Michael Anthony, Head of Microinsurance, Allianz SE was at IFMR, Chennai as CIRM’s special invitee on July 23, 2010. He is a spokesperson for the Munich based Allianz Group and a member of the Allianz Group’s Sustainability Strategy Team. In this capacity, he organises and chairs the Allianz stakeholder dialogues on some of the Group’s Corporate Social Responsibility (CSR). Michael is the reviewer of Allianz’s annual risk reports. His recent publications include reports on climate change, nanotechnology and pandemic viruses.

He informed the audience about the micro insurance initiatives of Bajaj Allianz, the Indian arm of Allianz.

-  He gave a brief account of the innovative savings cum life insurance product launched in 2008, through SKS, a channelpartner of Bajaj Allianz. The product allows certain flexibility in premium and payment. If unclaimed, the deposit is refunded after 5 years. In order to reach the rural population they have collaborated with dairy cooperatives and promoted the same product, helping policy owners to build assets over their lifetimes. This savings-cum-group policy can be customised and has features such as risk covers, premiums and payments terms as well as benefits and conditions.

-  Bajaj Allianz in its global initiatives, in partnership with CARE India is implementing the unique property insurance provided through Care International. In November 2008, when cyclone Nisha hit the shores of Tamil Nadu, 16,000 families were able to weather the damage it caused, because of the insurance they held with Allianz. This product covered a range of risks. The policy included payouts in case of total or partial disability, hospitalisation, loss or damage to the household or other assets, death, as well as an education grant for one child. This portfolio policy was helpful for LIH when the cyclone unleashed its fury. However, the product is still to achieve financial viability, and therefore product modification is being explored.

-   In another innovative pilot through CARE, Allianz offers a Health Mutual Insurance product, which aims to battle the special challenges of the micro insurance industry viz. high distribution costs, high probability of fraud, low willingness/ability to pay, and low financial literacy. This is achieved by leveraging the mutual model, where the community is directly involved in the administration and distribution of claims, which resolves the problem of distribution costs. The community chooses trusted doctors who, along with the peer-monitoring mechanism minimises the possibility of fraud either by the doctor or patient.

The unique modification in the model reduces risk to the community portfolio, through insurer risk layering with Mutuals. It shares the risk of high-cost events thus pushing down the premium. Bajaj-Allianz receives 33% of the premium, and in return handles all those medical procedures where the expenditure rises above a certain threshold. This enables the community to provide cheaper insurance addressing the problem of willingness/ability to pay. This product also leverages the expertise and local rapport of CARE India who acts as an intermediary partner, working with local NGOs in setting up Mutuals, financial education and capacity-building activities of its members. This model has the strength of both sides: the low cost and mutual control of local self help groups, as well as the reach and technical know-how of Bajaj Alliance. The product was piloted in Tamil Nadu in 2007.

When summarising, Michael identified core sector level challenges which Allianz was exposed to. They were

-  Credit life insurance: there is not still a big success mainly because of the commission (20-30% of the price).  But the claim is

growing up during the five years of product’s use.

-   Property insurance: There are very few at the moment in India even though tests had been realised in Africa and Indonesia.

Questions about the products from the audience were the following

-   To find a management of product’s fees

-   Are savings linked to micro insurance because clients need a profitable product?

-   Was there any exposure to equity? (problem of fees and profit for companies)

Also, they have still not ventured into agriculture and weather based insurance products and for these he showed a keen interest in discussions with the CIRM team.   In India, micro insurance is provided through NGO or MFIs. Concluding, he spoke of two major challenges in the Indian scenario. They were to

-  develop health insurance skills

-   justify the product’s price or rather propose separate added offer.

Michael’s talk provided the opportunity for sharing of knowledge and information that we hope will lead to further exchanges of ideas and solutions.

On July 8, delegates from the Chinese Meteorological Department and the Guoyuan Agricultural Insurance Company (GAIC) visited CIRM-IFMR. This visit gave us the opportunity to compare the Indian journey of the agriculture insurance industry vis-à-vis the Chinese one.

While, among developing countries, India boasts of the largest  portfolio of WBI products, other developing countries like Ethiopia and Malawi (since 2003), Nicaragua (since 1998), Morocco (since 2000) and Peru (since 2004) have also experimented with such products.

Since China is introducing weather based index (WBI) insurance products for the very first time; the visit was aimed at discussing various operational and technical challenges faced in such markets.

• Uniquely, GAIC  is able to offer WBI insurance products at a much lower premium to payout ratio ratio (of 6% compared to Indian rates of 10-12%. Almost double !).

Comparing the context: Agriculture, in China accounts for 41% of the total labour force while its contribution to the GDP is a mere 11%. This scenario is only marginally better than India where 70% of the population is engaged in agriculture and its contribution to GDP is approximately 20%. Similar to Indian agricultural practices, Chinese agriculture is also highly dependent on weather phenomenons and potential impacts of climate change.

