MICRO HEALTH INSURANCE A WAY OF ENSURING FINANCIAL SECURITY TO THE POOR. By. Dr.N.

.Jeyaseelan1 Abstract: The provision of micro credit has enabled the poor households to increase their income and build their assets. But, still they are vulnerable to withstand unexpected health risk events and remain exposed to multiple risks, which take away the gains made. Only 3.19% of total premium is accounted for health insurance premium. How ever separate MHI data is not published by IRDA. Out of the 65 non-life products cleared for approval by IRDA during the year 2005-06, only one product was under MHI, that too by the stand alone health insurance company. Best practices on MHI delivery has been highlighted. Many proactive measures like creating a data base, capacity building of stakeholders and customized product / process designing, have been suggested to take forward the sector to benefit a large number of poor households. 1. INTRODUCTION: A variety of poverty reduction programmes are being implemented in India by the Government agencies, International donors, Non- governmental organizations and other private development facilitating agencies. As a result, the poverty level in India has come down from 26% in 1999-2000 to 22%2 in 2004-05 and the Indias rank in UNDPs Human Development Index has moved to 1263 in 2006. Of late, the Self Help Group (SHG) movement has been making a silent revolution in India through the emergence of vibrant grass root level community structures and it has become an effective tool to address the problem of poverty and empowerment in both rural and urban areas. The provision of micro credit has enabled the poor households to increase their income and build their assets. But, still they are vulnerable to withstand unexpected health risk events and remain exposed to multiple risks, which take away the gains made due to their association with the SHGs. Besides, the poor living in risk prone area ( E.g. Floods prone
1 2

Dr.N.Jeyaseelan, Micro finance Consultant, Madurai. He can be reached at vijayjeyaseelan@yahoo.co.in. Preliminary estimates of National Sample Survey 2004-05. 3 UNDPs Human Development Report 2006

& Tsunami prone), are not willing to invest further for their enterprise development fearing that they can not devote full time to their business as their body condition is weak. Provision of savings and credit services helped in managing smaller risks, which they frequently face. But, for securing against most unexpected bigger loss events like accidental injuries, surgery or prolonged hospitalization, micro health insurance (MHI) will be the best option to ensure them a social and economic security. MHI is the provision of health insurance cover to the low income households. 2. STATUS OF INSURANCE INDUSTRY: Insurance provides the much needed cover against the unexpected loss events and ensures the households financial security. Well developed insurance sector is needed for a fast economic development of a country as it provides the long term funds for infrastructure development and strengthen the risk taking ability of the people. Thus, Insurance assumes significance by not only reducing the vulnerability of the poor, but also in enabling a faster recovery from the loss event and helping the nation in development of the infrastructure sector. In India, only 10% of people have some kind of social protection. Table: 1, shows the exclusion magnitude of selected countries. TABLE: 1, EXCLUSION MAGNITUDE Countries India Bangladesh Pakistan Nepal % of Exclusion 90 93 97 95 Excluded people in Millions 950 134 147 23

Source: Building Security for the poor: Potential and Prospects for Micro insurance in India, UNDP Regional Centre in Colombo, 2007.

As of now, there are 17 life insurers (out of this 1 public sector insurer), 17 non life insurers (out of this 6 public sector insurers) and one re-insurer ( 1 public sector reinsurer). The premium underwritten by the insurance industry has grown from

Rs45677.57 crores

in 2000-01 to Rs100399.534 crores in 2006-07. Out of this, is

Rs.3198.83 crores (3.19%) is accounted for health insurance premium. How ever separate MHI data is not published by IRDA. 3. HEALTH RISK MANAGEMENT BY THE POOR: i. Risk perception: The poor households are exposed to multi various accident / health risks. Some health risks (cold and fever) are occurring frequently with lesser impact and some are occurring occasionally (Surgery, fatal accidental injuries) with higher impact to the household. The following is the list of risks perceived by the poor. Accidents o Road Accidental death / disability o Falling down in the muddy field o Bullock hit o Falling down in the well without the side wall o Snake bite o Inhaling of pesticides, while spraying under pandals o Loss of limbs in harvestor machine / thrasher operation o Boat capsizing o Falling down in sea, while spreading the net o Falling down from the camel cart Health. o Prolonged illness o Hospitalization due to minor ailments o Major operations o Child birth Risk perception by the poor is highly location specific and consequently, the prioritization of risks differ widely according to the present household security (financial and physical), Livelihood option, Degree of exposure of their residence to risk and their awareness about risk. The amount of expenses incurred by them also varied from Rs500
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- IRDA Journal June 2007

