micro insurance in india project

7/29/2019 Micro Insurance in India Project

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A PROJ ECT REPORT ON

MICRO INSURANCE IN INDIA

Submitted in partial fulfillment of the requirements

For

BACHELOR OF COMMERCE

(BANKING AND INSURANCE)

(2012-2013)

By

PRATIKSHA S. MHATRE

Under the guidance of

Prof. MRS KANCHANA SATTUR

University of Mumbai

Sheth T.J Education Societys,

SHETH N.K.T.T COLLEGE OF COMMERCE &

SHETH J .T.T COLLEGE OF ARTS, THENE (W)


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Sheth T.J. Education Societys,

SHETH N.K.T.T. COLLEGE OF COMMERCE &

SHETH J .T.T. COLLEGE OF ARTS, THANE (W)

CERTIFICATE OF

PROJ ECT WORK

This is certify that

Mrs. PRATIKSHA S. MHATRE of B&I. Semester V. Roll

No:15 has undertaken & completed the project work

titledMICRO INSURANCE IN INDIAduring the

academic year 2012-13 under the guidance of Prof.Mrs.

KANCHANA SATTURsubmitted on th , 2013 to this

college in fulfillment of the curriculum of BACHELOR

OF BANIKNG & INSURANCE , UNIVERSITY OF

MUMBAI.


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This is bonafide project work & the information

presented is True & original to the best of our knowledge &

beliefPROJECT COURSE EXTERNAL

PRINCIPAL

GUIDE COORDINATOR EXAMINAR


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Declaration

I, MISS .PRATIKSHA S MHATRE hereby declare

that the project report entitled MICRO

INSURANCE IN INDIA. Under guidance of

Prof.MRS KANCHANA SATTUR submitted inpartial fulfillment of the requirements for the award

of the degree of BACHELOR OF COMMERCE (B&I)

TO MUMBAI UNIVERCITY is my original work.


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ACKNOWLWDEGEMENT

I take this Company to express and record

my thanks and gratitude to Sheth N.K.T.T College

of Commerce Thane, and the entire Faculty of

Semester V of B&I Course, in the College. Further,

I also acknowledge my sincere and special thanks

and gratitude to my Project Guide Prof.MRSKANCHANA SATTUR , and Project Co-coordinator,

Voice Principal & Professor Anil Khadse without

whose continuous guidance and encouragement it

would not have been possible for me to complete

this project Work.

I express my thanks to all my colleagues

with whom I have debates and discussions on the

subject, which also helped to have better

understanding and clarity on the subject.

Course name:-B&I (Semester-V)


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College name: - Sheth N.K.T.T College of

Commerce & arts

University: - Mumbai University


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Preface:

Decision-making is a fundamental part of the research process.

Decisions regarding that what you want to do, how you want to do, what

tools and techniques must be used for the successful completion of the

project. In fact it is the researchers efficiency as a decision maker that makes

project fruitful for those who concern to the area of study.

Basically when we are playing with data & computer in every

part of life, I used it in my project not for the ease of my but for the ease of

result explanation to those who will read this project. The project presents the

role of financial system in life of persons.

I had toiled to achieve the goals desired. Being a neophyte in this

highly competitive world of business, I had come across several difficulties

to make the objectives a reality. I am presenting this hand carved efforts in

black and white. If anywhere something is found not in tandem to the theme

then you are welcome with your valuable suggestions.

Executive Summary:

Insurance Industry, which is basically my concern industry around

which my project has to be revolved, is really a very complex industry. And

to work for this was really a complex and hectic task and few times I felt so

frustrated that I thought to left the project and go for any new industry and

new project. Challenges, which I faced while doing this project, werefollowing-

Insurance sector was quite similar in offering and

products and because of that it was very difficult to discriminate

between our product and products of the competitors.


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Target customers and respondents were too busy persons

that to get their time and view for specific questions was very

difficult.

Sensitivity of the industry was also a very frequent factor,

which was very important to measure correctly.

During the research time I was analysis so many product

and scheme of rural insurance with other insurance scheme, which

is located in Thane district.

Area covered for the project was very large and it was

very difficult to correlate two different customers/respondentsviews in a one.

Every financial customer has his/her own need and

according to the requirements of the customer product

customization was not possible.

So above challenges some time forced me to leave the project but

anyhow I did my project in all circumstances.

Objectives of the Project:

Project study, which is being conducted by

me for the last two month, is not only a formality for the

fulfillment of the three year full time bachelors in business

Administration. But being a management student and a good

Researcher I tried my best to extract best of the information

available in the market for the use of society and people. I have

classified the objectives in this project form personal to


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professional, but here I am not disclosing my personal

objectives, which have been achieved by me while doing the

project. Only professional objectives, which are being covered

by me in this project, are as following-

To know about the meaning and objective of rural insurance in

India.

To look into the role of government in implementing various

Rural Insurance Schemes.

To suggest effective rural insurance progrmme in India.

To discuss and explore the problems and prospects of rural

insurance in the country.

To examine the prformance of the existing and earlier national

Rural Insurance Schemes implimented in India.

Scope of the Study:

Each and every project study along with its

certain objectives also has scope for future. And this scope in

future gives new researches a new need to research a new

project with a new scope. Scope of the study not only consist

one or two future business plan but sometime it also gives idea

about a new business which becomes much more profitable for

the researches than the older one.

Scope of the study could give the projected scenario

for a new successful strategy with a proper implementation plan.


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Whatever scope I observed in my project are not exactly having

all the features of the scope, which I described above, but also

not lacking all the features.

1. Research study could give an idea of network

expansion for capturing more market and customer with better

services and lower cost, with out compromising with quality.

2. In future customer requirements could be added

with the product and services for getting an edge over

competitors.

3. Consumer behavior could also be used for the

purpose of launching a new product with extra benefits which

are required by customers for their account (saving or current)

and/or for their investments.

4. Factors which are responsible for the performance

for bank can also be used for the modification of the strategy

and product for being more profitable.

5. Factors which I observed while doing project study

are following-

Competitors

Customer Behavior

Advertisement/promotional activities

Attitude of manpower and

Economic conditions

These all could also be interchanged with each other for

each other in banks strategies for making a final business plan to


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effecton the market with a positive way without disturbing a lot

to market, customers and competitors with disturbance in market

shares.

RESEREACH METHOLOGH

Data Collection:

Data collection has been done from both sources primary as

well as secondary data & also by questionnaire.

Primary data:

Primary data has been collected by visit to the organization

interview.

Secondary Data:

Secondary data was gathered through books, journals,

articles, web sites of banks, finance & various banking web sites of

different insurance sector.


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ABBREVIATION

IRDA: Insurance Regulatory Development Authority

LIC: Life Insurance Corporation of India

NBFC: NonBanking Finance Company

NGOs: Non Governmental Organizations

SHG: Self Help Group

AIG: American International Group

DPLI: DLF Pramerica Life Insurance Company Ltd.

PIIH: Prudential International Insurance Holding Ltd.

IDBI: Industrial Development Bank of India

SBI: State Bank of India

BSLI: Birla Sun Life Insurance Company Ltd.

MFI: Micro Finance Insttitutions

YCO: Youth Charitable Organization

FPA: Financial Planning Advisors


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Chapter No. 1

INTRODUCTION OF INSURANCE

1.1 INTRODUCTION:

Today, only one business, which affects all walks of life,

is insurance business. Thats why insurance industry occupies a

very important place among financial services operative in the

world. Owing to growing complexity of life, trade and commerce,

individuals as well as business firms are turning to insurance to

manage various risks. Therefore a proper knowledge of what

insurance is and what purpose does it serve to individual or an

organization is therefore necessary. Insurance is a mechanism that

ensures an individual to thrive on adverse consequences by

compensating the individual his/her loss financially. Everyindividual in this world is subject to unforeseen and uncalled for

hazards or dangers, which may make him and his family

vulnerable. At this place, only insurance helps him not only to

survive but also recover his loss and continue his life in a normal

manner, which would otherwise be unthinkable.

