulations for the time being in force, the life, health

82
 and pension products offered under micro insurance platform
shall subject to the following :

a) Micro Insurance Products may allow the flexible premium

payment options to enable the policyholders to remit the
premiums in fragmented parts of the modal instalments.

b) Insurers shall not Offer micro insurance products under unit

linked platform.

c) Except to the provisions explicitly provided for in this

regulation, all other provisions of IRDA (Linked Insurance
products) Regulations. 2013. IRDA (Non Linked Insurance
Products) Regulations, 2013 and IRDA (Health Insurance)
Regulations, 2013 shall be applicable mutatis mutandis to the
Micro Insurance Products approved as per the provisions of
the IRDA (Micro Insurance) Regulations, 2015 as modified
from time to time.

d) Except for a regular premium pure term/health policy, where

premiums are received for one full year, all the non-linked non
variable micro insurance policies shall have a paid up value of
at least the total premiums paid along with any subsisting or
vested bonuses Or guaranteed additions already accrued to the
policy. Such paid up value along with bonuses or guaranteed
additions, if any, shall be payable either on maturity or on
death / on the happening of the contingency covered.

83
e) The non-linked variable insurance policy. shall:

i. Have a lock-in period of five years from the date of

commencement of the policy for payment of surrender value.
If the policy is surrendered during the lock- in period:

l. The surrender value shall be payable only after completing

the lock-in period.

2. The insurer shall not levy any charge to the policy account
from the date of surrender

request.

ii. After completing two years from the date of commencement

of the policy, insurer may allow partial withdrawal provided
the balance in the policy account after the partial Withdrawal
is not less than one full year's premium.

iii. In respect of Regular Premium policies, the Life Insurer is

entitled to levy the discontinuation charges which shall not be
more than those mentioned under 'Table a' hereunder. No
other

fee shall be charged.

iv. In respect of Single Premium policies, the Life Insurer is

entitled to levy the discontinuation charges which shall not be

84
 more than those mentioned under 'Table b' hereunder. No
other fee shall be charged.

Where the policy is Maximum discontinuance charges

discontinued during applicable to Mcro Variable Life
the policy year Insurance Products

1 Lower Of 20% ( SP or policy account

value) subject to a maximum of 800

2 Lower Of 15% ( SP or policy account

value) subject to a maximum of Rs 600

3 Lower of 10% ( SP or policy account

value) subject to a maximum Of RS. 400

4 Lower Of 5% ( SP or policy account

value) subject to a

maximum Of 200

5 and onwards Nil

AP- Annualised Premium

SPSingle premium

CHAPTER 7

GROWTH OF MICRO INSURANCE IN INDIA

85
AS PER THE IRDA ANNUAL REPORT 2015-2016

Micro Insurance:

In order to facilitate penetration of insurance to the lower

income segments of population, IRDA had formulated the
micro insurance regulations. Micro Insurance Regulations,
2005 provide a platform to distribute insurance products,
which are affordable to the rural and urban poor and to enable
micro insurance to be an integral part of the countrys wider
insurance system.

The main thrust of micro insurance regulations is protection of

low income people with affordable insurance products to help
cope with and recover from common risks with standardized
popular insurance products adhering to certain levels of cover,
premium and benefit standards. These regulations allow Non
Government Organizations (NGOs) and Self Help Groups
(SHGs) to act as agents to insurance companies in marketing
the micro insurance products and also allow both life and non-
life insurers to promote combi-micro insurance products
(combination of different lines of business).

The Authority undertook the review of the Micro Insurance

Regulations, 2005 comprehensively. In this connection, the
Authority has notified the Amended Regulations on 13th
86
 March 2015 wherein it has permitted several more entities like
District Co-operative Banks, Regional Rural Banks including
Business Correspondents of Scheduled Commercial Banks to
be appointed as Micro Insurance agents facilitating better
penetration of Micro Insurance business. Life Insurance
Sector

While the individual new business premium under the micro

insurance segment for the year 2015-16 stood at `35.94 Crore
under 9.15 lakh new policies, the group business premium
amounted to ` 302.43 crore covering 2.93 crore lives. LIC
contributed to a significant component of the business procured
in this portfolio by garnering `19.54 crores of individual new
business premium under 4.5 lakh policies and ` 254.26 crore of
group premium covering 2.26 Crore lives.

