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.

Inclusive growth is a top priority of the present government as seen by the efforts taken in the budget to increase rural spending. It is being given a lot of importance in order to close in on the development gap in the years ahead. To Bridge the gap between the “developing” and the “developed”, mainstream financial institutions have to play a substantial role in the rural market. It can be argued that the demand for financial products like insurance is hardly compelling in rural India. Venturing into such markets can be unprofitable for large financial companies. But that notion has gradually been changing because rural markets are mass markets that can provide voluminous demand for financial products, if the people can be convinced about their importance.  It is time to change the existing system where NGOs (non governmental organizations) and MFIs (microfinance institutions) bear the bulk of the risks involved at the rural level.  Mainstream financial institutions are much better equipped to deal with such risks and are gradually testing the rural waters. In the Palmyrah Workers’ Development Society (PWDS) was a field partner committed to this philosophy. It was therefore the ideal laboratory for this pilot.  

PWDS (Palmyrah Workers Developmet Society) operates in a network project called NEERA which involves 12 federations of Self Help Groups (SHGs). NEERA was founded in 1996 as an initiative by PWDS and its main objectives are community organization and federating, skill training, resource mobilization, awareness Generation, promotion of enterprises, market support and establishing linkages. PWDS while working on its Community Development mandate through its NEERA project realized that most families had a low health-seeking behavior due to the fear of losing wages, livelihoods and also having to bear the medical expenses. This is more evident in the case of women and the girl child. More than 35% of the borrowings from the SHGs (NEERA SHGs) had been for medical care/treatment. This trend affected the other development efforts and specifically, the income generation initiatives. Realizing the vulnerability of these groups, PWDS-NEERA partners felt the need to address this problem with a sustainability perspective by linking the mainstream health care providers and insurance companies with the participation of the community-based organizations. An affordable and user friendly insurance scheme (micro-insurance) if introduced with necessary forward and backward linkages could help not only these communities but also many other families through other NGOs implementing projects coordinated by PWDS. This was the motivation of PWDS to start working on a new micro health insurance scheme.

Having learnt from this experience, PWDS in a joint venture with Bharti-AXA is currently piloting an insurance model with technical and research support from CIRM. CIRM has been working for the growth of the Microinsurance sector for the last two years and it identified PWDS and its mainstreaming philosophy as an excellent opportunity for overall sectoral development. The community development outlook of PWDS, the sectoral development agenda of CIRM and the profit-motives of a private insurer- are the three “Pull” forces that can anchor an innovative Microinsurance scheme; and the concept of this scheme is a result of these three factors. The model is being implemented in the three districts of Kanyakumari, Tuticorin and Tirunelveli. The product being offered is health insurance and is sold as a group product.  At present, most micro insurance products are sold as group insurance due to the low ticket sizes and high transaction costs faced by the insurer. Thus it was time to think from the very scratch and in an ‘out-of-the box’ manor to surpass these access barriers and help the industry in general to access this huge potential market of rural clients directly. It is very clear from the community experience of PWDS as well as CIRM that once the benefits of a health insurance product and the good standards of service are demonstrated, the community is eager for a health insurance product and has the willingness to pay for the same. Also there should be no subsidies or discounts routed towards the insurance product because it impacts the replication and sustainability of the scheme directly. In this scheme the community would interact directly with the insurer via the community structures made for this project – by the federations viz. Insurance committees (or individual members of the same) may serve as agents or intermediaries. In this scheme to ensure the community participation the ownership of the product is given to them. This will reduce any conflicts and confusions regarding exclusions, inclusions, coverage and entitlements. This will also have a positive impact on the renewals and will enable a complete MATCH between the product and the needs of the community. All the decisions related to the product should be made in participation with the community. It is imperative that the Insurer understand that this is not a typical group insurance scheme for PWDS members but instead this is an opportunity to learn for the insurer and the sector in general, how to reach to the rural clients directly. PWDS and CIRM will act as facilitating and learning partners with the insurer for the first few years only and that too in a role that is gradually decreasing. Once the insurance awareness spreads and the client is convinced, it will capture the market as a retail product as opposed to just being a conventional group product.

 Insurers interacting with the community during a field visit

Community representatives brainstorming in discussion groups 

Community representatives presenting to the insurers 

Insurers making a presentation to community representatives

Retailing insurance requires innovation and customization. The model has to first capture the imagination of the people, break even and achieve sustainability in order to be a successful business model. The model for now, pitches the product at the SHG level through a conventional partner agent approach. The hierarchy is such that the SHGs constitute federations which form the network of NGOs under the care of PWDS. The federations of SHGs act as the service provider in this case. The fee received by a federation is distributed to the Insurance Coordinator (IC) and the Insurance Promoter (IP) who play a pivotal role in selling the product to the client. The Insurance Coordinator handles the accounting, computer work and is expected to be savvy in skills such as public relations and communication.  The Insurance Promoter on the other hand, is directly in the line of sales. He actually reaches the product to the client performing the main marketing functions required. Since the role of the IP is so crucial, over time, the aim is to uplift the IPs to the status of legal insurance agents. This model is being overseen by PWDS and CIRM presently and they are hopeful that the role of the mainstream insurers and the IPs will become more robust.

