Micro Insurance in India

MICRO INSURANCE
ADVANCES IN MICRO INSURANCE IN

INDIA
SUBMITTED TO:-
Mr. ABHISEK DUTTA SUBMITTED BY:-
ARUN KUMAR GULERIA
Section T1801
Roll No. RT1801A02
Program Code: 194
Reg. No. 10807166
LOVELY PROFESSIONAL UNIVERSITY

LOVELY INSTITUTE OF MANAGEMENT (LIM)
2010
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© ARUN GULERIA | arun_guleria@ymail.com
ACKNOWLEDGEMENT
I take this opportunity to offer my deep gratitude to all those who have
extended their valued support and advice to complete this term paper. I cannot
in full measure, reciprocate the kindness showed and contribution made by
various persons in this endeavor.
I acknowledge my sincere thanks to Mr. ABHISEK DUTTA (Faculty

Member) who stood by me as a pillar of strength throughout the course of work
and under whose mature guidance the term paper arrives out successfully. I am
grateful to his valuable suggestions.
Arun Guleria
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INDEX
S.No. Page No.
PARTICULAR
1. Introduction 4
Micro Insurance 7
2. An Overview Of The Indian Insurance Market 10
3. Need For Developing Micro-Insurance In India 12
4. Micro-Insurance Product 15
5. Micro-Insurance Agent 16
6. Initiative Taken By Private Sectors 18
7. American International Group, Inc. (AIG) 18
8. Bibliography 22
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1. INTRODUCTION
1.1 Insurance
Insurance is an essential part of running any business. If you are operating a small business
you need more than just property insurance. Taking out the right insurance will help protect
your business and minimize its exposure to risk.
Your insurance requirements will vary according to the type of business you are operating,
but you should be aware that some forms of insurance are compulsory, such as workers’
compensation and third party car insurance.
When you’re in business you deal with a variety of potential risks each day. Risk is not
something you can avoid, but it is something you can manage. Risk management will
increase the probability of success and reduce the probability of failure of your business.
Types of insurance
a. Assets & revenue insurance
b. People insurance
c. Liability insurance
A. Assets & revenue insurance

To protect your assets and revenue-generating capacity, here are some of the types of
insurance available:
Building and contents

Covers the building, contents and stock of your business against fire and other perils such as
earthquake, lightning, storms, impact, malicious damage and explosion.
Burglary
Insures your business assets against burglary, and is most important for retailers or a business
which maintains unattended premises.
Business interruption or loss of profits

Covers you if your business is interrupted through damage to property by fire or other insured
perils. Ensures your ongoing expenses are met and anticipated net profit is maintained
through a provision of cash flow.
Fidelity guarantees
Covers losses resulting from misappropriation by employees who embezzle or steal.
Machinery breakdown
Protects your business when mechanical and electrical plant and machinery at the work site
break down.
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Motor vehicle
It is compulsory to insure all company or business vehicles for third party injury liability.
Many different types of policies are available, so make sure you understand the options
before making a decision. There are four basic options:
1. Compulsory third party (injury) – covers you for claims made against you for
personal injuries and legal costs arising from the use of your car. You must obtain this
insurance to register your car.
2. Third party property damage - covers your liability for damage to another
person or to the property of others and your legal costs. It doesn’t include repairs to
your own car if you caused an accident.
3. Third party, fire and theft - covers you against the events covered above, as
well as fire and theft. It also insures against damage caused if your car was stolen.
4. Comprehensive - covers you for all of the above plus damage caused to your own
car by you in an accident. If you're buying a car on an installment basis, financiers
will usually insist on this cover.
B. People insurance
It includes:
A. Superannuation
B. Workers compensation requirements
Insurance cover for you and your employees:
Workers Compensation
You must provide accident and sickness insurance for your employees - workers
compensation - through an approved insurer. Workers compensation is covered by separate
state and territory legislation.
Personal accident and illness

