1. GNBRAU/IIRM/HYDERABAD1 MICRO-INSURANCE – LIVELIHOOD NEEDS OF THE POOR G.N. BHASKAR RAU IIRM / HYDERABAD

2. GNBRAU/IIRM/HYDERABAD2 INSURANCE: RURAL & SOCIAL SECTORS What is “rural” ?

3. GNBRAU/IIRM/HYDERABAD3 INSURANCE: RURAL & SOCIAL SECTORS   Several definitions for ‘rural sector’ RBI : 4 different entities ….all based on population size only Density or the occupations of the populations are not considered Area with population less than 10000……….Rural

4. GNBRAU/IIRM/HYDERABAD4 INSURANCE: RURAL & SOCIAL SECTORS Census of India (1991) : considers size of population; occupations pursued by the population; and also the density of the population   Defines ‘urban area’ only as an area with:…. Minimum population : 5000; 75% of population of male workers engaged in non-agricultural pursuits; population density of at least 400 / sq.km. All other areas are rural

5. GNBRAU/IIRM/HYDERABAD5 INSURANCE: RURAL & SOCIAL SECTORS IRDA definition of ‘rural’ area: Population less than: 5000; 75% of population of male workers engaged in agricultural pursuits; population density of at least 400 / sq.km.

6. GNBRAU/IIRM/HYDERABAD6 INSURANCE: RURAL & SOCIAL SECTORS Insurers obligations to rural sector Life insurer: 1 st Financial year : 5% of the new policies to be sold 2 nd Financial year : 7% of the new policies to be sold 3 rd Financial year : 10% of the new policies to be sold 4 th Financial year : 12% of the new policies to be sold 5 th Financial year : 15% of the new policies to be sold

7. GNBRAU/IIRM/HYDERABAD7 INSURANCE: RURAL & SOCIAL SECTORS Insurers obligations to rural sector Non - life insurer: 1 st Financial year : 2% of total gross premium written 2 nd Financial year : 3% of total gross premium written 3 rd Financial year onwards…….: 5% of total gross premium written

8. GNBRAU/IIRM/HYDERABAD8 INSURANCE: RURAL & SOCIAL SECTORS SOCIAL SECTOR sub-category of ‘rural’ category mostly economically underprivileged in rural areas

9. GNBRAU/IIRM/HYDERABAD9 INSURANCE: RURAL & SOCIAL SECTORS SOCIAL SECTOR Also includes in both rural and urban areas: unorganized sector informal sector economically vulnerable sector backward classes….etc.

10. GNBRAU/IIRM/HYDERABAD10 INSURANCE: RURAL & SOCIAL SECTORS Insurers obligations to social sector For both Life and Non - life insurers: 1 st Financial year: 5000 new lives 2 nd Financial year: 7500 new lives 3 rd Financial year: 10000 new lives 4 th Financial year: 15000 new lives 5 th Financial year: 20000 new lives

11. GNBRAU/IIRM/HYDERABAD11 INSURANCE: RURAL & SOCIAL SECTORS Over the past two decades economists and policy-makers have recognized the need for a newer approach to economically up-lift the rural masses THE NEW VERSIONS ARE MICRO-FINANCE AND MICRO INSURANCE

12. GNBRAU/IIRM/HYDERABAD12 MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES   THE MARKET: The size, the nature and the variety   THE ENTRY BARRIERS: The Physical barriers, the Mindsets, and the Level of Comprehension

13. GNBRAU/IIRM/HYDERABAD13 MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES   MICRO-INSURANCE UNITS: The Individual or the Household? Or the Guilds?   MICRO-INSURANCE TOOLS: The Basic Tools of Micro-insurance and the connected Issues   THE STRATEGIC IMPLEMENTATION: Distribution Channels, The Banking Network, The NGO Network, The Performance Process etc