1.2 MEANING OF INSURANCE

Insurance means a promise of compensation for any

potential future losses. It facilates financial protection against by


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reimbursing losses during crisis. There are different insurance

companies that offer wide range of insurance option and an

insurance purchaser can select as per own convenience and

preference.

Insurance is financial service. It is pooling of risks. In a

contract of insurance, the insurer undertakes in consideration of a

sum of money to make good the loss suffered by the insured

against a specified risk or any other contingency. There are two

parties to an insurance contract, insurance company and insured

party.

The document laying down the terms of the contract is

called insurance policy. The property, which is insured, is the

subject matter of insurance. It may be insured against loss arising

from uncertain events in a form of destruction or damage to

property or death or disablement of a person. The interest, which

the insured has in the subject matter of insurance, is known as

insurable interest.

Several insurance provide comprehensive coverage

with affordable premiums. Premiums are periodical payment and

different insurers offer diverse premium options. The periodical

insurance premiums are calculated according to total insurance

amount.

Mainly insurance is used as an effective tool of risk

management as qualified risks of different volumes can be

insured.


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1.3 DEFINITION OF INSURANCE

Insurance is a contract between two parties whereby

one party agrees to undertake the risk of another in exchange for

consideration known as premium and promises to pay a fixed sumof money to the other party on happening of an uncertain event

(death) or after the expiry of a certain period in case of life

insurance or to indemnify the other party on happening of an

uncertain event in case of general insurance.

The party bearing the risk is known as the 'insurer' or

'assurer' and the party whose risk is covered is known as the

'insured' or 'assured'.

In the words of D. S. Hansell Insurance may be

defined as a social device providing financial compensation for

the effects of misfortune, the payment being made from the

accumulated contributions of all parties participating in the

scheme.

In the words of Riegel and Miller, Insurance is a

social device where by the uncertain risks of individuals may be

combined in a group and thus made more certain, small periodic


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contributions by the individuals providing a fund, out of which,

those who suffer losses may be reimbursed.

In the words of Justice Tindall, Insurance is a contract

in which a sum of money is paid to the assured as consideration

of insurers incurring the risk of paying a large sum upon a given

contingency.

In the words of E. W. Patterson, Insurance is a contract

by which one party, for a compensation called the premium,

assumes particularly risks of the other party and promises to pay

him or his nominee a certain or ascertainable sum of money on a

specified contingency.

In the words of Justice Channel, Insurance is a contract

where by one person, called the insurer, undertakes in return for

the agreed insurer, undertakes in return for the agreed

consideration called premium, to pay to another person called

insured, a sum of money or its equivalent on specified event.

1.4 HISTORY OF INSURANCE INDUSTRY:

The origin of practice of insurance is probably lost

forever in the mists of antiquity and till today remains a mystery.

References to practices similar to insurance are found in the

ancient Indian texts of Rig-Veda. Rig-Veda refers to the concept


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of"Yogakshema" - loosely meaning 'prosperity, well being and

security of people'. Insurance has a deep-rooted history in India

since ancient times and has been mentioned in the writings of

Manu (Manusmrithi), Yagnavalkya (Dharmasastra) and

Kautilyas Arthashastra that glorified ancient India. In all these

ancient texts, the writings discuss about pooling of resources that

would be re-distributed in times of calamities or unforeseen

circumstances such as epidemics, earthquakes, fire, floods and

famine. Such writings depict that it was probably a pre-cursor to

modern day insurance. Ancient Indian history has preserved the

earliest traces of insurance in the form of marine trade loans and

carriers contracts. In India, Insurance has evolved with the

passage of time heavily drawing inspiration from other countries,

England in particular.

In 1818 the advent of life insurance business

descended in India with the establishment of the Oriental Life

Insurance Company at Kolkata. However, this company failed in

1834 as it failed to realize its goals and achieve the desired

objectives. In 1829, the Madras Equitable had begun transacting

life insurance business in the Madras Presidency. In 1870 the

British Insurance Act was enacted. Moreover, in the last three

decades of the nineteenth century, the Bombay Mutual (1871),

Oriental (1874) and Empire of India (1897) commenced their

operations in the Bombay Presidency. However, this era, was

dominated and controlled by foreign insurance companies. Such

foreign insurance companies did good business in India such as


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Albert Life Assurance, Liverpool, London Globe Insurance and

Royal Insurance.

In 1914, the Government of India started publishing

returns of Insurance Companies in India. The Indian Life

Assurance Companies Act, 1912 was the first statutory measure

to regulate life business being transacted in India. In 1938, with a

view to protect the interests of the Indian Insurance companies,

the earlier legislation was amended with the enactment of the

Insurance Act, 1938 consisting of comprehensive provisions for

effective control.

With the enactment of Insurance Amendment Act of

1950, the Principal Agencies were abolished. However, due to the

presence of large number of insurance companies across India,

the intensity level of cut-throat competition amongst such

organizations was pretty high. There were also allegations of

unfair trade practices being prevalent to a great extent. The

Government of India, therefore, decided to standardize and

nationalize the practice of insurance business.

An ordinance was issued on 19th January, 1956 for

nationalization of the Life Insurance sector in India and Life

Insurance Corporation (LIC) came into existence in the same

year. The LIC absorbed 154 Indian, 16 non-Indian insurers as

well as 75 provident societiestotally 245 Indian and foreign

insurers. The LIC had monopoly till the late 90s when the

Insurance sector was reopened to theprivatesector.

The history of general (non-life) insurance dates back


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to the Industrial Revolution uprising in the west and the

consequent growth of sea trade and commerce in the 17th century.

It came to India as a legacy of British occupation. General

Insurance in India has its roots in the establishment of Triton

Insurance Company Ltd. at Kolkata in the year 1850 by the

Britishers. In 1907, the Indian Mercantile Insurance Ltd. was

established and was the first company to transact all classes of

general insurance business. In 1957, General Insurance Council

(GIC), a wing of the Insurance Association of India was

established The General Insurance Council framed a code of

conduct for ensuring fair conduct and sound business practices

across Non-Life or General insurance sector.

In 1968, the Insurance Act was amended to regulate

investments and set minimum solvency margins. The Tariff

Advisory Committee was also established the passing of the

General Insurance Business (Nationalization) Act in 1972,

general insurance business was nationalized which came into

effect from 1st

January, 1973.

107 insurers were amalgamated and grouped into four

companies namely National Insurance Company Ltd. at Kolkata,

the New India Assurance Company Ltd. at Mumbai, and The

Oriental Insurance Company Ltd at New Delhi and the United

India Insurance Company Ltd at Chennai. The General Insurance

Corporation (GIC) of India was incorporated as a company in


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1971 and commenced its operations with effect from 1st

January,

1973.

This century has seen insurance come a full circle in a

journey extending more than 200 years. The process of

liberalization or re-opening of the Insurance sectorhad begun in

the early 1990s and in the last decade, insurance sector has been

substantially opened for participation from financially sound

Indian Private Organizations as well as foreign insurance

companies. The Government set up a committee in 1993 under

the chairmanship of R.N. Malhotra, former Governor of RBI(Reserve Bank of India), to propose recommendations for

initiation and implementation of reforms in the Indian insurance

sector. The objective of setting up this committee was to

complement the pace of reforms initiated in the financial

sector. The aforesaid committee submitted its report in 1994

wherein it was recommended that the private sector be permitted

to enter the Indian insurance sector. It also recommended the

participation of foreign companies by allowing them to enter into

an MOU (Memorandum of Understanding) by floating Indian

companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra

Committee report, the Insurance Regulatory and Development

Authority (IRDA) Act, in 1999 was passed by the Indian

Parliament. IRDA (Insurance Regulatory and Development

Authority) was constituted as an autonomous body to regulate and

develop the Indian Insurance Industry with its headquarters at


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Hyderabad. The IRDA was incorporated as a statutory body in

April, 2000. The key objectives of the IRDA include promotion

of healthy competition amongst the insurance sector players so as

to constantly enhance and exceed customer satisfaction through

mind-boggling varieties in Insurance products and services,

enhancement in consumer choice and lower premiums and at the

same time ensuring the financial stability and security.

