D Sattaiah VP Corporate HR & Insurance Risks faced by Rural Households and Private Sector Insurance Initiatives in India A paper presented on Aug 10, 2007 at Policy Forum of Agriculture and Rural Development for reduction of poverty and hunger in Asia: In pursuit of inclusive growth and excellence D Sattaiah VP Corporate HR & Insurance

Indian Scenario 72.4% Population is engaged in Agriculture 72.3% Households live in Rural Areas 28.3% Rural poverty (27.5% overall poverty) Entire rural sector is un-organized 99% rural HH in un-organized sector Overall 92% in unorganized sector and Unorginsed sector contributes 40% of GDP Literacy over 64%

Indian Workforce Workers Total Main Rural Urban 401 (100%) 312 (78%) Marginal Rural Urban 401 (100%) 312 (78%) 89 (22%) 308 (77%) 93 (23%) Farmers 32% 26% 6% 31% 1% Agri Labour 27% 16% 11% HH Industries 4% 3% Others 38% 33% 5% 18% 20%

Vulnerability to risks is higher for those in the lower economic rungs Households Income/Assets Poverty Line A dose of micro-credit/ Ag-BDS Risk event Time Hence poor household insurance needs are obvious

Risk coping mechanism of rural poor Covariance . Asset sale, Migration Borrowings, Asset Pledging Savings – Self Insurance Severity

Indian Insurance Sector Public Insurers Monopoly till year 2000. Today 24 private insurers in market Penetration is < 3% insurable population as per GTZ study Ranks 19 in aggregate premium and 54 in penetration Mandated target to reach under Rural sector business Life - 7% polices in year 1 to 18% in year 6; General 2% in year 1 to 5% in year 3 and so on Social Sector – 5,000 polices in year 1 to 25, 000 in year 6 for both Life & General IRDA Micro Insurance Guidelines Products limits defined – commission for agents enhanced – given additional roles to mediators Micro Finance Institutions given a vital role

Insurable Risks Faced by Rural Households Occupation (% rural workers) Means of Income Risks faced Possible Insurance Products Farmers (31% ) Farming Yield Risk Crop Insurance, Weather insurance Price Risk Produce damage Implements damage Asset Insurance Livestock Death & Disability Livestock Insurance Labourers (26%) Human Body Illness, Accidental injuries, Scarcity of wage employment Health Insurance, Rainfall Insurance Artisans Machines/Tools Breakdown & Damage Asset Insurance, Accident insurance Traders Stock Theft, damage Fire Policy For all households Life Insurance, Health, Disability Insurance

There are two types of products available Group Products Designed and delivered to an existing group of people Such groups availability is limited Most of the time they are linked to along with other services Operating costs are low Retail Products Voluntary - Sold Cost of selling and servicing is disproportionately high

Rural household common insurance needs – and retail products available Possible Insurance Products Public Insurers (1) Private Insurers (15) Term Life Insurance including accidental death benefits Only one product – Jana Shree Yojana – funded by Social Security Fund Most of the Companies have such nominal products but with very limited out reach to poor Health Insurance, All the 4 companies offer Universal Health Insurance Product funded by the Union Government – but with very limited out reach - Nil- Household item Insurance Not being offered currently. There were few products

Farmer Insurance needs & retail products available Possible Insurance Products Public Insurers Private Insurers Crop Insurance Offered by only AIC - Nil- Weather Insurance Offered by AIC Only 2 companies offer (ICICI Lombard & IFFCO Tokyo) Electrical Electric Pump Insurance Available but not sold actively Only 2 or 3 companies offer this product Livestock Insurance Offered by all 4 companies but with limited out reach Only 2 to 3 companies offer this product (Royal Sundaram)

Labour insurance needs and retail products available Possible Insurance Products Public Insurers Private Insurers Rainfall Insurance – for wage loss compensation; community assets like ponds for fishing Nil- -Nil - Accident Policy – particularly to cover the prominent risks coming out of the nature of labour engaged in Janata Accident Policy available but wit limited reach - Nil-

Artisans/enterprise holder – retail products available Possible Insurance Products Public Insurers Private Insurers Asset Insurance for traders, service providers and petty manufacturers Nil – Has shop keepers policy where the deduction is minimum Rs 10,000, hence excludes all the tiny enterprisers Only one company is offering the product – Royal Sundram Alliance General Insurance Company( Royal Sundaram) Sheep insurance Nil- Though used to be available One company is offering but very insignificant reach (Royal Sundaram)

Mission of BASIX Is to promote large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner. BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital markets and human resources on a continuous basis.

Our Strategy IDS Livelihood Triad LFS Ag/BDS (Institutional Development Services) Livelihood Triad LFS (Livelihood Financial Services) Ag/BDS (Agriculture/ Business Development Services)

BASIX’s Approach to insurance services Offer products Distribute Insurance Insurer BASIX Rural Customer Inputs for products Feedback on needs

BASIX collaborations in insurance Life Insurance -AVIVA Health Insurance-Royal Sundaram Livestock Insurance –Royal Sundaram Micro-Enterprise-Royal Sundaram Rainfall Insurance- ICICI Lombard BASIX Equity for Equity

Products performance as on 31-03-2007 Since Coverage (cum) person/policy years Claims (cum) Premium outgo current and cumulative Life – Group Oct-2002 500,000 1,487 93% (68%) Health May-2005 335,000 4,033 31% (24%) Livestock 34,000 1,005 98% (95%) Rainfall June-2003 18,500 3,716 144% (87%) M. Enterprise Mar-2006 4,500 7 144% -Too early to assess 10,248

Technology use Use software for insurance transactions Se up Rural BPO for efficient transactions Use online training facility On line premium and claim transactions between BASIX and Insurer

Key Innovations … Life Group product Life retail product Non exclusion of suicide for benefit Life retail product Coverage starts from 10th day of premium payment 1 year grace period for premium payment Limited Health Insurance – Group product BASIX deployed claim facilitators who help insured to get medical care and build claim form

…. Key Innovations Livestock –retail product Rainfall – retail product Overcome the constraint of lack of veterinarian by Insurability certification by BASIX staff – (Non veterinarians) Claims certification by surveyor Rainfall – retail product Product structure based on local crops, customer choice on trigger points and premium sizes Facilitate set up the rain gauge stations by private company NCSML Micro enterprise – retail product Deduction of 10% of SI or 500 whichever is maximum

Insurance –Challenges & Possible responses Sell insurance concept to poor Educate on insurance utility Sell protection products first Demonstrate the effect of insurance; Exempt from taxes Efficient distribution Collaborate with alternate channels and share expertise Pay remunerative commissions – a minimum level of commission to be allowed Come out with appropriate product and process Rationalize products , Simplify process and Adopt technology support,

Potential Strategy for Insurers Product Needs order of priority Premium to cover Investment + Savings + Term Risk, Expenses & profit through product differentiation Higher Income Risk, Expenses &marginal profit Protection+ Savings Middle Income Lower Income 26% Risk to begin with and costs increasingly Protection

Thank you dsattaiah@basixindia.com www.basixindia.com