Micro Insurance in India

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MICRO INSURANCE

CHAPTER 1

MICRO INSURANCE-AN INTRODUCTION

1.1 INDUSTRY PROFILE (INSURANCE SECTOR)

1.2 WHAT IS MICRO INSURANCE

1.4 FEATURES OF MICRO INSURANCE

1.5 HISTORY OF MICRO INSURANCE

1. 1.6 ADVANTAGES OF MICRO INSURANCE



MICRO INSURANCE

1.1 INDUSTRY PROFILE (INSURANCE SECTOR)

LIFE INSURANCE

In India, Insurance is a national matter, in which life and general insurance is

yet a booming sector with huge possibilities for different global companies, as

life insurance premiums account to 2.5% and general insurance premiums

account to 0.65% of India's GDP. The Indian Insurance sector has gone throughseveral phases and changes, especially after 1999, when the Govt. of India

opened up the insurance sector for private companies to solicit insurance,

allowing FDI up to 26%. Since then, the Insurance sector in India is considered

as a flourishing market amongst global insurance companies. However, the

largest life insurance company in India is still owned by the government.

The history of Insurance in India dates back to 1818, when Oriental Life

Insurance Company was established by Europeans in Kolkata to cater to their

requirements. Nevertheless, there was discrimination among the life of foreigners and Indians, as higher premiums were charged from the latter. In

1870, Indians took a sigh of relief when Bombay Mutual Life Assurance

Society, the first Indian insurance company covered Indian lives at normal rates.

Onset of the 20th century brought a drastic change in the Insurance sector.

In 1912, the Govt. of India passed two acts - the Life Insurance Companies Act,

and the Provident Fund Act - to regulate the insurance business. National

Insurance Company Ltd, founded in 1906, is the oldest existing insurance

company in India. Earlier, the Insurance sector had only two state insurers - LifeInsurers i.e. Life Insurance Corporation of India (LIC), and General Insurers i.e.

General Insurance Corporation of India (GIC). In December 2000, these

subsidiaries were de-linked from parent company and were declared

independent insurance companies: Oriental Insurance Company Limited, New

India Assurance Company Limited, National Insurance Company Limited and

United India Insurance Company Limited.



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GENERAL INSURANCE

The General Insurance industry in India dates back to the Industrial Revolution

and the subsequent increase in trade across the oceans in the 17th century. As

for Life Insurance, the British brought General Insurance to India, and a similar

path was followed in the development of this industry.

A number of private companies were in existence for years and years until, in

1971, the Indian Government decided that the public interest would be served

by nationalizing the industry, merging all the 107 companies into four

companies, depending on the sort of business transacted (Marine, Fire,Miscellaneous). Which are as follows ….

1. National Insurance Company Ltd.,

2. Oriental Insurance Company Ltd.,

3. New India Assurance Company Ltd.

4. United India Insurance Company Ltd.

The General Insurance Corporation (GIC) was set up in 1972 as a

‘holding’ company, having these four companies as its subsidiaries.



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1.1 WHAT IS MICRO INSURANCE

Micro-insurance, the term used to refer to insurance tothe low income people, is different from insurance in general as it is a lowvalue product (involving modest premium and benefit package) which requiresdifferent design and distribution strategies such as premium based oncommunity risk rating (as opposed to individual risk rating), active involvementof an intermediate agency representing the target community and so forth.Insurance is fast emerging as an important strategy even for the low-income

people engaged in wide variety of income generation activities, and who remain

exposed to variety of risks mainly because of absence of cost-effective risk hedging instruments.Micro-insurance is a key element in the financial services

package for people at the bottom of the pyramid. The poor face more risks thanthe well-off, but more importantly they are more vulnerable to the same risk.Usually, the poor face two types of risks – idiosyncratic (specific to thehousehold) and covariate (common, eg., drought, epidemic, etc.). To combatthese risks, the poor do pro-active risk management – grain storage, savings,asset accumulation (specially bullocks), loans from friends and relatives, etc.However, the prevalent forms of risk management (in kind savings, self-

insurance, mutual insurance) which were appropriate earlier are no longer adequate.

DEFINITION:The draft paper prepared by the Consultative Group to Assist the Poor (CGAP)working group on micro-insurance defines micro-insurance as “the protectionof low income Households against specific perils in exchange for premiumpayments proportionate to the likelihood and cost of the risk involved.” The

paper deliberates on the key roles to be played by all stakeholders – insurers,

regulator and the Government. The working group also agrees that the cost of such cover should be affordable.

microinsurance provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster.There is an overwhelming demand for social protection among the poor.Microinsurance in conjunction with micro savings and micro credit could,therefore, go a long way in keeping this segment away from the poverty trapand would truly be an integral component of financial inclusion.



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1.3 HISTORY OF MICRO INSURANCE

The Micro Insurance Agency has its roots within Opportunity International, alarge microfinance network motivated by Jesus Christ’s call to serve the poor.With a network of 47 microfinance institutions, Opportunity International has

been serving the entrepreneurial poor since 1971.

During the 1980-90’s Micro Insurance Agency staff observed that the productsmost demanded by the poor are not always the ones available. Health insurance,for example, is a critical need of the poor but the most limited in terms of supply. In addition, policies that are available are often based on first world

practices and are too complex for the simple coverage demanded. Further, whenoffered on an individual, one-off basis, high premium requirements and a needto pay in a single lump sum preclude a huge sector of the market from access.

New distribution models and channels were needed to increase access andreduce the effective price charged to clients.

In partnership with Opportunity’s microfinance institutions, it began working in2002 on the development of a range of life, property, livestock, crop derivative,disability, unemployment and health insurance products to cover the risks faced

by Opportunity’s loan clients. Micro Insurance Agency staff observed that therisks the poor face can often set them back months and years behind where their loans and savings products offered by Opportunity had taken them. For instance, a death of a family member from HIV/AIDS –“precondition” mostinsurance companies would not cover – would often mean expensive funeralcosts and the loss of a breadwinner, resulting in increased economic hardshipfor the family. In response, Micro Insurance Agency staff developed anaffordable funeral benefit product that did not exclude any pre-conditions,including HIV/AIDS. This transformed the mindset of retail insurance providersin the country, who later developed similar non-exclusive products in light of

the competing environment.

In 2005, the Micro Insurance Agency was founded by Opportunity Internationalas a fully-owned subsidiary capable of offering insurance products and servicesto a wide range of customers.

1.4 FEATURES OF MICRO INSURANCE



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1) USAGE: Though no figures are available on the exact size of the

microinsurance market in India, The low take-up can be ascribed to a general

lack of awareness of insurance as a financial product, even in the high to

middle-income market (a factor that emerged strongly from the focus group

findings). In addition a lack of rural financial services infrastructure for

distribution purposes, as well as a lack of actuarial data, inhibit the development

of the microinsurance market.

2) PLAYERS: Though the state-owned insurers still have the largest marketshare, there are now a total of 32 licensed insurers. A feature that sets India

apart from other countries is the fact that microinsurance is mostly provided by

large, corporate insurers. This is due to a cautious regulatory approach – in

response to the 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. The cooperative/mutual sector therefore does not feature

as a provider of microinsurance, though corporate insurers use it as a

distribution channel. Informal insurance is virtually exclusively the domain of formal entities such as health 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 risk products, indicating a



MICRO INSURANCE

preference among the lowincome population for financial products that provide

some payout regardless of whether a risk event has occurred.

4) DISTRIBUTION: Distribution is an important part of the microinsurance

landscape in India. Regulations were issued in 2005 to create a microinsurance

agent category for the dedicated distribution of microinsurance. Currently such

agents 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 regulations too

restrictive, as partners or agents of formal insurers. we can distinguish four

institutional models for providing microinsurance which help us to understand

how corporate insurers, government bodies as well as other institutions, such as

microfinance institutions (MFIs) can play a role.

i) Partner –Agent Model:

ii) Community based Model:

iii) In the in-house or full-service model :



MICRO INSURANCE

CHAPTER 2

HOW DOES IT WORK

2.1 MICRO INSURANCE MECHANISM

2.2 DISTRIBUTION MODEL

2.1 MICRO INSURANCE MECHANISM



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Micro Insurance operates by connecting multiple small units with

larger structures and thereby creates networks which enhance bothinsurance functions (through risk pooling) and support structures forimproved governance (i.e. training, data banks, research facilities, access toreinsurance.

