1. Making the State and Market work for the Poor: Poverty elimination in Andhra Pradesh (A.P.), India Raghunadan Rao Project Director, District Rural Development Agency Andhra Pradesh, INDIA Vijay Kalavakonda Financial Markets for Social Safety Nets Financial & Private Sector Vice Presidency The World Bank, Washington DC

2. Outline PART – 1 –Overview of the Andhra Pradesh (INDIA) Project (i.e., context setting) –Findings of the Social Risk Management Study (i.e., basis for insurance intervention) PART – 2 –Community managed LIFE INSURANCE PART – 3 –Role of the World Bank –Role of Regulators –Moving Forward (i.e., our vision) Q & A

3. Statewide, community demand driven (CDD), rural poverty reduction project Started in year 2000, BUT builds on 15 years of statewide women’s self-help thrift movement. Financed by the World Bank. Total Project outlay – US$ 467 million, covering 910 mandals. Project till Sept 2008 All project interventions are planned and implemented by the institutions of the poor. Coverage: to cover all rural poor households in A.P estimated at 8.0 million families Integral part of the state’s strategy for poverty eradication and good governance - builds poor people’s voice The A.P. Model – Indira Kranthi Patham (IKP)/ VELUGU

4. The main objective is to enable the rural poor in the state, particularly the poorest of the poor to improve their livelihoods and quality of life through building their own institutions Project design based on “faith in the capabilities” of poor to come out of poverty. Project’s mission is to enable them to manifest their true potential. Project objective and design

5. To enable each poor family in the state, to improve their livelihoods and quality of life and come out of poverty. a family out of poverty:  improved status in society  comprehensive food security – freedom from hunger  earns Rs.5000/- ($110) per month, from 2-3 stable livelihoods.  house-hold expenditure controlled  Social Security – risks to life, health, assets and incomes are covered  good shelter  good education and health status. Vision :

6. A balance sheet approach Assets/ IncomeConsumption (or expenses) LoansFood SavingsHealth Physical assets (Livestock, Farm Land…) Death of breadwinner Loss of asset Income > Consumption -------  Asset Build-up Livelihood Model Adopted in Andhra Pradesh Work on both the sides of the EQUATION to address poverty and lead to sustainable development

7. Institution Building – self-managed institutions of the poor (SHGs- Village Organisations – Mandal Samakhyas – Zilla Samakhyas) Building and Nurturing Social Capital - (grassroots women leadership, developing community activists and para professionals, community resource persons) Knowledge Dissemination – training and capacity building of S.H.Gs, paraprofessionals, project functionaries, etc. Livelihoods Expansion Increase in incomes and employment, decrease in expenditure, costs and risks Networking/linking Institutions of Poor with other Institutions – public services, financial sector, private sector, markets, educational/research institutes Key Investments in the Project

8. Institutional Structure Zilla Samakhya Mandal Samakhya Village Organization District Block Village 7.9 million women members 10 – 15 members SELF SELECT to form a SHG

9. Critical Impacts Financial Services

10. Savings and Credit Own savings and equity : US$ 587 million Ten fold increase in loans in 5 years FY 01 : US$ 43 million FY 06 : US$ 440 million Cumulative Credit since 2000: $1.1 Billion Annual Target FY 07: 300,000 S.H.Gs US$780 million Repayment rates in excess of 95%

11. S.H.G – Bank linkage - 2001 - 06 90000 290000

12. Insurance and Other Safety Net Programs More than 2.5 million POOR WOMEN and their dependents have LIFE INSURANCE COVERAGE. More than 200,000 WOMEN have a separate HEALTH SAVINGS ACCOUNT and about an equal number participate in Health Insurance program. More than 2.5 million POOR WOMEN participate in the “market-based” Food Security Program

13. PART – 1 –Overview of the Andhra Pradesh (INDIA) Project (i.e., context setting) –Findings of the Social Risk Management Study (i.e., basis for insurance intervention)

14. Demand – Supply issue

15. Finding – 1 NO products to cover major “NEEDS”/ “LIVELIHOODS RISKS” of the rural poor e.g., livestock. More than 50 - 60 percent of ALL INVESTMENTS by the Poor in some of livestock activity.

16. Finding - 2 “Cookie-cutter” approach in product design i.e., same benefit structure BUT with lower sum assured and commensurately lower premium.