to Rs1000 or Rs2000 for small loss events like minor illness and from 15,000 to 30,000 or 50,000 for major loss events like hospitalization requiring surgery. When they are affected by major events e.g surgery, they are depressed as most of the times they face the decapitalization of their assets. According to a World bank study5, it had been found that 40% of the hospitalized people borrow money or sell assets to cover hospital expenses and hospitalization impoverishes one fourth of the hospitalized Indian population

ii. Risk management by the poor: Poor manage the risks in a variety of ways. Traditionally the community has evolved certain social safety net mechanisms, which are seen even today. The poors first option is their own savings. Earlier, they used to pledge or sell some household articles or jewels and raise money to meet the emergencies. But, now, SHGs have come to their help and they take the small loans from their own SHG to meet the urgent needs. During the major cash outflows like undergoing a major operation, they usually borrow from relatives, friends and moneylenders at an exorbitant interest. This kind of borrowing at higher rate of interest puts them into the poverty / debt trap again and they suffer a lot. Under this context, purchasing a MHI cover would secure the poor household from loss resulted due to the health risk event. The willingness to buy MHI depends upon the following factors Realizing the need for the Micro Health insurance product, Awareness about the MHI product, Availability of the suitable MHI product, Affordable price, Reliable assured service by the intermediary, Trust on the insurance company, Period of collection of premium, Availability of credit for payment of the premium. Social, cultural and environmental barriers

Peters, David. H et al (2002), Better health systems for Indias poor- Findings, Analysis and Options, World bank, Washington D.C., 2002.

These factors are dynamic and keep on changing over time. Immediately after a loss event in an area, the demand for insurance products in that particular area goes up. 4. MICRO HEALTH INSURANCE IN INDIA: Earlier, in India, the Micro insurance initiative was on a bank-driven basis. The assets (mainly dairy animals, sheep and goat ) created under the poverty alleviation programs by the banks were insured and the lives of the beneficiaries were covered by Government of India under a group insurance policy. As most of the non life insurance companies had master policy with the banks at the apex level, the claim servicing was not given attention in the field, which resulted in inordinate delay in settlement of claims and a negative image was created about the insurance companies among the poor. In 2002, IRDA prescribed rural and social sector obligations for the insurance companies to achieve. IRDA brought out the micro insurance regulations in Nov 2005. The international have been organizations like UNDP, ILO, World Bank, DFID, USAID and GTZ programs in India through grants and technical assistance. ii. Delivery models: In India, NGOs, MFIs, CBOs and SHGs are the main intermediaries in micro insurance distribution. Four different Micro insurance delivery models are being practiced, which are categorized based on where the risk is borne. Post offices also offer life insurance products, which are mostly endowment types and preferred by some rural poor. Its performance is not reflected in IRDA reports. a. Partner Agent Model: Among the Micro insurance delivery models in India, the most popular model is the partner agent model, wherein the Insurers bears the risk and the NGO or MFI does the front end works like canvassing, collection of premium, maintaining the database of clients and assisting in claim processing. Partner Agent model is a better option, as the

instrumental in initiating and supporting the various models of micro health insurance