With regards to the willingness to spend on the policy and utilize the insurance, it is necessary to discuss copayment as it plays a big role in the insurance seeking behavior of the clients. The two products offered also vary as far as co payment is concerned. One offers the policy with co payment while the other does not. Co payment implies that in the event of sickness, part of the payment is met by the client. The premium for this product is less than one which does not offer copayment. Policies with no co payment have a higher premium and the entire coverage is provided by the insurer. While each has its advantages and disadvantages, at the rural level, the feeling is that a co payment product is more affordable because of the lesser premium charged. Since part of the payment is met by the client, there will be a certain responsibility in using the insurance policy and this in turn prevents moral hazards often faced by insurance providers.

There is tremendous potential for affordable health insurance products in rural markets. It will be interesting to see how this pilot health insurance model can be moulded to sell and service other lines of insurance products beyond health. Offering these as retail products will be even more challenging. PWDS and CIRM will implement this project over 36 months and will re evaluate the process from their research and field level findings. The ambition is to go beyond the group insurance engagement and pilot a retail business model that insurers can replicate and take to scale. If it can be demonstrated that rural retail business can be a sustainable business proposition, insurers would have an incentive to service rural clients, low income households in particular, more efficiently.

The word ‘Safety net’ is of unique relevance to micro insurance. When we think of safety nets, we think of ‘fall’ proof material which has our back when it’s our turn to take a blow. A bouncing castle comes to mind, and no matter how many times kids throw themselves on the castle, they bounce back unhurt, unperturbed, and ready to jump again. It is precisely the absence of comparable safety nets in real life, which hold back economically weaker sections of the society from withstanding tough times and recovering therefrom. Since they mostly depend on daily wages to sustain themselves and their families, a day off from work can directly create a dent in their income. Periods of bad health therefore leave them vulnerable to both physiological and socio-economic hazards. For the poor, accessing health services means a disproportionately large amount of out of pocket expenditure. While many may not attend to their sickness immediately, fearing the costs involved, they often end up expending a hefty sum on hospitalization, which could have been avoided if medical care was sought at the right time.

The need for ‘Safety nets’ for economically weak sections of  the society, is the promise that microinsurance hopes to fulfill, and though health microinsurance remains relatively challenging, there are a growing number of pilots around the world, especially in developing nations, which are attempting to overcome the hurdles that exist in extending financial inclusion to the poorest communities.

One such experiment is being undertaken by the CARE Foundation through the CARE Hospital and outreach network, with research and design inputs from the Centre for Insurance and Risk Management (CIRM) at the Institute for Financial Management and Research (IFMR), supported by the Microinsurance Innovation Facility at ILO. The model is piloted in Yavatmal district in the Vidarbha region of Maharashtra. Though the project is in its infancy, the ambition is to test the viability of a managed primary care model financed through health microinsurance over a period of three years. The product being piloted, is an out patient care cover, which will have CARE Hospitals assume the role of a managed care provider. Both health care and insurance services are delivered using a community based technology leveraged outreach model through grass root community workers trained as ‘Village Health Champions’ (VHCs) equipped with hand held devices, enabling doctors at the hub to remotely attend to the patient in the village, thus averting the need for travel to a clinic, and the loss of wage therefrom. If the illness requires greater medical attention, patients ,are referred to the ‘CARE Arogya Clinic’ located at Yavatmal for further investigations and treatment and to CARE hospitals at Nagpur and Hyderabad, for speciality and superspeciality care, respectively. The whole system is intricately woven from primary to tertiary levels of care.

‘CARE Arogya Kendra’ signpost at Yavatmal, Maharashtra

A training session for ‘Village Health Champions’ (VHCs) in progress at Yavatmal, Maharashtra.

The innovation that is the backbone of this model, has come at a price. Insurers have traditionally been reluctant to be the risk bearer for out patient products primarily because of apprehensions about gate keeping, adverse selection, moral hazard and prohibitive transaction costs. Currently, the hospital provides the scheme and bears the financial risk under the policy. The  goal ultimately is however to refine product features, its pricing, and the delivery model to demonstrate financial and operational viability and replicability to insurers and care providers willing to take this experiment to scale. 

Though the pilot currently offers only a cashless out patient cover that includes consultation, drugs and diagnostics, it is envisaged that a bundled product offering a seamless integration of domiciliary, ambulatory and hospital care will be piloted over the project period. Yavatmal incidentally is also the first district in Maharashtra to pilot the Rashtriya Swasthya Bima Yojana (RSBY). The CARE experiment if successful, will also be a case for influencing social insurance programmes like the RSBY to explore financing out-patient care in the long term. A confluence of holistic care provision and health financing will mean better access to health care services for the poor. It is then that ‘Safety nets’ for the poor shall take a whole new meaning.

In the next blog, I will write about another interesting pilot that hopes to cut the gordian knot for retailing microinsurance in rural markets. Until then!