If you are self employed you won’t be covered by workers compensation, so you need to
cover yourself for accident and sickness insurance through a private insurer. There are several
types of life insurance. Some are investment-type funds where you contribute over a certain
time and get back your investment plus interest earnings at the maturity date. Others are
designed to cover risk - things that could happen to you.
 Income protection or disability insurance - covers part of your normal
income if you are prevented from working through sickness or accident.
 Trauma insurance - provides a lump sum when you are diagnosed with one of
several specified life threatening illnesses.
 Term life insurance or whole of life cover - provides your dependents with a
lump sum if you die.
 Total and permanent disability insurance - provides a lump sum only if you
are totally and permanently disabled before retirement.
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Superannuation
If you are running a business or employing people, you are likely to have superannuation
obligations to your employees. If you are self-employed you also need to provide for your
retirement - superannuation is generally used to provide for a retirement plan.
C. Liability insurance
Types of liability insurance you need to consider:
Public Liability
Public liability insurance protects you and your business against the financial risk of being
found liable to a third party for death or injury, loss or damage of property or ‘pure
economic’ loss resulting from your negligence.
Professional Indemnity
Professional indemnity insurance protects you from legal action taken for losses incurred as a
result of your advice. It provides indemnity cover if your client suffers a loss - either material,
financial or physical - directly attributed to negligent acts.
Product Liability
If you sell, supply or deliver goods, even in the form of repair or service, you may need cover
against claims of goods causing injury or damage. Product liability insurance covers damage
or injury caused to another business or person by the failure of your product or the product
you are selling.
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1.2 What is Micro Insurance?
On a daily basis, the poor around the world face a multitude of risks that threaten to
derail any progress they have made to work their way out of poverty. The death of a family
member, loss of property and livestock, illness, and natural disasters each pose unique
dangers. Protecting people against these losses is an important step to alleviating global
poverty.
Micro insurance - the protection of low-income people against specific perils in exchange for
regular monetary payments (premiums) proportionate to the likelihood and cost of the risk
involved – seeks to provide a suitable solution for managing these risks.
The Global Landscape

It is estimated that only eighty million out of the world's 2.5 billion poor are now covered by
some form of micro insurance. Most remain without access to this critical financial service.
In India and China, where organizations are estimated to serve nearly 30 million micro
insurance clients each, the percentage of poor lives insured hovers below 3%. In Africa this
figure is much lower – just 0.3% of the continent’s poor are insured. According to recent
data, in 23 of the poorest 100 countries in the world, there is currently no identified micro
insurance activity, representing an unserved population of 370 million.
History and Vision

The Micro Insurance Agency has its roots within Opportunity International, a large
microfinance network motivated by Jesus Christ’s call to serve the poor. With a network of
47 microfinance institutions, Opportunity International has been serving the entrepreneurial
poor since 1971. In partnership with Opportunity’s microfinance institutions, we began
working in 2002 on the development of a range of life, property, livestock, crop derivative,
disability, unemployment and health insurance products to cover the risks faced by
Opportunity’s loan clients.
Micro Insurance Agency staff observed that the risks the poor face can often set them back
months and years behind where their loans and savings products offered by Opportunity had
taken them. For instance, a death of a family member from HIV/AIDS –“pre-condition” most
insurance companies would not cover – would often mean expensive funeral costs and the
loss of a breadwinner, resulting in increased economic hardship for the family. In response,
Through the experience of serving Opportunity’s microfinance institutions and their clients,
Micro Insurance Agency staff observed that the products most demanded by the poor are not
always the ones available. Health insurance, for example, is a critical need of the poor but the
most limited in terms of supply. In addition, policies that are available are often based on first
world practices and are too complex for the simple coverage demanded. Further, when
offered on an individual, one-off basis, high premium requirements and a need to pay in a
single lump sum preclude a huge sector of the market from access. In 2005, the Micro
Insurance Agency was founded by Opportunity International as a fully-owned subsidiary
capable of offering insurance products and services to a wide range of customers.
Our mission is to empower the materially poor to transform their lives by insuring them
against financial risk and its consequences. Specifically, we seek to serve the economically
active poor who live on $4 per day or less in developing countries and provide a safety net to
reduce economic setbacks.
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Definitions of Micro-Insurance
Micro-insurance, the term used to refer to insurance to the low-income people, is different
from insurance in general as it is a low value product (involving modest premium and benefit
package) which requires different design and distribution strategies such as premium based
on community risk rating (as opposed to individual risk rating), active involvement of an
intermediate agency representing the target community and so forth. Insurance is fast
emerging as an important strategy even for the low-income people engaged in wide variety of
income generation activities, and who remain exposed to variety of risks mainly because of
absence of cost-effective risk hedging instruments.
Although the type of risks faced by the poor such as that of death, illness, injury and accident,
are no different from those faced by others, they are more vulnerable to such risks because of
their economic circumstance. In the context of health contingency, for example, a World
Bank study (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall
below the poverty line as a result of their stay in hospitals. The same study reports that more
than 40 percent of hospitalized patients take loans or sell assets to pay for hospitalization.
Indeed, enhancing the ability of the poor to deal with various risks is increasingly being
considered integral to any poverty reduction strategy (Holzmann and Jorgensen 2000, Siegel
et al. 2001).
Of the different risk management strategies2, insurance that spreads the loss of the (few)
affected members among all the members who join insurance scheme and also separates time
of payment of premium from time of claims, is particularly beneficial to the poor who have
limited ability to mitigate risk on account of imperfect labour and credit markets.
In the past insurance as a prepaid risk managing instrument was never considered as an
option for the poor. The poor were considered too poor to be able to afford insurance
premiums. Often they were considered uninsurable, given the wide variety of risks they face.
However, recent developments in India, as elsewhere, have shown that not only can the poor
make small periodic contributions that can go towards insuring them against risks but also
that the risks they face (such as those of illness, accident and injury, life, loss of property etc.)
are eminently insurable as these risks are mostly independent ,idiosyncratic. Moreover, there
are cost-effective ways of extending insurance to them. Thus, insurance is fast emerging as a
prepaid financing option for the risks facing the poor.
In this paper, we analyze the early evidence on micro-insurance already available in this
regard, highlight the current initiatives being contemplated to strengthen micro-insurance
activity in the India, and suggest specific ways that can help promote insurance to the target
segment.
Development of Micro-insurance in India

