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.

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!

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!!

My colleague Priya and I are working on a project that aims to reduce transaction costs that insurers and intermediaries incur to reach and service vulnerable communities. A brief description of the project was given in an earlier blog entry. It was titled ‘Retailing Health Microinsurance: A step towards Mainstreaming Insurance Services for Rural Communities.’ One of the insurers in this consortium, HDFC-ERGO General Insurance Company is bringing in high-end technology and mobile based enrolment. It is the first time any insurer had tried this in Tamil Nadu. These processes are a means to lower administrative burden and increase enrolment numbers; saving trees are an ancillary advantage!

Thus began our field endeavour, to meet representatives from the federations who will be playing a huge role in the enrolment and servicing process (our potential ICs and IPs). We visited two NGOs named RED and CPE. They promote around 400 SHGs each, monitored by the Karpagam and Jothi federations respectively.

The representative from the insurance company briefly described the health insurance product which was developed using the audience input at a separate meeting held a couple of months ago. It highlighted the advantages of using network hospitals. As a means to service clients better, the insurer also requested the community to identify hospitals where they generally preferred to access their health care. The appointed TPA would then empanel these hospitals to facilitate matters for the people in the area. This is a very crucial move, as the communities will face fewer hassles to reach health providers. They can go to a hospital of their choice and easily avail ‘cashless’ insurance services.

The best part of this endeavour was the support that came from within the community. Their understanding of insurance, its benefits and their pertinent queries on the product and servicing process was extremely encouraging. The ICs and IPs are very significant to this model, and their enthusiasm only means that the consortium is well on its way to achieve its goal – to mainstream the access to insurance among low income households!

A visit to a project site in Karnataka where the insurer has already implemented mobile based enrolments is in the offing. I will share a blog on the field demonstration soon!

I went for my first field visit to Palmyrah Workers Development Society (PWDS) sites on 1^st November, 2009. The aim of the project is to mainstream the rural communities access to health insurance. This can be done by training people from the Federation, thereby also reducing transaction costs. The motive of the field visit was to get a full idea about the reality at the ground level in order to prepare the research design.

Two focussed group discussions (FGDs) were held with people of the Palma Federation.

FIRST FGD

Cluster: Valvachakoshtam,

Village: Varukkavillai,

Venue: St. Antony’s Church

Approximate number of participants: 60

Name of Insurance Coordinator(IC): Usha Rani

Name of Insurance Promoter(IP): Teresa

SECOND FGD

Cluster: Kallivakavillai

Village: Pattathuvillei

Approximate number of participants: 60-65

Name of Insurance Coordinator: Usha Rani

Name of Insurance Promoter: Vimala

The FGD was initiated by the question on the practices followed before insurance was taken. Most of the SHG members responded by saying that they met their medical expenses in the following ways:

a)      Getting loans from a moneylender at high rates of interest

b)      Selling their jewels or keeping them on mortgage

c)       Getting a formal loan from SHG

d)      Selling their assets

e)      Going to a government hospital because it is cheaper.

There was one particular case in the first FGD, where land had to be sold because the member’s son had met with an accident.

The Common ailments that people suffer from in this area are Viral fever, Dengue, Chikungunya, Jaundice, Typhoid, Cold and cough, Pneumonia, Diabetes, Rheumatic Arthritis, Uterus problems, Cholesterol and Blood Pressure. Most infections that people suffer here are water borne. Therefore we need to devise ways to make members more informed about the benefits of clean drinking water.

An important observation with respect to the area is that unorganised sector that deals with weaving and cashew nut business are enrolled under a health insurance scheme. However, a few SHGs could not enrol themselves to our health insurance scheme because more than 25% of the group did not need insurance. It was decided that the 75% of the group would be taken after accounting for those who already had insurance cover. Hence, we recognise and understand the intricacies of being on the field and the solutions to problems that can be devised only while a visit on the field and interacting at the grass root level.

There is another insurance scheme available in the region, for a cover of Rs. 50,000. A sum of Rs.565 had to be paid per person as premium while this scheme has a lesser premium and a higher cover even in case the whole family is enrolling.

