NeedtoExpandInsurance

• 88% workers in India belong to the informalsector,andhavelimitedsocialsecuritynets.2

• Between2000 and 2050, thepopulation in the60-80years,andtheabove80-yearagebracketshasbeenprojected togrowby326%and700%respectively.3

InclusiveInsurance:GoingBeyondtheMandate?PriyadarshiniGandSafaM.Khan,IFMRLEAD

InsurancepenetrationinIndiastandsat3.4%,ascomparedto the emerging market average of 2.9%. The annualpremiumgrowthhasbeen7.9%in2015againsttheglobalgrowthof3.8%1.Whilerisingincomeshavecontributedtothe slow and steady rise of insurance take up in India, alargesectionofsocietystillremainsuncovered.Thisisdueto threefoldchallenges facedbyall stakeholders, i.e., theuninsured target client, distribution intermediary and theinsurance company. Innovative product design thatincorporates simplicity, flexibility and certainty can helpovercometheinitialbehaviouralhurdlestotake-upbytheuninsured.Atthesametime,distributionchannelsneedto be customized to suit the economic and geographic needs of the target clients for the businessmodel of theinsurance company to remain sustainable.While India is currentlydeemed tohave thewindowofopportunity interms of its demographic profile, its ageing populationwill be a huge burden after this phase of transition. It isthereforenecessaryfortoday’sproductiveworkforcetoadequatelyinsureagainstfutureeventualities.

MicroinsuranceinIndiaMicroinsurance is the protection offered to low-income clients in exchange for regular premiums, which areproportionaltolikelihoodandcostsofriskinvolved.Theseproductsaimtoprovideclientswithappropriatelypricedinsurancecoverstomanagetheirrisks.

Microinsurance is a low price- high volume businessand its viability largely depends on minimizingdistribution and transaction costs. In terms of claimsdisbursementbothprivateandpublicsectorinsuranceschemes seem to be performing efficiently (Figure 1).Technology enabled distribution of micro-insuranceschemes could help reduce such costs evenfurther.With technology and mobile money-basedmicro-insurance having contributed significantly tohealthinsurancetakeupsinKenyaandelsewhere4,thisfield is seen as the most fertile ground for futureinnovationintheinsurancesectorinIndiaaswell.

Micro-insurance that offers life/pension/health benefits can have a maximum cover of Rs.2,00,000 without theannualpremiumexceedingRs.6,000.Thegovernmentalsohasintroducedtwokeylowpremiuminsuranceschemesthat are linked to its broader vision of ensuring financial inclusion under the Jan Dhan Yojana. Also, IRDA5 haspermittedcropinsurancestobedistributedbymicro-insuranceagentsirrespectiveofsumassured.Thisisexpected

1AllfiguresfromSwissReSigmaReport,2015266throundofNSSOsurvey,2011-123PRSReport4EmergingPracticesinMobileMicroinsurance,CamiloTellez(2012)5InsuranceRegulatoryandDevelopmentAuthority

ProductTypes-Life -Crop-Health -Disaster-Property -Unemployment-Disability -Reinsurance

DeliveryModels• Partneragentmodel:Schemeassignsanagentlikeinsurancecompany/hospital• Fullservicemodel:Schemedesigns,deliversandmanagestheproducts• Providerdrivenmodel:Healthcareproviderstakesoverfullservice• Communitybased/mutualmodels:Clientsmanageoperationsandavailservice

tohavepositiveimpactontakeupofcropinsuranceschemessuchasPMFBY.

PradhanMantriJanSurakshaYojana(PMJSY)The PMJSYwas introduced to provide insurance to unorganizedworkers but is open to all savings bank accountholders.Thisschemehastwocomponents,alifeinsurance(PMJJBY)andanaccidentinsurance(PMSBY)component,bothadministeredbytheLifeInsuranceCorporationofIndia(LIC).ItishopedthataccountsopenedundertheJanDhanYojanawillaidinmakingsurethatthisschemeiseasilyandwidelyaccessibletoallsectionsofthesociety.Bothoftheseschemesworkonauto-debitpaymentmodeandpaycompensationtothenomineeassignedbythepolicyholder.

