Vous êtes sur la page 1sur 8

International Journal of Applied Research and Studies (iJARS)

ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)


Manuscript Id: iJARS/500 1

Review Paper

Understanding the Relevance of Micro Health Insurance for the Benefit of Rural
Sector People in India

Sharda Kumari*

Address For correspondence:

Sharda Kumari, Assistant Professor, L.N.Mishra college of Business Management, Muzaffarpur, Bihar


Micro insurance is believed to work as a powerful risk management tool for low income and
vulnerable groups by preventing them from falling into the poverty trap. But not much is known about
outreach and efficacy of micro insurance across regions and groups. The present study has attempted
to analyze micro insurance in India under Partner - Agent Model where, insurers utilize MFI as
intermediary or delivery channel to provide sales and basic services to the clients with lower
administrative cost. The present study is based on primary field survey covering 43 micro credit
clients randomly selected from Bihar & UP. The analysis of micro insurance has been made mainly
on the basis of information collected from select MFIs and household data with focus on Literacy,
Level of Education, Employment & Saving Pattern (MFIs & Non MFIs).

However, findings of our analysis do not support the argument that a households risk assessment and
experience of shocks has a direct correlation on household decision to participate in insurance market.
Households exposed more to risks are less likely to use available formal insurance products than
others. Some lower income groups feel that use of insurance product as an additional risk as they have
to pay premium regularly. Their poor understanding about the functioning of insurance services and
lack of trust on the staff of insurers drives them away from insurance.

Key words: partner agent model, low income groups, rural, India.

1. I ntroduction
Poverty and vulnerability among low income groups mainly stems from their poor risk management
capacity and exclusion from the financial markets. Hence it is important to understand their need as
well as demand for financial products including insurance. Many poor and low income households
may involve in activities or enterprises of smaller scale but higher risk and uncertainty. It makes them
disadvantageous because they are more prone to economic and financial collapse. Under this situation
it is interesting to analyze how micro insurance can play a meaningful role in household risk
managing efforts, in rural credit and insurance market and providing business opportunity. In this
regard we like to focus on current scenario of outreach and efficacy of micro insurance in India, major
factors that encourage and prevent growth of micro insurance and other related issues for achieving
broader objectives such as financial inclusion and inclusive development.
shardakumari5680@gmail.com *Corresponding Author Email-Id
International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 2

1.1 Definition of Micro insurance and its purpose
Micro insurance is different from usual form of insurance. A macro definition for the micro insurance
states that, it is the provision of financial protection contingent on the occurrence of predefined risk
in exchange for an ex-ante premium payment affordable to the clients. Basically there are two broad
categories of micro insurance often commonly understood one focused on extending social
protection to the poor in the absence of appropriate government schemes and the other offering a vital
financial service to low-income households by developing an appropriate business model that enables
the poor to be a profitable (or sustainable) market segment for commercial or cooperative insurers.
Micro insurance is also taken as group insurance that can cover thousands of customers under one
contract. It requires an intermediary between the customer and the insurance company. This
intermediary role has been played mainly by non-governmental organization (NGO) and microfinance
institutions (MFI). The role of intermediaries in growth of micro insurance in India is well
1.2 Gap & Opportunity in Micro insurance in I ndia:
There is wide gap between the supply and demand for insurance for the poor and for rural areas.
While targeting lower segment and rural areas require changes in product design, delivery models,
poor infrastructure, information, awareness among people pose challenges for rapid growth of micro
insurance in India. Targeting low income groups or poor requires necessary changes in product design
and insurance models. As micro insurance expands, more products are being offered through a variety
of insurer models and delivery channels. But the product development process is a complex and
resource consuming activity which is too often skipped by commercial insurers. The approach of
micro insurance supply is more product-drivenin the way microcredit was initially providedthan
market driven. It might have contributed to increasing the gap between supply and demand,
particularly in low segment insurance market.
2. Literature Review
As regard, to delivery channel of micro insurance using intermediaries such as NGOs and MFIs is
common, particularly in rural areas. However, within institutional models and delivery channels there
are four major delivery models such as (1) partner-agent model, (2) community based model, (3) full-
service model, and (4) public insurance provider model. Partner-agent model found referred in many
cases (McCord 2006, Roth and Athreye, 2005). Number of studies evaluated different micro
insurance schemes and focus on several aspects beyond just the purchase of insurance. Some of the
general findings of these studies are compiled and presented below.