NEW BUSINESS UNDER MICRO-INSURANCE

PORTFOLIO FOR 2015-16 (Premium in ` lakh)

INDIVIDUAL GROUP

INSURE polici premi Schem premi Lives

RS es um es um
Covere
d

Private 458655 1217.9 153 4816.6 665080

87
 Total 5 7 5

LIC 45229 1953.7 4844 25426. 226039

1 8 39 19

Industry 91094 3171.7 4997 30243. 292547

total 6 3 06 24

The number of micro insurance agents at the end of March

2016 stood at 27041; of which 18574 agents pertained to the
LIC and the remaining represented the private sector life
insurers. 27 micro insurance products of 13 life insurers were
available as at 31.3.2016. Of these 27products, 20 were
Individual products and the remaining 7were Group products.
Non-life sector

MICRO-INSURANCE AGENTS OF LIFE INSURERS - 2015-16

INSURER As on 1st Additions Deletions As on

S april 31st
2015 march
2016

88
Private 3382 6392 1307 8467
total

LIC 19379 997 1802 18574

Industry 22761 7389 3109 27041

total

The Authority has reviewed the Micro Insurance

Regulations,2005 comprehensively and notified IRDAI(Micro
Insurance) Regulations, 2015. Micro Insurance is the
insurance provided through the Micro Insurance Products
which includes general micro-insurance product. General
Micro Insurance Products cover health insurance contract, any
contract covering the belongings, such as, hut, livestock or
tools or instruments or any personal accident contract, either
on individual or group basis with a Maximum Amount of
Cover as Rupees one lakh and minimum and maximum term
cover of one year.

The Authority in order to propagate micro insurance in

various segments has permitted more entities or individuals to
be appointed as Micro Insurance Agents which include Non-
Government Organisations (NGO), Self-Help Groups (SHG),

89
Micro-Finance Institution(MFI), RBI regulated NBFCMFIs,
District Cooperative Banks, Regional Rural Banks, Urban Co-
operative banks, Business correspondents, Primary
Agricultural Cooperative Societies and Other Cooperative
Societies.

There are around fifty two products offered by all registered

non-life insurance companies targeting low income segment
of the population e.g., Cattle Micro Insurance, Kisan
Agriculture Pumpset Micro Insurance Policy, Janata Personal
Accident Sukshma Bima Policy, Silkworm Sukshma Bima
Policy, Sheep & Goat Micro Insurance Policy, Sampoorna
Griha Suraksha Policy etc. Further, General Insurance Policies
issued to Micro, Small and Medium Enterprises as classified
in MSMED Act, 2006 under various lines of General
Insurance business will also be qualified as general micro
insurance business upto Rs.10,000 premium p.a. per MSM
enterprise.

Micro Insurance being a low price-high volume business, its

success and sustainability depends mainly on keeping the
transactions costs down. Section 32B and 32C of the
Insurance Act, 1938 and IRDAI(Obligations of insurers to
rural and social sectors)2015, stipulate obligations to insurers
in respect of rural and social sector, which have also

90
contributed a lot in development and promotion of micro
insurance products by insurers in India.

91
 SUGGESTION
In areas where there is a dearth of banking facilities small
savings should be pooled and utilized instead of regular
premium on the village level. Thus, micro insurance can be
aligned with micro savings and micro credit to achieve
better results.If the pooled resources generate some
income, the same should be ploughed back for the benefit
of poor people
The writer is the deputy general manager-legal at OCL
India Ltd.