The Agriculture Insurance journey: Agriculture insurance was first introduced in China in 1982 whereas in India, products related to agriculture insurance have been in existence since the 1970s when Pilot Crop Insurance Scheme was launched by General Insurance Corporation(GIC). While State owned Chinese insurers have offered agriculture and livestock insurance since the 1980s; they were rarely profitable owing to the nature of agriculture risks. Therefore, the Chinese Insurance Regulatory Council (CIRC) along with the Chinese Government provide premium subsidies to specific crops (such as rice, wheat, cotton, corn, and rape seeds).

• The players: The Chinese government, since 2004 has approved the establishments of three  agricultural insurance companies. They are: the Anxin Agricultural Insurance Company, Anhua Agricultural Insurance Company and Sunlight Mutual Insurance Company.
• Guoyuan Agricultural Insurance Company (GAIC), which started operation in 2008, is the first company to receive approval to develop WBI Insurance.

A snapshot of the path traversed by India is given below:

• Pricing: Weather based products in China, are presently more affordable when compared to India. One of the obvious factors for this price variation is higher premium subsidies provided by the the provincial and the national governments. Agricultural Insurance Company (AIC) in India is providing a similar product at a comparatively higher cost of 10% premium to payout ratio. The private players in India are even costlier at around 12%.

The important policy question emerging is why is it so? There could be a number of possible reasons for this. Here are some of my assumptions:

1. A major reason for this difference (in the premium to payout ratio) could be due to the initiation of these products in India was from the private sector with no access to government subsidies.
2. It could also be due to the fact that India has tried WBI for a number of crops while for China, it is the very first attempt. Risk assumptions could be corrected upwards if the frequency of weather variations (triggering payout) is higher.
3. The meteorological departments are actively involved in the entire process of provision of the weather based products. They have a more systematic approach, with plain vanilla designs and a few crops to work on; while India has a number of private players trying out a variety of designs ; potentially covering more riskier crops as well as more probable risks
4. Also, the weather infrastructure, a key factor in this product, in India is comparatively in a poor state compared to that of China, increasing the ‘unknown’ loading amounts of the reinsurer

At the meeting, various projects involving CIRM were discussed:

-          Providing Comprehensive Agriculture Risk Management to farmers

It aims to develop localised weather and hybrid insurance contracts in the selected districts of Howrah in West Bengal and Kamrup in Assam. The partners in the project are Weather Risk Management Services and ICICI Lombard. This programme is to provide weather advisory along with weather insurance to farmers. This will help small scale agriculture production with the provision of “SMS based” weather advisory updates.

-          Hybrid Yield and Weather Insurance Product using Normalised Differential Vegetative Index (NDVI)

Along with IFFCO Tokio General Insurance Company piloted hybrid (weather + NDVI) insurance and measured the product behavior as well as the farmer’s response to each product over two years.

-          Smallholder access to weather securities: demand and impact on consumption and production decisions

in partnership with IFPRI and HDFC ERGO aim to evaluate the provision of weather securities (simple weather-indexed insurance products) to smallholder farmers in two states in India.

-          Designing a premium calculator for all major crops of the nine rural districts:

CIRM is developing a premium calculator for weather index contracts for the major crops cultivated. It will be used online by any participant of an agriculture value chain. The tool will divide each district into agri-climatic zones and will publish lists of crops optimal for growing in each agro-climatic zone and also indicate the risks faced by each major crop and optimal risk transfer mechanism for each product.

Discussions in the meeting were largely in the areas related to

-          identification of a suitable index,

-          decisions on the triggers and related premium amounts (pricing of the product).

-          the operational challenges in providing weather index based insurance,

-          availability of data for remote sensing technology and

-          challenges in marketing such products were discussed.

-          the possibility of application of remote sensing data and other technology such as RFID (Radio Frequency Identification) too were discussed.

This meeting was a platform where both parties could participate in high quality knowledge sharing. However, only time will tell if they will be able to sustainably provide insurance at the minimal cost they presently claim to have and also if this system providing subsidised products is going to be beneficial for the cropping pattern.

While the microinsurance sector in India, the global laboratory of microinsurance, seems to be maturing gradually, important players in the sector that are driving this beast need to be more mindful of what it is leaving in its wake and where it is headed. Governments, practitioners and researchers need to take a more informed view and persist in the feedback-innovation-improvisation loop that has been the hallmark of the microfinance revolution. This article aims to juxtapose the trends in the healthcare space and findings from a recent study by Berman et. al.1 and form the opinion on the state of health microinsurance (HMI) in India.

