MICROINSURANCE

Micro insurance, can be defined as' the protection of low-income

people against specific perils in exchange for regular premium
payments proportionate to the likelihood and cost of the risk
involved'. It is one of several risk-management tools available to
low-income households.
 KEY FEATURS OF MI

• Risk-pooling instruments for the protection for

low-income households
• Insurance with small benefits
• Insurance involving low levels of premium
• Insurance for persons working in the informal
economy, etc.
TWO DIRECTION OF MI
 MI FOR ECONOMIC DEVELOPMENT

There is a huge potential at the bottom of the pyramid as

described by C.K.Prahlad.Around 4 billion people are
unbanked worldwide. MI can create a potential market
with a huge mass.
Building Enterprise Systems that Treat the
Poor as the Top Priority

Low-Income Entrepreneurs
and Households
LARGE
ENTERPRISES

Middle Class

Wealthy
 MI FROM SOCIAL PERSPECTIVE

Microinsurance is likely to complement, rather than

displace, existing ways of coping with risk. It gives a
protection to low-income people according to their risk
coverage.
 WHAT RISKS DO POOR PEOPLE FACE?

KEY RISKS

DEATH

ILLNESS OR INJURY

LOSS OF PROPERTY (THEFT, FIRE)

NATURAL DISASTER (EARTHQUAKE, DROUGHT)

 
HOW POOR COPE WITH RISK

1.Retaining risk (self-insurance)

2.Sharing risk (informal group-based mechanisms)
3.Transferring risk (social protection).
RATIONAL FOR MICRO INSURANCE IN
INDIA

90% Indian population does not enjoy Social protection.

26% population is bellow poverty, earning <$1 per day.

79% population earning $2 or Less per day

64% of the population depends on agriculture or allied business.

70% of the rural poor doesn't have a bank account.

87% of the rural poor have no access to credit from a formal

source.

Rural people have strong saving habits .

SOURCE: UNDP
 WHO ALL INVOLVED IN MI
GOVERNMENT

REGULATORS/ SUPERVISORS

SUPPORT INSTITUTIONS

CATEGORIES OF INSURERS PROVIDING MICROINSURANCE

INSURERS REGULATED UNDER THE INSURANCE LAW

INSURERS REGULATED UNDER OTHER LAWS AND INFORMAL INSURERS

INTERMEDIARIES

POLICYHOLDERS
 TYPES OF MICRO INSURERS

COMMERCIAL INSURERS

NGOs

MICRO FINANCE INSTITUTIONS

CBOs

HEALTH PROVIDERS
MICRO INSURANCE PRODUCTS&SERVICES
LIFE
HEALTH CARE
DISSABLITY
EMERGENCY
FUNERAL
CROPS
LIVESTOCK
LOANS
HOUSING
FEES
ASSETS
KEY CHALLENGES

INSURANCE COVERAGE

INFORMATION ASYMMETRY

TRANSACTION COSTS

DISTRIBUTION SYSTEMS

CUSTOMER EDUCATION AND AWARENESS

CONSUMER PROTECTION

INFRASTRUCTURE
STRATEGY FOR GROWTH IN MI

ORGANISATIONAL DEVELOPMENT
PRODUCT DESIGN
MARKETING
DECIDING THE MODEL
PREMIUM COLLECTION
SUSTAINIBILITY
ROLE OF GOVERNMENT
ORGANIZATIONAL DEVELOPMENT

1) ORGANIZATIONAL STRUCTURE

2) RECRUITMENT

3) TRAINING

4) COMPENSATION

5) INSTITUTIONAL CULTURE
 PRODUCT DESIGN
Product design starts with four basic steps:

• DEFINE THE TARGET GROUP

• IDENTIFY INSURABLE RISKS

• DETERMINE KEY PRODUCT FEATURES

• ESTABLISH PAYMENT CAPABILITIES

 MARKETING

1. PROMOTING INSURANCE TO THE POOR

2. TURNING PROMOTIONS INTO SALES

 PROMOTING INSURANCE TO THE POOR

The poor often lack familiarity with insurance and do not

understand how it works.They need greater awareness.
To persuade poor regarding insurance benefits with their limited
resources to meet any perils.
To make sure the safety return of their sum with additional
benefits even if they don’t claim.
Creating trust among low income people for insurance providers.
 TURNING PROMOTIONS INTO SALES

To market insurance to the poor, microinsurance providers use

a three‐phase process to turn promotions into sales, which
includes:

1) Raising awareness

2)Helping potential clients understand the products

3) Activating the market.