Designing microinsurance policies requires intensive work

and is not simply a question of reducing the price of existing
insurance policies. It requires among other things different
marketing, and different distribution and servicing channels.
Things that actually work for the people at the ground level.
Tata-AIG for example, has a team of 14 people working
solely on microinsurance.
Because of the quota system the largest and best -known
intermediaries (NGOs/MFIs) already have existing
relationships with commercial insurers that they often wish
to keep. The implication of this is that insurers will need to
think more creatively about their products and relationships
with the intermediaries if they hope to convince them to
change companies. It implies also that insurers should start
exploring distribution models other than partner-agent.
It is likely that many life microinsurance policies are making
a loss. If insurers want their life insurance products to be

92
 attractive not only to clients but also to potential aggregators
(agents like MFIs and NGOs), they would need to
distinguish their products from competition on some basis
other than price. Discussion with a number of MFIs and
NGOS has indicated that one of their major difficulties is the
lack of service from their insurance partners. This has often
caused them to change insurance partners. It would be
worthwhile looking at the reasons for Allianz AGs
successful relationship with ASA (Activists For Social
Alternatives, an NGO working for the development of the
poor in the drought prone, poverty ridden area of central
Tamil Nadu).
Marketing microinsurance
Tata-AIG has had success building trust with the potential
microinsurance market by emphasizing its Tata links. Tata is
a trusted company or at least deemed unlikely to
misappropriate premiums by low-income clients. Others
insurers with trusted local partners could make use of their
connection to these partners for the same purpose.
In addition, public reimbursement of claims, for example at
village meetings, is important. It demonstrates the
advantages of having insurance with a real example.
Other microinsurance marketing tools used are exposure
tours, where village leaders from villages with policyholders
are sent to other villages to show the advantages of having
insurance.
Also important are careful, well-managed rejection of
claims where the reasons are made clear to all the villagers.

93
 Finally, as with high premium insurance, monitoring of
customer satisfaction is critical, especially with respect to
lapses and non-renewals, reinforced by a mechanism to act
on the information that emerges from this monitoring.
Supporting microinsurance innovation The Terms of
Reference of this report did not include the design of new
products. Research was confined to describing and
analyzing existing products. Innovations are few and far
between in India, and most of this text reports on different
replications of the partner -agent model. It would be
worthwhile to design innovative products.
As resources are limited and (credit) life insurance is a
rather simple product, assistance is required in developing
the following products: endowment policies, health
insurance, weatherbased insurance and other suitable
insurance packages. A crucial area of involvement is the
provision of technical assistance to insurance companies
prepared to provide innovative products. This has been
done, seemingly successfully, by DFID, which supported
Tata -AIG in its development of the micro-agent model, and
the World Bank, which supported ICICI Lombard in its
development of weather insurance.
Banks that work with SHGs are important potential
partners. It would be useful to create awareness of the
potential among state banks and to help build their capacity
to deliver microinsurance to SHGs.
Gender and microinsurance - There is a lack of tools to
understand the gender -specific demand for microinsurance

94
 in India. It is important to know what women want from
microinsurance and what they are willing to pay for. In
particular, it is crucial to consider the benefit package. In life
insurance, for example, it may be important for the
beneficiary to be the daughter (held in trust for her if she is a
minor) rather than the husband. In health insurance, it may
be important to ensure that the entire family is covered
rather than just the women if the women are in a weak
position in the household. Because many of the concerns of
women are not easily insurable, e.g., maternity costs, it
would make sense to consider combining insurance and
savings. In this way, for example, a woman could use her
savings to cover the cost of a normal delivery, and insurance
to cover the cost of unexpected complications

CONCLUSION

Micro insurance can be designed to meet specific needs/risks

arising out of ill health, accident, death, retirement pension,
accidents, etc.

The Road Block Ahead

Micro insurance in India is still at the nascent stage. Some
micro finance institutions (MFIs) and NGOs are working in
this segment, but there is a risk of pooled resources not
being managed properly or risks may not be covered fully.
At present, there is a lack of regulated mechanism to protect
the insured from unregistered MFIs or community based
95
organisations

Most underprivileged people being illiterate cannot

understand the importance of savings linked insurance and
dont know how to approach insurance agencies or banks.
Due to poor response, huge initial costs and perceived risks,
insurance companies are showing reluctance to enter rural
areas. Other perceived problems are lodging of claims and
delay in settlement of claims which is a cumbersome process
due to illiteracy and underdeveloped network of agents.
Therefore, designing policies and strong support service
through NGOs are essential for success of the micro
insurance in India.