This insurance mechanism is independent of permanent external financialsupport. The principal objective of Micro Insurance is to pool both risksand resources of whole groups for the purpose of providing financialprotection to all members against the financial consequences of mutuallydetermined risks. Historically, Micro Insurance products have evolved out of community-based financing arrangements with active involvement of thecommunity in revenue collection, pooling, resource allocation and, frequently,service provision.

A micro-insurance agent shall be appointed by an insurer by a deed of agreement or memorandum of understanding which should clearly specify theterms and conditions, duties and responsibilities of both the micro-insuranceagent and the insurer, He shall work either for one life insurer or for one generalinsurer or for one life insurer and one general insurer. He shall be specificallyauthorized to perform one or more of the following

1. Maintaining a register of all members and their dependants covered under theinsurance scheme along with details of name, age, address, nominees and thumbimpression/signature

2. Collection of proposal forms

3. Collection of money for issuance of contract or remittance of premium

4. distribution of policy documents

5. The micro-insurance agent or the insurance company shall have the option toterminate the agreement/ MOU after giving a notice of three months.

2.2 DISTRIBUTION MODEL



MICRO INSURANCE

One of the greatest challenges for micro-insurance is the actualdelivery to clients. Methods and models for doing so vary depending on theorganization, institution, and provider involved. In general, there are four mainmethods for offering micro-insurance the partner-agent model, the provider-driven model, the full-service model, and the community-based model. Each of these models has their own advantages and disadvantages. How canmicroinsurance products be sold and serviced cheaply? It is a low-value, high-volume business. The following approaches have emerged in India to provideinsurance to low-income populations (only regulated channels are includedhere, not in-house schemes):

Partnership model Agency model Micro-agent model

PARTNERSHIP MODEL

The partner-agent model: How does it work?

As the name implies this model involves a partnership between an insurer andan agent that provides some kind of financial service to large numbers of low-income people. This could be amicrofinance organization, an NGO, or a business that supplies precuts to largenumbers of low - income people, such as a fertilizer supplier. This party is anagent, 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 its financialtransactions with low-income groups, that would otherwise be too costly to set

up. The partnership model uses the comparative advan tage of each partner sothat each can focus on its core business: the insurance provider is responsiblefor designing and pricing the product, the final claims management, and theinvestment of reserves, and absorbs all the insurance risks. In addition to sellingthe policies, the agent offers its infrastructure for product servicing such asmarketing the product, premium collection, and assists in claims management.

Pros and cons of the partnership model





MICRO INSURANCE

The agency model: How does it work?

In this model the insurer uses its normal agency office and sellsmicroinsurance products directly. The client comes to the agency office for sales and servicing of the product. Insurers described this model but the authorscould 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 officeAgents 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.

MICRO AGENT MODEL

The micro-agent model: How does it work?While the partnership model is relatively common, the micro -agent modeldescribed below is unique. It is the invention of Tata -AIG, specifically anemployee of Tata-AIG, Vijay Artherye. The central building blocks of themodel are Rural Community Insurance Groups (CRIGs) supervised by ruralorganizations 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 islicensed 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 ina 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 usuallywomen who are pa rt of an SHG. The typical profile of a member would include



MICRO INSURANCE

communication skills, acceptance of insurance, preferably educated up to the10th 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 therural 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 spe aking andtraining skills. This leader is trained by Tata -AIG to obtain a corporate agent’slicense. The CRIG as a whole is registered as a body under the Andhra PradeshSocieties Act (where the model is currently being used).The CRIG leader and members are involved in promotion, sales and collectionof insurance proceeds and maintaining records. The CRIG leader will document

all fortnightly CRIG meetings and all weekly meetings with the NGOconcerned.

Pros and cons of the micro-agent model

Pros

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 vicinitySustainability: Because the position is a commercial on e with financial

incentives, Tata - AIG believes that it will last in the long term, facilitatingthe sale of long -term products. As mentioned under the partner -agent model,

NGOs and MFIs are often dependent on the goodwill and public recognitionof aid flow s, and so their long-term existence is precarious. Chances aregood that CRIGs, being registered firms, will survive, in the event of amember or leader dropping out. The leader could be replaced by another fromthe community, thus mitigating the risk of o rphaned policiesIn 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 ;



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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 tostrangers, 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 clientconfidence, and this is not possible under the CRIG systemThis model is new, and much more experience is needed before it can be

reasonably evaluated.



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CHAPTER 3

MICRO INSURANCE PRODUCTS

2.1 MICRO INSURANCE PRODUCTS

➢ LIFE INSURANCE

➢ GENERAL INSURANCE



MICRO INSURANCE

3.1 MICRO INSURANCE 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 setamount of insurance coverage over a specified period of time, such as one,five, ten, or twenty years. This insurance is appropriate when the

policyholder's need for coverage is temporary. Compared with other lifeinsurance policies this is not very complicated for the provider to offer.This is the most widely used life insurance policy in low-incomecommunities in developing countries. 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. It thus has a longer time horizon that the term life insurance. Thisis also not offered widely in developing countries.

Health Insurance

Health insurance provides coverage against illness and accidents resultingin physical injuries. MFIs have realized that expenditures related to health

problems have been a significant cause of defaults and people's inability tocontinue improving their economic conditions. Several MFIs havetherefore, either started their own health insurance programs or havelinked their clients to existing programs. While actual coverage varies,

many health insurance providers cover for limited hospitalization benefitsfor certain illnesses, and for costs of physician visits and medicine. Someinsurance providers also make available primary health care services suchas immunization and contraceptives.

Property Insurance



MICRO 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. It is difficult formost MFIs to guard against such MICRO-INSURANCE moral hazard. Afew, however, do provide such coverage. SEWA in India, for example, providesinsurance against damage to home and productive assets. Grameen Bank inBangladesh offers its clients insurance against the death of livestock andCOLUMNA in Guatemala provides insurance against fire damage.

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 familysuffers from a disability. This is not very widely offered by Micro insuranceproviders. FINCA, Uganda and CARD in Philippines are examples of MFIs

providing clients with disability insurance.

Crop Insurance

Crop insurance typically provides policy holders protection in the event their crops are destroyed by natural calamities such as floods or droughts. Theexperience with crop insurance in developing countries and even in thedeveloped economies has had mixed results. To improve the ability of ruralfarmers to repay loans from agricultural development banks (ADBs), manygovernments developed crop insurance programs in the 1970s and 1980s. These

programs typically provided loan repayment and occasionally incomesupplements to farmers suffering crop yields below an established minimum.Similar programs were developed in countries as diverse as Brazil, India, the

Philippines and the USA. In each country the results were disastrous, withexpenses (administrative and claims) far outstripping revenues. Reasons for thefailure of crop insurance have included: bad program design (such as failure to

bring into account the incentives faced by the policy holders), covariant riskstypical of rain-fed agriculture systems dependent on MICRO-INSURANCE only one or two crops, and in some cases / unanticipatedcatastrophic natural calamities.

Unemployment Insurance



MICRO INSURANCE

Unemployment insurance is typically offered by the public sector. Privateinsurance companies are usually not involved in it. This insurance provides cashrelief to individuals who become unemployed involuntarily and who meetcertain government requirements. It also helps unemployed workers find jobs.Unemployment insurance attempts to stabilize the economy by enabling peopleto maintain their purchasing power.

Reinsurance

Reinsurance is the shifting of part or all of the insurance originally written byone insurer to another. This is a central feature of the operations of allcommercial insurers. Reinsurance reduces an insurer's risk exposure and acts as

an effective source of financing and a valuable source of actuarial expertise.Reinsurance can be used to stabilize profits, instead of having large fluctuationsin financial outcomes year to year. It allows smaller insurers to share risk withother insurers in different regions or countries, effectively developing sufficientlarge risk pools by combining the risks of many insurers. Despite its obvious

benefits reinsurance is largely unavailable for micro-insurers. Access toreinsurance can spur both the development of new micro-insurers and thegrowth of existing ones. An example of an MFI using reinsurance is that of FINCA International, Uganda which has entered a partnership with American

International Group (AIG) to provide its clients life and disability insurance.