Another question that was asked in the FGD was if they had faced any problems in the enrolment process and their expectations regarding this. Most participants replied that they did not face any problem during the process of enrolment. They said that they expected the insurance to help them financially in all their hospital visits. Also, a few had the feeling that if they joined the insurance programme, nothing would happen to them. Since, the group structure is present, risk pooling takes place and the whole group supports an individual who faces adversities. It was not due to compulsion of the IP or IC that they opted for insurance.

On being asked, why they had opted for the product with copayment, the community replied that it was because they pay a lower premium on this product. Most of the participants felt that in case they did not have any claims, the premium they paid would be a waste and hence the product with copayment meant that they lose less money.

The major concerns for most of the members were

a)      The money they pay as premium in case they do not make claims

b)      Membership for an individual person

c)       Personal Accident and Death should be included.

d)      Insurance provision for people above 60 years because that is when they need help

On being asked about their satisfaction level, many stated that it was too early for them to comment. In the second FGD, there was a case where reimbursement had been made for a member whose husband was unwell. The claim was successfully given after relevant bills and documents were produced.

The member card had details name, age, gender, card number, policy number and validity on them.

We visited the Insurance Coordinator’s office. It was organised and all the documents were available. Records were maintained for all insurance promoters with member details. The IPs completed documentation in hard copy format while the IC maintained softcopies of the same.

A few suggestions:

It would be good if we can devise an incentive mechanism for all those who do not put forth a claim. We could probably offer them a lower premium in case of renewal or maybe return to them a percentage of the premium paid.

We need to see if it is plausible to include personal accident and death cover in the scheme. We also need to explore the possibility to have some cover for people above 60 years of age. As Dr Amarnath, CEO, Bharti Axa rightly pointed out “Those who can pay for illnesses have insurance and those who can’t don’t have it.” We need to reach out to people who really need insurance.

Blog entry by:

Priya Rampal, Consultant, CIRM

priya.rampal@ifmr.ac.in

We have heard a lot about mutuals in health… An initiative in Andhra Pradesh, India on cattle mutual insurance is also making news. But have we heard of mutual models in crop insurance? Well apart for DHAN Foundation’s efforts in India, nobody seems to be implementing such concept on ground. And such ostracizing is very logical. Crop risk being systemic, there is always a risk of washing off the whole portfolio of the community if such model is implemented. However that does not stop innovators to play around and try their best to blend the best of the two worlds: index insurance and community ownership.

Last month, FAO office at Rome held a small two day meeting particularly focusing on the academic and implementation issues of piloting innovative index insurance schemes. Though the end objective of the meeting was to decide a methodology to support such initiatives, the meeting turned into a powerful knowledge sharing platform and across two days saw a series of wonderful presentations.
Mutuals in index insurance was also discussed by one of the presenters – Prof Stefan Dercon from Oxford. Apart form giving a detailed overview of index concepts, he also tried to propose two methodologies in which the mutual models could be offered by communities.
Method 1: Imagine a pool of premium which is (re)insured through a weather index insurance. Now if any weather calamity happens, the pool would receive the payouts from the reinsurer. Whereas the individual losses would be adjusted by the community by thin loss assessment methods. Such assessments would be easier to operationalize in case of communities where there is lot of automatic monitoring.
Method 2: This could be very similar to method 1. Only difference would be regarding the settlements at the pool level, which in this case would not happen through weather index, but through area yield index approach.
DHAN’s efforts could be called as a mix of Case 1 and Case 2. It seems that they have tried to pool risks of various areas where specific area wise pool works on some particular method like area yield or weather. However, a detailed study is needed to understand complexities in bringing such schemes on the field.

There were important points made by the various panels on the second day. I will conclude with my learning experience at the conference.

Distribution Models: Relevance and Operational Challenges

This was an interesting discussion as it was not limited to the various risk categories or types of risk, but on delivery and business processes. These are critical as they can be applied across the spectrum of microinsurance, and to fulfil two basic requirements. Firstly it can reduce transaction costs, often the only factor that keeps premiums high. Secondly, rapid claims payment can improve customer satisfaction and increase insurance coverage and re-enrolment rates.

Intriguing distribution models with many possibilities were discussed, most prominent was the Max Vijay initiative pursued in Agra, which can become a significant distribution channel in the future, if it is fulfilled.

The initiative aims to use the telecom model of product delivery where regular payments can be made at local retailers. The challenges are to get retailers interested in insurance training and delivery, and devise flexible products that can be adapted into a delivery model.

