COMMUNITY BASED

INSURANCE-
MICROINSURANCE
• Microinsurance links multiple small units into larger
structures, creating networks that enhance both
insurance functions (through broader risk pools) and
support structures for improved governance (i.e.
training, data banks, research facilities, access to
reinsurance etc.).
• This mechanism is conceived as an autonomous
enterprise, independent of permanent external financial
lifelines, and its main objective is to pool both risks and
resources of whole groups for the purpose of providing
financial protection to all members against the financial
consequences of mutually determined risks.
 Microinsurance…..
- used to refer to insurance
characterized by low premium and
low caps or low coverage limits.
- designed to service low-income
people and businesses not served by
typical social or commercial
insurance schemes.
• the Consultative Group to Assist the
Poor (CGAP) working group on micro-
insurance defines micro-insurance as
“the protection of low income
households against specific perils in
exchange for premium payments
proportionate to the likelihood and
cost of the risk involved.”
 Need
• Micro-insurance is a key element in the financial
services package for people at the bottom of the
pyramid. The poor face more risks than the well-off,
but more importantly they are more vulnerable to the
same risk. Usually, the poor face two types of risks –
idiosyncratic (specific to the household) and covariate
(common, eg., drought, epidemic, etc.).
• To combat these risks, the poor do pro-active risk
management – grain storage, savings, asset
accumulation (specially bullocks), loans from friends
and relatives, etc. However, the prevalent forms of
risk management (in kind savings, self-insurance,
mutual insurance) which were appropriate earlier are
no longer adequate.
 Microinsurance Delivery
Models
Partner - Agent Model :
• Insurers utilize MFIs’ delivery mechanism to provide
sales and basic services to
clients.
• There is no risk and limited administrative burden for
MFIs.
Full Service Model :
• The provider is responsible for all aspects of product
design, sales, servicing, and
claims assessment.
• The insurers are responsible for all insurance-related
costs and losses and they
retain all profits.
Community Based Model :
• The policy holders own and manage the
insurance program, and negotiate with
external health care providers.
Provider Model :
• The service provider and the insurer are the
same, i.e., hospitals or doctors offer
policies to individuals or groups
Different perspectives of micro
Insurance
 Microinsurance Scheme
- scheme that uses an insurance
mechanism whose beneficiaries are
people excluded from formal social
protection schemes, in particular
informal economy workers and their
families.
• The use of the mechanism of
insurance implies:
- Prepayment and resource-pooling
- Risk-sharing
- Guarantee of coverage.
 Microinsurance Products
• Life microinsurance (and retirement savings
plans)
• Health microinsurance (hospitalisation, primary
health care, maternity, etc.)
• Disability microinsurance
• Property microinsurance – assets, livestock,
housing
• Crop microinsurance
• Asset Insurance
• Livestock Insurance
 Microinsurance and
Development
• A useful tool in economic
development.
- makes it possible for low income
people to take more risks.
 Implementation Strategy
for Micro-Insurance
• Human Resources Requirement and
Training
• Operations and Systems
• Development of Adequate Feedback
Mechanism
• Development of Data Base
• Consumer Education, Marketing and
Grievance Handling
Benefits of Microinsurance
Regulation
• It is recognized that regulation can
either promote or restrict insurance
provision for lower income groups.
• A well-designed regulatory framework
is a major factor for the effective and
efficient provision of microinsurance
services.
• Stakeholders
 Insurance Regulations
Insurance regulations play a vital role in protecting
both the stability of the financial system and the
customers.
The regulatory landscape of microinsurance,
comprises of three elements:
• insurance regulations in general,
• their implications for the micro sector,
• and the regulatory authority, including its attitude
towards microinsurance.
 Role of insurance
regulations
• protect customers
• protect the financial viability of insurers
• define the general features of insurance,
• define duties and responsibilities
• define the conditions for the entry and exit
of players in the market:
• a) Entry rules:9 Registration, formation and
licensing of insurers (e.g. initialfinancial and
management capacities, products, etc.),
• b) Exit rules: Cessation of operations
(winding up)
• guarantee a level playing field in the market
 Legal areas affecting Micro
Insurance
• Insurance laws and regulations
The insurance sector is regulated to varying degrees in
different countries according to the circumstances within
each insurance market.
• Laws and regulations concerning private institutions
Among the laws and regulations concerning private
institutions are those that regulate the different types of
institutions, such as companies limited by shares,
cooperatives and other member-based or non-profit
institutions (NGOs, foundations, trusts, societies or
associations).
• Regulations in other areas of the legal system
This includes laws regarding foreign investment (can be
regulated in company laws or other laws); the juridical
system (e.g.law suits/dispute settlement, debt recovery);
customer protection (e.g. law on ombudsmen); tax laws and
laws on medical schemes, to mention only a few.
 Regulatory authorities
• The regulator is in charge of all insurance, which
should also cover microinsurance.
• However, most regulators have not concerned
themselves with microinsurance. They
• have continued to concentrate on regulating (and
supervising) commercial insurance
• companies. This is because small-scale insurers are
still limited in scale and diversity, and
• regulators have been fully occupied with the
commercial sector. In addition, microinsurers
• themselves have rarely approached regulators and
applied for a license.
 IRDA
• IRDA’s Regulations on Micro-Insurance
Building on the recommendations of the consultative group, IRDA
notified Micro-Insurance Regulations on 10th November 2005 with
the following key features to promote and regulate micro-insurance
products. The regulations focus on the direction, design and delivery
of the products :
A tie-up between life and non life insurance players for integration
of product to address risks to the individual, his family, his assets
and habitat,
• Monitoring product design through “file and use”,
• Breakthrough in distribution channels with inclusion of NGOs,
SHGs, MFIs and PACS to provide micro-insurance, with appropriate
compensation for their services,
• Enlarged servicing activities entrusted to micro-insurance agents,
• Issue of policy documents in simple vernacular language.
Currently the IRDA regulations do not favor composite insurance (i.e., life and non-life
insurances by the same company) and also limit the agency tie-up to one life and one
non-life insurer. However, in recognition of the uniqueness of micro Insurance, these
regulations enable life and non-life companies to tie-up for offering a combined policy in
rural areas. Further, the IRDA has allowed insurers to issue policies with a maximum
cover of Rs. 50,000 for general and life insurance under these regulations. The
regulations have also eased the norms for entry of agents relating to training and pre-
recruitment examination. As an attraction, remuneration to agents has also been
leveled across the term of the policy.
• Another striking feature of the regulation is the provision of extending coverage to the
family as a unit as against the system of insurance coverage to individual lives. The
insurer has to take IRDA’s prior approval for launching microinsurance products through
the “file and use” mode. The maximum cover will be Rs.30,000 per annum for a
dwelling and contents or livestock or tools or implements or other named assets or crop
insurance against all perils. For individual and group health insurance, the maximum
cover is Rs. 30,000 per annum per individual. For personal accident policies the
maximum Rs. 50,000 per annum and is open to 5-70 age group.
• In case of life micro-insurance products, the cover amount for term insurance ranges
between Rs. 5,000-50,000 for a minimum term of five years and maximum of 15 years.
The entry age for this product is kept between 18-60. Endowment insurance policy
provides cover for Rs. 5,000-30,000 for a minimum five years and maximum 15 years
for people aged between 18 and 60. Further, an insurer can collect the premium for
both life and general insurance components directly from the consumer or agents.
• At the time of opening of the insurance sector, IRDA had decided that all
insurers, including the new entrants, should fulfill certain obligations to spread
insurance in rural areas. Specific regulations have been issued prescribing
targets in terms of quantum of policies to be written in the rural sector
consistent with the years of their operations and also certain quantified target
for coverage of lives in the social sector. With a view to encouraging the
insurers to meet these obligations and give a fillip to micro-insurance products,
IRDA also decided that all micro-insurance products may be reckoned for the
purpose of fulfillment of the social obligation and where such policy are issued
in rural area they could also be reckoned for rural sector obligation. IRDA has
also proposed to benchmark the above obligations with reference to quantified
limits of sums assured under micro-insurance policies. The above approach
would ensure the faster development of the micro-insurance market and take
the insurance penetration to rural areas.
• The Committee wholly subscribes to the initiatives of IRDA in widening outreach
of micro-insurance products to the rural poor and recommends that the same
may be implemented with renewed zeal as providing micro-insurance is a
necessary and essential adjunct in the inclusive process. The IRDA should
continue to impose Rural and Social Sector Obligations but there should be no
unreasonable caps on premiums and channel commissions. This is in line with
the de-tariffing process in other sectors also. In the long run, it is only when the
insurance companies find it profitable to serve this market that they will do so
on their own.
• Other Recommendations
• Micro-insurance in India is a new concept and in the
real sense, is yet to be tested for its conduciveness to
the needs of the target segment. The most significant
constraint is the lack of base line data on potential
claims that can help the insurers to design or price
products. The consumption and saving patterns are
also a critical aid to assess the insurance needs. The
issue of moral hazard and adverse selection is a
matter of concern for the insurer. Above all, spreading
awareness among this segment of insurable
population and capacity building of the delivery
organisations are major challenges.
 INDIA – An Inventory of
micro-insurance schemes
 STEP
• Strategies and Tools against social
Exclusion and Poverty global programme.
- A program by the ILO(International Labour

