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.