Historically in India, a few micro-insurance schemes were initiated, either by non-
governmental organizations (NGO) due to the felt need in the communities in which these
organizations were involved or by the trust hospitals. These schemes have now gathered
momentum partly due to the development of micro-finance activity, and partly due to the
regulation that makes it mandatory for all formal insurance companies to extend their
activities to rural and well-identified social sector in the country (IRDA 2000). As a result,
increasingly, micro-finance institutions (MFIs) and NGOs are negotiating with the for-profit
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insurers for the purchase of customized group or standardized individual insurance schemes
for the low-income people. Although the reach of such schemes is still very limited anywhere
between 5 and 10 million individuals---their potential is viewed to be considerable. The
overall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004).
The insurance regulatory and development authority (IRDA) defines rural sector as
consisting of:
 a population of less than five thousand,

 a density of population of less than four hundred per square kilometer
 More than twenty five per cent of the male working population is engaged in
agricultural pursuits. The categories of workers falling under agricultural pursuits are:
cultivators, agricultural labourers, and workers in livestock, forestry, fishing, hunting
and plantations, orchards and allied activities.
The social sector as defined by the insurance regulator consists of:

 Unorganized sector
 informal sector
 economically vulnerable or backward classes, and
 Other categories of persons, both in rural and urban areas.
The social obligations are in terms of number of individuals to be covered by both life and
non-life insurers in certain identified sections of the society. The rural obligations are in
terms of certain minimum percentage of total polices written by life insurance companies and
for general insurance companies, these obligations are in terms of percentage of total gross
premium collected. Some aspects of these obligations are particularly noteworthy. First, the
social and rural obligations do not necessarily require (cross) subsidizing insurance. Second,
these obligations are to be fulfilled right from the first year of commencement of operations
by the new insurers. Third, there is no exit option available to insurers who are not keen on
servicing the rural and low-income segment. Finally, non-fulfillment of these obligations can
invite penalties from the regulator.
In order to fulfill these requirements all insurance companies have designed products for the
poorer sections and low-income individuals. Both public and private insurance companies are
adopting similar strategies of developing collaborations with the various civil societies
associations. The presence of these associations as a mediating agency, or what we call a
nodal agency, that represents, and acts on behalf of the target community is essential in
extending insurance cover to the poor. The nodal agency helps the formal insurance providers
overcome both informational disadvantage and high transaction costs in providing insurance
to the low-income people. This way micro insurance combines positive features of formal
insurance (pre paid, scientifically organized scheme) as well as those of informal insurance
(by using local information and resources that helps in designing appropriate schemes
delivered in a cost effective way). In the absence of a nodal agency, the low resource base of
the poor, coupled with high transaction costs (relative to the magnitude of transactions) gives
rise to the affordability issue. Lack of affordability prevents their latent demand from
expressing itself in the market. Hence the nodal agencies that organize the poor, impart
training, and work for the welfare of the low-income people play an important role both in
generating both the demand for insurance as well as the supply of cost-effective insurance.
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2. AN OVERVIEW OF THE INDIAN INSURANCE MARKET
The market for micro insurance is represented by this pyramid diagram. Formal sector
insurance companies generally focus on the area identified as “A”. In this realm the
customers are corporations and wealthy individuals, and the products are voluntary products
such as life insurance, and obligatory products required either by law (such as motor third
party liability) or by banks (such as property loss and credit life). Also offered are products
covering employees and civil liability. Most of the non-auto related commercial products are
being sold within the area marked “B”. The aggregate market for microfinance providers is
generally in the area identified as “C”. Some MFPs require borrowers to obtain insurance for
property, or credit-life insurance as a means of protecting the institution’s interests. Area “D”
indicates the broad range of products offered by the social security and public health
insurance systems of developing country governments. They include coverage for pensions,
disability benefits, primary health care, and medications.
The weakness of this sector is indicated by the dashed line that suggests incomplete coverage.
The potential market for microinsurance is indicated as “E”. This extends above the MFP
range in providing access to individuals and others that cannot obtain appropriate products
from the commercial sector. The microinsurance range also extends below the MFP range
because it addresses agricultural coverage in some cases, and is now being sold through many
delivery channels other than MFPs. Just a few of these delivery channels include:
 Low-income focused retailers in South Africa