TATA AIG explored partnerships with SHGs and other NGOs coordinated with their own significant operations, to bring microinsurance to rural areas. They laid special emphasis on financial literacy, a notable instrument being a van that travels to the villages and handles insurance paperwork promptly, while also providing films and other aids to help consumers understand the product, thus making it effective and people friendly.

Overall, there was a consensus on the limitations on current insurance regulations, despite being only five years old; they have quickly become outdated due to the dynamism of the micro insurance industry. Similar to the other panel discussions, the consensus was for need-driven and creative distribution models, designed from the point of view of households at risk.

Financial Inclusion

Viewed from the unique patterns in the nature of the life cycle, the needs discussed ranged from those of migrant labour to the gender based. The panel discussed the variety of requirements in the BPL, or marginally above the BPL sector.

A backward glance was taken to the roots of insurance itself and the first schemes developed in response to specific risks, the consequences of which they tried to eliminate.

There was a reminder that insurance was intended to be an inclusive solution to provide financial protection to all strata in society, a factor that is forgotten by major corporations today.

It was agreed that for financial inclusion, more needs to be done and that products should simply not be modified or ‘cut and pasted.’ It was understood that the products should be completely re-engineered. An important question raised was regarding the possibility of microinsurance being a wedge that can bring along other financial services to the poor.

For financial inclusion, it was highlighted that that there is need for innovation, application, and courage by the organisations and people involved, to take risks and attempt ever more receptive products to meet the needs of the large heterogeneous Indian poor.

Role of Policy Makers to Create an Enabling & Facilitating Environment Panel

Craig Churchill set the tone for the discussion with his insight that India is the world’s ‘microinsurance laboratory’ given the dynamism and speed of its development. The challenges identified included the creation of a demand, thereby increasing financial literacy in the market. To create accessibility to financial products, and innovative products that satisfy specific needs were identified as crucial aims too.

Mr. Ananthanarayanan summed up the challenges from the insurer’s perspective. He indicated that some key risks were not covered in insurance policies; profitability was a question mark, and finally issues in pricing and underwriting challenges remained unexplored territories. He drew attention to India’s postal network and its possible role in product delivery.

The integration of business education in India with the process of financial inclusion through micro insurance was recommended as a step forward to create a new generation of leaders for the industry.

Questions were raised on the relevance of the current regulations on micro insurance, and in response, the representative from the IRDA noted the need to balance an enabling regulatory environment with prudent financial practices.

Mr. Sai Kumar, the Nodal Officer for micro insurance, Officer on Special Duty from the IRDA, expressed a readiness to reassess the current regulations along lines of financial prudence and in the interests of all involved, with proper underwriting and business practices.

Conclusion

Craig Churchill’s summation that India is the world’s microinsurance laboratory was endorsed by the variety and creativity in the projects presented by the panel members and representatives from key organisations around India who did not speak on the panels.

Earlier, I had no conception of the vastly heterogeneous needs of the Indian poor, who are portrayed with a principal urban-rural distinction. My learning experience was that their livelihood, geographic location, communities, different life-cycle needs, cultural backgrounds, and other factors, are all keys to design appropriate insurance products and delivery channels.

The effort with which the researchers and those insurance companies that run pilots took to adapt to local needs was extraordinary, and it is this adaptation and its effective working which might be the incentive for the proliferation of insurance across the country.

The passion, commitment, and the sheer experience of those present were highly encouraging, and it was hard to believe that microinsurance in India is in a nascent stage, although agricultural insurance has been around for a while. It is hoped that the industry will go from strength to strength to succeed in the aims outlined at the conference to bring valuable risk management and insurance solutions to the most vulnerable section of Indians.

- Uday,  Intern at CIRM

The National Conference on Microinsurance concluded two weeks ago. It was an important forum for an analysis on India’s nascent microinsurance industry. It provided the opportunity to relevant insurance companies, MFIs, NGOs, researchers and international organisations to network and explore possible projects in the future.

It was hosted by the UNDP, in collaboration with the Centre for Insurance and Risk Management (CIRM) and Centre for Micro Finance (CMF) at the Institute for Financial Management and Research (IFMR).

