micro ins

TYBBI (SEM-VI) MICRO INSURANCE

Chapter - 1

INTRODUCTION

1.1 Meaning:

1.2 An Overview:

KES SHROFF COLLEGE OF ARTS AND COMMERCE 1


1.1 Meaning:

Growing household income, building assets, and managing

risk are integral to poverty alleviation. For the poor who lack

formal insurance and primarily depend on informal and self

insurance mechanism, crisis can rapidly erode their hard won

gains. This chapter attempts to signify the much

underdeveloped protection—the micro insurance as a tool to

protect these underprivileged and downtrodden masses of

India.

Micro insurance offers a valuable vehicle to reduce the

vulnerability of the poor while offering and their agents the

potential to expand their markets to low-income households.

Insurers’ donors and microfinance institutions are investing

in financial instruments to meet the need of the low-income

market. While formal risk-pooling mechanism for this

market are still in early stages of development, evidence



suggests that appropriate micro-insurance services for this

population can be offered on a financially sound basis.

This chapter analyzes the current scenario of micro insurance

in India and explores some of the specific challenges and

characteristics that will determine the success of micro-

insurance products in India. The challenges faced by this

industry include technical specialization, marketing and sales

and distribution channels. It also endeavors to focus

strategies to make micro insurance a reality in India, viz.,

product design, product flexibility, recognition of specific

needs, linking with formal players etc.

This chapter analyzes the current scenario of micro insurance

in India and some of the specific challenges and

characteristics that will determine the success of micro

insurance in India. The challenges faced by this industry

include technical specialization, marketing and sales and

distribution channels. It also endeavors to focus strategies to

make micro insurance a reality in India, viz., product design,



product flexibility, recognition of specific needs, linking

with formal players etc.

The other sections of the chapter discuss the models

delivering these micro insurance products and taken

examples from the practices followed globally in this regard.

These models are differentiated by insurance risk: local

villagers, MFIs, health care facilities, or regulated insurance

companies. The litmus test for success is the entity’s ability

to manage the insurance risks. In India the micro financial

institutions play active role in promoting micro credit and

micro finance in the rural areas of the country. This chapter

addresses the need for these MFI’s in promoting micro-

insurance products and proposes them to follow certain steps

in promoting it. They include concentration on the

capabilities of the poor through social empowerment and

entitlement rather than struggling with financial services,

involvement of the clients in the design of the product,

starting small and increasing coverage over time, concluding

know ledged based surveys etc.



It concludes with the summary of the challenges ahead and

strategies to be adopted but the apex body of insurance

regulation, the Insurance Regulatory and Development

Authority of India IRDA so as to frame enforcing bye-laws

in developing micro-insurance to reduce the vulnerability of

the vast majority of the Indian population lying below the

poverty line.

1.2 An Overview:

“Life for the poor is one long risk.” Risk comes in many

forms, for example, illness, death of a loved one, fire of theft.

These risks occur frequently and create financial pressures

that exacerbate the ever-present stress of meeting regular

need such as food, rent and school fees.

To cope with the risk the poor uses adversity of

strategies. These may include borrowing. Saving, selling

productive and non-productive assets and other forms of

‘self-insurance’, informal group-based risk sharing system



and occasionally formal insurance. Yet, the effectiveness of

these strategies is limited.

There id also a sequential dimension to risk. Often

following one after another, the myriad of unanticipated and

anticipated risk events make it difficult for the poor to build

up reserves that are key to successful coping. Without

significant assets and other risk mitigation mechanisms, the

poor lack the capacity to withstand the consequences of a

shock. Moreover, mechanisms, the poor lack the capacity to

withstand the consequences of a shock. Moreover, the level

of resource endowment also determines the severity of

impact. It is important to remember that what may be a

minor shock for the vulnerable non-poor can be devastating

for those below the poverty line.



Chapter - 2

REVIEW OF LITERATURE

2.1 Books Reference:

2.2 Magazine Reference:

2.1 Books Reference:

(a) According to “Nalini Prava Tripathy & Prabir Pal” in

their book they states that, “with the globalization of

financial services and liberalization of economy with

wider ramifications and rapid development in insurance

have been taken place. Insurance business is one of

the fast emerging financial services, predominantly in



the developing nation like India, in terms of the

population it services. The Indian insurance market has

undergone significant changes in recent year. The

insurance business has been comprehensively

networked in almost all parts of the country.”