 Post offices in Indonesia
 On bags of agricultural inputs or through computer kiosks in India.
Micro-insurance delivery models

One of the greatest challenges 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 the partner-
agent model, the provider-driven model, the full-service model, and the community-based
model. Each of these models has their own advantages and disadvantages.
 Partner agent model: A partnership is formed between the micro-insurance

scheme and an agent (insurance company, microfinance institution, donor, etc.), and
in some cases a third-party healthcare provider. The micro-insurance scheme is
responsible for the delivery and marketing of products to the clients, while the agent
retains all responsibility for design and development. In this model, micro-insurance
schemes benefit from limited risk, but are also disadvantaged in their limited control.
 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.
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 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.
2.1 NEW MODELS FOR POOR COMMUNITIES

Much interest over the last few decades has focused on helping communities to establish
mutual or community-based insurance schemes. Professionals typically manage mutual
insurance companies. Community-based schemes, promoted by ILO STEP and CIDR among
others, tend to be run by well meaning local people who give freely of their time, but are not
insurance professionals. Often people who were simply in need of insurance end up being
insurance managers with these schemes. One member of the management committee of a
community- based scheme in Tanzania noted that he “wants insurance, but doesn’t want to be
an insurer.” In community-based schemes, the limited management capacity frequently leads
to a range of difficulties. The key issues of concern for community-based schemes include:
 Pricing – Often the process of pricing is focused on what people say they can pay
rather than being linked to the cost structure of benefits that the group wants to
receive.
 Insurance is subject to cash flow fluctuations and thus requires significant reserves.
These schemes frequently have insufficient reserves or no reserves at all. Also,
commercial reinsurance is rarely available to unregulated insurance schemes thus
leaving them with no ability to manage cash flow deficits.
 Controls on management are weak and temptation is strong. Fraud by management is

frequently a problem.
 These schemes are limited in size to those people within the defined local area. This
reduces their ability to diversify a rather small risk pool, and enhances the potential
for adverse selection, both of which make sustainability a serious challenge for local
management.
 Finally, in many countries there is no legal framework for these schemes. Indeed
regulators are often unwilling to allow such schemes for fear that they will not be able
to adequately supervise many small schemes run by non-professionals. This is the
case in India. Service providers, most typically hospitals and other healthcare
providers have offered pre-financing mechanisms that act somewhat like insurance.
These products, it is argued, will attract more people to the facility and the people
who come will be able to pay for the services. Often this becomes a problem because
providers have limited ability to manage the insurance administration issues. One
overseer of a particular group of hospitals noted that attempting to offer micro
insurance could present a dual threat to the hospital network for which he works. He
noted that the hospital administrators “do not even know how to price their own
healthcare services”. Therefore, they mis-price their premiums based on those prices,
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which are typically too low. The resulting increase in patients using the insurance
leads to even higher losses, due to higher administrative costs and incorrect fees that
do not cover the actual costs of services. Governments also provide a form of micro
insurance through the programs they provide for low-income Citizens. Unfortunately,
in many countries these programs are simply insufficient to address the financial risks
of the low- income and destitute populations. Certainly there is a population that will
not be covered by commercial or other non-government micro insurance. However, if
a proper balance could be found, it is possible that the combination of government
programs, commercial micro insurance, mutual insurance, and traditional commercial
insurance could make each of these more efficient, and make the government
interventions more effective in addressing those that truly require such services.
3.Need for Developing Micro-Insurance in India–