While more than 80% of healthcare expenditure in India is funneled into the private provider system, more than 90% of this spending is out-of-pocket2. The poor with their low and irregular incomes may be unable to face health shocks and therefore health microinsurance becomes important. Literature documents that the poor recognize these health risks and employ costly3 risk-management techniques like selling of assets/spending from savings/borrowing etc. This translates into a substantial latent demand for health insurance if it can successfully reduce the cost of health-risk management4.

The paper by Berman et. al. corroborates the evidence on these trends. It notes that while India records among the highest private to public expenditure on healthcare ratio (81%), around 94% of it is out-of-pocket expense. The paper also recognises that the poor employ “Financial Coping Measures” such as investing in highly liquid assets, dis-saving etc. to deal with health shocks. While the earlier papers do not consider this possibility and consequently produce biased results, this paper provides corrected numbers on the effect of healthcare payments on impoverishment using the NSSO 2004 morbidity and healthcare data5.

The enormity of the healthcare problem in India is borne out by the following results from the study. Data suggests that around 6.2% of the total households in the sample fall BPL as a result of healthcare expenditure in 2004. The percentages were 6.6% in the rural and 5% in the urban areas. It also found that around 1.3% of the households dropped BPL due to in-patient care costs while the majority 4.9% dropped BPL due to the smaller but more frequent out-patient care costs.

These results obtained on the effect of out-patient care costs deserve special consideration from the sector. The authors report that out of the 11.98 million impoverished  households, a total of 9.42 million were impoverished due to out-patient healthcare costs and only 2.46
Million due to in-patient costs. This exposes a large gap in the microinsurance safety net that the various systems in India and those around the world are trying to create. Other studies by Dror (2008), and Wagstaff & Doorslaer (2003) report similar findings from India and other countries where out-patient expenditure is more impoverishing that in-patient expenditure.

If one takes at a look at the microinsurance landscape in the country, one finds that not only the majority but also the most important HMI programmes like the Government of India run universal health insurance plan, Rashtriya Swasthya Beema Yojana, and the popular Government of Andhra Pradesh programme Arogyasri essentially cover only in-patient healthcare costs for the poor. It is not surprising then, that this study finds the effect of the existing insurance schemes as a “financial coping mechanism” to be insignificant.

However, CIRM having recognized this lacunae very early and as an important stakeholder in the microinsurance design and innovation research at the national and global stages has been working on this issue for some time now. The centre has been exploring various designs and leveraging different philosophies to attain the best mix of attributes that can be scaled/replicated to bridge this gap.
At present, the centre is running three design and research projects that aim to provide solutions to deliver outpatient healthcare to the poor. These are:

-    Insuring Primary Care – CARE Foundation, Yavatmal, Maharashtra.
In a model where the service provider also plays the insurer, this product leverages direct community support along with technology to bring to-the-doorstep consultation, diagnosis and medicine to rural households in need of out-patient care. The project aims at measuring the impact of preventive and promotional interventions on health outcomes and expenditure.

-    Comprehensive Health Care – FEM and Equitas, Chennai, Tamil Nadu.
Delivered through an MFI, the product has at the backend a layered financial design to provide comprehensive in-patient and out-patient cover for the urban poor. This model tries to bundle existing state government insurance schemes to increase the cover while keeping the premiums low.

-    Outpatient Counseling – Calcutta Kids and United India Insurance, Howrah, West Bengal.
This project attempts to validate if the provision of add-on services to insurance, such as out-patient counseling affects the renewal rates of an insurance product. On the delivery side, the product provides the insured assistance in accessing healthcare, regular health check-ups and follow-ups after diagnosis.

These projects and many more such product design and delivery innovations happening around the world aspire to tackle the problem of providing out-patient healthcare to low-income households. These are important programmes that need promotion, funding and most importantly rigorous evaluation.

While the in-patient products that have been making some headway deserve all the attention that they have been getting, the out-patient healthcare costs of a low-income household can only be ignored at the cost of terrible results. Not only is out-patient healthcare so important because of the strong impoverishing effect of these health shocks, it is all the more necessary because prevention needs to precede cure to create better health outcomes across the low-income populations.

1 ”The Impoverishing Effect of Healthcare Payments in India: New Methodology and Findings”; Economic and Political Weekly; Volume 45, Number 16, April 17-23, 2010.
2 WHO 2008
3 Jutting, 2004
4 Microinsurance Center, 2007 report suggests that HMI is one of the most sought after MI products.
5 Frequently the data used for earlier papers has been the NSSO consumption data which measures the healthcare expenditure as a part of household consumption which results in under-estimation of the impoverishing effect of healthcare expenditure.

“I grew up knowing my country was drowning” – says Anushay of Bangladesh with a sense of despair.

Bangladesh is one of the world’s worst victims to the negative impacts of anticipated climate change and is possibly most threatened by it. Though the country’s contribution to the global greenhouse emission is low, floods and other natural disasters are becoming very frequent. Its vulnerability lies in its geographic location and a very convoluted coast line. The high population density adds to the misery.