14. GNBRAU/IIRM/HYDERABAD14 MICRO-INSURANCE : ISSUES, CHALLENGES AND STRATEGIES   MICRO-INSURANCE RISKS: Yield Risk – Event Risk – Price Risk   MICRO-INSURANCE PERILS: Named Perils – All Perils – Packaged Perils   MICRO-INSURANCE PRODUCTS: Suggested Model

15. GNBRAU/IIRM/HYDERABAD15 MICRO-INSURANCE :   THE CORE CONCEPT: POVERTY ALLEVIATION POVERTY MITIGATION DISCUSSIONS ON “ANTI-POVERTY” PROGRAMS DATES BACK TO 1901.

16. GNBRAU/IIRM/HYDERABAD16 MICRO-INSURANCE : EARLIEST PROGRAMS: INDEPENDENT INDIA LAUNCHED:   NATIONAL RURAL EMPLOYMENT PROGRAM   RURAL LANDLESS EMPLOYMENT GUARANTEE PROGRAM ETC.

17. GNBRAU/IIRM/HYDERABAD17 MICRO-INSURANCE MARKET : THE SIZE: “RURALITY” AS THE BASIS: 70 % OF INDIA’S POPULATION LIVES IN RURAL AREAS

18. GNBRAU/IIRM/HYDERABAD18 MICRO-INSURANCE MARKET : THE SIZE: (contd) “POVERTY LEVEL” AS THE BASIS: 1/3 OF INDIA’S POPULATION LIVES IN POVERTY

19. GNBRAU/IIRM/HYDERABAD19 MICRO-INSURANCE MARKET : THE NATURE OF THE MARKET: AGRO-BASED ILLITERATE TRADITIONAL MALNUTRITION AND HEALTH ISSUES EXPLOITED DISPERSED

20. GNBRAU/IIRM/HYDERABAD20 MICRO-INSURANCE MARKET : THE VARIETY OF THE MARKET: WIDE VARIATIONS FARM AND NON-FARM POVERTY SOME PARTS PARTLY UNDER EFFECT OF “GREEN REVOLUTION”

21. GNBRAU/IIRM/HYDERABAD21 MICRO-INSURANCE MARKET : THE VARIETY OF THE MARKET: (contd) VARIED SIZES OF FARM UNITS MORE OF SMALL-SCALE FARMERS SUBSTINENCE FARMERS SPREAD OF UNITS

22. GNBRAU/IIRM/HYDERABAD22 MICRO-INSURANCE MARKET : THE VARIETY OF THE MARKET: (contd) “RURBANS”…?

23. GNBRAU/IIRM/HYDERABAD23 MICRO-INSURANCE MARKET : ENTRY BARRIERS : LOW LITERACY LEVELS LACK OF INFORMATION LESS PRONE TO NEW CONCEPTS

24. GNBRAU/IIRM/HYDERABAD24 MICRO-INSURANCE MARKET : ENTRY BARRIERS : (contd) COMMUNITY DECISIONS BY THEIR “ELDER” SMALL AND SUBSTINENCE FARMS LOW YIELDS AND PROFITS INSURANCE NOT ATTRACTIVE

25. GNBRAU/IIRM/HYDERABAD25 MICRO-INSURANCE MARKET : ENTRY BARRIERS : (contd) WIDE DISPERSION OF FARMS DISTRIBUTION ISSUES LOSS ASSESSMENT ISSUES LOCAL POLITICAL INFLUENCE

26. GNBRAU/IIRM/HYDERABAD26 MICRO-INSURANCE MARKETING UNITS: INDIVIDUALS? HOUSEHOLDS? ORGANIZATIONAL UNITS?

27. GNBRAU/IIRM/HYDERABAD27 MICRO-INSURANCE MARKETING BASIC RISKS TO COVER: YIELD RISK EVENT RISK PRICE RISK WITH OR WITHOUT REINSURANCE ?