This extensively covers the dynamics of insurance

service. Together this people along with the poor will

arrive at the risk needed to be insured and then will

form a pool to finance these risks.

(a) Preface, Insurance Theory & Practices, Nalini

Prava Tripathy & Prabir Pal, 2005.

2.2 Magazine Reference:

(a) According to “Deepti Bhaskaran” in his magazine

he states that,

In order to cater to insurance needs of the poor and

supplement the insurance industry’s endeavor in the

micro insurance space, a Micro Insurance Academy,

MIA has been set up. Moving forward MIA plans to set



up a reinsurance school in November and also plans to

assist insurers to get into micro insurance.

(a) Micro Insurance Academy Created, The

survey of Insurance Industry 2006, May-06.



Chapter - 3

ECONOMIC SHOCKS AND THEIR IMPACT:

3.1 Introduction:

3.2 Vulnerability- Defined:

3.3 Immediate impacts:

3.4 Secondary impacts:

3.1 Introduction:

In assessing the potential demand for micro-insurance,

the key question is what coverage at what cost? To

begin this discussion, let us turn the position on its

head and ask, in the absence of insurance, what is the



impact of a shock on poor households? How vulnerable

are the poor?

3.2 Vulnerability- Defined:

Vulnerability has been described as the ability of

individuals and households to deal with risk.

Vulnerability if both a cause and a symptom of poverty.

It resides in many shocks that pervade the lives of the

poor. Their frequent occurrence can easily erode hard

won gains and force households quickly back into

poverty. Over the past few years, a growing body of

evidence shows that micro finance has had a positive

impact on the poor. Growths of enterprise revenues

and in turn increased household incomes have brought

important benefits to many households. However,

focusing only on static measures of households

earnings and incomes tend to mask the more dynamic

side of poverty, the vulnerability of the poor to risk.

Risk: Risk is defined as the chance of a loss or loss

itself. Different types of risks are listed in the following

table.



List of Identified Risks

Types of Risks Risks

Health problems: Sickness/Accidents

Disability

Death: Death of a member of a

household

Death of a husband

Property loss: Theft and robbery

Fire

Eviction/demolition of business

premises: Floods and drought

Enterprise risks: Business

Death of business owner

Sickness of business owner

Price fluctuations



Employees stealing money

Change in business line

Electricity shut downs,

breakdown of

Machinery: Water shortages

Loss of goods in transit/buying

Expired goods: Bad debts

Defaulters

Competition

Risk of a loan: Loan misappropriation by

spouse

Systematic loss: Crop and animal diseases

Other losses: Marriage/separation/divorce

Irrespective of the type of risks, its impact follows a

two-stage process, viz.



3.3 Immediate impacts:

Faced with a shock, all households incur expenses in

meeting the immediate cost of the loss such as funeral

expenses or medical charges.

3.4 Secondary impacts:

These initial responses to the crisis at hand often have

further repercussions. The following table shows

different types of risks and its impact.



Chapter - 4

RISK MANAGING MECHANISM

4.1 Introduction:

4.2 Prevention & Avoidance:

4.3 Preparation

4.1 Introduction:

Most of the poor people manage risk by their own

means. Many depend on multiple informal mechanism

(e.g. cash savings, asset ownership, rotating savings

and credit associations, moneylenders).To prepare for



and to cope with such risk as the death of a family

breadwinner, sever illness, or loss of livestock. Very few

low-income households have access to formal

insurance for such risks.

4.2 Prevention & Avoidance:

When possible poor people avoid and/or actively work

to reduce risk often through non-financial methods.

careful sanitation, for example is a non-financial way to

reduce the risk of infectious illness, particularly among

children. Using family networks to identify business

opportunities is another such mechanism. The

imperative to avoid risk often leads to conservative

decision making by poor people especially in business

considerations.

4.3 Preparation:

Poor people save, accumulate asset (such as livestock),

buy insurance and educate their children to handle

future risk. For certain risks, informal community

systems offer protection. However, such systems



generally do not adequately protect against costly and

unpredictable risks, such as the debilitating illness of a

family income earner. Formal insurance product are

beginning to be offered to low-income markets, such as

simple credit life insurance (which covers an

outstanding loan balance in the event of a borrower’s

death), but these insurance products sometimes

appear to be designed to protect the lending institution

rather than is clients.