 MICRO-INSURANCE DELIVERY MODELS
One of the greatest challenge for micro-insurance is the actual
delivery to clients. Methods and models for doing so vary
depending on the organization, institution, and provider involved.
In general, there are four main methods for offering micro-
insurance
1. THE PARTNER-AGENT MODE
2. THE FULL-SERVICE MODEL
3. THE MUTUAL MODEL
4. THE PROVIDER MODEL
 PARTNER AGENT MODEL
Under this model the relationship between the policyholder and an
insurance company (“the partner”) is facilitated by an intermediary
(“the agent”) such as an NGO, a microfinance institution or any
other organization with close contacts to the target group. partner-
agent health microinsurance model are common in India,
including:
– VimoSEWA and ICICI Lombard
– Shepherd and United India Insurance Company (UIIC)
– Karuna Trust and National Insurance Company (NIC)
 FULL SERVICE MODEL

The micro-insurance scheme is in charge of everything;

both the design and delivery of products to the clients,
working with external healthcare providers to provide the
services. This model has the advantage of offering micro-
insurance schemes full control, yet the disadvantage of

higher risks.
 PROVIDER-DRIVEN MODEL

The healthcare provider is the micro-insurance scheme,

and similar to the full-service model, is responsible for
all operations, delivery, design, and service. There is an
advantage once more in the amount of control retained,
yet disadvantage in the limitations on products and
services.
 COMMUNITY-BASED/MUTUAL MODEL

The policyholders or clients are in charge, managing and

owning the operations, and working with external healthcare
providers to offer services. This model is advantageous for its
ability to design and market products more easily and
effectively, yet is disadvantaged by its small size and scope of
operations.
 MODES OF PREMIUM COLLECTION
The way premiums are collected has a direct
bearing
on per unit transaction costs. The five most
common
ways are:
a) Loan‐linked,
b) Debit order,
c) Fixed deposit,
d) Link with another financial transaction
e) Door to door collection.
 PREMIUM COLLECTION CONTROLS

To minimize fraud and mistakes in premium collection, both

hierarchical and horizontal controls need to be put in place.
Hierarchical controls require at least a rudimentary structure within
the organization to monitor the quality of the premium collection
process. If insurers choose to outsource the process to
other organizations, horizontal controls should be created. For
example, by demanding some sort of collective security from the
organization or structure to which the process is outsourced.
PREMIUM COLLECTION
SELF EMPLOYED WOMEN’S ASSOCIATION
 STRATEGIES FOR SUSTAINABILITY

The main strategies to achieve sustainability, divided into three

categories:

A) LIMIT BENEFITS

B) FOCUS ON EFFICIENCY

C) DIVERSIFY INCOME SOURCES

Many microinsurers use group insurance to maximize

efficiency. For example, the member benefit approach is one
of the most effective ways of minimizing operating costs for
the insurer and transaction costs for the insured.
 ROLE OF GOVERNMENTS

Governments can promote the development of supply and demand

for micro insurance through a variety of other mechanisms.

A)CREATING AN ENABLING LEGAL ENVIRONMENT

B) EDUCATION AND SOCIAL MARKETING
C) STRENGTHENING INSTITUTIONS
D) PROVIDING FINANCIAL ASSISTANCE.
 THANK
YOU

PRESENTED BY
SURESH KUMAR NAYAK
M.COM(FINANC E),BHU,VARANASI
MBA(FINANCE &OPERATION),DOMS,NIT-TRICHY