IRDA perspective
Background
 Micro-insurance refers to protection of assets and lives against insurable risks of

target populations such as micro-entrepreneurs, small farmers and the landless,
women and low-income people through formal, semiformal and informal institutions.
Such products are often bundled with micro-savings and micro-credit, thereby
allocating scarce resources to micro-investments with the highest marginal rates of
return. Microinsurance is the most underdeveloped part of microfinance. Yet various
schemes exist that are viable, benefiting both the institutions and their clients. Such
schemes have generally served two major purposes: (i) they have contributed to loan
security; and (ii) they have served as instruments of resource mobilization. The
greatest challenge for microinsurance lies in the combination of viability and
sustainability with outreach.
 Although introduction of sound practices such as appropriate policy sizes and timely
payment of installments of premium or positive incentives to renew on time in order
to avoid policy getting lapsed can be feasible, the ultimate effectiveness of
interventions focusing on institutional transformation and sound insurance practices
will vary considerably, depending on the appropriateness of the regulatory
environment.
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3.1 Development Goal
To enable microinsurance to be an integral part of a country's wider insurance system, it is
important for every insurer to adjust its costs of serving marginal clients in remote areas,
collecting premiums and installments, and offering doorstep services. It is also important to
recognize a wide network of intermediaries in the rural and social sectors and notify
regulations in order to guide and supervise the micro-insurance service providers and their
customers.
Today we have a variety of microfinance institutions with national and local outreach. Many
of them have already become corporate agents or have entered into referral arrangements
with insurers. However, semiformal institutions including savings and credit cooperatives,
NGOs and self-help groups which have immense potential in carrying the message of
insurance as also solicit insurance business are yet to be utilized in a manner where their true
potential can be harnessed to increase the insurance penetration levels. This is due to
restrictions in the existing agency regulations in terms of minimum eligibility norms in order
to become an agent.
Depending on the existence and vigour of such institutions, the following alternatives have
emerged, for offering strategic entry points for microinsurance development:
 Adapting formal insurance arrangements to the needs of the micro-economy.
 Upgrading non-formal (comprising semiformal and informal) insurance arrangements

with insurance companies.
 Linking formal and non formal insurance institutions with banks and self-help groups.
 Establishing new local institutions providing microinsurance services.
The first three strategies may be inter-connected:

 adapting insurance companies to the requirements of the micro-economy is a first
step; then
 Linking them as wholesale institutions to self-help groups as retailers; and finally,
 Upgrading self-help groups e.g. to the level of financial cooperatives or village banks.
If insurers are to serve customers who differ widely in terms of service costs and risks, the
only viable inducement for them is an adequate margin, lest they exclude small farmers, -
micro-entrepreneurs and people in remote areas. Only sound social insurance, which
combines a social mandate with profit-making, has a chance of sustainability.
Institutional Adaptation
The experience so far has been that formal financial institutions serve but a fraction of the
population, which typically lies within the upper quartile of the social hierarchy. Through
adaptation to the microfinance market requirements, they may gradually expand into the
second-highest quartile and into segments of the lower quartiles. Within the foreseeable
future they will normally not be able to fully serve that market.
Non formal finance mostly rests on local institutions which are directly accessible to all
segments of the population. Self-Help Groups (SHGs) are member-owned and member-
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controlled local institutions. They may either be financial groups, with financial
intermediation as their primary purpose; or non financial groups, with financial
intermediation as a secondary purpose, such as vendors' associations, family planning groups
and numerous other types of voluntary associations.
The functions that need to be focused must include: providing guidance to members,
collecting premium installments from members, insurance services to members,
communication and exchange of experience, providing linkages with banks, NGOs or donors,
supporting the proposals of individual members to insurance companies through
recommendations.
Linkage to Insurers
On a modest scale, various forms of life and health insurance have been successfully
practiced by different institutions in different countries, particularly as part of loan protection
schemes. Micro-insurance procedures and services should be set by insurers rather than the
regulator. Appropriate procedures and services should be applied to attain:
1) Sound financial management,
2) Convenient and safe savings premium collection and deposit facilities,
3) Appropriate claim appraisal and processing procedures,
4) Adequate risk management,
5) Timely collection of premium installments,
6) Monitoring and
7) Effective information gathering, all of which may include cooperation between

different formal and non-formal intermediaries in fields where each is most effective.
Proposed Micro-insurance Regulations