28. GNBRAU/IIRM/HYDERABAD28 MICRO-INSURANCE TOOLS: PERILS: NAMED PERILS? ALL-PERILS? PACKAGED PERILS?

29. GNBRAU/IIRM/HYDERABAD29 MICRO-INSURANCE TOOLS: PRODUCTS: AGRICULTURAL INSURANCE RODUCTS? CROP INSURANCE PRODUCTS? WEATHER INSURANCE PRODUCTS? PACKAGED / BUNDLED PRODUCTS?

30. GNBRAU/IIRM/HYDERABAD30 MICRO-INSURANCE TOOLS: DISTRIBUTION CHANNELS: GOVRNMENT ORGANIZATIONS? NON-GOVERNMENT ORGANIZATIONS? SELF HELP GROUPS?

31. GNBRAU/IIRM/HYDERABAD31 MICRO-INSURANCE TOOLS: DISTRIBUTION CHANNELS: FARMERS’ COOPERATIVES? BANCASSURANCE MODELS? MICROFINANCE COMPANIES?

32. GNBRAU/IIRM/HYDERABAD32 MICRO-INSURANCE TOOLS: SUGGESTED MODEL : SUGGESTED UNITS: ORGANIZATIONAL UNITS Ex: Co-operatives

33. GNBRAU/IIRM/HYDERABAD33 MICRO-INSURANCE TOOLS: SUGGESTED MODEL : SUGGESTED UNITS: ORGANIZATIONAL UNITS : ADVANTAGES: INCLUDE ALL THE MEMBERS EVEN THE SMALLEST FARMER EASY FOR MARKETING EASY FOR CLAIM SETTLEMENTS

34. GNBRAU/IIRM/HYDERABAD34 MICRO-INSURANCE TOOLS: SUGGESTED MODEL : SUGGESTED UNITS: (contd) ORGANIZATIONAL UNITS : ADVANTAGES: MOST OF THE ENTRY BARRIERS CLEARED see the next slide

35. GNBRAU/IIRM/HYDERABAD35 MICRO-INSURANCE TOOLS: SUGGESTED MODEL : SUGGESTED UNITS: (contd) Entry barriers cleared: LOW LITERACY LEVELS ; LACK OF INFORMATION; LESS PRONE TO NEW CONCEPTS; DECISIONS BY THEIR “ELDER” ; SMALL AND SUBSTINENCE FARMS ; LOW YIELDS AND PROFITS; INSURANCE NOT ATTRACTIVE ; WIDE DISPERSION OF FARMS ; DISTRIBUTION ISSIES

36. GNBRAU/IIRM/HYDERABAD36 MICRO-INSURANCE TOOLS: DISTRIBUTION CHANNELS: (suggested) FARMERS’ COOPERATIVES + MICROFINANCE COMPANIES OR

37. GNBRAU/IIRM/HYDERABAD37 MICRO-INSURANCE TOOLS: DISTRIBUTION CHANNELS: (suggested) FARMERS’ COOPERATIVES + BANCASSURANCE MODELS

38. GNBRAU/IIRM/HYDERABAD38 MICRO-INSURANCE TOOLS: SUGGESTED DISTRIBUTION CHANNELS: advantages: Combination of Farmers’ Cooperatives and Microfinance Companies   Microfinance companies’ credit risk gets micro- insurance cover   Micro-insurance cover for Farmers’ Cooperatives gets Microfinance benefits on better terms

39. GNBRAU/IIRM/HYDERABAD39 MICRO-INSURANCE TOOLS: SUGGESTED DISTRIBUTION CHANNELS: advantages: Combination of Farmers’ Cooperatives and Bancassurance Model   Wider Banking Network   Banker of Farmers’ Coops can provide micro- insurance   Easier Accounting