17. Universal Health Insurance Scheme All pre-existing diseases and disease contracted during the first 30 days from the commencement of risk. Hospitalization as a result of Malaria, Typhoid….. Diseases such as Cataract, Benign Prismatic Hypertrophy, Hysterectomy, hernia, Hydrocele, Fistula in anus, piles, sinusitis, Congenital internal disease are not covered. Vaccination, inoculation, change of life or cosmetic treatment or surgery HIV, AIDS, Sterility, Venereal Disease, Intentional Self injury, use of Intoxicating Drugs/ Alcohol. Treatment for Pregnancy, Childbirth, Miscarriage, abortion

18. What was needed? Aligning products with the NEEDS. Given the “low-value” and “cost of product development” limited investments made by insurance company to develop new products.

19. Awareness, Perception and Expectations

20. Awareness and Usage of Insurance 6% and 51% have heard of major policies, but usage levels range between 0.27 and 4%. Type of Policy % Who have heard about Insurance % Who have used Insurance Personal Accident Policy 51 % 4 % Livestock Insurance 28 % 3 % Postal Life Insurance 18 % 1.65 % Janarogya Bhima 18 % 0.24 % Asset Insurance 12 % 0.24 % Plantation or Horticulture Insurance 9 % 0.24 % Poultry Insurance 8 % 0.24 % Credit Insurance 6 % 0.47 % Others (Mainly LIC) 8.47 %

21. Experience with Claims

22. Design of Scheme: Through Whom Should Claim be Received? 31% of respondents opted to receive claims through an SHG/VO/MMS, while another 30% preferred to receive from banks.

23. Design of Scheme: Through Whom Should Premium be Paid? Payment of premium through SGH was the preferred choice among 34% of the respondents.

24. How would you like to pay premium? Over 90% of respondents wanted to pay premium out of pocket, rather than using a common risk fund or bonus amounts. Out of Pocket MMS Bonus Amt Loan Common Risk Fund Other

25. Willingness & Ability to Pay and Premium Pricing

26. Willingness to Pay – Comparisons by Income Average contribution RISKS Per Month (in Rs) Per Year (in Rs) Health for self 17204 ($4.9) Health for family 24288 ($6.1) Life for self 18216 ($5.1)

27. Cost of Distribution Activities1 st Year Cost (Rs)1 st Year Cost Per POLICY (Rs) Setting up and building channels 236,000 Servicing the Channel295,000 Administration costs per policy Rs 250 Servicing the customer (3000 Policies) Rs 106 Developing and sustaining the market 327,000 Trust building measures E-Bima552,000 TOTAL1,490,000Rs 356 Source: FORTE Foundation, FICCI (2004)

28. What does this translate into? In order to sustain the level of investments in setting-up, servicing the clients and in sustaining the channels the AVERAGE PREMIUM PER POLICY PER YEAR is Rs 3230 (or US$ 70) The NEED for exploring LOW COST and ALTERNATE DISTRIBUTION CHANNELS

29. PART - 2 Community managed LIFE INSURANCE

30. PART – 3 –Role of the World Bank –Role of Regulators –Moving Forward (i.e., our vision)

31. Role of The World Bank Investments in BUILDING THE INSTITUTIONAL INFRASTRUCTURE Investments in developing SOCIAL CAPITAL –100,000 Community Activists and Community Facilitators who are working at village level. –6639 Paraprofessionals at village level to provide livelihood support (incl. Quality Controllers). –2727 Community Coordinators –170 Livelihood Associates –2000 Master book Keepers –850 Mandal Training Coordinators Linkages with the PRIVATE SECTOR Providing TECHNICAL ASSISTANCE

32. Role of the Regulator Regulation: Defining “the Policyholder” Individual vs. the Federation of SHGs If Individual – all insurance claims had to be settled in the name of the INSURED/ BENEFICIARY Delays in CLAIM SETTLEMENT Amendment – Federation of SHGs were recognized as a GROUP, similar to EMPLOYER GROUP

33. MOVING FORWARD Having tested the proof of CONCEPT, i.e., the institutional model, the role of the community in managing the insurance product, and taking into consideration the satisfaction of the beneficiaries Moving into NEWER Products – Livestock and Health Insurance

34. MOVING FORWARD The A.P. Model is being replicated across INDIA and also in South Asia Estimated “microinsurance” market by 2010 is –more than 15 to 20 million POOR covered by LIFE INSURANCE –more than 3 – 5 million Cattles Insured –more than 5 million poor having HEALTH INSURANCE coverage –Estimated PREMIUM VOLUME from MICROINSURANCE Business by 2010 is in excess of US$150 million

35. MOVING FORWARD Similar to A.P. Projects are underway in – –Latin America –Africa –East Asia with an estimated market opportunity of more than 100 million beneficiaries

36. Thanks for your patience Q & A