PradhanMantriFasalBimaYojana(PMFBY)

Only 23% of India's total farmer population iscoveredunderexistingcropinsuranceschemes.Thegovernment aims to increase this to 50%by 20186,with the larger aim of doubling famer incomenotwithstanding.The PMFBY- introduced in January2016, replaced the National Agriculture InsuranceScheme (NAIS)andModified National AgricultureInsurance Scheme (MNAIS). The scheme is handledbytheAgricultureInsuranceCompanyof India(AIC)andaselectionofempanelledinsurancecompanies.There is one implementing private company perstate, selected through a bidding process. So far,companies selected include Bajaj Alliance, HDFC-ERGO,ICICILombard,andSBIGIC.

WayForward

Improving efficiencyin the enrollment and disbursement processes is vital for insurance schemes to result inpositive outcomes for the beneficiaries.The average expense ratio of Indian life insurers is 19%7while it isbetween 4% and 12% in developed markets. Digital technology could aid in bringing distribution andadministrativecostsdown.Bundlingmicrofinancewithmicro-insurancetogethercouldalso reapbenefits.For instance,BRACoffers ‘CreditShield Insurance,’ wherein the beneficiary receives life insurance coverage by making a one-time premiumpaymentwhiletakingoutaloan.8SuchamodelimprovesboththeMFI’sbusinesssustainability,butalsomakestheloanmoreaffordablefortheclients.Improvingproductofferingandmarketing-Whilethemandateistoexpandanddeepeninsurancepenetrationin India, the challenge lies inensuring thatappropriate productsareserviced tocustomers.A topdown thrustcould induce the sector to start catering to the low-income segments but firm level innovations are equallyimportanttomakesurethatthebusinessmodelremainssustainableandprofitable.Goingbeyondthemandate–Takeupnumbers,thoughindicativeoftheindustry’sfoothold,donottellushowinclusivethispenetrationhasbeen.Thereisthereforeaneedtogobeyondthesenumberstomakesurethatallsectionsofsocietyarecateredtoandgivenanopportunitytomanagepotentialfuturerisks.

PMFBY-Goingbeyondthemandate?ThePMFBYisanambitiousschemethatseekstobecomeagame-changerinthecropinsurancelandscape:Use of technology: The scheme can be accessed through amobile/online application. Remote sensing drone and GPStechnologiestobeusedtodetermineaccurateyieldlossesandweatherconditions.Lower premium rates: No cap on the premium. A uniformpremium of only 2% to be paid by farmers for Kharif crops,1.5% for Rabi crops, and5% of sum insured/actuarial rate forannualcommercialandhorticulturecrops.Therestofthecostis borne by the state and central governments, and is sharedequally.UnifiedPackageInsuranceScheme(UPIS):Single-windowpilotscheme wherein farmers can opt for at least two otherinsuranceschemes(suchasPMSBY&PMJJBY)inadditiontothePMFBY.

Features PMSBY PMJJBYCover Accidentaldeath/disability/accidentaldeath DeathduetoanyreasonAnnualPremium Rs.12 Rs.330

SumAssured i)Rs.2,00,000foraccidentaldeathii)Rs.1,00,000forpartialdisability Rs.2,00,000fordeathduetoanyreason

Eligibility Savingsbankaccount SavingsbankaccountAgelimit 18-70years 18-50years

Premiumtobepaidtill 70years50years.Optiontocontinuetill55years.

6http://www.pmindia.gov.in/7TowersWatsonCIISurvey20158http://blog.brac.net/2016/01/credit-shield-insurance-piloting-microinsurance-products-in-bangladesh/

Source:IRDAAnnualReport,2014-15