 The cause and effect relationship between disaster and socio-economic development is important, as  floods cause a lot of direct as well as indirect loss to the country’s economy.  Each year almost 18% of the country gets flooded and when severe almost 55% of the country is inundated.  90% of the water of South Asia passes through Bangladesh. The major rivers of the country are the Ganga, Brahmaputra, Padma and the lower Meghna.

Floodplains constitute about four-fifth of the land mass of Bangladesh and 68% of the land is vulnerable to floods. The country experiences three kinds of floods. There are the monsoon floods caused by heavy downpour during the rainy season. The change in the base level of rivers causes tidal surge floods. This is due to the rise of the local sea level and subsidence. Lastly, the flash floods that are caused by heavy rain associated with storms or hurricanes. Jamuna and Ganga define the eastern and southern boundary of the North West region and is bordered by several other rivers too. The intensity of flash floods is very high here.  

 Developing a sustainable insurance for a flood prone region is difficult but catastrophic floods which are rarer can be insured.  CIRM in collaboration with Institute of Water Modeling- Bangladesh and Oxfam- Great Britain is developing an index based Meso level flood insurance product for Sirajganj district located in the northwest region of Bangladesh.  IWM has developed a model that will assess the hazards caused due to catastrophic floods. The Flood Forecasting and Warning Centre (FFWC) Model was taken as the base model for the study. The Monsoon period of 2007 was considered as the base period for model development and calibration.

The “Flood Hazard Model” which will give us the scenario on flooding in Sirajganj district has been developed using the Digital Elevation Model (DEM). DEM will be represented on a 300×300metres grid. The grids will represent the amount of floods each region experiences. Other models such as MIKE 11, MIKE GIS and MIKE 11 HD will also be used.  A flood vulnerability index in terms of flood depth and duration is   prepared to produce the index base flood insurance.

The economic loss arising out of the flood will be estimated by CIRM. Pragati is the insurer, but the reinsurers are yet to be finalised. The pilot study will be done in 2011 and hopefully the misery of the people suffering due to catastrophes like floods will be reduced.

When an earthquake of magnitude 7.9 on the Richter scale hit Japan on November 15, 2006, no deaths were recorded. However when an earthquake of magnitude of 7 hit Haiti on January 12, 2010 22, 2570 lives were lost. The irony in these facts is very unfortunate but relevant for us and true.

If we are to rescue the poor and the needy from the catastrophes of the world, we need to do something substantial; something besides post-disaster care; something beyond providing the mental support; some financial backing. The global character of natural disaster is constantly changing. There are around 800 to 1000 natural catastrophes recorded every year. Statistics indicate that the frequency of disasters recorded since 1990 has gone down, but the intensity of these disasters has increased.  The people who are most affected by these calamities are the economically weak households. 30% of the population in developed countries have insurance coverage against catastrophe risk.  Only 1% and 3% of the households in the developing and least developed countries respectively have insurance coverage against catastrophe risk. These less developed economies do not have adequate infrastructural facilities.   They are caught in a vicious circle with high vulnerability, insufficient disaster management instruments and low income. This fragile infrastructure also increases the impact of the calamity when it happens. A shift from response and recovery to awareness and preparedness is a necessity.  Therefore we need to develop efficient ex-ante disaster management facilities.

It would be significant to mention here the two insurance resource pools that have been established – Turkey Catastrophe Insurance Pool (TCIP) and the Caribbean Catastrophe Risk Insurance Facility (CCRIF) which were established in the years 2000 and 2007 respectively. TCIP was established after the major earthquake which struck Turkey in 1999. It was established to mitigate the financial burden which the government faces after a calamity. The government has made it compulsory for people living in earthquake prone zones to have insurance. CCRIF is the first multi-country risk pool in the world. It provides immediate post disaster facility and medium term rebuilding efforts in the event of a disaster to its member countries. This system diversifies the risk and helps in generating economies of scale. When the earthquake struck Haiti on January 12, 2010 CCRIF made a payout of USD 7.75 million within 14 days of the earthquake.

It is important to note here that if a small country like Haiti can afford to invest in catastrophe insurance and reap the benefits of it when it is required the most, why cannot India and other developing countries also invest in catastrophe insurance?

In my next blog I will talk about CIRM’s Meso level flood insurance product developed in collaboration with Oxfam and  IWM-Bangladesh.