1.5 CHARACTRISTICs OF INSURANCE:

Insurance follows important characteristicsThese are follows:

1) SHARING OF RISK

Insurance is a co-operative device to share the burden of

risk, which may fall on happening of some unforeseen events,

such as the death of head of family or on happening of marine

perils or loss of by fire.

2) CO-OPERATIVE DEVICE

Insurance is a co-operative form of distributing a certain

risk over a group of persons who are exposed to it). A large

number of persons share the losses arising from a particular risk.

3) LARGE NUMBER OF INSURED PERSONS

The success of insurance business depends on the large

number of persons insured against similar risk. This will enable


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the insurer to spread the losses of risk among large number of

persons, thus keeping the premium rate at the minimum.

4) EVALUATION OF RISK

For the purpose of ascertaining the insurance premium,

the volume of risk is evaluated, which forms the basis of

insurance contract.

5) AMOUNT OF PAYMENT

The amount of payment in indemnity insurance depends on

the nature of losses occurred, subject to a maximum of the sum

insured. In life insurance, however, a fixed amount is paid on the

happening of some uncertain event or on the maturity of the

policy.

6) PAYMENT OF HAPPENING OF SPECIFIED EVENT

On happening of specified event, the insurance company

is bound to make payment to the insured. Happening of specified

event is certain in life insurance, but in the case of fire, marine of

accidental insurance, it is not necessary. In such cases, the insurer

is not liable for payment of indemnity.

7) TRANSFER OF RISK

Insurance is a plan in which the insured transfers his

risk on the insurer. This may be the reason that may erson


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observes, that insurance is a device to transfer some economic

losses would have been borne by the insured themselves.

8) SPEADING OF RISK

Insurance is a plan which spread the risk & losses of few

people among a large number of people. John Magee writes,

Insurance is a plan by which large number of people associates

themselves and transfers to the shoulders of all, risk attached to

individuals.

9) PROTECTION AGAINST RISKS

Insurance provides protection against risk involved in life,

materials and property. It is a device to avoid or reduce risks.

10) INSURANCE IS NOT CHARITY

Charity pays without consideration but in the case of

insurance, premium is paid by the insured to the insurer in

consideration of future payment.

11) INSURANCE IS NOT A GAMBLING

Insurance is not a gambling. Gambling is illegal, which

gives gain to one party and loss to other. Insurance is a valid

contact to indemnity against losses. Moreover, insurable interest

is present in insurance contracts it has the element of investment

also.

12) A CONTRACT


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Insurance is a legal contract between the insurer and

insured under which the insurer promises to compensate the

insured financially within the scope of insurance policy, the

insured promises to pay a fixed rate of premium to the insurer.

13) SOCIAL DEVICE

Insurance is a plan of social welfare and protection of

interest of the people. Rieged and Miller observe Insurance is of

social nature.

14) BASED UPON CERTAIN PRINCIPLE

Insurance is a contract based upon certain fundamental

principles of insurance, which includes utmost good faith,

insurable interest, contribution, indemnity, cause proxima,

subrogation etc, which are operating in the various fields of

insurance.

15) REGULATION UNDER THE LAW

The government of every country enacts the law governing

insurance business so as to regulate, and control its activities for

the interest of the people. In India General Insurance Act 1972

and the Life Insurance Act 1956 are the major enactment in this

direction.

16) WIDE SCOPE


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The scope insurance is much wider and extensive various

types of policies have been developed in the country against risk

of fire, marine, accident, theft, burglary, life, etc.

17) INSTITUTIONAL SETUP

After nationalization, the insurance business in the

country is operation under statutory organization setup. In India,

the General Insurance Companies and the Life Insurance

Corporation and subsidiary companies of General Insurance

Corporation are operating the various fields of insurance.

18) INSURANCE FOR PURE RISK ONLY

Pure risks give only losses to the insured, and no profits.

Examples of pure risks are accident, misfortune, death, fire,

injury, etc., which are all the sided risks and the ultimate results in

loss. Insurance Companies issue policies against pure risk only,

not against speculative risks. Speculative risk has chances of

profit of losses.

19) BASED ON MUTUAL GOODWILL

Insurance is a contract based on good faith between the

parties. Therefore, both the parties are bound to disclose the

important facts affecting to the contract before each other. Utmost

good faith is one of the important principles of insurance.

1.6 PRINCIPLES OF INSURANCE


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(1) Indemnity

A contract of insurance is a contract of indemnity.

Indemnity means that the insured in case of loss against which the

policy has been insured, shall be paid the actual amount of loss

not exceeding the amount of the policy i.e. he shall be fully

indemnified. The purpose of contract of insurance is to place the

insured in the same financial position, as he was before the loss.

Suppose, a person insured his factory for Rs.20 lacks

against fire, the factory is partially burnt and it is estimated that a

sum of Rs.10lakhs will be required to restore it to the original

condition. The insurer is liable to pay Rs.10 lakhs only. The

exceptions to the rule are found in Personal Accident policies,

Agreed Value policies in marine insurance and Valuables and

reinstatement policies in Engineering insurance. These are also

contracts of indemnity but by a special application of the

principle, the amount of indemnity is decided at the time of

entering into the contract itself.

In certain forms of insurance, the principle of indemnity is

modified to apply. For example, in marine or fire insurance,

sometimes, certain profit margin that would have earned in the

absence of the event, is also included in the loss.

Under life insurance, the insurer is required to pay the

fixed amount in the event of death or on the expiry of the period

of the policy. Thus the contract of life insurance is not insurance

as such but it is an assurance. This is due to the reason that life


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cannot be indemnified i.e. the life of a person cannot be valued in

terms of money and therefore the question of compensation of

actual loss does not arise. Thus a contract of life insurance is a

contract of guarantee.

(2) Utmost good faith

The doctrine of utmost good faith applies to all forms of

insurance. Both parties of the insurance contract must be of the

same mind at the time of contract. There should not be any fraud,

non-disclosure or misrepresentation concerning the material facts.

An insurance contract is a contract of absolute good faith where

both parties of the contract must disclose all the material facts

truly and fully as insurance shifts risk from one party to another.

As in insurance insured knows more about the risks than the

insurer, so there must be utmost good faith and mutual confidence

between insured and insurer.

For instance, if a person suffers from a serious invisible

disease but does not disclose this fact while getting his life

insured, the insurance company can avoid the contract. Similarly

the insurer must exercise the same good faith in disclosing the

scope of the insurance, which he is prepared to grant. Breach of

good faith renders the contract voidable an initio at the discretion

of the aggrieved party. A material fact is a fact which would

influence the mind of an insurer in deciding whether he should

accept the risk, on what terms and what premium he should

charge. The utmost good faith says that all material facts should


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be disclosed in true and full form. It means that the facts should

be disclosed in that form in which they really exist. There should

no false statement and no half-truth nor any silence on the

material facts. What is a material fact depends upon the

circumstances of the particular case.

(3) Insurable interest

For an insurance contract to be valid, the insured must

have an insurable interest in the subject matter of insurance. It

means that the insured must have an actual pecuniary interest.

The insured must be so situated with regard to the thing insured

that he would have benefit by its existence and loss from its

destruction.

For instance, a person has insurable interest in his life or

in the life of the spouse but he has no insurable interest in the life

of a stranger. The owner of a building has absolute insurance

interest. If this building is financed by banks then financiers too

have their interest in the property but is limited to the extent of

their financial commitment only. The insurable interest must exist

both at the time of the proposal and at the time of claims but in

case of life insurance, insurable interest must exist only when the

policy is taken.

The essentials of a valid insurable interest are the

following:

(a) There must be a subject matter to be insured.


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(b) The insured should have monetary relationship with the subject

matter.