Chapter - 5

COPING

Ex post coping can result in desperate measures that

leave poor households even more vulnerable to future

risks. In the face of severe economic stress, poor

people may take out emergency loans from

moneylenders, Microfinance Institutions (MFIs), and/or

banks. They may also deplete savings, sell productive

assets, default on loans, and/or reduce spending on

food and schooling. In general, prevention and planning

are far less costly than coping strategies for the

individual.



Risk-managing financial products include liquid

savings accounts from which clients can draw to reduce

the effects of an economic stress, emergency loans,

and micro insurance. Among this options poor people’s

preferences depends on a range of issues:

1. Alternative coping strategies-While the poor may

need the support provided by these services,

they are unlikely to voice a significant demand

because they do not have any expectations that

a bank or insurer would be willing or be able to

address their needs. The demand for risk

managing financial services, therefore, has to be

inferred based on the cost and effectiveness of

current risk coping strategies used by the poor.

2. Types of risk-The risk pooling aspects of

insurance work best for both provider and

consumers when the loss is relatively large and

there is a low likelihood that the risk will occur.

Insurance is therefore useful to cover funerals,

expensive medical treatments, or rebuilding a

burned house. If the loss is relatively small, or



potentially so, then savings or credit might be

more appropriate.

3. Planning propensity-For savings or insurance to

be option to manage risk, the decision to protect

one’s households from risk needs to be made in

advance-to start paying premiums or to build up

a saving reserve,

4. Poverty level-For the poor, asset accumulation in

the form of saving and/or insurance requires

forgoing consumption today for greater security

tomorrow. Therefore, for savings and insurance

to be good options, the households needs to

have some net income that it can put money

aside, to buy an asset, or pay a premium.

5. Cash flow-Saving and borrowing enable persons

to allow consumption to be somewhat

independent of income. For the non-poor, the

ability to smooth consumption often results in

access to material possessions. For the poor, the

emphasis is less on buying things and more on



risk and cash management, spreading expense

spikes over time.

6. Social conditions-The choice between credit,

savings, and insurance may depend more on

social and cultural considerations than costs and

benefits.

7. Education, biases, and risk tolerance-The

demand for savings, credit and particularly

insurance also depends on one’s education,

biases and tolerance for risk. Although savings

and credit are fairly familiar to most people, may

low-income people are not familiar with risk-

pooling concept or they have a misperceptions

about insurance needs.

8. Credit and savings products-Offer low-income

households a method for converting a series of

small contributions into a large sum of money.

Emergency loan funds offered by institutions,

such as Grameen bank, Shakti Foundation and

Action Aid in Bangladesh are good examples of

providers reducing typical restrictions on credit



products to provide more effective protection.

Flexibility in loan size and the repayment terms

make this institution’ products responsive to the

risk management needs of their clients.

However, credit and savings products cannot provide

complete protection against risk resulting in a loss

greater than what a household can save or repay. As

the size of loss increases relative to households

expected future income, credit products become

increasingly ineffective risk-management tools.

Similarly, saving products offer only partial protection

against risks causing large losses relative to

household income. At this point, insurance becomes a

more effective method of risk management.



Chapter - 6

MICRO INSURANCE

6.1 Micro Insurance- The New Challenge:

6.2 Micro Insurance-Characteristics:

6.3 Basic Principles:

6.4 Models of Micro Insurance Delivery:



6.5 Provider model (GRET Cambodia):

6.1 Micro Insurance- The New Challenge:

Micro-insurance is the protection of low income,

people against specific perils exchange for regular

monitory payments (premiums) proportionate to the

likelihood and cost of the risk involved. As with all

insurance, risk pooling allows many individuals or

groups to share the cost of risky event.

To serve poor people, micro insurance must respond

to their priority needs for risk protection (depending

on the market, they may seek health care or life

insurance) be easy to understand and affordable.

6.2 Micro Insurance-Characteristics:



Insurance is mechanism that uses risk pooling to

compensate individuals and group adversely affected

by a specified risk or event. As such, it is a way to

transfer risk from an individual to a group so that each

individuals only pays the average of the loss for all

members of the group.

Micro insurance is a subset of insurance that

provides protection to the poor in a way that

reflects their cash constraints and coverage

requirements. Its clientele is markedly different

from the market served by the existing formal

insurance companies.

Micro insurance clients are poorer and depend

on the flow of the income that can fluctuate

considerably throughout the year. While the

shocks experienced by the poor may be same,

they are more vulnerable to them because they

have fewer reserves to draw upon. Once their

reserves are gone, repeated shocks force them

into reactive mode, always responding after a

crisis.



