d sattaiah vp corporate hr & insurance
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BASIXEquity for Equity
D Sattaiah
VP Corporate HR & Insurance
Risks faced by Rural Households and Private Sector Insurance
Initiatives in India
A paper presented on Aug 10, 2007 at Policy Forum ofAgriculture and Rural Development for reduction of poverty and hunger
in Asia: In pursuit of inclusive growth and excellence
BASIXEquity for Equity
Indian Scenario
72.4% Population is engaged in Agriculture
72.3% Households live in Rural Areas
28.3% Rural poverty (27.5% overall poverty)
Entire rural sector is un-organized 99% rural HH in un-organized sector Overall 92% in unorganized sector and Unorginsed sector contributes 40% of GDP
Literacy over 64%
BASIXEquity for Equity
Indian Workforce
Workers Total Main Marginal Rural Urban
Total 401
(100%)
312
(78%)
89
(22%)
308
(77%)
93
(23%)
Farmers 32% 26% 6% 31% 1%
Agri Labour 27% 16% 11% 26% 1%
HH Industries 4% 3% 1% 3% 1%
Others 38% 33% 5% 18% 20%
BASIXEquity for Equity
Vulnerability to risks is higher for those in the lower economic rungs
Time
Households Income/Assets
Poverty Line
A dose of micro-credit/ Ag-BDS
Risk event
Hence poor household insurance needs are obvious
BASIXEquity for Equity
Risk coping mechanism of rural poor
.
Savings – Self Insurance
Borrowings,Asset Pledging
Asset sale, Migration
Severity
Covariance
BASIXEquity for Equity
Indian Insurance Sector
Public Insurers Monopoly till year 2000. Today 24 private insurers in market
Penetration is < 3% insurable population as per GTZ study Ranks 19 in aggregate premium and 54 in penetration
Mandated target to reach under Rural sector business Life - 7% polices in year 1 to 18% in year 6; General
2% in year 1 to 5% in year 3 and so on Social Sector – 5,000 polices in year 1 to 25, 000 in year 6 for both Life &
General
IRDA Micro Insurance Guidelines Products limits defined – commission for agents enhanced – given additional
roles to mediators Micro Finance Institutions given a vital role
BASIXEquity for Equity
Insurable Risks Faced by Rural Households
Occupation(% rural workers)
Means of Income
Risks faced Possible Insurance Products
Farmers
(31% )
Farming Yield Risk
Crop Insurance, Weather insurance
Price Risk
Produce damage
Implements damage Asset Insurance
Livestock Death & Disability Livestock Insurance
Labourers (26%)
Human Body Illness, Accidental injuries, Scarcity of wage employment
Health Insurance,
Rainfall Insurance
Artisans Machines/Tools Breakdown & Damage Asset Insurance, Accident insurance
Traders Stock Theft, damage Fire Policy
For all households
Life Insurance, Health, Disability Insurance
BASIXEquity for Equity
There are two types of products available
Group Products Designed and delivered to an existing group of people Such groups availability is limited Most of the time they are linked to along with other
services Operating costs are low
Retail Products Voluntary - Sold Cost of selling and servicing is disproportionately high
BASIXEquity for Equity
Rural household common insurance needs – and retail products available
Possible Insurance Products
Public Insurers (1) Private Insurers (15)
Term Life Insurance including accidental death benefits
Only one product – Jana Shree Yojana – funded by Social Security Fund
Most of the Companies have such nominal products but with very limited out reach to poor
Health Insurance, All the 4 companies offer Universal Health Insurance Product funded by the Union Government – but with very limited out reach
- Nil-
Household item Insurance
Not being offered currently.