(c) The relationship between the insured and the subject matter should

be recognized by law i.e. there should not be any illegal

relationship between the insured and the subject matter.

(d) The financial relationship between the insured and the subject matter

should be such that the insured is financially benefited by its

existence or survival and will suffer economic loss at the

destruction or death of the subject matter.

(4) Proximate cause

The rule of proximate cause says that the cause of the loss

must be proximate or immediate and not remote. If the proximate

cause of the loss is a risk insured against, the insured can recover.

If the risk insured is the outcome of a remote cause, which is not

insured against, then the insurer is not bound to pay

compensation. Proximate cause means the active efficient cause

that sets in motion a chain of events, which brings about a result,

without intervention of any force started and working actively

from a new and independent source. That means proximate cause

is the cause which in a natural and unbroken series of events is

responsible for a loss or damage.

If there is a single cause of the loss, the cause will be

proximate cause and if the cause of loss was insured, insurer will

have to indemnify the loss. When a loss has been brought about

by two or more causes, the question arise as to which is the


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proximate cause. If the causes occurred in form of chain, they

have to be observed seriously. For the policy to cover the loss

must have an insured peril must occur in the chain of causation

that links the proximate cause with the loss. The proximate cause

is not necessarily, the cause that was nearest to the damage either

in time or in place, but is rather the cause that was actually

responsible for loss.

(5) Subrogation

The doctrine of subrogation is a corollary to the principle

of indemnity and applies only to fire and marine insurance.

According to it, when an insured has received full indemnity in

respect of his loss, all rights and remedies which he has against

third person will pass on to the insurer. The insurers right of

subrogation arises only when he has paid for the loss and this

right extends only to the rights and remedies available to the

insured in respect of the thing to which the contract of insurance

relates.

If the insured is in a position to recover the loss in full or

in part from a third party due to whose negligence the loss may

have been occurred, his right of recovery is subrogated

(substituted) to the insurer on settlement of the claim. The

insurers, thereafter, can recover the claim from the third party or

in case the lost property is recovered or the damaged property

fetches any value, the insurer will be its owner.


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Suppose, a house is insured for Rs.2 lakhs against fire,

the house is damaged by fire and the insurer pays the full value of

Rs.2 lakhs to the insured. Later on the damaged house is sold for

Rs.20, 000. The insurer is entitled to receive the sum of Rs.20,

000.

(6) Contribution

When an insured obtains more than one policy on one

risk, the principle of contribution comes into play. The aim of

contribution is to distribute the actual amount of loss among the

different insurers who are liable for the same risk under different

policies in respect of the same subject matter. That means the

insured may affect more than policy to cover the same risk, he/she

cannot recover in total more than a full indemnity (sum insured).

In other words, the right of contribution arises when

(a) There are different policies which relate to the same subject matter

(b) The policies cover the same peril which caused the loss

(c) All the policies are in force at the time of the loss and

(d) One of the insurers has paid to the insured more than his share of the

loss.

However, the principle of contribution does not apply to lifeinsurance.

(7) Mitigation of loss


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In the event of a mishap, the insured must take all

possible steps to mitigate or minimize the loss to the subject

matter of insurance. He should act in the same manner in which

he would have acted in the absence of the insurance cover. This

means that it is the duty of the insured to make a reasonable effort

and take all available precautions to save the insured property.

(8) Warranties

There are certain conditions and promises in the insurance

contract which are called warranties. Warranties which are

mentioned in the policy are called express warranties. There are

certain warranties which are not mentioned in the policy. These

warranties are called implied warranties. Warranties, which are

answers to the question, are called affirmative warranties. The

warranties fulfilling certain conditions or promises are called

promissory warranties.

Warranty is the very important condition in the

insurance contract which is to be fulfilled by the insured. On

breach of warranty the insurer becomes free from his liability.

Therefore insured must have to fulfill the condition and promises

during the insurance contract whether it is important or not in

connection with the risk. If warranties are not followed, the other

party may cancel the contract whether risk has occurred or not.

However, when the warranty is declared illegal and there is no

reverse effect on the contract, the warranty can be waived.


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Chapter No. 2

INSURANCE STRUCTURE OF INDIA

2.1 Concept of Insurance/ How Insurance Works:

The concept behind insurance is that a group of people

exposed to similar risk come together and make contributions

towards formation of a pool of funds. In case a person actually

suffers a loss on account of such risk, he is compensated out of

the same pool of funds. Contribution to the pool is made by a

group of people sharing common risks and collected by the

insurance companies in the form of premiums.

Lets take some examples to understand how insurance

actually works:

Example 1 Example 2


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SUPPOSE

-

2,00,000/-

Rs. 300/-

SUPPOSE

Physical condition =

50 years & Healthy

a yr = 50

suffered by family of each

dying person = Rs.

1,00,000/-

deaths = Rs. 50,00,000/-

Rs. 1,200/-

UNDERLYING ASSUMPTION

All 1000 house owners are

exposed to a common risk, i.e.

fire

UNDERLYING

ASSUMPTION

All 5000 persons are

exposed to common risk,

i.e. death

PROCEDURE

All owners contribute Rs. 300/- each as

PROCEDURE

Everybody contributes Rs.


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premium to the pool of funds

Total value of the fund = Rs. 3,00,000 (i.e.

1000 houses * Rs. 300)

5 houses get burnt during the year

Insurance company pays Rs. 40,000/- out of

the pool to all 5 house owners whose

house got burnt

1200/- each as premium

to the pool of funds

Total value of the fund = Rs.

60,00,000 (i.e. 5000

persons * Rs. 1,200)

50 persons die in a year on an

average

Insurance company pays Rs.

1,00,000/- out of the

pool to the family

members of all 50

persons dying in a year

EFFECT OF INSURANCE

Risk of 5 house owners is spread over

1000 house owners in the village, thus

reducing the burden on any one of the

owners.

EFFECT OF INSURANCE

Risk of 50 persons is

spread over 5000

people, thus reducing

the burden on any one

person.

2.2FUNCTION OF INSURANCE:


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Insurance becomes very useful in todays life. It plays

significant role in this competitive era. One should know the

functions of insurance According to Sir William Beveridge the

functions of insurance can be divided into three categories.

1) Primary Functions

2) Secondary Functions

3) Indirect Functions

1. PRIMARY FUNCTIONS

(A) TO PROVIDE PROTECTIONS

The most important function of insurance is to provideprotection against risk of loss. It is one cheak the reality of the

misfortune happening, and pays the cost of damages of losses.

(B) TO PROVIDE CERTANITY

PRIMARY

FUNCTION

To provide protection

To provide certainity

Distribution of risk

SECONDARY

FUNCTION

Helps in economic growth

It prevent losses

INDIRECRT

FUNCTION

A forced saving

Promote foreign trade

Others


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We know future is totally uncertain. Any misfortune

happening may occur at any stage of life. The amount of loss and

time of losses both are uncertain. No doubt better planning and

administration can reduce the chances of happening these types of

accidents but it requires lots of attention towards strengths and

weaknesses, special knowledge of the field after all these

precautions, the uncertainty remains steady. Insurance provides

certainly towards the losses. The policy holders pay the premium

to by certainty.

(C) DISTRIBUTION OF RISK

It is a co-operative effort where the risk is distributed among

the group of people. Thus, no one have to bear the losses occurred

due to uncertainty.

2. SECONDARY FUNCTIONS

(A) HELPS IN ECONOMIC PROGRESS

Insurance plays an important role in economic progress.

It gives fully certainty to the industrialists towards the risks. The

entrepreneurs can more concentrate on innovative and profitable

techniques of the production. They should not require thinking

over the risks. The industrialists can establish new industries in

environment. Thus, industries have got development in economic

and commerce of the nation.