MICRO INSURANCE

GENERAL MICRO-INSURANCE PRODUCT

A “general micro-insurance product” means any health

insurance contract, any contract covering the belongings such

as hut, livestock, any personal accident contract, or tools or

instruments, either on individual or group basis, as per terms

stated in the Table below, filed with the Authority:



MICRO INSURANCEType of

Cover

Minimum

Amount

of Cover

Maximu

m

Amount

of Cover

Term

of

Cover

Min.

Term

of

Cover

Max.

Minimum

Age at

entry

Maximu

m age at

entry

Dwelling &

content, or

livestock or

Tools or

implements or

other named

assets/or Crop

insurance

against all

perils

Rs. 5,000

Per

asset/cover

Rs. 30,000

Per

asset/cover

1 year 1 year NA NA

Health

Insurance

Contract (Ind.)Rs. 5,000 Rs. 30,000 1 year 1 year Insurers’ discretion

Health

Insurance

Contract

(family)

(Option to

avail limit for

Individual/Flo

at on family)

Rs. 10,000 Rs. 30,000 1 year 1 year Insurers’ discretion

Personal

Accident (per

life/earningmember of Rs. 10,000 Rs. 50,000 1 year 1 year 5 70



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SOURCE: IRDA Micro-Insurance Regulations, 2005,

www.irdaindia.com

NOTE: The minimum number of member comprising a

group shall be at least twenty for group insurance.

LIFE MICRO-INSURANCE PRODUCT

A “life micro-insurance product” means any term insurance

contract with or without return of premium, any endowment

insurance contract or health insurance contract, with or without

an accident benefit rider, either on individual or group basis, as

per terms stated in the Table A below, filed with the Authority:



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SOURCE: IRDA Micro-Insurance Regulations, 2005,

www.irdaindia.com

Type of

Cover

Minimu

m

Amount

of Cover

Maximu

m

Amount

of Cover

Term

of

Cover

Min.

Term

of

Cover

Max.

Minimu

m Age at

entry

Maximu

m age at

entry

Term

Insurance

with or

without

return of

premium

Rs. 5,000 Rs. 50,000 5 year 15

years

18 60

Endowment

InsuranceRs. 5,000 Rs. 30,000 5 year

15

years18 60

Health

Insurance

Contract(Individual)

Rs. 5,000 Rs. 30,000 1 year 7 year Insurers’ discretion

Health

Insurance

Contract

(Family)

Rs.

10,000

Rs. 30,000 1 year 7 year Insurers’ discretion

AccidentBenefit as

rider Rs.

10,000

Rs. 50,000 5 year 15

years

18 60



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NOTE:

1. Group insurance products may be renewable on a

yearly basis.

2. The minimum number of members comprising a group

shall be at least twenty for group insurance.

CHAPTER 4

GOVERNMENT RULES AND REGULATION



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4.1 IRDA AS A REGULATOR

4.2 IRDA MICROINSURANCE REGULATION ACT

2005

4.2 IRDA (MICROINSURANCE) REGULATION ACT 2005

Regulations on micro-insurance were officially gazette by the IRDA on 30

November 2005. The salient features of the regulation are presented below

The regulation defines micro-insurance products

The regulation provides definitions of micro-insurance products covering life

and general insurance “General micro insurance product” means any 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, as per terms stated in Schedule-I appended to these regulations.

“Life micro insurance product” means any term insurance contract with or

without return of premium, and endowment insurance contract or health

insurance contract, with our without an accident benefit rider, either on



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individual or group basis, as per terms stated in Schedule-II appended to these

regulations.(a) “micro-insurance policy” means an insurance policy sold under a plan which

has been specifically approved by the Authority as a micro insurance Product.

(b) “micro-insurance product” includes a general micro-insurance product or

life insurance product, proposal form and all marketing materials in respect

thereof.

(c) Every insurer shall be subject to the “file and use” procedure with the IRDA.

(d) No one other than insurer – be it a micro-insurance agent or anyone else –

can underwrite a micro-insurance proposal.

(e) Rural business transacted under micro-insurance by an insurer will be

counted for quota fulfillment both for rural as well as social sector obligations.

It promotes the extensive use of intermediaries

The micro-insurance regulations promote extensive use of intermediaries by the

insurers for selling and servicing various micro-insurance products. The

regulation also creates a new intermediary called the micro-insurance agent.

The regulation clearly defines MI agents and has imposed minima in terms of

the number of years of experience (at least 3) of working with low incomegroups. It also emphasized the need for such agents to have appropriate aims

and objectives, a good track record, transparency and accountability stated in

the bye-laws with demonstrated involvement of committed people. This has

been done in order to prevent the engagement of unscrupulous operators in the

activity. However, the onus for the selection of appropriate MI agents and their

capacity building lies with the insurance company.

Intermediary: The micro insurance agent, can be a Non-Governmental

Organization (NGO), MFI or other community organization such as Self Help

Groups (SHG) appointed by an insurer to distribute micro-insurance through

specified persons. Micro-insurance agents enter into a “deed of agreement” with

the insurer. They abide by the code of conduct defined by the IRDA and attend

25 hours of training (down from 100 hours originally required for conventional

insurance agents but now reduced to 50 hours) in the local language at the

expense of the insurer. There is no qualifying examination, unlike the case of

ordinary insurance agents.

According to the regulation,

(a) Non-Government Organization (NGO) means a non-profit organizationregistered as a society under any law, and has been working at least for three



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years with marginalized groups, with proven track record, clearly stated aims

and objectives, transparency and accountability as outlined in its memorandum,rule, by-laws or regulations as the case may be, and demonstrates involvement

of committed people.

(b) Self Help Groups (SHG) means any informal group consisting of ten to

twenty or more persons and has been working at least for three years with

marginalized groups, with proven track record, clearly stated aims and

objectives, transparency and accountability as outlined in its memorandum,

rules, by-laws or regulations, as the case may be, and demonstrates involvement

of committed people.

(c) Micro-Finance Institutions (MFI) means any institution or entity or

association registered under any law for the registration of societies or co-

operative societies, as the case may be, inter alia, for sanctioning loan/finance to

its members.

IRDA has recognized four categories of intermediaries: brokers, agents,

corporate agents, and Micro-insurance (MI) agents. Categories other than MI

agents may sell micro-insurance but they do not benefit from the concessions

allowed for the MI agents. However, a micro-insurance agent shall not

distribute any product other than a micro insurance product.The regulation provides for MI agents to perform the following functions

(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

(d) Distribution of policy documents

(e) Maintenance of registers 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 policyholder.(f) Assistance in the settlement of claims

(g) Ensuring nomination to be made by the insured

(h) Any policy administration service

The regulation’s attempt to manage the cost of intermediation

A cap has been put on commission, between 10 and 20% of premiums per year

according to type and mode of insurance payment, which is in excess of what

conventional agents would normally earn. The rates of commission applicable

to MI agents are



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Life insurance business General insurance business

Single Premium policies – 15% of thesingle premium

Non-single premium policies – 20% of

the premium for all the years of

the premium paying term

15% of the premium

The commission rates prescribed above are more liberal than the 60% (of a

single year’s premium) payable under ordinary business in the case of life

insurance and 10% in the case of general insurance. This is based on the logicthat an MI agent has to perform a number of functions which mainstream agents

do not have to undertake. MI agents may thus receive commission at different

rates from those applicable to other intermediaries. The commission structure is,

however, changed to remove up-front payments in favour of payments upon the

performance of certain functions. For group insurance products, the insurer may

decide the commission subject to the overall limits specified by IRDA.

MI agents may route premiums and claims payments through their books (such

as receive individual premiums and pay it over as one amount). This is not

allowed for other intermediaries and is considered important in managing the

cost of intermediation.

Collaborations between life insurers and non-life insurers

The regulations allow for the bundling of life and non-life elements in one

single product provided there is clear separation of premium and risk at the

insurer’s level. Where an insurer carrying on life insurance business offers any

general micro-insurance product, he shall have a tie-up with the insurer carrying

on general insurance business for this purpose, and subject to the provisions of section 64 VB of the Insurance Act (governing the remittance of the premium

amount to the insurance company), the premium attributable to the general

micro-insurance product may be collected from the prospect (proposer) by the

insurer carrying on life insurance business, either directly or through any of the

distributing entities of micro-insurance products. In the event of any claim in

regard to general micro-insurance, the insurer carrying on life business or the

agent shall forward the claim to the insurer carrying on general insurance

business. The same arrangement holds true for life claims faced by non-lifevendors of a micro-insurance product. In both cases, the respective primary first



MICRO INSURANCE

insurer would render all assistance in claim settlement by coordinating with his

opposite number.