There were few products
- Nil-
BASIXEquity for Equity
Farmer Insurance needs & retail products available
Possible Insurance Products
Public Insurers Private Insurers
Crop Insurance Offered by only AIC - Nil-
Weather Insurance Offered by AIC Only 2 companies offer (ICICI Lombard & IFFCO Tokyo)
Electrical Electric Pump Insurance
Available but not sold actively
Only 2 or 3 companies offer this product
Livestock Insurance Offered by all 4 companies but with limited out reach
Only 2 to 3 companies offer this product (Royal Sundaram)
BASIXEquity for Equity
Labour insurance needs and retail products available
Possible Insurance Products
Public Insurers Private Insurers
Rainfall Insurance – for wage loss compensation; community assets like ponds for fishing
-Nil- -Nil -
Accident Policy – particularly to cover the prominent risks coming out of the nature of labour engaged in
Janata Accident Policy available but wit limited reach
- Nil-
BASIXEquity for Equity
Artisans/enterprise holder – retail products available
Possible Insurance Products
Public Insurers Private Insurers
Asset Insurance for traders, service providers and petty manufacturers
-Nil –
Has shop keepers policy where the deduction is minimum Rs 10,000, hence excludes all the tiny enterprisers
Only one company is offering the product – Royal Sundram Alliance General Insurance Company( Royal Sundaram)
Sheep insurance -Nil- -Though used to be available
One company is offering but very insignificant reach
(Royal Sundaram)
BASIXEquity for Equity
Mission of BASIX
Is to promote large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner.
BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital markets and human resources on a continuous basis.
BASIXEquity for Equity
Our Strategy
LFS(Livelihood Financial Services)
Ag/BDS(Agriculture/ Business Development Services)
IDS(Institutional Development Services)
Livelihood
Triad
BASIXEquity for Equity
Insurer BASIX Rural Customer
Offer products Distribute Insurance
Feedback on needsInputs for products
BASIX’s Approach to insurance services
BASIXEquity for Equity
BASIX collaborations in insurance
BASIXEquity for Equity
•Life Insurance -AVIVA
•Health Insurance-Royal Sundaram
•Livestock Insurance –Royal Sundaram
•Micro-Enterprise-Royal Sundaram
•Rainfall Insurance- ICICI Lombard
BASIXEquity for Equity
Products performance as on 31-03-2007
Product Since Coverage (cum) person/policy years
Claims (cum) Premium outgo current and cumulative
Life – Group Oct-2002 500,000 1,487 93% (68%)
Health May-2005 335,000 4,033 31% (24%)
Livestock Oct-2002 34,000 1,005 98% (95%)
Rainfall June-2003 18,500 3,716 144% (87%)
M. Enterprise Mar-2006 4,500 7 144% -Too early to assess
10,248
BASIXEquity for Equity
Technology use
Use software for insurance transactions
Se up Rural BPO for efficient transactions
Use online training facility
On line premium and claim transactions between BASIX and Insurer
BASIXEquity for Equity
Key Innovations …
Life Group product Non exclusion of suicide for benefit
Life retail product Coverage starts from 10th day of premium payment 1 year grace period for premium payment
Limited Health Insurance – Group product BASIX deployed claim facilitators who help insured to
get medical care and build claim form
BASIXEquity for Equity
…. Key Innovations
Livestock –retail product Overcome the constraint of lack of veterinarian by
Insurability certification by BASIX staff – (Non veterinarians) Claims certification by surveyor
Rainfall – retail product Product structure based on local crops, customer choice
on trigger points and premium sizes Facilitate set up the rain gauge stations by private
company NCSML
Micro enterprise – retail product Deduction of 10% of SI or 500 whichever is maximum
BASIXEquity for Equity
Insurance –Challenges & Possible responses
Sell insurance concept to poor Educate on insurance utility Sell protection products first Demonstrate the effect of insurance; Exempt from taxes
Efficient distribution Collaborate with alternate channels and share expertise Pay remunerative commissions – a minimum level of commission to be
allowed
Come out with appropriate product and process Rationalize products , Simplify process and Adopt technology support,
BASIXEquity for Equity
Potential Strategy for Insurers
Protection Risk to begin with and costs increasingly
Middle Income
Higher Income
Lower Income 26%
Protection+ Savings
Investment + Savings + Term
Risk, Expenses &marginal profit
Risk, Expenses & profit through product differentiation
Premium to cover Product Needs order of priority
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