India has over 100 million households dependent on livestock as a source of livelihoods but with less than 7% of the cattle insured through formal markets; cattle owners have a substantial exposure to this risk. Considering the importance of issue; CIRM hosted a Round-Table on Livestock Risk Management. A range of participants from various sectors like dairy service providers (National Dairy Development Board (NDDB), AMUL Research and Development Association (ARDA) and Dairy Network Enterprise (DNE)), credit providers (National Bank for Agriculture and Rural Development (NABARD) and SKS), insurers (United India Insurance, TATA-AIG, IFFCO-Tokio General Insurance, ICICI Lombard and HDFC-ERGO), government representatives (District Rural Development Agency (DRDA), Vizianagaram in Govt of Andhra Pradesh), academia (International Livestock Research Institute (ILRI), Nairobi, Kenya) and multi-lateral agencies (International Labour Organisation (ILO), World Bank) were invited to discuss the challenges and possible way forward for livestock risk management.

After the preliminary introduction of the participants, the topics to be discussed were chosen by the facilitators.

Session 1: Supply Chain issues and related Challenges

It involved the 3 stakeholders: insurers, credit facilitators and dairy service providers – each forming a separate sub- group- to discuss the problems and challenges they face in providng quality services to low income households.

Insurers highlighted identification of animals as the biggest challenge which when coupled with poor infrastructure makes it difficult to scale insurance services. Commercial viability of the products like RFID was discussed in detail. The problem of limited infrastructure was also highlighted. Specific challenges related to issuance of health certificate during enrolments and during normal upkeep were discussed. Insurers expressed claim servicing challenges (post mortem reports and fraudulent claims), which though small in percentage, were instrumental in causing an overall time delay for  all claim settlements. They also raised the question of valuation of cattle and related moral hazard concerns.

The solutions offered were to explore models of greater community ownership and also discover ways of tapping governmental support more effectively.

For Credit Facilitators the major concern was reputation risk emanating from bad servicing of insurance claims. Also, operationally lack of proper identification for the customer inhibits their ability to offer insurance. The group suggested community organisations as distribution channels that employ self regulations to  ensure proper servicing to clients and control moral hazard and fraud related cases. The group conceded that risk reduction services are necessary and highlighted cases where MFIs offer health care facilities. Therefore, customer education is crucial for market expansion.

Another sector that could be used as a distribution channel is the postal service system. The participants also identified the need for a Mortality Fund in models where community ownership is increased. They suggested the use of technology with the possibility of improved branding.

The Dairy Service Providers focussed on overall productivity related challenges. Production problems are compounded by a lack of veterinary infrastructure in villages. Poor Health care system, economic viability of feed and fodder and lack of good Artificial Insemination (AI) facilities are some of the major problems for livestock sector. Poor hygiene and shelters in rough terrain consequently hinder health and well being of the animals. Daily Income fluctuations due to bad marketing channels for transferring this milk causes perishable product like milk to lose its monetary value and milk pourers have to bear all the losses without being compensated by anyone.

Dairy Service Providers agreed that MFIs and banks do come forward with credit availability for the farmer but the farmer is not always in a position  to avail this facility. At times the credit availability is linked to insurance and at other times to other services. To improve veterinary infrastructure use of para-vet system was discussed and identified the need of leveraging them, while encouraging them to operate as social entrepreneurs.

The facilitators asked for fool proof innovations such as the unique identification of the animals to enable them to operate without hindrance, complaint or fear of fraud. They also feel that community institutions such as Mahila Samakhyas, Milk Federations and Co-operatives can be linked to provide the infrastructural support that will be beneficial to and will actively involve the community.

Session 2- Bundling of services

Question posed was – Should insurance be provided as a standalone product or bundled with financial or non-financial services?

The participants were divided into three groups, but unlike the earlier discussion, they were randomly picked to be part of the sub- groups.

Most of the participants agreed that insurance should not be a ’stand-alone’ solution for comprehensive risk management and should be accompanies with other services.  Discussions centred on whether it should be bundled with financial products (credit and savings) or non financial products (risk reduction and extension services).

Issues like bundling of Personal Accident cover with Livestock insurance, credit linked insurance products, provisions of mandatory risk reduction package with insurance to cattle owner and enforcement of compulsory products education by government were discussed in detail. Dairy service providers requested to make insurance attractive to the farmers and also urged to lower the premium amount. Insurers voiced for proper cattle identification to reduce frauds and asked intermediaries like dairy cooperatives and MFIs to install proper mechanisms to reduce the frauds. Credit agencies also raised their concern over ignorance of insurance and risk reduction measures amongst rural communities which puts their credit portfolio at risk. Benefits of bundling were felt by all the market players and there was enthusiasm to adopt better bundled products in future.

Session 3: Open discussion

The third session of the Technical Round-Table on Livestock Risk Management was an open discussion round. The panellists identified some important themes in the sector that needed special attention. The two critical issues that most panelists felt had to be discussed at greater length were the

• Identification problem focusing on present models and cost sharing
• Process innovations
  • Focusing on community involvement- to reduce moral hazard and adverse selection
  • Easy claims process and using para-vets as proxy to vets and related legality issues

Insurers started the discussion with reference to the identification problem. Mr. Kaimal and Dr. Purusothaman from UII emphasised on proper identification of the animal and its importance in removing frauds and speeding up the claims process. All the insurers emphasised that there should be something better than the tagging process that is currently in place.