The limitations of the micro-insurance regulations

The impact of the MI regulations is likely to be limited for a number of reasons

Definition of MI agents: The regulations define MI agents to include NGOs

SHGs and MFIs. The definition of MFI is, however, limited to societies, trusts

and cooperatives societies and thus excludes a large proportion of MFIs

operating through other legal forms (like for-profit and not-forprofit

companies). The result is that all profit-driven corporate intermediaries as well

as some of the largest aggregators in micro-insurance are currently excluded

from benefiting from the MI regulations. Though the formalisation of MI agents

as a type has been welcomed by the insurance companies as a positive

beginning, the exclusion of MFIs registered under the Companies Act10 is

viewed with concern

Limitation on the number of insurance companies an MFI can work with:

The MI Regulations restrict a MI agent to working with one life and/or one

general insurer respectively. This is problematic and does not accommodate

models currently used in the MI market. Most insurers do not want tounderwrite all risks and tend to specialize in particular types of risk. For

example if a MI agent is tied to specialized health insurer, they cannot work

with another general insurer to sell other asset insurance products.

Know Your Customer (KYC) / Anti Money Laundering (AML) Norms:

Micro insurance agents have expressed their concern at the difficulties faced by

them in accessing KYC documents from proposers in rural areas, such as

electoral identity card or ration card or electricity bill which are generally

accepted as proves of residence.Commission capping: MI commissions are capped at 20% per annum for life

across the term of the policy. Non-MI products typically pay commission on a

front-loaded basis with 30-35% in year one with 7% in year 2. The up-front

structure provides little incentive for renewals, particularly as premiums have to

be collected in cash/ cheque. At the same time 20% may not be enough to

incentivize sales. It is a common (but illegal under Section 48 of the Insurance

Act) practice for agents to use the higher first year commission to give a

discount to policyholders in the first year. Some thought would need to be given

to the minimum absolute cost to sell a policy and the commission structures



MICRO INSURANCE

needed to ensure that this could be covered. Lapse rates of 30-40% are much

higher for MI than traditional policies. This is because the cost/effort of premium collection/renewal exceeds the commission. Besides, the incidence of

the service tax of 12.36% payable by the agents is a further point of

dissatisfaction for the MI agents, especially considering the long distance travel

they have to make in rural areas to procure and service business.

Conflicting regulations: Enabling provisions introduced in the MI regulations

are undermined by restrictions in RBI regulations. For example, the insurance

regulation allows receipt of premiums in the form of money instruments (not

cash), which must be remitted within 24 hours. RBI in 2002, however, issued

regulations stating that certain types of NBFCs (including most MFIs) may not

route any premiums through their books. The implication is that the NBFC

intermediary must make out demand drafts for individual transactions and send

them to the insurer. Significant efficiencies can be gained if these intermediaries

were to be allowed to process all the payments through their systems and make

a single payment to insurers.

Rural Regional Banks (RRB) and Cooperative Banks: It is worth further

examination as to whether RRB who have been given the status of corporate

agents and the cooperative banks can be brought into the ambit of MI agents inview of their outreach in rural areas.

However the micro-insurance regulation has been facilitative in…

Reducing the mandatory training requirements for insurance agents from 50

hours to just 25 hours in the case of MI. Most insurance companies have

welcomed this move but feel that the technological innovations in developing

better systems at the level of the MI agent and real awareness creation amongst

potential clients/policy holders are a much larger challenge that would go a longway in developing the micro-insurance market.

Allowing MI agents to take greater responsibilities: The regulator has

allowed MI agents to take up greater responsibilities than are permitted to

mainstream agents, for example, the collection of premiums on behalf of the

insurance companies and the servicing of claims. IRDA believes that if the MI

agents are able to carry out these functions effectively, it will help in

minimizing the transaction costs that the insurance companies have to incur,

thereby leading to lower premiums for the clients in the long run.



MICRO INSURANCE

Treating benignly apparent infringements of the regulations by

community-based organisations: There are restrictive entry norms for organizations that are explicitly licensed to provide insurance to the general

public. Insurance companies need a large amount of start-up capital of Rs100

crore to get a license from the IRDA. This entry norm is applicable for

community based insurance as well if they want to underwrite risk. IRDA has

treated the existing cases of in-house insurance with benign neglect. Essentially,

this approach is dictated by the relatively limited experience and low

supervisory capacity of the IRDA. Compared to the vast numbers of people in

need of social protection in India, the coverage provided by both formal and,

even more so, by community insurance programmes is so low that the role of

regulation seems fairly limited. The creation of a two-tier space where the

insurance companies are regulated and supervised and community insurance is

not is de facto recognition of this fact.

The IRDA’s approach is that it is pointless to have regulations that are not

properly enforced as long as community insurance agencies provide cover to a

limited population that is clearly defined (either geographically or socially or

through other forms of association), they can be allowed to function without

being regulated. It is here that the regulations are not very clear for MFIs or NGOs, where the membership cannot be clearly defined. Although generally

limited within a geographical territory, the scale of some MFIs or NGOs is

significant and spans across several states.

Taxation issues

By a notification of 16 July 2001, the Government of India brought insurance

auxiliary services under the ambit of Service Tax. The following important

definitions and references are relevant in this context.As per section 65(31), “insurance auxiliary service” means any service provided

by an actuary, an intermediary or insurance intermediary or an insurance agent

in relation to general insurance business and includes risk assessment, claim

settlement, survey and loss assessment. ‘Taxable event and scope of service’

means any service provided to a policyholder or insurer by an actuary or

intermediary or insurance intermediary or insurance agent, in relation to the

insurance auxiliary service.

The service providers are insurance agents, insurance surveyors and loss

adjusters, actuaries and insurance consultants. In the case of insurance surveyors



MICRO INSURANCE

and loss adjusters, actuaries and insurance consultants, the service is provided

mainly to the insurance companies (insurer) while in the case of insuranceagents, the service is provided to both the insurer and the policy holder. Service

Tax is liable to be paid by the insurance auxiliary service provider except in

case of insurance agents.

Insurance agents normally do not charge the policyholder. However, the

insurance company pays the agent a commission (usually as a percentage of the

insurance premium) on a periodic basis. In the case of an insurance agent, it has

been provided in the Service Tax Rules that the person liable to pay Service Tax

will be the concerned insurance company who has appointed the agent However

as practised by the companies, no service tax is paid by the agents. The service

tax is payable by the person whose life is assured and the current rate is 12.36 %

on the premium paid to the life insurance companies. If an agent’s accumulated

commission for the year reaches Rs 20,000 tax is deducted (at source) by the

company at the rate of 11.33% (as prescribed by the income tax rules) from the

commission of the agent. The service tax on premiums adds to the price of

insurance. An assessment of the impact of this tax on the cost of micro-

insurance is needed. From the perspective of inclusion, enabling the penetration

of insurance services to low income people and in rural areas, there could be acase for exempting micro-insurance from the payment of service tax.

CHAPTER 5

MICRO INSURANCE COMPANIES IN INDIA



MICRO INSURANCE

5.1 MAJOR PLAYERS IN MICROINSURANCE

5.2 M-I PRODUCTS AVAILABLE IN THE MARKET

5.1 MAJOR PLAYERS IN MICROINSURANCE

• Life Insurance Corporation of India (LIC)

Life Insurance Corporation of India (LIC) was established on 1 September 1956

to spread the message of life insurance in the country and mobilise people’s

savings for nation-building activities. LIC with its central office in Mumbai and

seven zonal offices at Mumbai, Calcutta, Delhi, Chennai, Hyderabad, Kanpur

and Bhopal, operates through 100 divisional offices in important cities and

2,048 branch offices. LIC has 5.59 lakh active agents spread over the country.

The Corporation also transacts business abroad and has offices in Fiji, Mauritius

and United Kingdom. LIC is associated with joint ventures abroad in the field of



MICRO INSURANCE

insurance, namely, Ken-India Assurance Company Limited, Nairobi; United

Oriental Assurance Company Limited, Kuala Lumpur; and Life InsuranceCorporation (International), E.C. Bahrain. It has also entered into an agreement

with the Sun Life (UK) for marketing unit linked life insurance and pension

policies in U.K.