Micro insurance, if designed appropriately, offers

the poor an opportunity to be more proactive in

managing risk by reducing the chance of a loss

resulting from unanticipated risk events. To

date, the experience with micro-insurance has

been limited.

6.3 Basic Principles:

Basic principles that should be observed by micro

insurance providers are universal to insurance and risk

management. They include:

1. Similar units are exposed to risk-Insurers

require that risks in a particular class or group

of policies be similar. Insurers also require that

the group insured (or the ‘’risk pool’’) includes

a large number of these similar risks, relative

to the total population.

2. There is limited policy holder control over the

insured event-Insurance protection cannot be

offered if policyholders can control the

occurrence of insured event.



3. Insurable interest exists-Insurance cannot be

provided to policyholders who have a vested

interest in a loss occurring. A property

insurance policy, for example, an a home

cannot to sold anyone other than the residents

of the home.

4. Losses are determinable and measurable-

Insurance provider must have a mechanism

for verifying the occurrence of a loss and

identifying its cause and value.

5. Losses should not be catastrophic- The risk-

pooling mechanism of insurance breaks down

against risk that cause large losses for a

substantial portion of the risk pool at the same

time.

6. Chance of loss can be calculated- Setting

insurance premiums requires estimating the

size of the expected losses and the chance of

loss.

7. Premiums are economically affordable- In

general, for an insurance policy to be an



attractive purchase, the cost of premiums

must be substantially less than the benefit

offered by the policy.

6.4 Models of Micro Insurance Delivery:

Community based model-Owned and managed by

members UMASIDA:

Tanzania Local communities from groups that

capitalize and manage a risk pool for their

members. ILO STEP and CIDR deliver health

services using this community base model.

6.5 Provider model (GRET Cambodia):

GRET insures and primary doctor is the employee.

Hospitals and clinics create prepaid or risk pooling

coverage for people at their facilities. MFIs such as ASA

and Grameen bank use this model but manage their

own clinics, explain as follows:

Full Insurer Model (SEWA India)- MFI is insurer (Limited

with C.U.) regulated insurers downsizing insurance

service like Delta Life (Bangladesh), which offers a long



term savings product (annuity) with life insurance and

a premium affordable by the poor.

Partnership Model- Partnership model (AIg and Micro

Care with Uganda MFIs) – No risk tom MFIs,

administrative burden minimal insurers with products

are pairing with MFIs and others, with low-income

markets to provide micro insurance as AIG does with

MFIs in Uganda.

Chapter - 7



CURRENT SCENARIO OF MICRO-INSURANCE IN

INDIA:

7.1 Introduction:

7.2 Demand side picture:

7.1 Introduction:

In India, there are leading insurance

corporations/companies (e.g. the Life Insurance



Corporation Ltd. and the General Insurance

Corporation) in the formal sector. A plethora of

insurance schemes is available to the general

public, though very limited products are available

exclusively for women and rural poor.

The insurance products are designed for the

purpose of attracting more clients, as a gift for

getting them into the banks fold for security

reasons (e.g. in the event of loan defaults), and not

for the meetings the needs of the poor. The benefits

are, if at all realized, purely incidental and not

intentional. It is ironic that even the incidental

distributions of insurance benefits are not even

equally shared amongst the target clients. For

instance, under Government sponsored schemes

like IRDP India, it is made compulsory to be an

equal entitlement of benefits; however it is confined

to limited schemes like animal husbandry (AH) and

Transport. The moot point here is that whilst the

status of the poor remains the same with equal

entitlements for the benefits under IRDP, only the



lucky schemes like AH benefits from the access to

insurance.

The above situation indicates lack of innovative

products to match the needs of all categories of

poor households by the prominent players in the

insurance field. The available products are designed

more for safeguarding the interests of the suppliers

than that of the receivers (the poor clients). The

overall picture on micro-insurance indicates that

the insurance remains the ‘Cinderella of Micro

financial activities’.

7.2 Demand side picture:

Rural folk, particularly woman and the very poor are

not insurance conscious and are more concerned

with saving rather than securities as they feel that

destiny will decide their fate. As reported by the

MFI/NGO (LEAD-INDIA) the poor ignorantly ask why

they should insure.

By forcing insurance onto the poor without their

conscious demand (which requires awakening) and



MFIs foraying into insurance with neither capability

nor competency is like putting the “cart before the

horse” or the “last before the first”. Alternative

development approaches should eschew the above

anomalies.