Table - 2.1: Key Issues & Findings on Micro insurance: a brief review
Issues Key Findings
Cost of Risks
Ex-ante risk Management
Risk management is common, via diversification or entry into
Risk, low return activities
Risk reduction at the cost of lower mean incomes.
Lower mean consumption spending due to precautionary
International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 3

Poverty persistence.
Ex-post risk coping
Evidence of use of assets to smooth consumption, and
informal sharing of risk within communities
overall only partial smoothening of shocks, especially related
to covariate shocks
Impact beyond consumption or
Lower accumulation of assets due to risk, mainly due to ex-
ante responses; effects of portfolio composition of assets, such
as higher liquid assets rather than higher return illiquid assets.
Losses in health and nutrition, especially due to large shocks,
such as drought or catastrophic events.
Micro insurance Impact on

Impact on ex ante Risk
No increased risk-taking in the form of modern input use
Decrease in precautionary savings due to health insurance.
Success of insurance in offering
ex-post risk coping
Positive impact of health insurance on anthropometric status
in Vietnam.
Increase in service utilization but no impact on out-of-pocket
expenditures and utilization among the poor.
Insurance protects against payments for inpatient care, but
does not decrease out of pocket expenditures for outpatient
Differential treatment(drug prescription)between insured and
uninsured individuals in China due to financing.
Micro-health insurance units contribute to smaller differences
in access to health care among according to income in
Increase in service utilization and inpatient care, but no
reduction in out-of-pocket expenditures in Vietnam.
Heterogeneity Impact Signs that relatively not-so-poor households take up more Insurance.
Impact on existing Informal
Possible crowding out by micro insurance of informal
Evidence in Ethiopia is suggestive of this risk, albeit in the
context of a safety net, not in terms of insurance.
Demand for Micro insurance
Most important risk
Management need
Loss of income earner
Highly context specific, require careful market
Successful product Attributes Simple
Family Needs Uptakes education of household head
family size
Literacy gaps lack of understanding of mechanisms behind insurance
lack of effort by insurance agents to explain
products in a way that is understandable for low education
illiterate groups
International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 4

Improving trust and
credibility in insurance
building on existing structures
careful marketing and sales strategies
arguments for subsidizing insurance premium for vulnerable
Willingness to pay Nominal willingness to pay is higher than estimated in
previous Studies
Importance of household size as determinant of nominal
Supply of MI
Developing and marketing
micro insurance products
Detailed suggestions on balancing inclusion, premiums,
benefits & and sustainability
Need for professionalization for pricing involvement of
insurance professionals
Institutional models &
delivery Channel
Arguments on agnosticism regarding institutional models is
Issues related to incentive contracts for agents

*Source: Dercon et. al (2008)
3. Objectives
To analyze outreach and efficiency of micro insurance under partner agent model because of
its increasing popularity in the country and elsewhere.
In the partner-agent model, the insurer teams up with a local agent, for example, a microfinance
institution, informal savings institution or other grass-root organizations. Under this setup, the
comparative advantage of the insurer in developing and pricing policies is combined with the
comparative advantage of the local agent by having experience in reaching the poor, with networks
already in place, and enjoying the trust of large numbers of clients. For example, In India, Tata-AIG
has developed a model of micro-agents in addition to MFIs as agents. As microfinance interventions
has been widening, deepening and up scaling in the country, it has provided the institutional precincts
on which the edifice of micro-insurance could be built in rural areas. It also justify selecting this
model of micro insurance for the present study.
To analysis the variation of reach ability due to following demographic differences as
Level of Education
Saving Pattern(MFIs & Non MFIs)

4. Working Model for project: Partner-Agent Model of Micro insurance model
It is a partnership between an insurer and an agent that provides some kind of financial service to
large numbers of low-income people. This could be a microfinance organization, an NGO, or a
business that supplies products to large numbers of low-income people, such as a fertilizer supplier.
This party is an agent, selling insurance policies to the clients on behalf of the insurance provider
(usually) in exchange for a commission or fee. The insurance provider utilizes the established
International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 5