(B) IT PREVENTS LOSSES


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Insurance plays vital role in preventing the losses. The

amount of premium is minimized by using such appliances like

the fire extinguisher. If one uses interior machinery which may be

caused for misfortune, the amount of premium will be high. Thus,

indirectly, insurance provides help to minimize the chances of

risks. It will be useful for the agencies which are directly related

with the same function like,

a) Loss prevention association of India.

b) The salvage crops of loss prevention association of India.

c) Survey and inspection of risks, etc.

3. INDIRECT FUNCTIONS

(A) A FORCED SAVINGS

Life Insurance is also a method of savings in India.

Income Tax Act gives relief in payment of income tax because

government wants to habituate general public to save money. It

encourages the habit of thrift and savings among the people.

Thus, it becomes compulsory savings to people of nation.

(B) POMOTE FOREIGN TRADE

It is compulsory to take marine insurance policy in foreign

trade in India. Foreigners cant issue the foreign trade bill unless

the cargo is fully insured. Thus foreign trade is totally depends

upon the insurance sector of the nation. It gives relief to

entrepreneurs from the uncertainty of foreign trade.


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(C) OTHERS

Insurance provides certainties towards risks in

entrepreneurship. It gives confidence in general public. It is one

of the important source of investment which develops the trade

and commerce of the nation. 26

2.3 Types of Insurance

The insurance can be divided from two angles: from

business point of view and from the risk point of view. Business

Point of View The insurance from business point of view can be

categorized into:


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.

(1) Life Insurance

Life Insurance is different from other insurance in the

sense that the subject matter of insurance is life of human being.The insurer will pay the fixed amount of insurance at the death or

at the expiry of certain period. At present, life insurance enjoys

maximum scope because each and every person requires the

insurance. This insurance provides protection to the family at the

premature death or gives adequate amount at the old age when

earning capacities are reduced.

Types of insurance plans offered in our country:

- Term assurance plans

- Whole life plans

LIFEINSURANCE

SOCIALINSURANCE

GENERALINSURANCE

OTHER

OTHER


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- Endowment assurance plans

- Assurances for children

- Family income policy

- Life annuity Joint life assurance

- Pension plans

- Unit linked plan

- Policy for maintenance of handicapped dependent

- Endowment policies with health insurance benefits

(2) General Insurance

The general insurance includes property insurance, liability

insurance and other forms of insurance. Fire and marine insurance

comes under property insurance. Liability insurance includes

motor, theft, fidelity and machine insurances to a certain extent.

The strictest form of liability insurance is fidelity insurance

whereby the insurer compensates the loss to the insured when he

is under the liability of payment to the third party.

Types of insurance policies available are:

- Health insurance

- Medi-claim policy

- Personal accident policy


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- Group insurance policy

- Automobile insurance

- Workers compensation

- Liability insurance

- Aviation insurance

- Business insurance

- Fire insurance policy

- Travel insurance policy

(3) Social Insurance

The social insurance is to provide protection to the weaker

sections of the society who is unable to pay the premium for

adequate insurance. Pension plan, disability benefits,

unemployment benefits, sickness insurance and industrial

insurance are the various forms of social insurance.

(4)OTHERS

Risk point of view Insurance can be divided into property,

liability and other forms of insurance.

Property Insurance

Under the property insurance property of a person is insured

against a certain specified risks. The risk may be fire or marine


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perils, theft of property or goods, damage to property at accident.

Examples of this are:

- Home insurance

- Business insurance

- Commercial insurance

Marine Insurance

Marine insurance provides protection against loss of marine

perils. The marine perils are collision with rock, or ship attacks by

enemies, fire and capture by pirates etc. These perils cause

damage, destruction or disappearance of the ship and cargo and

non-payment of freight. So, marine insurance insures ship (Hull),

cargo and freight. Types of policies are:

- Voyage policies

- Time policies

- Valued policies

- Hull insurance

- Cargo insurance

- Freight insurance

Fire Insurance


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Fire insurance covers risks of fire. In the absence of fire

insurance, the fire waste will increase not only to the individual

but to the society as well. With the help of fire insurance, the

losses, arising due to fire are compensated and the society is not

losing much. The individual is protected from such losses and his

property or business or industry will remain in the same position

in which it was before the loss. The fire insurance does not

protect only losses but it provides certain consequential losses

also. Policies available in this insurance are:

- Consequential loss policy

- Comprehensive policy

- Valued policy

- Valuable policy

- Floating policy

- Average policy

Miscellaneous Insurance

The property, goods, machine, furniture, automobile,

valuable goods etc., can be insured against the damage ordestruction due to accident or disappearance due to theft. There

are different forms of insurances for each type of the said

property whereby not only property insurance exists but liability


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insurance and personal injuries are also insured. Miscellaneous

insurance covers:

- Motor

- Disability

- Engineering and aviation risks

- Credit insurance

- Construction risks

- Money insurance

- Burglary and theft insurance

- All risks insurance

Liability Insurance

The general insurance also includes liability insurance

whereby the insurer is liable to pay the damage of property or to

compensate the loss of personal injury or death. The examples of

this type of insurance are fidelity insurance, automobile insurance

and machine insurance. Examples are:

- Third party insurance

- Employees insurance

- Reinsurance


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Other Forms

Besides the property and liability insurances, there arecertain other insurances, which are included under general

insurance. The examples of such insures are export credit

insurances, state employees insurance, etc. whereby the insurer

guarantees to pay certain amount at the happening of certain

events. Examples are:

- Fiduciary insurance

- Credit insurance

- Privilege insurance

2.4 NEW INSURANCE PRODUCTS

Some of the new policies are:

(1) Policies under LIC Mutual FundLIC launched its Mutual Fund with promise to the investors

to provide high returns along with safety and security of

investments. LIC Mutual Fund came up with 5 schemes which

provide distinct benefits to various cross sections of investors.The names of scheme are:

- Dhanashree 1989

- Dhan 80 cc(1)


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- Dhanavarsha

- Dhanaraksha 1989

- Dhanavridhi 1989

(2) Jeevan Akshay

In return for purchase price paid by the purchaser a

monthly pension will be paid during the lifetime of the purchaser

of the pension. On the death of the pensioner, the original amountinvested by the employee along with an additional bonus will be

returned to the nominee or his legal heirs.

(3)Jeevan Dhara

The payment of annuities in respect of policies under Jeevan

Dhara has to start one month after the completion of the

deferment period.

(4) Jeevan Kishor

Children between the ages of 1(last birthday) and 12(last

birthday) are eligible to be proposed for insurance under this plan.

(5) Jeevan Chhaya


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Couples having a child of age less than one year can avail

of this plan, in order to ensure that an adequate financial provision

is made for the higher education of the child. The child should not

have completed one year of age on the date of the registration.

Either father or mother or each one of them individually can take

policies under this plan.

(6) Jeevan Suraksha

This policy enables individuals to provide for retirement

income from a chosen date. The policy is with life cover but can

be taken without life cover under certain conditions.

(7)Rural insurance

The policies offered under this scheme are:

Personal Insurance

(a) Janta Personal Accident (Individual)

(b) Janta Personal Accident (Group)

(c)Gramin Personal Accident

Property Insurance

(a) Agricultural Pumpset

(b) Animal Driven Carts Insurance

(c) Hut Insurance

(d) Gober Gas Insurance


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(e) New Well Insurance

Cattle and Livestock Insurance

(a) Cattle Insurance

(b) Sheep and Goat Insurance

(c) Camel Insurance

(d) Horse Insurance

Poultry Insurance

(a) Duck Insurance

(b) Poultry Insurance Master Policy

(8) Insurance of Species

(9) Package Insurance

(10) Crop Insurance

(11) Medi-claim Hospitalisation and Domiciliary Hospitalisation

Insurance

(12) Overseas Medi-claim Policy

(13) Students Safety Insurance

(14) Unborn Child Welfare Insurance

(15) Cancer Medical Expenses Policy

(16) Boiler and Pressure Plant Insurance


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(17) Machinery Insurance

(18) Cold Storage Insurance

(19) Baggage Insurance

(20) Shopkeepers Insurance

(21) All Risks Cover Insurance

(22) Social Security Scheme

(23) Wedding Insurance

(24) Kidnap and ransom Insurance

(25) Travel Insurance

2.5 ADVANTAGES OF INSURANCE:

1. INVESTMENT OF FUNDS

In the cource of their business, insurance by the way of

premiums collect vast sums. Especially in life business much of it

can be invested profitably over long periods. This benefits the

nation as a whole because insurers are required by law to invest

the major portion in government securities and other approved

investment, out of which nation-building activities are

undertaken.