40. GNBRAU/IIRM/HYDERABAD40 MICRO-INSURANCE TOOLS: SUGGESTED RISKS TO COVER: YIELD RISK : AN AGREED AMOUNT YIELD VALUE COMMENSURATE TO INPUT VALUES IF THE FARMERS’ COOPS ARE ALSO STAKE-HOLDERS THE INPUTS VALUES AND YIELD VALUES ARE EASIER ARRIVED AT

41. GNBRAU/IIRM/HYDERABAD41 MICRO-INSURANCE TOOLS: SUGGESTED RISKS TO COVER: EVENT RISK : THE EVENT COULD BE: CLIMATIC RISKS WEATHER RISKS RAINFALL – LOW / HIGH

42. GNBRAU/IIRM/HYDERABAD42 MICRO-INSURANCE TOOLS: SUGGESTED RISKS TO COVER: EVENT RISK LEADS TO YIELD RISK HENCE YIELD RISK IS SUGGESTED; EASILY MEASURABLE; VARIATION OF EVENT RISKS OVER REGIONS AVOIDED

43. GNBRAU/IIRM/HYDERABAD43 MICRO-INSURANCE TOOLS: SUGGESTED RISKS TO COVER: PRICE RISK YIELD NORMAL; PRICES CRASH; LOSS OCCURS; NEED FOR INSURANCE COVER HENCE SUGGESTED RISKS………….

44. GNBRAU/IIRM/HYDERABAD44 MICRO-INSURANCE TOOLS: SUGGESTED RISKS TO COVER: BASIC COVER ON ……YIELD RISK AGREED AMOUNT COMMENSURATE TO INPUTS ADDITIONAL COVER….PRICE RISK MINIMUM GUARANTEE OF PRICE BASED O PREVIOUS YERS’ PRICES(AVERAGE)

45. GNBRAU/IIRM/HYDERABAD45 MICRO-INSURANCE TOOLS: SUGGESTED PERILS TO COVER: PACKAGED PERILS Uniformity is achieved; Beneficiaries not knowledgeable to choose perils; Pricing and costing to the yield risk coverage made easier

46. GNBRAU/IIRM/HYDERABAD46 MICRO-INSURANCE TOOLS: SUGGESTED PRODUCTS: SINCE THE MODEL SUGGESTS …. PACKAGED PERILS…. THE SUGGESTED PRODUCT IS ALSO PACKAGED PRODUCT

47. GNBRAU/IIRM/HYDERABAD47 MICRO-INSURANCE TOOLS: THE RATIONALE FOR THE SUGGESTED MODEL RURAL POOR ….BASICALLY EXPOSED TO CREDIT RISK INCURRED FOR LIVELIHOOD (PRODUCTION)

48. GNBRAU/IIRM/HYDERABAD48 MICRO-INSURANCE TOOLS: THE SUGGESTED MODEL: THE RATIONALE (CONTD) “CREDIT” IS A DIRECT FINANCIAL RISK AFFECTED BY CERTAIN OTHER INDIRECT (NON)FINANCIAL RISKS WHICH ALSO REQUIRE COVER

49. GNBRAU/IIRM/HYDERABAD49 MICRO-INSURANCE TOOLS: INDIRECT (NON)FINANCIAL RISKS BEYOND CONTROL OF BENEFICIARY THAT AFFECT THE DIRECT CREDIT RISK   Loss of life of the beneficiary   Temporary Disability due to health issues   Permanent Disability due to accidents / sickness   Damage to tools / equipment   Fire / Theft / Storage loss due to floods or rains

50. GNBRAU/IIRM/HYDERABAD50 MICRO-INSURANCE TOOLS: MICRO-INSURANCE POLICY BENEFITS (SUGGESTED)   “C” IS THE BASIC AMOUNT OF BENEFIT   “C” IS BASED ON (YIELD RISK + PRICE RISK)   “C” : VALUE OF THE DIRECT “CREDIT RISK”   “C” : PAYABLE IF ONLY “YIELD” AND / OR “PRICE” ARE AFFECTED (contd)