NGO / MFI takes care of the information asymmetry problems (moral hazard, frauds and adverse selection) & helps to reduce the distribution cost, whereas the formal insurer, who bears the risk, is technically competent, adequately capitalized and have sufficient reserves to manage even co-variant risk induced claims. b. Provider Model: In provider model, the service provider, bears the risk. This model is followed by very few only. Here, in case of health insurance, the out patient care is also covered in the insurance scheme. c. Community Managed model: In community managed insurance programs, the risk is borne by the Community Based Organization. As the provider & community managed models are not getting the reinsurance cover, managing co-variant risk is a challenge. d. Partner Agent Health care management company model: The fourth model is like Partner Agent model, with one more inclusion, which is the involvement of a health care management company for co-ordinating & organizing the health insurance program ( E.g. USAID project implemented by Healing Fields Foundation (HFF) ). In this model, the salient feature is the positioning of HFF facilitator at each of the networked hospitals front desk to take care of the insured clients who come for in-patient care. This provides control at the origination point itself and it is reported that their claim loss ratio is lower. Among all the micro insurance products, Micro Health Insurance (MHI) products are more important to the low income households as the most of the target group depend on their body to earn their wages by selling the unskilled physical labour.

iii. Present coverage: The awareness about the Micro Health Insurance products among the poor is very low. According to the Position paper (2005) on Micro Health Insurance for the poor in India submitted by the Strengthening Micro Health Insurance Units for the poor in India project to the Parliamentary committee on Public Undertakings, Government of India, less than 2% of the population is covered by Health Insurance in India. In India, IRDA is not publishing any data on insurers performance in MHI in its annual report. Out of the 65 non-life products cleared for approval by IRDA during the year 2005-06, only one product was under MHI, that too by the stand alone health insurance company i.e. Star health and allied insurance cos Micro health insurance policy. Hence, IRDA and Insurers should focus their extra attention on this potential market for MHI.

5.

BEST PRACTICES ON MICRO HEALTH INSURANCE:

The following best practices on MHI will be of much help to the NGO / insurers, who will be taking up the micro health insurance. However, the NGOs / insurers can adopt these practices to suit to their context. o ENROLMENT: Before buying a health cover for its members, NGO shall take up a small survey in its client base to know what type of health / accident risk to be covered on a priority and level of willingness to pay. This will be a big input, while negotiating with the insurers for a customized package. While enrolling for insurance, each member should be given a brief / pamphlet (in local language) , mentioning all the important policy terms. Members should be explained about the exclusion clause (e.g. what are all the diseases not covered and so on ) product

 Better to introduce the insurance after the stabilization of savings and credit program, so that the additional cost involved for administration is reduced. o PREMIUM COLLECTION: Members find it easy to pay in small lump sum. But, for the company, it adds to its transaction cost of providing the insurance services. Hence, the group can pay the premium from its funds / or it can lend it to its members and the members will pay to the group in easy instalments with or without interest as per the groups choice. While disbursing bank loans also, premium can be collected. Insurance month shall be celebrated and during the month, more awareness building & premium collection is carried out. One time premium may be collected from the member and the amount is placed in a fixed deposit and the interest from that fixed deposit is used to pay the Insurance premium every year. o PRODUCT FEATURES: Limited clearly defined diseases shall be included for coverage and wherever the members themselves will manage, such diseases may not be included in the product coverage, so as to bring down the cost of the product. Cashless facility to the Health insurance optees in tie up with the select hospitals. Claim payment is directly made to the hospital or through the federation to the hospital. Health insurance product without any sub limits for various categories like transport, room rent, doctors fees and so on. Only the upper limit is indicated.

o PROCESSES: Proposal forms and claim forms are in local language. Limited co-payments Members shall bear the 10 to 15% of the medical expenses and only 85 to 90% of the expenses is reimbursed. This is to protect from overstatement of the bills by the members Following Simple processes for claim processing. Creating a computerized MIS for micro health insurance on the lines of MAS pilote. NGOs Continued dialogue with the insurers and organizing interactive workshops for bringing out improvements in product features / processes based on the feedback from the clients. o CLAIM ADMINISTRATION: Claim processing by a specified person at the NGO level and at the insurance office level, both of them have undergone training / exposure visit respectively. So, both of them understands each others constraints better and acts accordingly. Giving the claim amounts in public i.e. in SHG federation meetings. Having a checklist for enclosures to be submitted to the insurance company, in case of claims. o CAPACITY BUILDING: Peer education SHG members who benefited out of insurance schemes go and explain the schemes, which results in better acceptance of the insurance concept by the community.