2. REDUCTION OF COST INSURANCE


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Income earned by investment of accumulated funds

further increases the fund and goes to reduce the cost of insurance

for otherwise the premiums would have to be higher to next

extent.

3. EFFECT ON PRICES

Manufacturers pass on the consumer, the cost of insurance

along with other production cost. Still it is beneficial to the

consumers because without insurance the cost would have been

much more.

4. INVISIBLE EXPORT

Providing insurance service overseas is our invisible

export, like export of material goods and the profit brought in is

contribution to the favorable balance of trade.

5. REDUCING COST OF SOCIAL SERVICES

No victim or heirs of a deceased victim of motor accidents

now a days goes without compensation from insurance funds

built out of compulsory insurance of motor vehicles and this is no

small benefit social relief.

2.6 LIMITATIONS OF INSURANCE:


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In spite of number of advantages of insurance, it has

certain limitations. On account of such limitations, the benefits of

insurance could not be availed in full. These limitations are:

1) All the risks cannot be insured. Only pure risks can be insured

and speculative risks are not insurable.

2) Insurable interest (financial interest) en the subject matter of

insurance either at the time of insurance or at the time of loss, or

at both the times must be present, in the absence of which the

contract of insurance becomes void.

3) In case the loss arises from the happening of the event cannot be

valued in terms of money, such risks are not insurable.

4) Insurance against the risk of a single individual or a small group

of persons are not advisable, since it is not practicable due to

higher cost involved.

5) Another important limitation is that the premium rates are higher

in our country & as such, certain category of people cannot avail

the advantage of insurance. The main reason for the higher rate of

premiums is the higher operating cost.

6) It becomes difficult to control moral hazards in insurance. There

are certain people who my stifies the insurance plans for their

self-interest by claiming false claims from insurance companies.

43

7) Insurance is not a profitable investment. Its main object is to

provide security against risks; insurance business cannot be a

source to acquire profits.


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Certain specified risks can be insured with co-operation of the

government only; such as, unemployment insurance, insolvency

of banks, food insurance, etc.

Chapter no. 3

MICRO INSURANCE IN INDIA

3.1 Introduction

India is enjoying rapid growth and benefits from a

young population. Its middle class is growing rapidly but 70


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percent of the population is still rural, often very poor, and

handicapped by poor health and health services, and low literacy

rates. Although the type of risks faced by the poor such as that of

death, illness, injury and accident, are no different from those

faced by others, they are more vulnerable to such risks because of

their economic circumstance. According to World Bank study

(Peters et al. 2002), reports that about one-fourth of hospitalized

Indians fall below the poverty line as a result of their stay in

hospitals. The same study reports that more than 40 percent of

hospitalized patients take loans or sell assets to pay for

hospitalization.

When a poors familys income generator dies, when a

child of a poor family is hospitalized, or home of a poor family is

destroys by flood, earthquake or fire. Every illness every accident

or every natural disaster leads to deeper poverty to a poor family.

Thats where micro insurance comes in. Microinsurance is the

protection of low income households against specific perils in

exchange for premium payments proportionate to the likelihood

and cost of the risk involved. It is specifically designed for the

protection of low income people with affordable insurance

products to help them cope with and recover from common risk.

A key strategy for enhancing economic development and

alleviating poverty is to make financial systems more inclusive,

for example by improving access to savings and credit services

for under-served markets. In part, Poverty stems from the fact that

low-income households and markets do not have the same

opportunities to finance, investments, accumulate capital or


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protect assets (including human assets). The poors heavy reliance

on informal financial services such as moneylenders, under-the-

mattress savings and mutual assistance societies can be

inefficient and expensive, and may even exacerbate poverty. An

inclusive financial system makes insurance available to low-

income persons.

However, many commercial insurers and

policymakers believe that providing insurance to the poor is the

responsibility of the state. Although many governments have

social protection programmes, the targeting of these schemes is

often ineffective. The poorest segments do not always benefit

from the subsidy, while people who can afford insurance often

find ways to access these benefits. In general, governments have

made little effort to shift the burden of risk-pooling to market-led

schemes; and the private sector (commercial insurers) seems to

have little incentive to seek out this market segment. In principle,

micro-insurance works like any typicaly insurance business. But

there are several things that differentiate it from normal insurance.

First, it is group insurance that can cover thousands of customers

under one contract. Second, micro-insurance requires an

intermediary between the customer and the insurance company.

Preferably, this intermediary is a non governmental organization

(NGO) or microfinance institution, for example a rural bank that

can handle the whole distribution and most of the administration

process.

3.2 Meaning of Micro Insurance


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On a daily basis, the poor around the world face a multitude

of risks that threaten to derail any progress they have made to

work their way out of poverty. The death of a family member,

lossof property and livestock, illness, and natural disasters each

pose unique dangers. Protecting peopleagainst these losses is an

important step to alleviating global poverty.

Micro insurance - the protection of low-income people

against specific perils in exchange for regular monetary payments

(premiums) proportionate to the likelihood and cost of the risk

involvedseeks to provide a suitable solution for managing these

risks.

3.3 Definitions of micro-insurance

Micro-insurance, the term used to refer to insurance to the

low-income people, is different from insurance in general as it is a

low value product (involving modest premium and benefit

package) which requires different design and distribution

strategies such as premium based on community risk rating (as

opposed to individual risk rating), active involvement of an

intermediate agency representing the target community and so

forth. Insurance is fast emerging as an important strategy even for

the low-income people engaged in wide variety of income

generation activities, and who remain exposed to variety of risks

mainly because of absence of costeffective risk hedging

instruments.


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Although the type of risks faced by the poor such as

that of death, illness, injury and accident, are no different from

those faced by others, they are more vulnerable to such risks

because of their economic circumstance. In the context of health

contingency, for example, a World Bank study (Peters et al.2002),

reports that about one-fourth of hospitalized Indians fall below

the poverty line as a result of their stay in hospitals. The same

study reports that more than 40 percent of hospitalized patients

take loans or sell assets to pay for hospitalization. Indeed,

enhancing the ability of the poor to deal with various risks is

increasingly being considered integral to any poverty reduction

strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).

Of the different risk management strategies,

insurance that spreads the loss of the (few) affected members

among all the members who join insurance scheme and also

separates time of payment of premium from time of claims, is

particularly beneficial to the poor who have limited ability to

mitigate risk on account of imperfect labour and credit markets.

In the past insurance as a prepaid risk managing

instrument was never considered as an option for the poor. The

poor were considered too poor to be able to afford insurance

premiums. Often they were considered uninsurable, given the

wide variety of risks they face. However, recent developments in

India, as elsewhere, have shown that not only can the poor make

small periodic contributions that can go towards insuring them

against risks but also that the risks they face (such as those of

illness, accident and injury, life, loss of property etc.) are


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eminently insurable as these risks are mostly independent

,idiosyncratic. Moreover, there are cost-effective ways of

extending insurance to them. Thus, insurance is fast emerging as a

prepaid financing option for the risks facing the poor.

3.4 History and Vision

The Micro Insurance Agency has its roots within

Opportunity International, a large microfinance network

motivated by Jesus Christs call to serve the poor. With a networkof 47 microfinance institutions, Opportunity International has

been serving the entrepreneurial poor since 1971. In partnership

with Opportunitys microfinance institutions, we began working

in 2002 on the development of a range of life, property, livestock,

crop derivative, disability, unemployment and health insurance

products to cover the risks faced by Opportunitys loan clients.