Among the various needs for protecting the

livelihood of the poor, health assumes priority since

the target clients are very much exposed to

environmental predicaments. Women and children

are also highly susceptible to health hazards due to

unhygienic environments, contaminated water and

poor medical facilities. There for there is the

demand for health based insurance products

designed exclusively for the rural poor.

In the organized sector, laborers are protected by

the provision of different insurance schemes like:

1. Employees State Insurance Scheme (ESIS)-

Providing cash and the medical benefits for

illness, maternity, temporary or permanent

disablement and funeral rights.



2. The Standard Mediclaims Policy-It is of the

General Insurance Corporation Ltd. (GIC). It is

a reimbursement insurance plan covering only

hospitals care and domiciliary hospitalization

benefits.

3. Specialized Insurance from the life insurance

corporation Ltd. covering the medical

expenses for four dreaded diseases.

4. Arogya Bima Policy of GIC providing medical

reimbursement on an individual basis and

charging higher premiums for older people

and those with dependence.

Similar products should design for the welfare of

the poor in the unorganized sector.



Chapter - 8

CHALLENGES OF MICRO-INSURANCE SCHEMES

8.1 Introduction:

8.2 Making Micro-Insurance—A Reality:



8.1 Introduction:

Existing micro-insurance schemes that provide

more than simple credit life insurance find it

difficult to become sustainable. Suppliers whether

government, savings and credit societies, private

sector insurers, or other financial institution such as

MFIs face the following difficulties:

1. Technical specialization – Insurance requires

specialized actuarial capacity, which uses

mathematics to place a monitory value on

future risks. Actuarial analysis for micro

insurance is complicated by claim volatility

and lack of reliable data characteristics of low-

income, informal markets. Often, actuarial

expertise resides with one type of institution

(i.e. formal insurers), while distribution

network to poor customers lie with another

(i.e. MFIs or NGOs).



2. Marketing and sales – Most of the poor people

do not understand insurance or are even

based against it. Many are skeptical about

paying premiums for possible future benefits,

when the insured event may not occur.

Creating awareness about the value of

insurance is time consuming and costly. In

addition, the wording of insurance contracts is

often to complicated for the poor, many of

whom are illiterate.

3. Distribution channels – Micro-insurance

requires a distribution system that can both

efficiently handle small financial transaction in

convenient location and engender trust.

Existing distribution system if this kind are

hard to find; creating a new system to collect

premiums and play claims is expensive and

often ineffective.

8.2 Making Micro-Insurance—A Reality:



1. Product design – The demand for micro insurance

is high. Poor households are aware of their

vulnerability to risks. Responding to this need

with appropriate products and service is an

enormous challenge. they include:

Separate out the different risk element of

health or life/funeral/loan insurance.

Provide differentiated products able to meet

different needs.

Time premium payment to match income

flows.

Match households’ financial flows to

payment cycles.

Assess the range of formal and informal

insurance options until we gain a better

understanding of effective demand.

De-link micro-credit and micro-insurance.

Focus on protective mechanism for property

loss rather than ex post insurance.

Learn from the advantages and

disadvantages of reciprocity and social



obligations in informal group-based

mechanism.

2. Product flexibility – It has become the new

mantra of micro-credit. The same massage

seems applicable to micro-insurance.

More than one option for when and how the

premiums are paid may be necessary if

demand for micro-insurance products is to be

sustained. Caution must be heeded in

considering linkages with long-term savings in

which the premium equal to the interest

earned on savings. Alternatively and perhaps a

better option, insurance accounts could be

linked to savings accounts with automatic

withdrawals when the premiums come due.

This can also be made very flexible by allowing

the client to choose when they want the

payments to be made. For most of the poor,

small amount paid over time may not be as

taxing as a large premium due all at once.



Frequency of payments and variability in the

size of premiums are other aspects of

flexibility. The design of micro-insurance

products should allow for continuous average.

In the rural areas, it might me more

appropriate to tie payments to the harvest

season when people have a little more money.

3 Recognition of specific needs – All micro-

insurance should recognize the specific needs of

the women, making availabl life insurance

policies for their husbands or ensuring the

beneficiaries of these policies, that they receive

the payout possibly in the form of direct deposits

into their own saving accounts. Many of the

stresses experienced by women as a result of a

husband’s death are not always addressed by

any of the insurance mechanism discussed. The

potential exist to meet this needs with other

financial and non-financial services, e.g. legal

support for the women, educational loans,

financial educations, business development



services, or saving accounts. These might be

separate product offered by MFI.