In order to introduce the concept micro-insurance it is necessary to draft suitable bring in
suitable regulations to enable insurers to design and distribute and service micro-insurance
products and discharge their obligations to the rural and social sectors as per provisions of the
Insurance Act, 1938.
1. It is proposed that an insurer transacting life insurance business shall be permitted to

provide life micro-insurance products as well as general micro-insurance products
provided it ties up with an insurer transacting general insurance business for the
general micro-insurance products, and vice versa.
2. In addition to an insurance agent or corporate agent or insurance broker who are

authorized to solicit and procure insurance business, including micro-insurance
business with an insurer in accordance with the provisions of the Insurance Act, 1938
and the regulations made there under it is also proposed to introduce the concepts of
“micro-insurance product” and “micro-insurance agent” .
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4. Micro-insurance Product
1. A “life micro-insurance product” means any term insurance contract with or
without return of premium, any endowment insurance contract or health
insurance contract, with or without an accident benefit rider, either on
individual or group basis, as per terms stated in the Table A below, filed with
the Authority:
Table A:
Type of Cover Minimum Maximum Term of Term of Minimum Maximu

Amount Amount of Cover Cover Age at m age at
of Cover Cover Min. Max. entry entry
Term Insurance with
or without return of Rs. 10,000 Rs. 50,000 5 year 7 years 18 60
premium
Endowment Rs. 10,000 Rs. 50,000 5 year 7 years 18 60
Insurance
Health Insurance Rs. 10,000 Rs. 15,000 1 year 7 year 18 60
Contract
Accident Benefit as Rs. 10,000 Rs. 50,000 1 year 5 years 18 60
rider
NOTE: The present average sum insured is around Rs. 5,000. This is highly inadequate to
provide any tangible relief even to an individual below the poverty line. Therefore, it is
suggested that the minimum amount of cover of Rs.10, 000 appear more realistic.
2. A “general micro-insurance product” means any health insurance contract, any

contract covering the belongings such as hut, livestock, any personal accident
contract, or tools or instruments, either on individual or group basis, as per
terms stated in the Table B below, filed with the Authority:
Table B:
Type of Cover Minimum Maximum Term of Term of Minimum Maximum

Amount Amount of Cover Cover Age at age at
of Cover Cover Min. Max. entry entry
Hut or livestock or
Tools or implements Rs. 10,000 Rs. 20,000 1 year 1 year 18 70
or other assets—
against all perils
Health Insurance Rs. 10,000 Rs. 15,000 1 year 1 year 18 60
Contract
Personal Accident Rs. 10,000 Rs. 50,000 1 year 1 year 18 60
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5. Micro-insurance Agent
 A “micro-insurance agent” shall be a Non Government Organization (NGO) or a Self

Help Group (SHG).
 Explanation: For the purposes of this regulation:
 A Non Government Organization (NGO) shall be a registered non-profit organization

under the Society’s Act, 1968 with a proven track record of working with
marginalized groups with clearly stated aims and objectives, transparency, and
accountability outlined in its memorandum, rules and regulations and demonstrates
involvement of committed people.
 Self Help Group (SHG) may be an informal group or registered under Societies Act,
State Co-operative Act or as a partnership firm, consisting of 10 to 20 with a proven
track record of working with marginalized groups with clearly stated aims and
objectives, transparency, and accountability outlined in its memorandum, rules and
regulations and demonstrates involvement of committed people.
 The minimum number of members comprising a group should be atleast ten for
insurance of individuals, and atleast fifty for group insurance.
Scope and Functions

A micro-insurance agent shall be appointed by an insurer by a deed of agreement or
memorandum of understanding which should clearly specify the terms and conditions, duties
and responsibilities of both the micro-insurance agent and the insurer, and he shall abide by
the following:-
 He shall work either for one life insurer or for one general insurer or for one life
insurer and one general insurer;
 He shall be specifically authorized to perform one or more of the following

functions:--
a) Maintaining a register of all members and their dependants covered under the
insurance scheme alongwith details of name, age, address, nominees and thumb
impression/ signature;
b) Collection of proposal forms;
c) Collection of self declaration from the member that he is in good health;
d) Collection of monies for issuance of contract or remittance of premium;
e) distribution of policy documents;
f) Assistance in the settlement of claims;
g) Nomination; and
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h) Any policy administration service.
i) The micro-insurance agent or the insurance company shall have the option to
terminate the agreement/ MOU after giving a notice of three months.
j) All such agreements/ MOU must have the prior approval of the Head office of the
insurance company.
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6. Initiative Taken By Private Sectors
Tata AIG Life - First insurance company to launch Micro Insurance