In 1995-96, LIC had a total income from premium and investments of $ 5

Billion while GIC recorded a net premium of $ 1.3 Billion. During the last 15

years, LIC's income grew at a healthy average of 10 per cent as against the

industry's 6.7 per cent growth in the rest of Asia (3.4 per cent in Europe, 1.4 per

cent in the US).LIC has even provided insurance cover to five million people living below the

poverty line, with 50 per cent subsidy in the premium rates. LIC's claims

settlement ratio at 95 per cent and GIC's at 74 per cent are higher than that of

global average of 40 per cent. Compounded annual growth rate for Life

insurance business has been 19.22 per cent per annum.

The introduction of private players in the industry has added to the colors in the

dull industry. The initiatives taken by the private players are very competitive

and have given immense competition to the on time monopoly of the market

LIC. Since the advent of the private players in the market the industry has seen

new and innovative steps taken by the players in this sector. The new players

have improved the service quality of the insurance. As a result LIC down theyears have seen the declining phase in its career. The market share was

distributed among the private players. Though LIC still holds the 75% of the

insurance sector but the upcoming natures of these private players are enough to

give more competition to LIC in the near future. LIC market share has

decreased from 95% (2002-03) to 82 %( 2004-05).

• ICICI Prudential Life Insurance Company Ltd.



MICRO INSURANCE

ICICI Prudential Life Insurance Company is a joint venture between ICICI

Bank, a premier financial powerhouse and prudential plc, a leading internationalfinancial services group headquartered in the United Kingdom. ICICI Prudential

was amongst the first private sector insurance companies to begin operations in

December 2000 after receiving approval from Insurance Regulatory

Development Authority (IRDA). The company has a network of about 56,000

advisors; as well as 7 banc assurance and 150 corporate agent tie-ups.

• Birla Sun Life Insurance Company Ltd.

Established in 2000, Birla Sun Life Insurance Company Limited (BSLI) is a

joint venture between the Aditya Birla Group, a well known and trusted name

globally amongst Indian conglomerates and Sun Life Financial Inc, leading

international financial services organization from Canada. The local knowledge

of the Aditya Birla Group combined with the domain expertise of Sun Life

Financial Inc., offers a formidable protection for its customers’ future.

• Tata AIG Life Insurance Company Ltd.

Tata AIG Life Insurance Company Ltd. "Tata AIG Life" offers a broad array of

life insurance products to individuals, associations and businesses of all sizes,

with a wide variety of additional coverage to ensure our customers can find an

insurance product to meet their needs.

Tata AIG Life is a joint venture of the Tata Group and American International

Group, Inc. (AIG). They operate in 11 states with a specific relationship

management team for each state. A dedicated & trained sales and marketing

team manages the front end of the Micro insurance program. Our micro

insurance distribution model collaborates with NGO’s (Non-governmental

organisations) and Rural organizations with community level SHG (Self Help

Group) women advisors who provide insurance advisory services to the ruralcustomers at their doorstep.



MICRO INSURANCE

• SBI Life Insurance Company Limited

SBI Life Insurance Company Limited is a joint venture between the State Bank of India and BNP Paribas Assurance. SBI Life Insurance is registered with an

authorized capital of Rs 2000 crores and a Paid-up capital of Rs 1000 Crores.

SBI owns 74% of the total capital and BNP Paribas Assurance the remaining

26%.

State Bank of India enjoys the largest banking franchise in India. Along with

its 6 Associate Banks, SBI Group has the unrivalled strength of over

16,000 branches across the country, arguably the largest in the world.

SBI Life has a unique multi-distribution model encompassing vibrant

Bancassurance, Retail Agency, Institutional Alliances and Corporate Solutions

distribution channels. SBI Life extensively leverages the SBI Group as a

platform for cross-selling insurance products along with its numerous banking

product packages such as housing loans and personal loans. SBI’s access to

over 100 million accounts across the country provides a vibrant base for

insurance penetration across every region and economic strata in the country

ensuring true financial inclusion.

• ING Vysya Life Insurance Company Private Limited

ING Vysya Life Insurance (ING Life), a part of the ING Group the world’s

largest financial services corporation entered the private life insurance industry

in India in September 2001. Headquartered at Bangalore, ING Life India is

staffed by over 6,000 employees and services more than 10 lakhs customers.

ING Life India is a joint venture between ING Group (ING Insurance

International B.V.) & Exide Industries. ING Life has a pan India network, and

distributes its products through two channels, the Tied Agency Force and the

Alternate Channel. The Tied Agency force comprises of over 60,000 ING Life

Advisors, spread across the country. The channel has branches in 234 cities, and

366 sales teams across the country. The Alternate Channels business within

ING Life is one of the fastest growing distribution channels. The company

currently has tie ups with over 200 cooperative bank across the country. The

Alternate Channels division has Bancassurance (ING Vysya Bank), ReferralBanks, Corporate Agents, Brokers and SMINCE.



MICRO INSURANCE

• Allianz Bajaj Life Insurance Company Ltd.

Bajaj Allianz Life Insurance is a union between Allianz SE, one of the largest

Insurance Company and Bajaj Finserv. Allianz SE is a leading insurance

conglomerate globally and one of the largest asset managers in the world,

managing assets worth over a Trillion (Over INR. 55, 00,000 Crores). Allianz

SE has over 115 years of financial experience and is present in over 70

countries around the world.

• Metlife India Insurance Company Pvt. Ltd.

MetLife India Insurance Company Limited (MetLife) is an affiliate of MetLife,

Inc. and was incorporated as a joint venture between MetLife International

Holdings, Inc., The Jammu and Kashmir Bank, M. Pallonji and Co. Private

Limited and other private investors. MetLife is one of the fastest growing life

insurance companies in the country. It serves its customers by offering a range

of innovative products to individuals and group customers at more than 600

locations through its bank partners and company-owned offices. MetLife hasmore than 50,000 Financial Advisors, who help customers achieve peace of

mind across the length and breadth of the country.

• Aviva Life Insurance Company India Limited

Aviva India is a joint venture between one of the country’s oldest and largest

groups, Dabur, and Aviva plc, the UK's largest insurance group, whose

association with India dates back to 1834. With a strong sales force of over

30,000 Financial Planning Advisers (FPAs), we have initiated and pioneered

many innovative sales approaches, including the concept of Bancassurance and

Financial Health Check services. We are among the first companies to introduce

the contemporary unit-linked products With a wide distribution network of 195

branches and close to 40 Bancassurance partnerships, we are spread across

nearly 3,000 towns and cities in India.

• Sahara India life insurance

The Sahara Pariwar’s latest foray is in the field of Life Insurance. The Pariwar’slife insurance company – Sahara India Life Insurance Company Ltd.- has been

http://www.avivaindia.com/

http://www.avivaindia.com/



MICRO INSURANCE

granted licence by the insurance regulator – the IRDA on 6th February 2004.

With this approval Sahara India Life Insurance Company Ltd. becomes the firstwholly and purely Indian company, without any foreign collaboration to enter

the Indian Life insurance market. The launch is with an initial paid up capital of

157 crores. The Chairman of the company is Shri Subrata Roy Sahara who is

also the Chairman of Sahara Pariwar.

• Shriram life insurance company

Shriram Life Insurance Company is the joint venture between the Shriram

Group and the Sanlam Group. The Shriram Group is one of the largest and well-

respected financial services conglomerates in India. The Group's main line of activities in financial services include chit fund, truck financing, consumer

durable financing, stock broking, insurance broking and life insurance.

• IDBI Fortis Life Insurance Company Ltd.

IDBI Fortis Life Insurance Co Ltd is a joint-venture of IDBI Bank, India’s

premier development and commercial bank, Federal Bank, one of India’s

leading private sector banks and Fortis Insurance International, a multinational

insurance giant based out of Europe. In this venture, IDBI owns 48% equitywhile Federal Bank and Fortis own 26% equity each. Having started in March

2008, in just five months of inception we became one of the fastest growing

new insurance companies to garner Rs 100 Cr in premiums. The company

offers its services through a vast nationwide network across the branches of

IDBI Bank and Federal Bank in addition to a sizeable network of advisors and

partners.

• DLF Pramerica Life Insurance Co. Ltd.