distribution channels of this agent and its financial transactions with low-income groups that would
otherwise be too costly to set up. The partnership model uses the comparative advantage of each
partner so that each can focus on its core business, the insurance provider is responsible for designing
and pricing the product, the final claims management, and the investment of reserves, and absorbs all
the insurance risks. In addition to selling the policies, the agent offers its infrastructure for product
servicing such as marketing the product, premium collection, and assists in claims management.
Advantages and Limitation of Agent -Partner Model of insurance delivery
The delivery system under this model is argued works better because the synergies are
maximized, enabling both organizations to focus on their core business and expertise
There is some incentive for the agent to earn as commission without risk, while the insurer
earns profits.
Major limitation of this model is that the insurers depend on the quality of the agent. So reputation
and performance of the agents is crucial. Conflicts of interest may occur, especially when working
with non-financial institutions.
5. Data Distribution for Sample Households (HH) on different demographic
To study outreach and efficacy of micro insurance, the present study has focused on select microcredit
clients and the areas where spread of microcredit is better. Selection of MFIs for the study was based
on their coverage and overall performance in delivery of financial services such as microcredit and
micro insurance.
Table -5.1: Data Distribution based on Literacy
Group Members
HH HH HH Avg Age Literacy
By Activity (Nos) (%) Size (yrs) (%)
Agriculture 21 48.8 4.6 37.6 81.3
Dairy 16 37.2 4 42.2 88.9
Handicraft 1 2.3 5.6 31.2 80
Hotel& Restaurant 1 2.3 4.2 40.6 80
Retail Trading 1 2.3 3.6 35.7 93.8
Manufacturing 0 0.0 4.2 39.5 100
Skill Based Activities 3 7.0 3.8 34.9 100
By Region 0.0
Bihar 32 74.4 6 34.3 88.32
UP 11 25.6 5.2 36.6 89.97
Source: Field Survey
Agriculture & Dairy are the main Activities; Literacy is also the variable changes with the household
activity or occupation. Avg. No. of people is closed to 4.5

International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 6

Table - 5.2: Level of Education within Group Members (in %)
Literates Rates
By Activity Primary Middle 10th 12th
12 All
Agriculture 3 6 10 2 0 21
Dairy 2 3 7 3 1 16
Handicraft 0 0 1 0 0 1
Restaurant 0 0 0 1 0 1
Retail Trading 0 0 1 0 1
Manufacturing 0 0 0 0 0 0
Skill Based
Activities 0 0 2 1 0 3
Total 5 9 21 7 1 43
Source: Field survey
Passing is the majority with 48.8% people out of 43 samples.
Table 5.3: Household Saving Pattern based on Activities & Regions (Annual Average Saving in Rs
& Rate of Interest in %)

All Formal

(MFI) Bank Cooperatives Post office (Non-MFI)
By Activity
. of
e HH%
ng %
g %
g %
g %
g %
g %
Agriculture 21 48.8
0 6.90
0 1.07
0 1.28
0 1.71
Dairy 16 37.2
3 4.23
0 7.62
0 1.52
0 2.47
0 945923
Handicraft 1 2.3
1 2000 3.03 4000 6.06 66030
Restaurant 1 2.3
00 120600
Trading 1 2.3
00 403000
ing 0 0.0 0
Skill Based
Activities 3 7.0
0 1.28
0 2.56
9 780000
Source: Field survey

International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 7

Informal Savings are popular among the Group (Agricultural & Dairy business people). They have
63.35% & 59.20% of there saving in informal pattern who consist of major population 37 members
out of 43 in sample. Handicraft, Hotel& Restaurant, Retail Trading occupation people are more likely
to save in bank because of more organized way of income pattern
6. Conclusions
Micro insurance outreach and efficiency of under partner agent model need to still develop because
this is the most effective model to get success in rural market. Population consist of less educated
group depend on agents for making the decision. Information accessibility towards options available
is less. Proper channel can improve the picture. Education & occupations nature are the decision
factor to convince people to have faith on micro insurance in proper channelized process. Saving
pattern are still more relay on Informal saving &Cooperatives. Trust on MFIs needs to improve. Total
saving of the 90% Population with occupation as agriculture & Dairy is average of 5.56 of their total
saving. MFIs have log way to go ahead. Micro Finance Insurance has to increase its impact, saving
percentage is too low penetration.
7. Limitations of the Study
It covers smaller number of location, groups and respondents to draw conclusion which may not to
represent the country as a whole.
8. Recommendations
Education needs improvements
Reach ability of MFI need to increase so informal structure of saving must improved to
structural frame
9. References