 First major Micro Insurance initiatives venture by an Indian insurance company
 Launches three new Micro Insurance products and five Micro Insurance branches
 Adopts a tailor made rural communication strategy to reach out to the rural
community
6.1 American International Group, Inc. (AIG)
American International Group, Inc. (AIG), world leaders in insurance and financial services,
is the leading international insurance organization with operations in more than 130 countries
and jurisdictions. AIG companies serve commercial, institutional and individual customers
through the most extensive worldwide property-casualty and life insurance networks of any
insurer. In addition, AIG companies are leading providers of retirement services, financial
services and asset management around the world. AIG's common stock is listed in the U.S.
on the New York Stock Exchange, as well as the stock exchanges in London, Paris,
Switzerland and Tokyo.
Micro Insurance is the process of delivering and servicing relevant and affordable life
insurance products to the low-income socio economic strata. The focus of Tata AIG Life’s
Micro insurance program is rural India, where traditionally the far-flung, lower and lower
middle-income segments have had limited access to life insurance services.
Cost of plans:
Tata AIG Life Micro insurance plans are available with or without survival benefits and with
death benefits ranging from Rs.5, 000 to Rs.50, 000. With premiums as low as Rs.5** per
month, there is now an affordable life insurance product for nearly every rural household in
India.
18
Policies Available:
The following special Micro Insurance products from Tata AIG Life are now available for the
rural population at the bottom of the pyramid.
 Navkalyan Yojana
 Ayushman Yojana
 Sampoorn Bima Yojana
NAVKALYAN YOJANA
A regular premium payment, low cost term plan for the rural adults who seek life insurance
protection without any maturity benefit.
Key features include:
 Policy Term : 5 years

 Coverage Limits : Minimum Death Benefit (Sum Assured): Rs.5,000/-
Maximum Death Benefit (Sum Assured): Rs.50,000/-
 Premium payment frequency : Monthly, quarterly, half yearly & yearly
 Death Benefits : Sum assured to the policyholder’s nominee
 Maturity benefit : None
 Rider: Option to attach Accident Death Benefit Rider for issue ages 18 to 55 years at a
nominal extra charge.
Tax Benefits and Age Eligibility

 Premiums paid under this plan are eligible for tax benefits as per the Income Tax Act,
1961 and are subject to any amendments made therein from time to time.*
Anyone between ages 18 and 60 can apply for this policy.
19
AYUSHMAN YOJANA
A single premium plan where the policyholder pays the premium at the beginning of the
policy term. This is especially useful for those rural people who have a seasonal income.

 Death Benefit : Sum assured to the policyholder’s nominee
 Maturity benefit: On survival, 125% of the single premium paid.

 Premiums paid under this plan are eligible for tax benefits to the extent of 20% of
Sum Assured as per the Income Tax Act, 1961 and are subject to amendments made
therein from time to time.*
Anyone between ages 18 and 60 can apply for this policy.
SAMPOORNA BIMA YOJANA
A low cost insurance plan where the policyholder receives all the premiums paid during the
policy term upon survival until the term of the policy. Premiums are payable for only 10
years, while the coverage is up to 15 years.
20
How do we operate?
We operate in 11 states with a specific relationship management team for each state. A
dedicated & trained sales and marketing team manages the front end of the Micro insurance
program. Our micro insurance distribution model collaborates with NGO’s (Non-
governmental organizations) and Rural organizations with community level SHG (Self Help
Group) women advisors who provide insurance advisory services to the rural customers at
their doorstep. The grassroots level agents explain the product details in the local language of
the customer, thereby enabling the customer to make a decision. The training programs,
brochures, contract documents, and application forms are available in 8 different languages
other than English and Hindi.

 Premium payment frequency : Monthly, quarterly, half yearly & yearly
 Death Benefit : Sum assured is paid to the policyholder’s nominee
 Maturity benefit: At the end of the 15 years, all the premiums paid will be returned to
the policyholder.