Way forward
Micro insurance in India can be compared to a glass of water
either half empty or half full. If one is optimistic, there is a
huge scope for developing the segment in the country. Many
NGOs and MFIssuch as Swayakrushi, Sewa and
Spanadana Foundation are alreadydoing commendable
work for betterment of the deprived people in villages. They
can be recognised as agents and their infrastructure can be
used by insurance companies governed by IRDA. Many
companiesthrough their trusts and CSR activitiesare
extending their support for betterment of villagers.

Even some banks through their rural branches are selling

micro insurance products. State governments are also
96
coming out with various schemes to improve the earnings
and protect the poor from natural calamities. Some micro
insurance schemes available in the market include Bajaj
Allianz Lifes Jana Vikas Yojana, Saral Surakha Yojana, Alp
Nivesh Yojana and Grameen Surakha, Birla Sun Life
Insurances Bheema Suraksha Super, Bheema Dahan
Sanchay, ICICI Prudential Lifes Sarva Jana Suraksha, ING
Vysyas Saral Suraksha, LICs Jeevan Madhur, etc.

According to the insurance business norms, the IRDA at

present does not recognise MFIs working in villages.
Keeping in view the obstacles that affect the growth of micro
insurance, the regulator should come out with guidelines or
relax its norms to facilitate join efforts of NGOs and MFIs
so that the money collected as premiums is not misused and
provides assured risk coverage to the insured.

Life microinsurance is the easiest cover to offer and also the

most widely offered. An insurer would need to create a very
attractive policy if they want to stay with life microinsurance.
It is worth exploring other types of microinsurance as a means
of attracting good partners. Crop insurance has by and large
proved unsuccessful. Health insurance is difficult because of
the lack of private hospitals in poor rural areas. Weather
indexing is proving a possible insurance option.

The passage of the Microinsurance Concept Paper by the

IRDA should be watc hed carefully. In its draft form, it

97
implies (ambiguously) that one MFI or NGO can only have a
relationship with one insurance company. If the regulation
comes to pass it will make using the partnership model as a
distribution method more difficult.

At the present time, state banks are working with public

insurers. This may be changing, and Allianz AG and similar
institutions should monitor the situation (with the Reserve
Bank of India, the IRDA, and NABARD). As far as private
banks are concerned, few re ach the social sector (although
many reach the rural sector). LIC has broken new ground in
reaching the social sector via its link-up with the Chitradurga
Gramin Bank. Institutions such as Allianz AG should see if
any other private banks begin to service the social sector, and
then explore partnering.

Consumer protection - If the IRDA decides to create specific

microinsurance regulation to support currently unregulated
microinsurance schemes, for example in -house schemes run
by MFIs, its development could be supported by donors.
It would be useful to help establish consumer protection
mechanisms for clients of unregulated microinsurers.
Should requests of support come from NGOs running in
-house insurance schemes, donors should remember that these
schemes are unregulated and carefully weigh up the costs and
benefits of supporting such schemes. These are outlined in the
report.
Promote microinsurance regulation - It would be useful to do
research on the quota system to see whether the benefits

98
outweigh the costs and whether such a system would be useful
policy in other countries
Expanding the industry The IRDA is tasked with promoting
the insurance industry. The IRDA already runs televisions
campaign aimed at middle-income consumers endorsing the
safety and security of the insurance firms that it regulates. It
would be good if such a campaign could be extended to
microinsurance. Other mediums could be explored for this,
including radio. UNDP and/or GTZ could support such
campaigns.

Future of Microinsurance Lies in Innovation

Two major events shook the Indian financial markets First, the
insurance industry saw some serious turbulence with
regulatory control on ULIPs and corporate agency guidelines.
The industry, for the first time in a decade registered negative
growth. Almost, all the private insurers, for the first time in
their brief history, have reduced their branch network and have
focused on cost optimisation. In parallel, some major
investors left the insurance industry (including New York Life,
ING, Bharti), some of the insurers have been restructured with
the entry of banks into joint ventures (Met Life, AVIVA, Birla
Sunlife), one of the insurers has been semi-acquired by
another insurer (BhartiAxa) and some new investors entered
(e.g. Japanese investors like Nippon and Mitsui Sumitomo)
the industry. Such turbulence necessarily will reshape the
industry in favour of alternative approaches.

