Creating a purple patch: Social Security for poor March 17, 2010 Financial Inclusion & Responsible Microfinance New Delhi

Needs pyramid Source : National sample survey organization (NSSO), Government of India, FINCA’s poverty pyramid People who have few (if any) assets – very limited chances to earn money Credit Savings Entrepreneu rial Poor Self Employed Poor Laboring Poor Very Poor People who are slightly below the poverty line Insurance Poor people who are meeting their basic needs by running micro-businesses Farm laborers, domestics and unemployed workers Safety Net Program Income increasing across socioeconomic classes Availability of credit restricted to lesser categories Most of the other classes still dependant on savings Making them very vulnerable to risks and uncertainties

Impact of risk and response CONSEQUENCES Income Loss Asset Loss Need for Lump sum Cash CONSEQUENCES Income Loss Asset Loss Need for Lump sum Cash RESPONSE Use Savings Borrow: Informal/Formal sources Sells assets RESPONSE Use Savings Borrow: Informal/Formal sources Sells assets SECONDARY IMPACTS Diversion of household resources Depleted financial reserves Indebted for future income Loss of income Loss of access to financial markets SECONDARY IMPACTS Diversion of household resources Depleted financial reserves Indebted for future income Loss of income Loss of access to financial markets RISK Protection : Affordability+Availability+Awareness Protection : Affordability+Availability+Awareness Specific to household  Health Events  Life Cycle Event Covariate (common)  Weather variations  Natural calamity  Epidemic  Crop failure  Price fluctuations

Protection tools: Current landscape General Insurance penetration is 0.6% of GDP as compared to world average of 2.14% Despite rising rural prosperity Attributed to low consumer preference, untapped rural markets and constrained distribution channels A survey conducted among urban and rural below poverty line showed 67% of the respondents had used private healthcare Spent Rs.100 to 250 per family per year on out patient services Approximately 45% of the families borrowed money for health needs Nearly 94% of the families had borrowed less than Rs.5000 Source :SKS Survey, ; Health insurance trends

Micro-insurance fundamentals... Illiterate population Simple Products Transparent process Quantification of Benefits Simple Products Transparent process Quantification of Benefits Infrastructur e Online – Offline solutions, Smart cards Over the counter enrolment Door step service at villages Online – Offline solutions, Smart cards Over the counter enrolment Door step service at villages Products Index based weather products Limited access healthcare -Micro Health Insurance Protecting income generation assets -2W, Shops, Pumps Index based weather products Limited access healthcare -Micro Health Insurance Protecting income generation assets -2W, Shops, Pumps Admin Direct Sales Model- Rural Agents Kiosks Use of alternate channels- Rural financial institutions, MFIs, SHGs, Rural Retail chains Direct Sales Model- Rural Agents Kiosks Use of alternate channels- Rural financial institutions, MFIs, SHGs, Rural Retail chains

Universal insurance solution Need for integrated coverage Life, Accident, Health, Property, Weather Simple and easy language Flexible payment options Ex. Sampoorna Suraksha program launched with a NBFC, awarded with Golden Peacock Award for Service in Jan 2010 Packaged offering: Major illness, Accident, Life, Shop cover Multi lingual policy wordings Premium linked with loan installments

Adverse selection Moral hazard High operation costs Product understanding Mandatory/Minimum Enrolment, Fixed Window periods Renewal linked to loan Renewal, Pre-authorization, Co- payments Optimal use of Technology, simpler documentation Marketing initiatives at village level and doorstep education Out Patient Clinics, Mapping of Health Seeking behavior and referrals Effective grievance, re-dressal in public meetings, Timely payments Biometric Identification, Audits and Analysis of claims Networking of Credible Providers, Audits Inadequate infrastructure Lack of trust Fraud Quality Essentials at solution design stage

Multi- channel approach Last Mile Connectivity Reaching the target Audience Creating basic visibility Mass media used to reach wider groups Focused discussions with groups at the villages Marketing initiatives at village level Health camps Capacity building measures undertaken Creating basic visibility Mass media used to reach wider groups Focused discussions with groups at the villages Marketing initiatives at village level Health camps Capacity building measures undertaken Awareness Availability Distribution Availability Distribution Rural agents E-enabled kiosks Micro-finance Institutions Govt. subsidized/ funded schemes

Distribution channels Partner - Agent Full Service Com- munity based Provider based Insurers use MFI’s delivery mechanism to provide sales & Service No risk participation from MFI Administrative responsibility shared Ex: BASIX, AP Service provider and Insurer are same Hospitals offer the protection and delivery as packaged offering Ex: Yashasvini Scheme in Karnataka Provider/Institution takes responsibility of product, process Insurer takes financial risk & protection to provider Ex: SEWA, Gujarat; Dharmasthala, Karnataka Policy holders own and manage the insurance program Negotiate with external health care providers Ex: UPLIFT, Pune

Myth : Rural markets are expensive Truth : Rural insurance is not only commercially viable but also profitable TRUST is the key success factor Improving the lives of the billions of people at the bottom of the pyramid is a noble endeavour. It can also be a lucrative one…C.K. Prahalad Fairly priced & a relevant product Cost effective distribution Administration using technology Assuring accessibility & quality Experimentation Innovatio n Time Flexible Policy In conclusion

Thank you