1. CIRM Centre for Insurance and Risk Management June 4, 2008 Rupalee Ruchismita, Executive Director

2. CIRM Risks Faced By The Poor Low Income households are exposed to –Risks and Income Shocks Systemic risks –Vagaries of weather –Natural calamities –Crop failures –Price fluctuations Idiosyncratic risk –Sudden unexpected shocks that temporarily disrupt the ability to generate income Health events Life cycle events: Marriage, Death Enterprise risks Poverty and Vulnerability reinforce each other in an escalating downward spiral MDGs would be more achievable with greater penetration of social protection

3. CIRM Informal Mechanisms of Risk Mitigation  Draw upon savings  Distress sale of produce/assets  Shift to non-remunerative crops  Change of vocation  Leads to Credit at higher interest rates  Community insurance schemes best suited for idiosyncratic risks of limited capacity  Risk funds  Calamity relief  Subsidies  Minimum Support Prices Self Insurance Community Insurance Government Support India has an alarmingly low penetration of insurance at premium being only 2.9%of overall GDP

4. CIRM Where is the micro insurance sector in its life cycle? ANNUAL GROWTH % INFANCYADOLESCENCEMATURITY 20042006??? CURRENT POSITION

5. CIRM That’s how microfinance works …

6. CIRM CIRM: The Mandate Product Development Insurance and risk mitigating tools for vulnerable households Training Support Ensure delivery of Safety Net Products in a cost effective manner Advocacy, Documentation and Dissemination Best Practices to the entire ecosystem Data Warehouse Veritable source of contextual data Collaboration Insurers, Reinsurers, Research Institutes, CBFIs and Regulator OUTREACHOUTREACH DELIVERYDELIVERY INSURANCE LITERACY POLICY ADVOCACY

7. CIRM Innovations and Change makers Increasing retention: –OPSC cover for non claimants- Calcutta Kids, Micro Ensure, OIC Covering predictable events: –Consultation, transport, lab test (co pay 40%), drugs (co pay 10%), public hospital referral- CCDA, Bangladesh (1200 families) –DRG based settlement, transportation, post hospitalisation – Healing Fields, Foundation –Inpatient and outpatient cover, drugs, scale (100,000 clients, health crads and IT Platform- Microcare, Uganda One size does not fit all: –Access through multi point-of-transaction and ‘varying amounts’ leveraging technology- Max New York life Covering top of the pyramid: –Surgical (no co-pay), very high cover (200,000 max.), High avg. claims (9762K) - Yeshaswini

8. CIRM Health innovations from around the world

9. CIRM Steps to Combat Adverse Selection Mandatory enrollment Community rate premiums Minimum enrollment as a percentage of total target population Enrolment during fixed window periods Family enrolled as a unit Waiting periods for pre- existing diseases, maternity etc. especially where product is not mandatory Renewals linked to loan renewals or at designated enrolment periods only

10. CIRM Steps to Prevent Moral Hazard Product design –Co-pay, deductibles, higher trigger of cover (caution for uptake) –Inclusion of sub-limits based on unit costs Supplier Induced –Use of Diagnostic related groups for provider payments –On-line claims management –Preauthorization of claims (can work both ways!!) –Audit at hospitals, Vets, weather stations ( cost!!) Beneficiary Induced –Beneficiary Education –Waiting time to join –Co-payments Field/ Intermediary Induced –Financial deterrents (risk layering of first loss) –Monitoring

11. CIRM Learning’s- Distribution and Fraud Control Optimal use of technology (MicroCare,Uganda) Channels need to be credible (BASIX+ Royal Sun (India), Finca+AIG(Uganda) Predefined groups minimize anti-selection Family/ all cattle should be enrolled as a unit (GK, IFMR Trust) Awareness building and Education the key Online administration of claims help controls in scaled up scenarios Audits at local levels to prevent provider induced Moral Hazard (SKDRDP, own panel of doctors) Model should include local community in the management (Uplift, MIA) Processes to control ‘under the table’ or informal payments Optimal use of technology (MicroCare,Uganda) Channels need to be credible (BASIX+ Royal Sun (India), Finca+AIG(Uganda) Predefined groups minimize anti-selection Family/ all cattle should be enrolled as a unit (GK, IFMR Trust) Awareness building and Education the key Online administration of claims help controls in scaled up scenarios Audits at local levels to prevent provider induced Moral Hazard (SKDRDP, own panel of doctors) Model should include local community in the management (Uplift, MIA) Processes to control ‘under the table’ or informal payments