There was an active discussion on various experiments related to RFID (Radio Frequency Identification Device) Technology; internal and external RFID tagging being the popular options in the market presently. Mr. Gopinath from IFFCO-Tokio General Insurance opined that these experiments are more relevant in areas where the loss ratio is high. However, most of insurers agreed that there are initial problems of convincing the society for new technologies. Dr. A V Patel from ARDA also shared his experience with RFID and operational problems like non-detection of chip, time consuming process, etc related to it.

While there was a general agreement on the value of  new technologies ; Mr. Pandey from NDDB stressed that if ear tagging was done properly, it is cost efficient and could ensure a fraud free process. He stressed; identification and related frauds are caused due to the inefficiency of tagging staff who doesn’t tag the cattle himself  and most  often distribute it to the insured farmer. Therefore, the farmer is able to claim for the death of any cattle that he owns,  in effect the insurer for teh premium of one, insurers all animals in the household!

Anupama Sharma presented her views on the use of new technology like Zigbee where cattle identification and temperature recording is done simultaneously. She stressed that some technology in the health space which can capture an animal’s heart rate, respiratory rate and other such data should be used. Also, this should be open data which can be used by all. It will also help to complete the loop of risk reduction and risk transfer. The crux of the discussion was – both the technology and process for identification need to complement each other along with capturing data for risk reduction for a complete risk management.

The next point that was discussed was with regard to sharing of costs. Dr. Shrikant from BAIF suggested that animals insurance registration day when camps can be organised for the same. This would reduce transaction costs and because registration would be done in front of the village population, cases of fraud would reduce.

The Velugu model used by DRDA, Vizianagaram was discussed at great length and Mr. Vasudevan the model’s success on process efficiency and financial layering. However, Mr. Vinod from SKS explained how the financial layering did not work for his organisation. However, insurers claimed that it is not possible for their staff to engage in detailed work and said that institutions like DNE come into the picture when they support by providing vaccines, technology and customised software. Mr. Avishek from DNE and Mr. Parameshwaran from HDFC-ERGO emphasised on the need for sustainability and how DNE and HDFC ERGO are functioning collectively to reduce some of the problems discussed above. Mr. Sanjay Sharma shared Pradan’s experience in providing risk reduction package to the cattle owners and success achieved in reducing the mortality of animals. Mr. Shubham from TATA-AIG and Ms. Neha Agarwal from ICICI Lombard also emphasised on poor infrastructure limiting the insurance coverage in rural areas.

Rupalee, summarised by identifying the importance of process modifications when  bundled with improved ID technologies, to address fraud related issues. The overall points agreed by the Livestock Risk Management Network were:

-the need for community involvement and insurance literacy along with the need for process innovation to bring about efficiency and sustainability in the system.

A detailed report on the Workshop will be made available on the website in the coming week.

Last week I visited Biocon Foundation (BF), the CSR unit of Biocon, a research-driven, global healthcare company headquartered in Karnataka. Among the other activities, BF also engages in facilitating the provision of health microinsurance among vulnerable households.

Specifically, they are associated with the Aarogya Raksha Yojana scheme (ARY) since 2005. Each year around 75000 lives have been covered under the scheme.

While the product itself is innovative and provides comprehensive coverage, the processes are also just as novel. The Foundation has used mobile technology for policy enrollments. The insurer, HDFC-ERGO General Insurance Company initiated this effort. Think Ways Technology provides the IT guidance, equipment and support.

During my visit, I questioned the Foundation and the insurer on the advantages that the technology brought home, as well as the learnings and the challenges. This blog entry summarises my understanding of the same.

Requirement and Process

When we talk of using high end technology, it is imperative to understand what exactly it entails. The basic modus operandi is a Java-based software that can be installed in a cell phone (the basic requirements of the cell phone includes atleast 2 GB memory card, a minimum 2 pixel camera to take photographs of the insured, the bluetooth accessory and GPRS accessibility to transfer the data).

The software is loaded in the mobile phone and a main server which is installed at Think Ways’s head office. The software makes available to the agent/representative, the application form on her/his mobile phone using which s/he enrolls clients (with full information of the family members and their photographs) and provides a receipt to them for the premium paid. Basically, the representative takes to the field only her/his mobile phone and a receipt book and not bundles of printed paper!!

After the forms are filled in (the number of forms depends on the capacity of the mobile phone), the data collector uses GPRS to transfer the data to the main server and the output is generated in the form of an excel sheet. This excel sheet is sent to the insurance company and the TPA, so that they can share the policy documents and issue the identity cards respectively to the clients.