4 Delinking of loan insurance and life insurance –

Life insurance should not be a mandatory

requirement of taking a loan and should be

available to the poor even when they choose not

to take a loan. Furthermore loan, life and funeral

insurance respond to different risk and serve

different objectives. Loan insurance exist

primarily to protect the MFIs portfolio and to

reduce the liabilities of surviving family

members. A lump sum can help the households

of the deceased to keep going and recover while

funeral insurance meets the demand of the

immediate burial rites. By default, not by design,

they are currently offered together. Splitting the

products may be more complex for the insurer,

but it would offer customers a choice that may

correspond better to effective demand.



Chapter - 9

MFIs AND MICRO-INSURANCE

9.1 Introduction:

9.2 Role of MFIs:

9.3 Considerations for MFIs:



9.4 Recommendations for MFIs:

9.5 Sharing of international experiences of

MFIs in micro-insurance:

9.1 Introduction:

Insurers who have entered this new low-income

market have benefited from working with an

intermediary, such as Micro Finance Institutions

(MFI) or other organization that are widely used

by the poor.



9.2 Role of MFIs:

For those insurers wishing to partner with an MFI,

and understanding of the potential role of these

institutions as financial intermediaries is

necessaries:

Today some MFIs offer risk management

service in the form of savings and

emergency loans. These can be effective

tools. Together with existing non-formal

insurance mechanism, they should be

considered as options for risk management

in the face of certain shocks. These

products often fall within an MFIs core

competencies, while insurance does not.

Beyond acting as an agent, the provision of

micro insurance can be treacherous for MFIs

because the risk structure of insurance is

significantly different from that of credit.

MFIs do not have such capacity. Insurance

risk should be born by professional insurers

not MFIs.



Micro-insurance requires specialty

management and technical insurance skills.

Poor pricing, risk assessment and the

responsibility of actuaries can do serve

damage to micro-insurers.

Insurance regulations may impose special

licensing requirements for MFIs and their

employees acting as insurance agent.

Micro-insurance products for low-income

markets frequently require insurance

commission approval.

MFIs often work within a different business

culture from insurers. Maintaining clear

communication is critical.

9.3 Considerations for MFIs:

The following problems are already being faced

by MFis in general and the NGOs involved in

financial services, thus the decisions of MFIs to

enter into the insurance sector should be

carefully looked into.



Ability to obtain legal status and

authorization to mobilize savings from the

public (members as well as non-members).

Viability and sustainability.

Participation is more governed by the

donor’s expectations than the demands of

the market.

Lack of co-ordination among MFIs/NGOs for

comprehensive coverage of all regions.

Financial Management capability is still

lacking in the weak MFIs capacity building

programmers are already being conducted.

Sustainable good recovery performance.

Competition from the grassroots level field

agents/workers functioning for the formal

players.

9.4 Recommendations for MFIs:

It is too early for NGOs/MFIs to enter

insurance activities and best they could



market the products as an agent without

directly underwriting the risk.

NGOs could concentrate on the capabilities

of the poor through social empowerment

and entitlement rather than struggling with

financial services. Possibilities could be

explored to promote insurance schemes

based on demand or insurance substitutes

(like collateral substitutes) with priority to

health. Client must be involved in the

design of the products in terms of amount

type of coverage.

It is prudent to start small and increase

coverage over time.

Knowledge based surveys are most

effective to collect data for product

development.

The full service may not be a good idea to

start off with the given high risk of

insurance. Therefore, providing the full

range or some of the more risky insurance



products might be appropriate for the

larger institutions.

9.5 Sharing of international experiences of

MFIs in micro-insurance:

Philippines—CARD Bank. CARD Bank is a micro-

finance institution with its head office in San

Pablo City. CARD is a Grameen Bank replication

that received a banking license last year. It

currently serves more than 28,000 clients.

CARD Bank experienced that when members

died their families were often unable to pay

back the loan. Therefore, CARD set up an

insurance fund. However, the product was not

appropriately designed and the premiums did

not cover the benefits promise to the clients.

CARD’s auditor felt that this would affect the

institution’s viability and recommended that

CARD recruit the services of an actuary. CARD

followed up on the recommendations and found

a local Filipino actuary. They paid the sum of US



$800 for the actuary’s services He

recommended some major changes, particularly

in pricing and the benefits.