Organization)
STEP works for :
• the extension of social protection to the
excluded.
• integrated approaches to social inclusion.
• ILO’s recent estimates revealed that
two third of the world population had
no protection at all, and that for 80%
the protection remained inadequate.
• At present, it is considered that more
than 90 % of the Indian population
still does not benefit from any kind of
social protection.
 METHODOLOGY

• Questionnaire method.
• 61 micro insurance schemes were gathered.
• 51 – already operational.
• 15 - identified using solely secondary sources.
• 7 - responded via e-mail and through phone
calls.
CBO- Community Based Organization
H.Pr – Health Care Providers
MFI – Micro Finance Institutions.
Fin.Ass- Financial Assistance
Tech.Ass- Technical Assistance
 Future of micro insurance
• Players in the microinsurance field need to cut costs and they
recognize that technology is the solution, but given the
current scale of operations, they aren’t sure how much to
invest and in which technologies.” To help assess which
strategies work and which don’t, the Facility will offer one
final call for proposals for Innovation Grants in fall 2010,
supported by Zurich Financial Services, with the theme of
“Scale and Efficiency”. This round will focus
• on projects that are using technology to make
microinsurance more affordable and accessible to low‐
income clients.
• Ten years ago, it would have been difficult to imagine that a
poor Indian woman would file a claim and receive a medical
diagnosis electronically from her rural home. The next ten
years will undoubtedly bring new and equally unexpected
technological developments – developments with the power
to bring the security of microinsurance coverage to the two
billion people who need it most.