12. CIRM Performance Standards/ Values for Change Makers in Micro Insurance Client Focus: –Welfare impacts –Change in risk management behavior Consumer education –Content, channel, models Product features –Pricing: Technical Ability and Ability to pay, options (covers) –Distribution Incentives, sales, collections –Servicing Claims management (management and monitoring) Data Management Systems –Archiving, reliability, segregation, reporting, trasnsparency Risk Sharing and Re-insurance –Claims projection, reserve

13. CIRM Performance Standards/ Values for Change Makers in Micro Insurance The risk: –Should tend to be random (an Act of god, vs. people want to pay for predictable events) The loss: - Definite (Timing and amount, vs. value of asset (cattle type, age productivity, investment in ‘health stock’ varies) –Significant –Rate of Loss calculable A single event should not be catastrophic to the risk carrier

14. CIRM Performance Standards/ Values for Change Makers in Micro Insurance The Data Separation: –Separate data per activity and per product –Risk Management through information –Relevant and accurate data: - Limits: Costs –Important management tools (balancesheet, Cash flow, Income Statement) Claims Calculation –Premium set –Claims reserves Unearned Premium reserve, Incurred but not reported reserve, Claims in course of settlement

15. CIRM Top of the pyramid cover Yeshasvini –No co-payment or deductible, Surgery only Maximum Rs 200,000 –June 2006 to May 2007 –Incidence rate = 2.11% –Average claim Rs 9,762 –Cost of claims Rs 206 (.021 X 9762) per person Cardiac Obstetrics and Gynecology Incidence0.474%0.552% Average claimRs 22, 150Rs 4,170 Claims costRs 105Rs 23

16. CIRM Covering the predictable Healing Fields Foundation –Co-payment of 25% –DRG plus transport benefit and post hospitalization, max Rs 20,000 –Jan 2007 to Sept 2007 –Incidence rate = 2.21% –Average claim Rs 1,806 –Cost of claims Rs 40 (.0221 X 1806) per person

17. CIRM Performance Standards/ Values for Change Makers in Micro Insurance The Trends: –Claims monitoring and trend capture –Client Data Incurred date, reported date, payment date, cause, who made the claim, limitations to claim time reduction Asset diversification –Short term, long term –Investment portfolio Technical Capacity –Staff –MIS Good Product, good value, servicing - Claims rejection ratio, promptness of claims settlement, renewal ratio, solvency ratio

18. CIRM De-risking Rural Credit Ring fencing of rural portfolio of banking and financial institutions that has a weather risk component Effective risk hedging through weather derivatives will free up blocked capital Increased risk appetite coupled with weather derivatives will allow aggressive growth in rural portfolio extending credit to the vulnerable populations Portfolio Weather Hedging

19. CIRM Where is the micro insurance sector in its life cycle? ANNUAL GROWTH % INFANCYADOLESCENCEMATURITY 20042007??? CURRENT POSITION Need for Catalytic Infrastructure

20. CIRM For the jump start… Data, Data, and more Data!! –Health Exchange, Weather Exchange –Morbidity, weather, livestock Insurance Census Training and Education –Building trained professionals for the sector –Insurance Literacy material for –Insurers –Intermediaries (CBOs, Co-ops, MFIs) –Beneficiaries Enabling Infrastructure to get safety nets for all

21. CIRM Thanks Please visit us at www.ifmr.ac.in/cirm or email us at cirm@ifmr.ac.inwww.ifmr.ac.in/cirmcirm@ifmr.ac.in