DLF Pramerica Life Insurance Company Ltd. (DPLI) is a joint venture between

DLF Limited and Prudential International Insurance Holdings, Ltd. (referred to

hereafter as "PIIH"). PIIH is a fully owned subsidiary of Prudential Financial,

Inc. (referred to hereafter as "PFI"). The combination of the strength of the DLF

brand and PFI's insurance expertise provide the strongest possible foundations

for DPLI to succeed in the rapidly growing Indian life insurance market.

• Star Union Dai-ichi Life Insurance Co. Ltd.,

Bank of India and Union Bank of India, two leading Public Sector Banks inIndia and the Dai-ichi Mutual Life Insurance Company, a leading Japanese

http://www.idbifortis.com/

http://www.dlfpramericalife.com/

http://www.sudlife.in/

http://www.idbifortis.com/

http://www.dlfpramericalife.com/

http://www.sudlife.in/



MICRO INSURANCE

Company in the Life Insurance market, have floated a Joint Venture Company,

"Star Union Dai-ichi Life Insurance Co. Ltd." for undertaking Life InsuranceBusiness in India. The Company has a capital stake of 51% by BOI, 26% by

Dai-ichi Life and 23% by Union Bank. The Company has authorized capital of

Rs. 250.00 Crores.

Star Union Dai-ichi Life, with the strength of the domestic partners in the Indian

Financial Sector coupled with the Dai-ichi Life’s strong domain expertise is

expected, to be a strong player in the Indian Life Insurance market in a short

time. The Company offers various products to serve all strata of the society.

5.2 MI PRODUCTS AVAILABLE IN THE MARKET

As from above we can see 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 microinsurance products along with the name of companies:

Name of Insurer Name of the Product Product UIN No.

AVIVA Life Ins. Co. India Pvt.

Ltd.

Grameen Suraksha 122N039V01

Bajaj Allianz Life Insurance Co.

Ltd

Bajaj Allianz Jana Vikas Yojana

Bajaj Allianz Saral Suraksha Yojana

Bajaj Allianz Alp Nivesh Yojana

116N047V01

116N048V01

116N049V01

Birla Sun Life Insurance Co. Ltd. Birla Sun Life Insurance Bima 109N032V01



MICRO INSURANCE

Suraksha Super

Birla Sun Life Insurance Bima DhanSanchay

109N033V01

DLF Pramerica Life Insurance

Co. Ltd

DLF Pramerica Sarv Suraksha 140N007V01

ICICI Prudential Life Insurance

Co. Ltd

ICICI Pru Sarv Jana Suraksha 105N081V01

IDBI Fortis Life Insurance Co.

Ltd.

IDBI Fortis Group Microsurance Plan 135N004V01

ING Vysya Life Insurance Co.

Ltd.

ING Vysya Saral Suraksha 114N032V01

LIC india Ltd LIC's Jeevan Madhur

LIC's Jeevan Mangal

512N240V01

512N257V01

Met Life India Met Vishwas 117N042V01

Sahara India Life Insurance Co.

Ltd.

Sahara Sahayog (Micro Endowment

Insurance without profit plan)

127N010V01

SBI Life Insurance Co. Ltd. SBI Life Grameen Shakti

SBI Life Grameen Super Suraksha

111N038V01

111N039V01

Shriram Life Insurance Co. Ltd. Shri Sahay

Sri Sahay (AP)

128N011V01

128N012V01

Star Union Dai-ichi Life

Insurance Co

SUD Life Paraspar Suraksha Plan 142N009V01

TATA AIG Life Insurance Co.

Ltd.

Ayushman Yojana

Navkalyan Yojana

Sampoorn Bima Yojana

Tata AIG Sumangal Bima Yojana

110N042V01

110N043V01

110N044V01

110N061V01



MICRO INSURANCE

AVIVA Life’s ‘Grameen Suraksha’

A micro-insurance rural term insurance plan for BASIX customers. Thistraditional term plan has been developed with the objective of giving the rural

policyholder maximum benefits.

• the policyholder pays premium for a period of just two years and then

avails the term benefit for 5 or 10 years

• The minimum sum assured is Rs 5,000 and the maximum is Rs 50,000.

• In addition, tax benefits can be availed as per Section 80C of the Income

Tax Act, 1961.

Bajaj Allianz Alp Nivesh Yojana

An endowment plan with Life cover and Maturity benefit equal to sum assured

+ Investment bonus.

• Life cover and Maturity benefit equal to sum assured + vested bonus

• Guaranteed Surrender Value.

• Avail additional benefits including Accidental Death Benefit &

Accidental Permanent Total / Partial Disability Benefit.

Bajaj Allianz Jana Vikas Yojana

A single premium plan with maturity benefit of 125% of the single premium

payable on survival till the end of the policy term.

• Life Cover.

• Maturity Benefit of 125%of the single premium payable on survival till

the end of the policy term.

• Guaranteed Surrender Value.

Bajaj Allianz Saral Suraksha Yojana

The Most economical term insurance policy with return of premium on

maturity.



MICRO INSURANCE

• Return of premium on maturity

•

Guaranteed Surrender Value• Avail additional benefits including Accidental Death Benefit &

Accidental Permanent Total / Partial Disability Benefit

BSLI Bima Dhan Sanchay

• A Win-Win Situation Security plus Guarantee. The refund of premiums

paid by you is guaranteed with 3 maturity options.

• Sum Assured Rs.5,000/- to Rs.50,000/-

• Maximum Maturity age 65 years

• A grace period of 180 days from the premium due date will be availableto you

• An option for additional Sum Assured is available provided the base sum

assured is minimum Rs 10,000/- and the sum assured under the rider

should not exceed the sum assured under the base product if the death

occurs due to accident

BSLI Bima Suraksha Super

BSLI Bima Suraksha Super provides you life insurance cover for which you

have to pay regular premium. The nominee gets the sum assured in the

unfortunate event of death.

• BSLI Bima Suraksha Super provides you life insurance cover for which

you have to pay regular premium. The nominee gets the sum assured in

the unfortunate event of death.

• Your premium depends on your age, gender, Sum Assured and benefit

period chosen.

• At maturity, there is no benefit payable.• An option for additional Sum Assured is available provided the base sum

assured is greater than or equal to 10,000/- if the death occurs due to

accident.

ICICI Pru Sarv Jana Suraksha

ICICI Prudential Life Insurance presents its first Micro Insurance Plan - Sarv

Jana Suraksha – especially designed for rural population which provides total

security to you and your family, at very affordable cost.



MICRO INSURANCE

• Min / Max entry age-18 years - 55 years

•

Min/Max Sum Assured- Rs. 5,000 -Rs. 50,000• Policy Term -5 years

• Cover ceasing age -60 years

SBI Life insuance’s Grameen Super Suraksha and Grameen Shakti

SBI Life insuance’s Grameen Super Suraksha and Grameen Shakti products

have been designed to meet the requirements of the weaker sections of the rural

population.

Grameen Super Suraksha is a micro insurance pure term product and Grameen

Shakti is micro insurance product with ROP.

Grameen Shakti is a dual benefit life insurance product to safe guard the group

member which provides Protection with maturity benefit at affordable rates. It

offers to the “Family” of the group member “Protection” & it offers to the

“Group member” survival Benefit.

Duration of plan: 5 years or 10 years as per the Group Master policyholders

choice.Age at entry: Minimum 18 years age last birthday.

Maximum 50 years age last birthday.

Sum assured: Rs.5, 000/- to Rs.50, 000/- (in multiples of 5,000) as per choice

of Master Policyholder.

Premium frequency: Yearly.

Requirement from the Group member: Automatic acceptance linked to

signature of Membership form that includes Good health declaration and

nomination clause.Death Benefits: First 45 days after the cover start date or after the revival date

– No death claim will be accepted (inclusive of accidental death)

Form 46th day from cover start date / revival date – Sum assured is payable

Tata AIG Life Sumangal Bima Yojana

In this plan you have to pay premium for 10 years and you get insurance

protection for 15 years. Enjoy total guaranteed returns of 120% of the *total

policy premium at specified intervals during term of the policy.



MICRO INSURANCE

• Policy Term : 15 years

• Premium Paying term : 10 years• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-

Maximum Death Benefit (Sum Assured): Rs.30,000/-

• Premium payment frequency : Monthly, quarterly, half yearly & yearly

• Survival Benefit: We shall pay you the survival benefits as below, if you

have paid all due premiums.

Tata AIG Life Sampoorn Bima YojanaA low cost insurance plan where the policyholder receives all the premiums

paid during the policy term upon survival until the term of the policy. Premiums

are payable for only 10 years, while the coverage is up to 15 years.


• Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-



• Death Benifit : Sum assured is paid to the policyholder’s nominee

• Maturity benefit: At the end of the 15 years, all the premiums paid will be

returned to the policyholder.

Tata AIG Life Sampoorn Bima Yojana

A low cost insurance plan where the policyholder receives all the premiums

paid during the policy term upon survival until the term of the policy. Premiums

are payable for only 10 years, while the coverage is up to 15 years.

Policy Term: 15 years




• Death Benifit : Sum assured is paid to the policyholder’s nominee

• Maturity benefit: At the end of the 15 years, all the premiums paid will be

returned to the policyholder.



MICRO INSURANCE

Tata AIG Life Navkalyan Yojana

A regular premium payment, low cost term plan for the rural adults who seek life insurance protection without any maturity benefit.





• Death Benifit : Sum assured to the policyholder’s nominee

• Maturity benefit : None

• Rider: Option to attach Accident Death Benefit Rider for issue ages 18 to

55 years at a nominal extra charge.

IDBI Fortis Group Microsurance Plan

The first of its kind group that will be benefited by this unique plan is Samhita

Community Development Services, announced officially by IDBI Fortis Life

Insurance Co Ltd at a press conference held at Bhopal today. This tie-up will

insure 13,356 poor members for a Sum Assured of over Rs. 7cr in the rural and

urban areas of Madhya Pradesh.

The plan provides affordable life insurance cover to groups offering great value

to Micro Finance Institutions, Self-Help Groups and NGOs. Not only does the

plan insure the lives of their group members and thus provide security to the

group member’s families, it can also be used for providing protection from loan

liabilities in the unfortunate event of the death of the main bread-winner.

Aviva Grameen Suraksha

Grameen Suraksha is a life insurance plan that helps you protect your family's

future. While there can be no compensation for the loss of life, Grameen

Suraksha ensures that their financial needs are met when something unfortunate

happen to you.

• Entry Age: 18 to 45 years

• Policy Term: 5 and 10 years

• Premium Paying Term: 2 years (payable in yearly mode only)

• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)A grace period of one month is allowed for payment of premium.



MICRO INSURANCE

LIC's Jeevan Madhur

“Jeevan Madhur”, is available to both male & female without any medical

examination and is a simple saving related life insurance plan covering

individuals in the age group of 18 to 60 years. Minimum sum assured under the

plan is Rs. 5000 and maximum sum assured is Rs. 30000. Mode of payment of

premium can be even weekly/fortnightly in addition to other regular modes to

suit the needs of people with low income. Minimum premium is Rs. 25/- per

week, Rs. 50/- per fortnight, Rs. 100/- per month which is expected to be well

within reach of the targeted group. The term of policy ranges between 5 to 15years. The policy, if kept in full force, is entitled to the simple reversionary

bonuses depending upon Corporation’s experience. Accident benefit is also

applicable as per terms and conditions of the policy. After premiums are paid

for 2 years, Auto Cover facility i.e., continuance of cover even in case of

inability to pay premium up to 2 years from the date of First Unpaid premium is

available to take care of contingencies and uncertainties of income.

LIC's Jeevan MangalAterm assurance plan with return of premiums paid on maturity.

The Micro Insurance Plan “Jeevan Mangal” launched today is a term assurance

plan with return of premium on maturity providing for a sum assured (risk

cover) ranging from minimum of Rs.10, 000/- to maximum of Rs.50, 000/- with

an optional accident benefit rider, together providing for total death benefit

equal to double the sum assured, on death due to accident

Met Vishwas

It is a life insurance plan that protects you in case of death at a nominal cost

when you survive the term of the policy you get back up to 125% of

premium(in case of coverage term 10 years)

Maturity benefit: 110% of the single premium paid for a 5 year coverage term

125% of the single premium paid for a 5 year coverage term



MICRO INSURANCE

• Entry Age: 18 to 60years

• Policy Term: 5 or 10 years• Premium Paying Term: 2 years (payable in yearly mode only)

• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)

A grace period of one month is allowed for payment of premium.

SUD Life Paraspar Suraksha Plan

The scheme has been specifically designed for the weaker sections of the

society and those from the rural areas. The scheme covers the groups of 200 and

or members. The scheme is to provide life cover at low cost to groups of

persons engaged in a common economic activity like those financed by an

NGO, MFI or Banks in rural or urban areas.

• Entry Age: 18 to 50years

• Group size : minimum-100, maximum – no limit

• Premium Paying Term:

Minimum premium- single premium-162.50, annual premium-33.50

Maximum premium- single premium-1625.0, annual premium-335.0• Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000 only)



MICRO INSURANCE

CHAPTER 7

OTHER TOPICS

5.1 UNDP STUDY

5.2 RECOMMENDATION



MICRO INSURANCE

5.1 THE UNDP STUDY

During 2005-06, the Human Development Report Unit of UNDP conducted a

study of the potential Micro Insurance market in India on the basis of field

surveys conducted in the States of Orissa, Tamil Nadu and Rajasthan.

The UNDP report commented that the potential utility of Micro Insurance may

be even broader than that of micro-credit and may be closer to the potential

market for micro-savings, balanced by affordability considerations in the early

stages. Some 52.4 per cent of India's population of 1.08 billion earns less than

US $ 2 a day (in terms of Purchasing Power Parity). Micro Insurance can play

an important role in protecting the income of these people.

The UNDP report also tried to estimate the potential size of the Micro Insurance

market in India. The estimates corresponding to the life and non-life segments

are provided in Table 3. The population used for the estimation is 40-50 percent

of those earning less than US$ 1 a day and 50-70 per cent of those earning

between US$ 1 - 2 a day. The nonlife estimation included four types of

coverage - milch animals, livestock, health and crop insurance.



MICRO INSURANCE

The Potential Market for Micro-Insurance in India

Insurance Segment Market Size (Potential)(Rs. Millions)

Life Segment 15393-20141

Non-Life Segment 46911.70-64,126.55

TOTAL (Life and Non-Life) 62304.70-84,267.55

SOURCE: UNDP (2007). Building Capacity for the Poor Potential and

Prospect for Micro-Insurance in India. UNDP Regional Centre, Colombo.



MICRO INSURANCE

5.2 FUTURE OF MICROINSURANCE

Leveraging Existing Network for Micro-Insurance11.12 It would be difficult for the insurers to establish a vast network for distribution of micro-insurance products. They need to utilize existingGovernment organizations, banks, MFIs, NGOs and SHGs to increase theoutreach of microinsurance to the poor. The advantages of these entities are thatthey find greater acceptability among the financially excluded, and with a better understanding of their needs are well equipped to advise them on the choice of

products. In India with a vast rural population characterized by challenges andcomplexities, it makes sense to latch on to an existing mechanism operating inthese segments to lower costs and to help the insurer to leverage on the faith

already generated by the entity. Hence it would be prudent to choose a partner-agent model for delivery where the insurer underwrites the risk and thedistribution is handled by an existing intermediary. This model keeps the cost of insurance attractive enough for the poor to enter and remain in its fold evenwhile addressing the concern of the insurers about the low returns of micro-insurance.

Linking Micro-credit with Micro-insurance11.13 It is becoming increasingly clear that micro-insurance needs a further

push and guidance from the Regulator as well as the Government. TheCommittee concurs with the view that offering microcredit without micro-insurance is bad financial behaviour, as it is the poor who suffer on account of such bad product design. There is, therefore, a need to emphasise linking of microcredit with micro-insurance. 11.14 Linking micro-insurance with micro-finance makes good business sense.Further, as it helps in bringing down the inherent risk cost of lending, theCommittee feels that NABARD should be regularly involved in issues relatingto rural and micro insurance to leverage on its experience of being a catalyst inthe field of micro-credit.

Implementation Strategy for Micro-Insurance



MICRO INSURANCE

11.15 Keeping in view the various issues dealt with earlier in this Chapter, theCommittee has identified five major areas for formulation of strategies for effective implementation of micro-insurance programmes. These are explainedin the following paragraphs :

Human Resources Requirement and Training11.16 As indicated earlier, the UNDP report states that there is a huge untappedmarket – of around 950 million people and nearly US$2 billion – for insurancein India. IRDA may consider putting in place an appropriate institutionalstructure for deciding on service packages including premia and formulatingstrategies for effective promotion of micro insurance. There is also a felt need

for development, of both fulltime and part-time staff, thru’ effective training ininsurance marketing and servicing concepts.