 Awareness campaign is not a one shot exercise. It should be followed up by the NGO, after the initial briefing by the insurance company. Trainings for NGO staff, federation and SHG leaders on product features, enrolling formalities, premium collection and claims processing. I module on Product features. II module on form filling up and premium collection. III module on preparing health claim papers.

Sensitization program for Insurance officials at various levels. Appreciation programs to the top and middle management Insurance officials Workshop to the branch managers and development officers on implementation aspects. Exposure visits for front line staff of insurance companies , who deal with the micro health insurance to bring out a change in their mindset. A briefing to the Health service providers to avoid the problem of overstatement of bills and make them aware of the exclusion clauses. 6. THE ROAD AHEAD: Donors shall support for the establishment of exclusive MHI- MIS package and its operationalization at the field level. Government shall dedicate a Special Fund for innovations which will assist the pioneering stakeholders, to experiment with the innovative products, flexible processes. Government & donors shall fund the capacity building programs to all stakeholders. The Best practices dissemination, which involves organizing workshops, facilitating a continuous out Manuals on the Best Practices on MHI, dialogue among the practitioners, arranging exposure visits to the pioneering institutions in the field of MHI and bringing needs a massive budget, for which the Government and the donors should come forward to fund. IRDA shall revise its guidelines and bring the Community managed micro health insurance programs, under regulation, as they are real innovators. To create an awareness about the MHI concept and the product options, IRDA & insurers shall take up a multi

media campaign on MHI so as to reach more number of rural households. A National Micro Insurance Information Bureau may be created by IRDA and it may be assigned the responsibility of maintaining the online database on MHI and the facility can be made available to all the stakeholders to store their data. A National level consultative committee on MHI may be formed by the IRDA. The MHI practitioners of various models may be represented in the committee so as to receive their feedback for policy advocacy. The insurers should customize the products to different market segments according to their felt needs. Insurance companies should organize exclusive capacity building programs to their management and field staff. Such training programs should also include exposure visits to the successful micro insurance program. Rationalizing the procedures and simplifying the operational processes will lead to cost efficiencies. Routine works can be outsourced from the NGOs / MFIs, retaining the core underwriting work alone to the insurance companies. NGO shall form micro health insurance committees at the grass root level and encourage community participation as checks and balances in tackling the adverse selection and moral hazard risks. Once these systems are in place, the insurers trust on the NGO increases & leads to delegation of more front end works to NGO and the process is simplified. CBOs may be trained to handle the routine day to day management of the micro health insurance program and only the NGO can limit its role to offering strategic guidance. Networks of NGOs can be used to promote the micro health insurance concept among their partnering NGOs. They can conduct the Training of Trainers programs for the NGOs. 7. CONCLUSION: The Micro health insurance has got a vast potential. With the due support from the donor community and government, the insurers can start building the market. Of course, it will take some years for the MHI portfolio to yield a good return, till it reaches a scale, insurers should come forward this proactive step of investing in creating new MHI

products and channels of MHI delivery to add value to the clients. The capacity building of the NGO staff and clients will stimulate the demand for MHI services and the client servicing also will be taken care of by the trained staff. If the above recommendations are implemented, it will drive the growth of the Micro Health Insurance sector in India. This will benefit the poor households in managing their health risks prudently and will ensure the financial security of the poor households. REFERENCES: IRDA, (2006), Annual Report 2005-06, Insurance Regulatory Development Authority, Hyderabad, 2006. Peters, David. H et al (2002), Better health systems for Indias poor- Findings, Analysis and Options, World bank, Washington D.C., 2002. Position Paper on Micro Health Insurance for the Poor in India submitted by the Strengthening Micro Health Insurance Units for the poor in India project to Honourable sri.Rupchand Pal, MP.,Chairman, Parliamentary committee on Public undertaking, Government of India, New Delhi, on 7.6.2005. IRDA Journal, June 2007, IRDA, Hyderabad. UNDP (2006), Human Development Report 2006, United Nations Development Program, New York, 2006. UNDP (2007), Building Security for the poor: Potential and Prospects for Micro insurance in India, UNDP Regional Centre in Colombo, 2007.

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