1. Besley,Timothy(1995),Saving,CreditandInsurance,in BehrmanJ.and T.N.
2. Srinivasan (eds), Handbook of Development Economics, North Holland, Amsterdam
3. Brown, W. and Churchill, C.F. (2000a). Insurance Provision in Low Income Communities. Part I:
A primer on insurance principles and products, USAID Microenterprise Best Practices (MBP)
4. Chankova, S., Sulzbach, S. and Diop, F. (2008). Impact of mutual health organizations: evidence
from West Africa, Health Policy and Planning, 23(4):264-276.
5. Cohen, M. and Sebstad, J. (2006). The demand for micro insurance, in C. Churchill (ed.),
Protecting the poor, A micro insurance compendium, International Labor Organisation,Geneva.
6. 6. Churchill, C. (2006). What is insurance for the poor? in C. Churchill (ed.), Protecting the poor,
A micro insurance compendium, International Labor Organization, Geneva.
7. 7. Dercon, S. and Krishnan, P. (2003). Risk Sharing and Public Transfers, Economic
Journal, 113(486): C86-C94.
8. 8. Dercon, S. and Christiaensen, L. (2007). Consumption risk, technology adoption and poverty
traps: evidence from Ethiopia, World Bank Policy Research Working Paper 4257.
9. Dror D.M., Radermacher, R. and Koren, R.(2007). Willingness to Pay for Health
a. Insurance Among Rural and Poor Persons: Field Evidence from Seven Micro Health Insurance
Units in India, Health Policy, (82):1.
10. Dror, I. (2007). Demystifying Micro Health Insurance Package Design - Choosing
International Journal of Applied Research and Studies (iJARS)
ISSN: 2278-9480 Volume 2, Issue 5 (May - 2013)

Manuscript Id: iJARS/500 8

Healthplans All Together (Chat), Microfinance Insights, 4:17-19.
11. Gine, X., Townsend, R.M. and Vickery, J. (2007a). Statistical Analysis of Rainfall
a. Insurance Payouts in Southern India, American Journal of Agricultural Economics, 89(5): 1248-
12. Gine, X., Townsend, R.M. and Vickery, J. (2007b). Patterns of Rainfall Insurance
a. Participation in Rural India, Policy Research Working Paper Series 4408, The World Bank.
13. Gravelle, H and Rees Ray (2004), Microeconomics, 3
Edition, Pearson Education
14. Grama Vidiyal (2009), Lighting the Lives Annual report 2008-09, GV Microfinance P. Ltd,
Tiruchirapally, Tamilnadu
15. ILO (2004a). India: Insurance Products Provided by Insurance Companies to the Disadvantaged
Groups, Strategies and Tools Against Social Exclusion and Poverty (STEP), March
16. ILO (2004b). India: An Inventory of Community-based Micro-insurance Schemes, Strategies
and Tools Against Social Exclusion and Poverty (STEP), February.
17. IRDA (2000). Insurance Regulatory and Development Authority (Obligations of Insurers to Rural
Social Sectors) Regulations. IRDA Notification dated on July 14, 2000, New Delhi.
18. IRDA (2009). Insurance Regulatory and Development Authority, Annual report 200809, New
19. Jowett M., Contoyannis P., Vinh N.D. (2003). The impact of public voluntary health insurance on
private health expenditures in Vietnam, Social Science and Medicine, 56: 333342.
20. Leftley, R. and Mapfumo, S. (2006). Effective micro insurance programs to reduce
vulnerability. Opportunity International Network.
21. Mahasemam (2009), Mahasemam Annual Report 2008-09, Mahasemam Trust, Madurai, Tamil
22. McCord, M.J. (2008). Visions of the future of Micro insurance, and thoughts on getting there,
Micro insurance note no. 9, United States Agency for International Development.
23. McCord, M.J. (2006). The Partner-Agent Model: Challenges and Opportunities, in C. Churchill
(ed.), Protecting the poor, A micro insurance compendium, International Labor Organization,
24. Marc Socquet (2005) ILO/STEP, Micro insurance Workshop, October, Hyderabad. 25. Micro
insurance Centre (2007) Micro insurance in the Worlds 100 poorest Countries,
25. Micro insurance Centre (2007) Lloyds 360 Risk Insight Insurance in developing countries:
Exploring opportunities in micro insurance
26. 27.Morduch, J. (1995). Income Smoothing and Consumption Smoothing, Journal of
Economic Perspectives, 9(3):103-114
27. 28.Morduch, J. (2006). Micro insurance: the next revolution? in A.V. Banerjee, R. Benabou and
D. Mookherjee (eds.), Understanding Poverty, Oxford University Press.
28. .M-CRIL (2008) Micro-Insurance regulation in the Indian financial landscape - A case study,
Micro-Credit Ratings International Limited, March