Operations and Systems

11.17 To address the requirements of the huge market potential available,appropriate systems should be evolved for tracking client information, either manually or using technology. While a technology platform may take time for setting up, in the long-run, the same will be cost-effective and reliable.Similarly, the procedures for premium payments, claims and other servicesshould be formalized along with increased customization of products to

stimulate demand.

Development of Adequate Feedback Mechanism11.18 Keeping in view the diverse nature of market requirements, suitablemechanisms to collect market intelligence, collating and interpretation of thesame, in a formally structured manner, is important for product developmentand process refinement . Insurance companies should go beyond devising new

products to improving their processes for building awareness, marketingenrollment, premium collection, claim settlement and renewal. For this they

need use innovative channels such as business correspondents, SHGs, NGOsand MFIs as also cooperatives and mutual associations. Further, the use of technology such as mobile phones and ATMs for premium collection should beencouraged to keep transaction costs low.

Development of Data Base11.19 High costs of penetration and acquisition often leads to higher pricing of

products, thereby impacting client outreach and market depth. Building uphistorical data base on risk profiles, claims, settlement ratios, etc., will facilitatein better pricing of products, based on actual rather than presumed risks.

Besides enabling cost reduction, warehousing of such data will make the marketmore transparent for entry of more operators. The IRDA and the Government



MICRO INSURANCE

should help in provision of data such as human mortality and morbidity,weather parameters and livestock mortality/morbidity, on a timely, large sampleand regular basis. This will lead to finer pricing on actuarial basis andeventually cut costs of insurance.

Consumer Education, Marketing and Grievance Handling11.20 The micro-insurance sector is unique in the sense that there is an ongoingchallenge to explain the concept and benefits to the insured. Creating awarenessthru’ use of pictorial posters, local folk arts and street theatres might be usefulto explain the mechanisms of insurance. Local community-based organisationscould organize premium collections, as they have better access to the local

people. To make it more acceptable to the people, micro-insurance products,apart from covering only risks, should also provide an opportunity for providinglong term savings (endowment).



MICRO INSURANCE

CONCLUSION

We all know insurance is a very old concept. But the demand for insurance wasincreased from a decade. Middle class people take insurance policy according to

their ability & capacity to pay premium to secure their life. When we talk about poor people a question comes in mind .

Do poor people have any security?

What if they face any risk?

Who is going to look after them?

Their family members?

Do they have any insurance policy?

Are they capable to pay the premium?

The answer for this is Micro Insurance. Micro Insurance is designed keeping inmind to poor people. Like everybody else, the poor people face a variety of risks such as risk of death, illness, disability, accident, income & property & soon. Like all other, they also need to be protected from these risks. Policy-induced and institutional innovations are promoting insurance among the low-income people who form a sizable sector of the population and who are mostlywithout any social security cover. Although the current reach of ‘micro-

insurance’ is limited, the early trend in this respect suggests that the insurancecompanies, both public and private, operating with commercial considerations,can insure a significant percentage of the poor. Serving low-income people whocan pay the premium certainly makes a sound commercial sense to insurance

providers. To that extent imposing social and rural obligations by insuranceregulator (IRDA) is helping all insurance companies appreciate the vastuntapped potential in serving the lower end of the market. At presentmicrofinance business in the country is unregulated. Regulation of MFIs isneeded not only to promote micro-finance activity in the country but also to

promote the linking of microinsurance with micro-finance. It is becoming



MICRO INSURANCE

increasingly clear that micro-insurance needs a further push and guidance from

the regulator as well as the government.

Case study on AnnapurnaParivar

Annapurna Pariwar as is known today is a group of 6 Non-Govt.

organizations working in Mumbai and Pune for the urban slum dwellers.

The first organization in Annapurna Pariwar is Annapurna Mahila Mandal,

Mumbai. An organization working for the inn-runners since 1975.

Annapurna Mahila Mandal, Mumbai was set up by Padmashree Prematai

Purao and Com. Dada Purao in the year 1975, which was the International Year

for Women. Padmashree Prematai Purao is a freedom fighter from Goa, was a

leading woman activist in the sixties and a recipient of many national and

international awards.

Com. Dada Purao was a Trade Union Leader. 18 years later the daughter of

Padmashree Prematai Purao and Com. Dada Purao, Dr. Medha Purao Samant

set up Annapurna Mahila Mandal, Pune in 1993. She formed a group of 9

vegetable vendors who were borrowing from the private money lenders at



MICRO INSURANCE

exorbitant rates of interest . They were under the clutches of local money

lenders in spite of presence of many banks and financial institutions in Pune.

She gave the initial capital of Rs. 9000/- as the first loan to the members of the

first group of borrowers in Pune. Annapurna Pariwar started in the course of

time a package of various services for the benefit of the slum dwellers, which

are completely need- based.

Artha-Udyam-Purna, a poor women and men’s economic empowerment

program throughMicro Finance. This started as a project in July 1993 in

Pune.

Annapurna Mahila Co-Op. Credit Society was registered in Mumbai in

1985 and got a multi-state license in 1998.

The Micro Finance activities in Pune and Mumbai started in under this co-

op. society from 2000.

Sandhi-Tantra-Purna, was started as a Vocational Training and JobPlacement Program for Dropout Adolescents, in June 2001.

Annapurna Mahila Industrial Co-op. Society was registered in 2000.

This program got integrated in this co op society.

Swasthya-Purna started as a project under which two aspects were dealt

with..Health problems and Sudden Death in the family of borrowers. To

overcome these two major problems pushing the poor back into the debt

trap the two solutions were provided.

- Health Mutual Fund started as a project in April

- 2003Family Security Fund started as a project in October 1998

The borrowers of Annapurna Mahila Co-Op. Credit Society came

together and registered a Non Profit company in 2003 under Section 25

of the Companies registration Act.These two projects were Merged in this



MICRO INSURANCE

company named as Annapurna Pariwar Vikas Samvardhan which is run

and owned by the members. This is a pioneering example inCommunity

Based Health Insurance.

The first Day Care Center started in 2003 in Karvenagar slum in Pune.

The main trigger was a rape case on a 6 year old girl whose mother was a

single woman. Thereafter Vatsalya-Purna started as a chain of low cost

Day Care Centres for children of poor working women who were borrowers

of Annapurna Mahila Co-Op. Credit Society.

Vatsalya-Purna Co. op Soc was registered in 2007 by all the Creche

Conductors.

Vidya-purna started in 2003 as an educational sponsorship program for

the children of single mothers who are borrowers of Annapurna Mahila Co

Op Credit Society. Annapurna Mahila Mandal, Pune, registered as a trust

in the year 2000 is running this educational sponsorship program. The

single poor women find it difficult to educate their children with their

meager income. So this program helps them.

Annapurna Mahila Mandal, Mumbai was registered as a trust in the year

1975. It started catering activities with poor women in 1980.

It also runs a Working Women’s Hostel in New Mumbai. There is a huge

problem of single destitute women and on the other hand the single working

women need a safe place to stay and homely food in big cities like Mumbai.

So the Working Women’s Hostel provides a solution to this.

Today Annapurna Pariwar has 6 independent bodies working under it. The

various projects which render a package of various services to the urban slum

dwellers are run under these 6 organizations.



MICRO INSURANCE

ACHIEVEMENTS

Healthy Society is the foundation of all-round progress and an acute need

was felt for health insurance for an unorganized sector forming a large

cross-section of our Society.

With this social aim in mind, more than 14,000 families with 54,000

individuals in Pune and 8,000 families with 28,000 individuals in

Mumbai have so far been provided the safety of health insurance.

As a Micro health insurance initiative, this Organization has created an

extensive network of 190 Hospitals in Pune and 90 in Mumbai. All

beneficiaries of health insurance can take advantage of healthcare services

provided by these hospitals.

Services Rendered :

Health Counselling

Assistance and Referral for health related problems.

Arranging Awareness program on all issues including Health, Cleanliness,

Hygiene

Data Management and Product designing by UPLIFT India (another Sec 25

co)



MICRO INSURANCE

Financial assistance on events like hospitalisation, death, disability

All financial claims are settled in a monthly meeting of Community

Representatives (CRs).

Documents

Micro Insurance in India