In the Philippines, NGO, MFIs are not legally

allowed to mobilize savings. They usually collect

deposits “informally” as Capital Build up (CBU)

as a service to clients. Only credit co-operatives

and CARD Bank are providing flexible savings to

clients, as they at formal financial institutions.

(a) Nepal-DICGC:

Credit guarantee scheme: The Nepali law

requires government agencies to have 25

percent investment in priority sector. DICGC

provides loans in this sector that are

automatically guaranteed. Commercial banks

have to offer 1 percent premium to DICGC.

Livestock insurance: Once the DICGC has an

agreement with the banks, all loans to purchase

livestock, must be automatically insured with

DICGC. Livestock very for meat and milk



production, versus work. These distinctions are

taken into consideration in order to complete

the insurance application process. The

identification of the livestock must be done to

verify claims. Deposit insurance scheme: The

DICGD deposit insurance scheme safeguards

small depositors.

(b) Cambodia – GRET:

GRET began its work in micro-insurance as an

experiment in 1996. It began with three main

products covering amputation, surgery and

health. Initially the premiums were under US

$50 for amputation and surgery and US $15 for

health. GRET began its programme in six

villages, wording through partner MFs for the

collection of the premiums. Since the provision

of health insurance id a specialized business,

this activity was separated from the other

typical microfinance activities of the partners.



The insurance programme was well received

by the clients. However, there were efforts to

redesign the products in order to avoid adverse

selection. Frequent evaluations revealed that

typical health insurance was not the major

priority for the client base GRET initiated an

experimental project on 1998, supported by the

Microfinance. Best Practices Project (MBP)

conducted an impact assessment to understand

the health behavior of the people. The study

served to inform the design of an appropriate

product and help to reduce finances losses.

The GRET Programme currently covers 711

people in 167 families. Since GRET reaches

about 27 percent of the population through its

programmes, outreach will be relatively easy.

However, there is concern that premiums will

have to be increased for sustainability.

The Ministry of Health is interested in testing

insurance among the rural population and is

very supportive. As currently there are no



insurance providers working in rural areas,

GRET’s programme is innovative in the context

or Cambodia.

Chapter - 10

NON-FINANCIAL SERVICES PROMOTING

MICRO-INSURANCE

10.1 Client education:

10.2 Legal services:

10.3 Planning codes and enforcement:



The ranges of non-financial services that will

increase the success of any micro-insurance

initiative are:

10.1 Client education:

One of the recurring stumbling block in

introducing micro-insurance is the Poor’s limited

comprehension of the concepts of insurance.

Because the meaning of formal insurance as a

concept has not been well experienced to the

customers, they lack clarity about risk pooling

as it applies to formal insurance and so

insurance is not well used. An important part of

client education is to link the experience that

people have with informal group-based system

to similar concepts with regard to formal

insurance. This process can also be used to

explore with formal insurance companies hoe

they can better market their product to low

income markets.



Insurance and savings are often confused; some

clients feel that if one pays a premium one

should be able to withdraw this cash when

needed. With continuous pressure on scarce

cash payment to a micro-insurer for an

unpredictable ‘rainy day’ is not always valued.

While they do this with informal group

mechanism, there needs to be similar

understanding of how this concept can be

adapted to formal micro-insurance.

Benefits of client education

Client education about insurance help

to raise the acceptance and therefore

success of a micro-insurance

programme by the poor.

It can also positively affect policy

retention rates. Insurance education

will also require those selling the

product as well as those buying the

product to understand their cost and



value to the consumer and be clear

about the benefits and costs of

voluntary versus mandatory insurance

provision.

Clients need straightforward written

materials describing the insurance

products, their cost, their use and the

claim process. Buying a premium

primarily reduces risk for the client,

but it also carries some risk.

The basic concept will have to be

simplified, disclosed to and discussed

with the clients.

Insurance education should also be

extended to the insurance officer with

responsibility for selling the product

and managing the client /insurance

interface on claims.

10.2 Legal services:



Support to protect property rights for

women after the death of their husbands is

the priority. This would include legal rights

awareness campaigns, legal rights

education, legal reform (where necessary);

and individual/group legal counseling and

support. This could well accompany a

programme of client insurance education.

Role of the state in social protection

National health policies should be

understood before introducing private

micro-insurance.