It was great to see members from key sectors of the microinsurance industry participate and give their perspectives on the path ahead. All the leaders Mr. K. N. Rao, of the AICI, Mr. V. Saikumar from the IRDA and others, stressed the commitment of the government, in encouraging microinsurance as a sustainable tool to protect the poor.

Dr. Somil Nagpal of the World Bank, Craig Churchill from the MIF, ILO and experts from other sectors highlighted their commitment to microinsurance in the country. Innovators from the private sector, Mr. Vijay Athreye of TATA-AIG and Mr. A. Ananthanarayanan of Bharti-Axa, shared their willingness to develop comprehensive risk management solutions and to participate in the process of financial inclusion. Sector specialists, Dr. Nishant Jain, Technical Advisor, GTZ, a key player in the government’s RSBY, and Mr. Mathew Titus, Executive Director, Sa-Dhan also spoke at the conference.

The panel discussions highlighted the critical role that could be played by well-researched microinsurance products and efficient distribution channels, if the tremendous economic growth that India is experiencing has to be made more effective and equitable on the majority of India’s population.

The conference was well planned and had six panel discussions that addressed the various preserving and productive shocks faced by the low-HDI states.

Agriculture and Weather

The Agriculture and Weather Microinsurance Panel kicked off the programme by indicating the critical challenges faced, including the dearth of reliable yield data, the basis risks involved, and the need for a more robust infrastructure, in terms of an extensive network of weather stations.

Mr. Sinha highlighted that the top seven HDI states that account for almost 80% of cumulative insurance, indicating the skewed perspective of even the limited agricultural insurance coverage.

Mr. Rao of AIC discussed their plans for the expansion of agricultural insurance coverage. The targets included increasing coverage to 15% in terms of population, by the 11^th Five Year Plan, and to 20% by the 12^th Plan. He proposed a national weather data grid to use limited weather data more effectively.

Crop and weather insurance products were seen as complementary and not competitive products for Indian farmers. Also, the panel agreed that crop and weather indices might be too complex to sell directly, and should therefore be bundled with other financial services. As a way forward, the education of intermediaries and farmers was recognised as priority.

Finally, the panel made clear that the inputs of farmers have been crucial in designing relevant insurance products.

Health

The rising healthcare expenditure in India and how it often drags households back into poverty was discussed as the vital context in which micro insurance should operate. Dr. Acharya said that of those who seek healthcare for major illnesses, 25% fall below the poverty line as a result of their expenditure.

The panel agreed that the Rashtriya Swasthya Bima Yojna was the key factor in reducing this expenditure and to protect BPL households, and that it should be in league with existing health insurance schemes.

It was agreed that moral hazard and adverse selection were important challenges for the industry. On the positive side, community based health insurance (CBHI) initiatives were seen as tools with great potential to provide effective health coverage.  Established structures in society can be used and a reduction in transaction costs will make the system affordable.

It was also pointed out that the business processes need to be localised to work effectively and linkages need to be made between government and private institutions, to use the comparative advantages of insurers and MFIs or NGOs.

Overall, the panel though sought a re-engineering of current business processes, and the integration of CBHI with a coherent system of public and private stakeholders.

Allied Livelihood Products

Although livestock is an important source of supplemental income for farmers in India and especially in the low-HDI states, and it was observed that livestock coverage in India has been extremely limited. The UIIC is as an important player to fill this gap.

Well known problems of moral hazard were discussed, especially that of animal identification. RFID tags were seen as a possible solution. Mr. Gopinath through an interesting anecdote stressed on the importance of delivery channels. A team from IFFCO-Tokio visited a village where 42 animals were ‘insured.’ However, 37 of those animals never existed, and one was a sheep. Effective delivery channels and good intermediaries are a necessity for any wide-ranging livelihood schemes to be successful.

Basis risk was seen as a crucial challenge too, due to the lack of a shared database for pricing the premiums adequately. Community based livestock solutions, as well as the partner-agent model, were both seen to have potential in facing these challenges effectively.

Interestingly, a possible product for tribals in low HDI states was discussed such as weather index insurance to insure lac farmers. There are challenges to be faced in scaling this, but it was seen to have good potential.

The other three panels on the next day will be summarised in the next blog entry. Also, you can look forward to what I, an intern at CIRM, very new to microfinance and microinsurance itself, learned from the conference (basically, a lot!).

- Uday Jain, Intern at CIRM