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!!

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.