The equity of user fee policies should

be assessed, as should the affordability

and accessibility of the services for the

poor.

An evaluation of the gaps in the

market and the complementaries will

suggest where the greatest

opportunities exist for micro-insurance



to extent service provision and quality

care to those currently un-served.

The state also has another role, the

guardian and enforcer of a legal

framework that supports the rights of

the disadvantage, especially women.

Women faced with sever shocked often

find themselves caught in a trap. When

they suffer a shock like the loss of a

husband, they find themselves

dispossessed of assets they have

rightfully earned or to which they are

entitled. This occurs even when they

are the beneficiary of an insurance

policy. Weak enforcement of

inheritance rights offers them no

means of appeal.

10.3 Planning codes and enforcement:

Faced with formidable barriers to asset

insurance, people depend primarily on



preventive measures to reduce the risk of

fire and theft. Many can be undertaken by

individuals or communities with common

interest. But other preventative measures,

such as ensuring safe electrical connections

or constructions that is up to standards,

must engage the public authorities.

Insurers should approach micro-

insurance conservatively and take

time to understand this new market

and its supply and demand for risk

management services.

Partnership model can provide

efficient and profitable accesses to

huge low-income markets.

There are many high quality MFIs with

large market interested in developing

micro-insurance products with

insurers. Conduct due to diligence

reviews with all potential partners.

Micro-insurance can be profitable,



especially with life insurance, and is

approaching profitability with others.

Micro-insurance should not be limited

to only the downscaling of existing

formal insurance products.

Products need to fit the preferences

of the market.

International donors should approach

micro-insurance cautiously.

Short-term technical assistance to

address specific issues like actuarial

and market studies.

Client and staff education in concepts,

policies and procedures associated

with micro-insurance.

Training of trainers to create

additional local or regional resources

to call upon for specialty training.

Disseminations of the growing pool of

information needed to inform the

emergence of this market and the



development of new market

responsive micro-insurance program.

Chapter - 11

PRIMARY DATA

1.Did the Micro-Insurance gives any benefit to the

Insurance company or not?

Yes No



1. Did the Micro-insurance gives any rewards to the

insurance agent or not?

Yes No

2. Did the Micro-Insurance is beneficial for the

customers/clients or not?

Yes No

3. Did the Micro-Insurance is reducing vulnerability

or not?

Yes No



Chapter - 12

CONCLUSION & FINDINGS

(a) Micro insurance is a young financial with few proven

best practices. Demand is strong and indicative of an

important potential market.



(b) Along with savings and emergency loans, micro-

insurance has a role to play in poor people’s risk

management.

(c) In offering micro-insurance there are important

considerations for MFIs and insurers, as well as for

foreign collaborators in terms of their support.

(d) There are challenges to provide micro-insurance to

the poor and there is no need for greater innovation

and experimentation.

(e) Regulation within the industry is also critical.

Working together, micro-insurance can be both a

successful business venture and advantageous to the

poor. However, the current move of IRDA towards

effective regulation requires a collective effort

otherwise the issue will not gain attention.



Chapter - 13

SUGGESTIONS & RECOMMENDATIONS

(a) Company should have to introduce more new

policies to their customers. Like children policy,

educational policy, 2nd inning policy etc.



(b) Now a day’s company is also giving loan but if

insurance holder dies, then company should have to

give concession to the nominee.

(c) Now a day’s life is become uncertain so, the

insurance company should have to give claim amount

on time.

(d) Company should have to reduce late fee charges on

premium.

(e) The insurance company should have to appoint a

person as an employee for collecting EMI cheques from

client’s home.



BIBLIOGRAPHY

(1) Books Reference:

(a) Preface, Insurance Theory & Practices, Nalini Prava

Tripathy & Prabir Pal, 2005.

(2) Magazine Reference:



(a) Micro Insurance Academy Created, The survey of

Insurance Industry 2006, May-06.

(3) Electronic Medium:

Goggle search engine:

(a) www.microinsuranceacademy.com

(b) www.microinsurancecenter.org

(c) www.microinsurance agency.com

ANNEXURE



1. Did the Micro-Insurance gives any benefit to the

Insurance company or not?

2. Did the Micro-insurance gives any rewards to the

insurance agent or not?

3. Did the Micro-Insurance is beneficial for the

customers/clients or not?

4. Did the Micro-Insurance is reducing vulnerability

or not?


micro ins

Economy & Finance