In case the representative is scheduled to work in a remote area where GPRS is inaccessible, the software is provided in a computer located at the block level. Data can be transferred to the computer using bluetooth. The computer will be connected to the main server and the data can be further transferred to the IT provider’s head office. It must be mentioned here that the computer need not be internet enabled.

BF representative (left) enrolls a client (right) as PWDS representatives (centre) observe the process

Benefits

While there are substantial costs attributed to this Java-based software made available by the IT provider, the insurer and the implementing agencies believe that in the long term, this model will bring down operating costs and immediately increase insurance uptake. The need for double entry at the back-end office is completely eliminated and therefore labour hours (and their associated compensation packages) will reduce dramatically.

Numerical validation: For paper based applications process, a representative can fill approx 100-150 applications per day. This means four people can fill up to 600 forms in a day. It takes one to two days to input all this information into a computer and after every few days or so consolidate the excel sheets of each data collector.

In case of mobile application, a single representative can fill up to 600 forms per day. Thus, four people can fill up to 2400 applications per day. Remuneration is restricted to only front end data collection and there is no back-end data entry.

BF has used mobile based enrollments only in the last six months, during which period 35,000 enrollments were made, 15000 of which were mobile based. Six people were trained for this purpose by the insurer and the IT provider. In addition, BF also cites that using mobiles for recording application related information and capturing photographs of the insured, interests the community and they are keen to enroll themselves.

Potential roadblocks

Other than the costs incurred, the consortium is not able to identify any immediate roadblocks with the technology, given that the problem of connectivity is resolved using Bluetooth. Also, since a unique PIN number has to be entered to access the data loaded in the mobile phone, the possibility of any manipulation of data is ruled out. Even if the mobile is misplaced or stolen, a third party will not be able to access client information.

However, as the saying goes…technology tends to fail us when we need it the most..! Therefore we still need to wait and watch. Though the journey so far has been productive (as claimed by the consortium), one really needs to consider other challenges that could arise in the process.

Field Demonstration and Learnings for the PWDS project

Having elaborated on the technology, I think it is time to talk about why I visited BF. In an earlier entry, I had indicated that one of our projects is experimenting with mobile based enrollments. This trip was organised by the consortium in the hope that the ICs (who joined us) would get hands-on training experience and would be able to understand the process better.

IC (centre) learns to operate the device while the BF (right) and insurance (left) representatives look on

The enthusiasm and concentration of the ICs was encouraging. The hope is that the innovation will take off on a high note at our PWDS sites and the project will become a learning ground for the sector on the ‘need’ and use of technology in penetrating into the rural market!

Nigeria has an insurance penetration of about 2%. This is a major cause of concern for their insurance regulators. A survey indicates that 48% of the adult population in Nigeria has never heard of insurance and 17% do not understand anything about insurance products. The situation demands immediate measures on insurance literacy in Nigeria. CIRM hosted delegates of the Nigerian Insurance Commission (NIACOM) on 17^th Feb 2010 for deliberations on possibilities of replicating Indian experiences in Nigeria. The Indian Micro-Insurance Regulation, 2005 was explored specially and discussed.

 As a follow up to this, Dr. Anupama Sharma, an MBA and vet trained, working in the Livelihoods team at CIRM had the opportunity to be present at the First National Symposium on National Financial Literacy in Nigeria organised by Development Initiatives Network, an NGO and qualitative research group in Nigeria headed by Dr. Bola Fajemirokun. The event was endorsed by the Central Bank of Nigeria and supported by Ford Foundation. The National Coordinator of the National Poverty Alleviation Programme (NAPEP) also sent a goodwill message for success of the programme.

The one day event was broadly divided into two sessions.

The first session was an over view of the financial literacy activities in Africa and other parts of the world and a briefing paper on the National Strategy for financial literacy in Nigeria was presented. Mr. Francis Ntamu is Head, Private Sector, African Development Bank. He focused on the key principles of financial literacy with particular attention on activities being carried out under AfDB initiatives. A Round-Table was organised to discuss developing and implementing a National Strategy. Dr. Thomas Timberg from Medium, Small and Micro Enterprises (MSME), Nigeria, Ms. Ibiere Akpana, Development Consultant were co-panellists with the CIRM representative. Panellists discussed the objectives and different approaches that could be taken by various players around the globe for financial literacy.

 The briefing paper prepared by Ms. Ibiere was presented and it explained the importance of financial literacy with the changes and expansion in the types of financial services throughout the world and it pressed for behavioural change communication as an effective approach for achieving financial literacy. Dr. Timberg expressed his views on the high interest rates charged by MFIs and he provided insights on challenges and constraints which can emerge in the Nigerian context on policy and regulatory levels. CIRM stressed on the inclusion of insurance literacy as a part of an overarching financial literacy effort. Ms. Sharma expressed the need for providing information about the various insurance products to the clients and to ensure the community understand insurance as a concept and not limit the effort to better understanding of product features. Emphasis was given on transparency and using simple products with easy claims process to increase the uptake of the insurance products in the market.