Micro Insurance Agency staff observed that the risks the poor

face can often set them back months and years behind where their

loans and savings products offered by Opportunity had taken

them. For instance, a death of a family member from HIV/AIDS

a pre-condition most insurance companies would not cover

would often mean expensive funeral costs and the loss of a

breadwinner, resulting in increased economic hardship for the

family. In response, Micro Insurance Agency staff developed an

affordable funeralbenefit product that did not exclude any pre-

conditions, including HIV/AIDS. This transformed the mindset of

retail insurance providers in the country, who later developed


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similar non-exclusive products in light of the competing

environment.

Through the experience of serving Opportunitys

microfinance institutions and their clients, Micro Insurance

Agency staff observed that the products most demanded by the

poor are not always the ones available. Health insurance, for

example, is a critical need of the poor but the most limited in

terms of supply. In addition, policies that are available are often

based on first world practices and are too complex for the simple

coverage demanded. Further, when offered on an individual, one-

off basis, high premium requirements and a need to pay in a

single lump sum preclude a huge sector of the market from

access. New distribution models and channels were needed to

increase access and reduce the effective price charged to clients.

In 2005, the Micro Insurance Agency was founded by

Opportunity.

Our mission is to empower the materially poor to

transform their lives by insuring them against financial risk and

its consequences. Specifically, we seek to serve the economically

active poor who live on $4 per day or less indeveloping countries

and provide a safety net to reduce economic setbacks.

3.5Characteristics/ Features of Micro Insurance

1) USAGE:

Though no figures are available on the exact size of the

microinsurance market in India, a rough estimate would place it at


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around 14m individuals, or approximately 2% of the adult

population. The low take-up can be ascribed to a general lack of

awareness of insurance as a financial product, even in the high to

middle-income market (a factor that emerged strongly from the

focus group findings). In addition a lack of rural financial services

infrastructure for distribution purposes, as well as a lack of

actuarial data, inhibit the development of the microinsurance

market.

2) PLAYERS:

Though the state-owned insurers still have the largest

market share, there are now a total of 32 licensed insurers. A

feature that sets India apart from other countries is the fact that

microinsurance is mostly provided by large, corporate insurers.

This is due to a cautious regulatory approach in response to the

fact that small and cooperative financial institutions have not

performed well historically that limits the players in the non-

bank field to large cap institutions.The cooperative/mutual sector

therefore does not feature as a provider of microinsurance, though

corporate insurers use it as a distribution channel. Informal

insurance is virtually exclusively the domain of formal entities

such as health insurance schemes not registered for insurance

purposes, rather than community risk-pooling groups, and is

estimated to only comprise 20% of the market.

3) PRODUCTS:


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Microinsurance in India is for the most part driven by

compulsory credit life insurance on the back of microfinance. Due

to the limited reach of the public health system, there is also a

high natural demand for health insurance. Many MFIs therefore

provide a package of compulsory insurance cover to their clients

that are credit-linked this includes life, asset as well as health

insurance. The cover is for the term of credit (usually 1 year).

Health cover provided in such packages is not comprehensive and

it covers only certain listed diseases for which hospitalization is

required. Accident cover is a rider on life insurance and is a fixed

payout. India is therefore fairly unique in that compulsory

insurance cover extends beyond life cover. It is estimated that

only 10% of microinsurance policies are sold on a voluntary

basis. Of these, up to 90% are endowment products rather than

pure risk products, indicating a preference among the lowincome

population for financial products that provide some payout

regardless of whether a risk event has occurred.

4) DISTRIBUTION:

Distribution is an important part of the microinsurance

landscape in India. Regulations were issued in 2005 to create a

microinsurance agent category for the dedicated distribution of

microinsurance. Currently such agents however only distribute

about 20% of all microinsurance. Instead, distribution mainly

takes place through MFIs who either do not qualify as

microinsurance agents under the regulations or who find the

regulations too restrictive, as partners or agents of formal


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insurers. We can distinguish four institutional models for

providing microinsurance which help us to understand how

corporate insurers, government bodies as well as other

institutions, such as microfinance institutions (MFIs) can play a

role:

i) PartnerAgent Model:Commercial or public insurers together with MFIs or

nongovernmental organizations (NGOs) collaboratively develop

the product. The insurer absorbs the risk, and the MFI/NGO

markets the product through its established distribution network.

This lowers the cost of distribution and thus promotes

affordability. This model of collaboration has become the

dominant approach to microinsurance in India and has

encouraged many microfinance institutions to switch from a full-

service model to the partner-agent model.

Examples of this scheme are AIDMI's Afat Vimoas well as

SEWA, a microinsurance pioneer, who offers its life, health and

asset coverage in partnership with various insurers.

ii) Community based Model:A group of people or local communities, MFIs, NGOs

and/ or cooperatives develop and distribute their own product,

manage the risk pool and absorb the risk. The Swayamkrushi

Youth Charitable Organisation (YCO) in Andhra Pradesh is an

example of a community-based model. It is primarily a savings

and credit association with added insurance features. The

cooperative's 8,100 members pay a yearly premium of Rs. 100


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into a pool managed by the cooperative and receive cover for

death and property loss. The life insurance benefit is Rs. 15,000

for a natural death, and Rs. 30,000 in the event of an accidental

death.

iii) In the in-house or full-service model:A MFI or NGO runs its own insurance scheme for its

clients and any profit or loss is absorbed by the MFI. The system

is not very common anymore but it still exists in some

organizations such as SPANDANA, located in Guntur, Andhra

Pradesh. This scheme started in urban areas and then moved to

rural ones and has expanded enormously in recent years.

iv) Provider model:Banks and other providers of microfinance can directly

offer or require insurance contracts. These are usually coupled

with credit, for example, to insure against default risk. This model

is used widely in the general insurance market but high

transaction costs and low ability to pay premiums inhibit its

extensive use in the field of disaster insurance for the poor.

3.6 Micro Insurance Products in India

Bajaj Allianz Alp Nivesh Yojana

An endowment plan with Life cover and Maturity benefit equal to

sum assured +vested bonus.


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Life cover and Maturity benefit equal to sum assured + vested

bonus

Guaranteed Surrender Value.

Avail additional benefits including Accidental Death Benefit &

Accidental Permanent Total / Partial Disability Benefit.

Bajaj Allianz Jana Vikas Yojana

A single premium plan with maturity benefit of 125% of the

single premium payable on survival till the end of the policy term.

Life Cover.

Maturity Benefit of 125%of the single premium payable on

survival till the end of the policy term.


Bajaj Allianz Saral Suraksha Yojana

The Most economical term insurance policy with return of

premium on maturity.

Return of premium on maturity.


Avail additional benefits including Accidental Death Benefit &

Accidental Permanent Total / Partial Disability Benefit.

AVIVA Lifes Grameen Suraksha

A micro-insurance rural term insurance plan for BASIX

customers. This traditional term plan has been developed with the

objective of giving the rural policyholder maximum benefits.


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The policyholder pays premium for a period of just two years and

then avails the term benefit for 5 or 10 years

The minimum sum assured is Rs 5,000 and the maximum is Rs

50,000.

In addition, tax benefits can be availed as per Section 80C of the

Income Tax Act, 1961.

BSLI Bima Dhan Sanchay

A Win-Win Situation Security plus Guarantee. The refund of

premiums paid by you is guaranteed with 3 maturity options.

Sum Assured Rs.5,000/- to Rs.50,000/-

Maximum Maturity age 65 years.

A grace period of 180 days from the premium due date will be

available to you.

An option for additional Sum Assured is available provided the

base sum assured is minimum Rs 10,000/- and the sum assured

under the rider should not exceed the sum assured under the base

product if the death occurs due to accident.

BSLI Bima Suraksha Super

BSLI Bima Suraksha Super provides you life insurance cover for

which you have to pay regular premium. The nominee gets the

sum assured in the unfortunate event of death.