Premiums paid under this plan are eligible for tax benefits as per the Income Tax Act, 1961
and are subject to any amendments made therein from time to time.* Anyone between ages
18 and 60 can apply for this policy.
21
BIBLIOGRAPHY
1. Lyengar Vijayaragavan, Introduction to Banking, Excel Books, 1st Edition, 2007 2.
2. Mishra, M.N., S.B., Insurance Principles and Practice, Sultan Chand, 16th Edition,
2009
3. Srinivasan, G. and R.S. Arunachalam, forthcoming. “Microinsurance In India” ILO

Social Finance Working Paper (draft).
4. Vaughan, E.J. and T.M. Vaughan. 2002. Fundamentals of Risk and Insurance, 9th
edition. John Wiley and Sons
Web - Sites:
1. Ledgerwood, J. 1996. “Financial Management Training for Microfinance

Organisations: Finance Study Guide.” Toronto: Calmeadow, www.pactpub.com.
2. Lunde, F. and S. Srinivas. 2000. “Learning from Experience: A Gendered Approach

to Social Protection for Workers in the Informal Economy.” Geneva: WIEGO and
ILO-STEP, www.ilo.org/step.
3. Manje, L. and C. Churchill. 2002. “The Demand for Risk-Managing Financial

Services in Low-income Communities: Evidence from Zambia.” ILO Social Finance
Working Paper No. 31. Geneva: ILO, www.ilo.org/socialfinance.
4. Matin, I., D. Hulme and S. Rutherford. 1999. “Financial Services for the Poor and
Poorest: Deepening Understanding to Improve Provision.” Finance and Development
Research, Working Paper No. 9. IDPM, University of Manchester,
http://idpm.man.ac.in/wp/fd/index.htm.
5. Matin, I. 2002. “The Changing Microfinance Landscape in Bangladesh: A Study of

ASA, SafeSave and Gono Bima.” Finance and Development Research, Working
Paper No. 37. IDPM, University of Manchester,
http://idpm.man.ac.in/wp/fd/index.htm.
22

Micro Insurance in India

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Micro Insurance in India

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MICRO INSURANCE

ADVANCES IN MICRO INSURANCE IN

LOVELY PROFESSIONAL UNIVERSITY

I acknowledge my sincere thanks to Mr. ABHISEK DUTTA (Faculty

2. An Overview Of The Indian Insurance Market 10

3. Need For Developing Micro-Insurance In India 12

6. Initiative Taken By Private Sectors 18

7. American International Group, Inc. (AIG) 18

A. Assets & revenue insurance

Building and contents

Business interruption or loss of profits

Insurance cover for you and your employees:

Personal accident and illness

The Global Landscape

History and Vision

Development of Micro-insurance in India

 a population of less than five thousand,

The social sector as defined by the insurance regulator consists of:

 Low-income focused retailers in South Africa

Micro-insurance delivery models

 Partner agent model: A partnership is formed between the micro-insurance

 Full service model: The micro-insurance scheme is in charge of everything; both

 Provider-driven model: The healthcare provider is the micro-insurance scheme,

2.1 NEW MODELS FOR POOR COMMUNITIES

 Controls on management are weak and temptation is strong. Fraud by management is

3.Need for Developing Micro-Insurance in India–

 Micro-insurance refers to protection of assets and lives against insurable risks of

 Adapting formal insurance arrangements to the needs of the micro-economy.

 Upgrading non-formal (comprising semiformal and informal) insurance arrangements

 Establishing new local institutions providing microinsurance services.

The first three strategies may be inter-connected:

1) Sound financial management,

2) Convenient and safe savings premium collection and deposit facilities,

3) Appropriate claim appraisal and processing procedures,

4) Adequate risk management,

5) Timely collection of premium installments,

7) Effective information gathering, all of which may include cooperation between

Proposed Micro-insurance Regulations

1. It is proposed that an insurer transacting life insurance business shall be permitted to

2. In addition to an insurance agent or corporate agent or insurance broker who are

Type of Cover Minimum Maximum Term of Term of Minimum Maximu

2. A “general micro-insurance product” means any health insurance contract, any

Type of Cover Minimum Maximum Term of Term of Minimum Maximum

 A “micro-insurance agent” shall be a Non Government Organization (NGO) or a Self

 Explanation: For the purposes of this regulation:

 A Non Government Organization (NGO) shall be a registered non-profit organization

Scope and Functions

 He shall be specifically authorized to perform one or more of the following

b) Collection of proposal forms;

c) Collection of self declaration from the member that he is in good health;

d) Collection of monies for issuance of contract or remittance of premium;

e) distribution of policy documents;

f) Assistance in the settlement of claims;

Tata AIG Life - First insurance company to launch Micro Insurance

6.1 American International Group, Inc. (AIG)

Key features include:

 Policy Term : 5 years

Tax Benefits and Age Eligibility

Anyone between ages 18 and 60 can apply for this policy.

Key features include:

Tax Benefits and Age Eligibility

SAMPOORNA BIMA YOJANA

Key features include:

Tax Benefits and Age Eligibility