The second session was a discussion with regard to protecting consumers in the financial services sector. Mrs I. Umenyi ,Director General, Consumer Protection Council read her paper and the role and responsibilities of government bodies like Consumer Protection Council was discussed. The Round-Table for the session was facilitated by Ms. Sola Salako who is Chair, Consumer Advocacy Forum and Mr. Andre Wegner of Alitheia Capital, an organisation providing capital to MFIs. Ms. Sola Salako emphasised on the poor and complex processes of banks and other financial institutions. She stressed on using better advertisements for educating masses and using lesser legal text (which hardly anybody understands). Mr. Andre Wegner emphasised on role of MFIs in spreading financial literacy and expressed opinion that financial literacy can also act as best marketing tool for MFIs. The issue of high interest charged by MFIs the market were unhappy with the MFIs high interest rates they charged. Some of them expressed their consent on the role they play in extending credit services to the remote areas. The use of MFIs and their agents for door step insurance literacy was also considered an effective measure.

The event was a success considering it was the first attempt at bringing officials from various banks, MFIs, insurers and the Consumer Protection Council together on a common platform. The Conference ended on a positive note where all participants committed on working together to design a robust financial literacy programme in Nigeria to save the consumers from unnecessary hassles due to their poor understanding of the financial products.

 As financial literacy is the major constraint in spread of financial services even in India, it is of special interest for CIRM to see the experiments in Nigeria carefully and learn from it.

Mr. Ibrahim Jankara, Mr. Timtak G Madziga and Mr. Othman Sadiq, representatives of the National Insurance Commission (NIACOM), Nigeria, were recently in India to understand the regulatory framework and functioning of the micro-insurance sector in India. Learnings from the experiences of various Indian organisations in the micro-insurance domain helped them take back valuable inputs for structuring their regulatory environment for this sector in Nigeria.

CIRM gave the Nigerian regulators a quick over view of its portfolio of innovative product design and research projects. The day started with a basic introduction. Later, we presented our work in each vertical; livelihood, specifically, agriculture, catastrophe, health and long term savings verticals.

We ended the day with a set of recommendations for the regulators which we thought should guide them in the regulatory framework for the micro-insurance sector in their country.

Suggestions from the existing regulations in India were the following:

• There should be Rural and Social obligations for commercial insurers.
• Only a registered insurer should be allowed to provide micro-insurance policies
• Not initially, but after a market analysis define norms for general and life micro-insurance products (e.g. minimum and maximum cover, term etc.)
• Bundling of life & general micro-insurance collaboration should be allowed to offer comprehensive products to the poor

Other suggestions from CIRM’s experience which are not specific to the Indian Micro Insurance regulation were:

• Allowing risk layering, and
• Allowing sharing of part of the pure risk with the intermediary to avoid moral hazard and adverse selection and bring in the positive effects of ‘Skin in the Game’.

The other Specific Suggestions made by CIRM were about Mandatory Risk Reduction in each risk vertical. Following indicative suggestions were made in each of the risk sectors – livestock sector like- de-worming, vaccination and hygienic conditions; in agriculture-weather infrastructure; and in health-preventive measures, health centres.

The legality of mutual models and consumer protection (issues of insurance literacy, policy wording and use of vernacular language) was also discussed. In the space of Cash Management systems (General micro-insurance) EMI facility and legalising mobile transfers were suggested. On Agenting related issues, it was suggested that the scope be widened to leverage cash rich, high footfall existing rural players to be leveraged. This led to discussions on incentivising the agent and commission caps. CIRM also suggested, that Consumer education should be made mandatory for all insurers and should be undertaken in collaboration with the intermediary.

In addition to ensure faster and more sustainable growth of the sector, In Nigeria the regulator should facilitate more innovations. For innovations to flourish, the regulator should:

• Allow pilot products should have a different process of approval
• In pilot products international reinsurers should be allowed to bear 100% risk , if there is no local insurer keen to engage, depending on demonstration effect to lead to greater market growth

The regulators indicated their appreciation of the suggestions made. However, they did mention that not all could be practical or viable in their country due to the nascency of the market differences in technology and industry.

The Nigerian rendezvous did not end in Chennai. CIRM’s consultant Anupama Sharma was scheduled to attend the First National Symposium on National Financial Literacy in Nigeria on February 23, 2010. It was organised by Development Initiatives Network, a research group in Nigeria. We await to hear her Nigerian stories and also await for the sweets she may bring back!!