BSLI Bima Suraksha Super provides you life insurance cover for

which you have to pay regular premium. The nominee gets the

sum assured in the unfortunate event of death.


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Your premium depends on your age, gender, Sum Assured and

benefit period chosen.

At maturity, there is no benefit payable.

An option for additional Sum Assured is available provided the

base sum assured is greater than or equal to 10,000/- if the death

occurs due to accident.

ICICI Pru Sarv Jana Suraksha

ICICI Prudential Life Insurance presents its first Micro Insurance

Plan - Sarv Jana Suraksha especially designed for rural

population which provides total security to you and your family,

at very affordable cost.

Min / Max entry age-18 years - 55 years.

Min/Max Sum Assured- Rs. 5,000 -Rs. 50,000.

Policy Term -5 years.

Cover ceasing age -60 years.

SBI Life insuances Grameen Super Suraksha and Grameen Shakti

SBI Life insuances Grameen Super Suraksha and Grameen

Shakti products have been designed to meet the requirements of

the weaker sections of the rural population. Grameen Super

Suraksha is a micro insurance pure term product and Grameen

Shakti is micro insurance product with ROP.Grameen Shakti is a

dual benefit life insurance product to safe guard the group

member which provides Protection with maturity benefit at


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affordable rates. It offers to the Family of the group member

Protection & it offers to the Group member survival Benefit.

Duration of plan: 5 years or 10 years as per the Group Master

policyholders choice.

Age at entry: Minimum 18 years age last birthday. Maximum 50

years age last birthday.

Sum assured: Rs.5, 000/- to Rs.50, 000/- (in multiples of 5,000)

as per choice of Master Policyholder.

Premium frequency: Yearly.

Requirement from the Group member: Automatic acceptance

linked to signature of Membership form that includes Good health

declaration and nomination clause.

Death Benefits: First 45 days after the cover start date or after the

revival date No death claim will be accepted (inclusive of

accidental death)

Form 46th day from cover start date / revival date Sum assured

is payable

Tata AIG Life Sumangal Bima Yojana

In this plan you have to pay premium for 10 years and you

get insurance protection for 15 years. Enjoy total guaranteed

returns of 120% of the total policy premium at specified intervals

during term of the policy.

Policy Term : 15 years

Premium Paying term : 10 years

Coverage Limits : Minimum Death Benefit (Sum Assured):

Rs.5,000/-


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Maximum Death Benefit (Sum Assured): Rs.30,000/-

Premium payment frequency : Monthly, quarterly, half yearly &

yearly

Survival Benefit: We shall pay you the survival benefits as below,

if you have paid all due premiums.

Tata AIG Life Sampoorn Bima Yojana

A low cost insurance plan where the policyholder receives all

the premiums paid during the policy term upon survival until the

term of the policy. Premiums are payable for only 10 years, while

the coverage is up to 15 years.



Rs.5,000/-



yearly

Death Benifit : Sum assured is paid to the policyholders nominee

Maturity benefit: At the end of the 15 years, all the premiums

paid will be returned to the policyholder.

Tata AIG Life Sampoorn Bima Yojana

A low cost insurance plan where the policyholder receives

all the premiums paid during the policy term upon survival until

the term of the policy. Premiums are payable for only 10 years,

while the coverage is up to 15 years.

Policy Term: 15 years


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Rs.5,000/-



yearly

Death Benifit : Sum assured is paid to the policyholders nominee

Maturity benefit: At the end of the 15 years, all the premiums

paid will be returned to the policyholder.

Tata AIG Life Navkalyan Yojana

A regular premium payment, low cost term plan for the rural

adults who seek life insurance protection without any maturity

benefit.



Rs.5,000/- Maximum Death Benefit (Sum Assured): Rs.50,000/-


yearly

Death Benifit : Sum assured to the policyholders nominee

Maturity benefit : None

Rider: Option to attach Accident Death Benefit Rider for issue

ages 18 to 55 years at a nominal extra charge.

IDBI Fortis Group Microsurance Plan

The first of its kind group that will be benefited by this

unique plan is Samhita Community Development Services,

announced officially by IDBI Fortis Life Insurance Co Ltd at a


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press conference held at Bhopal today. This tie-up will insure

13,356 poor members for a Sum Assured of over Rs. 7cr. in the

rural and urban areas of Madhya Pradesh.

The plan provides affordable life insurance cover to groups

offering great value to Micro Finance Institutions, Self-Help

Groups and NGOs. Not only does the plan insure the lives of their

group members and thus provide security to the group members

families, it can also be used for providing protection from loan

liabilities in the unfortunate event of the death of the main bread-

winner.

Aviva Grameen Suraksha

Grameen Suraksha is a life insurance plan that helps you

protect your family's future. While there can be no compensation

for the loss of life, Grameen Suraksha ensures that their financial

needs are met when something unfortunate happen to you.

Entry Age: 18 to 45 years

Policy Term: 5 and 10 years

Premium Paying Term: 2 years (payable in yearly mode only)

Sum Assured: Rs. 5,000 to Rs.50,000 (in multiples of Rs. 5,000

only). A grace period of one month is allowed for payment of

premium.

LIC's Jeevan Madhur

Jeevan Madhur, is available to both male & female

without any medical examination and is a simple saving related


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life insurance plan covering individuals in the age group of 18 to

60 years. Minimum sum assured under the plan is Rs. 5000 and

maximum sum assured is Rs. 30000. Mode of payment of

premium can be even weekly/fortnightly in addition to other

regular modes to suit the needs of people with low income.

Minimum premium is Rs. 25/- per week, Rs. 50/- per fortnight,

Rs. 100/- per month which is expected to be well within reach of

the targeted group. The term of policy ranges between 5 to 15

years. The policy, if kept in full force, is entitled to the simple

reversionary bonuses depending upon Corporations experience.

Accident benefit is also applicable as per terms and conditions of

the policy. After premiums are paid for 2 years, Auto Cover

facility i.e., continuance of cover even in case of inability to pay

premium up to 2 years from the date of First Unpaid premium is

available to take care of contingencies and uncertainties of

income.

LIC's Jeevan Mangal

Aterm assurance plan with return of premiums paid on

maturity. The Micro Insurance Plan Jeevan Mangal launched

today is a term assurance plan with return of premium on maturity

providing for a sum assured (risk cover) ranging from minimum

of Rs.10, 000/- to maximum of Rs.50, 000/- with an optional

accident benefit rider, together providing for total death benefit

equal to double the sum assured, on death due to accident

Met Vishwas


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It is a life insurance plan that protects you in case of death

at a nominal cost when you survive the term of the policy you get

back up to 125% of premium(in case of coverage term 10 years).

Maturity benefit: 110% of the single premium paid for a 5 year

coverage term 125% of the single premium paid for a 5 year

coverage term

Entry Age: 18 to 60years

Policy Term: 5 or 10 years

Premium Paying Term: 2 years (payable in yearly mode only)


only). A grace period of one month is allowed for payment of

premium.

SUD Life Paraspar Suraksha Plan

The scheme has been specifically designed for the weaker

sections of the society and those from the rural areas. The scheme

covers the groups of 200 and or members. The scheme is to

provide life cover at low cost to groups of persons engaged in a

common economic activity like those financed by an NGO, MFI

or Banks in rural or urban areas.

Entry Age: 18 to 50years

Group size : minimum-100, maximumno limit

Premium Paying Term:

Minimum premium- single premium-162.50, annual premium-33.50

Maximum premium- single premium-1625.0, annual premium-335.0


only)


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3.7 Development of Micro-insurance in IndiaHistorically in India, a few micro-insurance schemes were

initiated, either by non-governmental organizations (NGO) due to

the felt need in the communities in which these organizations

were involved or by the trust hospitals. These schemes have now

gathered momentum partly due to the development of micro-

finance activity, and partly due to the regulation that makes it

mandatory for all formal insurance companies to extend their

activities to rural and well-identified social sector in the country

(IRDA 2000).

As a result, increasingly, micro-finan

micro insurance in india project

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