99
Secondly, in almost the same period, the microfinance sector,
once portrayed as poster-child of alternative finance,
witnessed disappointment with the drying up of bank funding
and a less than timely intervention by RBI and the
government. Both of these sectors are found searching for
opportunities to repair their reputations and build their
businesses. While insurers are looking forward to innovative
low cost distribution channels, the microfinance institutions
(MFIs) are striving to re-innovate and diversify their product
portfolios. Microinsurance, as the silent offspring of the two
industries will have to adapt to the emerging trends in both the
industries. Some of the possible future trends are enumerated
in the sections below.

Microinsurance credit life will soon exclusively be a group

insurance category In the absence of a strong need to sell
microinsurance products for the rural sector obligation, the
cost-conscious insurers are expected to abandon the costly
individual term-credit-life microinsurance, in favour of group-
term products. LIC is also expected to follow the model, since
their individual microinsurance is sold as an endowment
product.

Savings linked products, as an opportune product category,

will emerge The demonstration effect of Jeevan Madhur will
necessarily motivate some more private insurers to experiment
with voluntary endowment or ULIP products in the
microinsurance sector. Moreover, post the microfinance crisis,

100
the MFIs have also acknowledged the value of providing
multiple products and services to the clients, instead of plain
vanilla group microcredit. They realise that a comprehensive
product portfolio can create client loyalty, which is vital for
their operations. Besides, in the absence of adequate bank
funding, insurance business can prove to be an alternate
income source for these MFIs. The MFIs, as aggregators,
therefore, are expected to demand new products from the
insurers, which can cater to the needs and demands of their
clients. 6.3. Business Correspondents of Banks may emerge
as the channel of choice

The business correspondent channel (banking agents)

promoted by RBI and implemented by banks, is the front-
runner in the governments financial inclusion agenda. Under
the Swabhiman campaign, as of March 31, 2012 all villages
having population of more than 2,000 individuals are already
covered by banks through branchless banking agents.
Currently, there arenearly 80,000 Business Correspondents
(BC) and more than 20-30 Business Correspondent Network
Manager (BCNM) in India32. Since there is a value
alignment for all stakeholders in the channel, business
correspondents, as an emerging channel has the potential to
unleash the growth of microinsurance in near future33.

Already there are 5-6 implementations in insurance through

different combinations of mobile network providers, banking
correspondent network managers and insurers. IRDA is

101
already considering the channel favourably for distribution of
microinsurance. Though the economics of agent banking
channel depends largely on product rationalisation, in the near
future, the sector can expect innovation in both product and
processes around this distribution channel.

102
 BIBLIOGRAPHY
A. BOOKS
i. Maez. M. S and Wong. S (2006), Insurance in
Emerging Markets: Sound Development
ii. Chatterjee. M and Vyas (undated), Organizing
Insurance for Women Workers: The SEWAs
Experience
iii. Gaurav. S, Anna Paola Gomez Acosta and Luis
Flores Ballesteros (2008), Innovating at the
BoP: Delivering Micro insurance in Kalahandi
and Beyond
iv. Ajit Kanitkar (2005), Learning from Micro
Insurance for SHGs of Pragathi
B. JOURNALS
i. Prabhakaran (2007), Creating Consumer
Awareness: Life Insurance, IRDA Journal,
November, pp. 36 - 38.
ii. Dror. D and Radermacher (2005), Integrating
Health Insurance for the Poor into the Indian
Insurance Scenario, Insurance Watch, Vol.3 (12),
pp. 11 - 15.
iii. Das (2006), Community-Based Health
Insurance Services in India: Exploring an
Equitable Health Financing Mechanism, The
Journal of Insurance Institute of India, Vol.
XXXII
iv. . Ito.S and Kono (2010), Why is the take-up of
Micro insurance So Low? Evidence from a
Health Insurance Scheme in India. Developing
Economies. Vol.48 (1), pp. 74 - 101.
C. E-DATA

103
WEBSITES
i. SHODHGANGA
ii. WWW.ICRIER.COM
iii. WWW.UNDP.COM
iv. WWW.MICROSAVE.NET
v. WWW.ILO.ORG
vi. DAILYFINTECH.COM

104