51. GNBRAU/IIRM/HYDERABAD51 MICRO-INSURANCE TOOLS: MICRO-INSURANCE POLICY BENEFITS: BENEFITS FOR INDIRECT RISKS:   Loss of life: 1.5 C (The extra 0.5 C is to stabilize the family of the borrower even after the redemption of his borrowings)   Disability Benefit (if temporary) : 0.5 C (For primary health care) (contd)

52. GNBRAU/IIRM/HYDERABAD52 MICRO-INSURANCE TOOLS: MICRO-INSURANCE POLICY BENEFITS: BENEFITS FOR INDIRECT RISKS:   Disability Benefit (if permanent) : 2 C (The extra C is towards provision of some interest yielding capital to sustain the daily living of the family. The M.F.I / Bank / FC’s can provide this facility)

53. GNBRAU/IIRM/HYDERABAD53 MICRO-INSURANCE TOOLS: RISK FINANCING: (Suggested)   THROUGH PREMIUMS Are the premiums actuarially based? Some suggest ‘disregard to actuarial bases’ for micro- insurance…as a social security (contd)

54. GNBRAU/IIRM/HYDERABAD54 MICRO-INSURANCE TOOLS: RISK FINANCING: (Suggested)   THROUGH PREMIUMS for the INDIRECT NON-FINANCIAL RISKS this Model suggests ‘Group Life Premiums’ to be charged on actuarial principles ……….. and…... (contd)

55. GNBRAU/IIRM/HYDERABAD55 MICRO-INSURANCE TOOLS: RISK FINANCING: (Suggested)   THROUGH PREMIUMS for the DIRECT FINANCIAL CREDIT RISKS this Model suggests ‘Premiums’ to be charged on total actuarial liability of the entire group’s credit liability (contd)

56. GNBRAU/IIRM/HYDERABAD56 MICRO-INSURANCE TOOLS: RISK FINANCING: (Suggested)   “FUNDING” BY ORGANIZATIONS The ‘premium funding’ (mentioned earlier) may mostly be insufficient to meet the ‘pay-out’ liabilities of the group….necessitating ‘funding’ by organizations………………….like….

57. GNBRAU/IIRM/HYDERABAD57 MICRO-INSURANCE TOOLS: RISK FINANCING: (Suggested)   “FUNDING” BY ORGANIZATIONS …like…   CARE FOUNDATION   REINSURANCE PROGRAMS   GOVERNMENT SUBSIDY   SOCIAL ORGANIZATIONS…...   NGO’s…….etc.

58. GNBRAU/IIRM/HYDERABAD58 MICRO-INSURANCE CONCLUSION CORE CONCEPT IS POVERY ERADICATION. THEREFORE, MICRO-INSURANCE SHOULD BE PLANNED AS A SOCIAL SECURITY MEASURE….NOT AS A BUSINESS ENTERPRISE FOR MERE PROFITS THE ‘REGULATORS’ SHOULD (IRDA, RBI & THE GOVERNMENTS) PROVIDE POSSIBLE ‘SOPS’ AND ‘CUSHIONS’

59. GNBRAU/IIRM/HYDERABAD59 MICRO-INSURANCE ACKNOWLEDGEMENTS:   WORLD BANK REPORTS   SEMINAR PAPERS ON SHG-BANK LINKAGE PROGRAMME, NEW DELHI, 2002   VARIOUS PAPERS BY RESEARCHERS (Lall, Mohan, Natarajan, 2001, Ghosh 1998, and others)   WORKSHOP ON MICROINSURANCE (IRDA, IIRM, USAID), 2005   POVERTY, AGRARIAN STUCTURE, POLITICAL ECONOMY IN INDIA – PRANAB BARDHAN, OXFORD UNIVERSITY PRESS, 2003

60. GNBRAU/IIRM/HYDERABAD60 THANK YOU G.N. BHASKAR RAU IIRM / HYDERABAD