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Department of Commerce

Subject: Financial Risk Management

Topic : MICRO INSURANCE

Name : Sartape Ashish KondibaM.Com II Roll No: 36

Under the guidance of:Mrs.Madhura Bhagwat.

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

History of insurance in India• The insurance industry in India, private and public, has its

roots in the 19th century. The British Government set up state-run social protection schemes.

• The first private insurance company was theOriental Life Insurance Company, which started in Calcutta in 1818. • The 1 9th century saw the development of a number of

Indian insurance companies including the Bombay Mutual (1871),Oriental (1874) and the Empire of India (1897).

• In British rule there were large numbers ofinsurance companies operating in India. In 1938 the British passed the Insurance Act. The Act remains thelegislative cornerstone of the insurance industry to this day.

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

• In 1956 the Indian Government nationalized thelife insurance industry. The reasons given at the time were high levels of fraud in the industry and a desire to spread insurance more widely. • in 1990 the Indian Government set about liberalizing its insurance markets. It set up a commission of enquiry under thechairmanship of R.N. Malhotra. The central outcome of the commission was the establishment of the Insurance Regulatory and Development Authority (IRDA) that in turn laid the framework for the entry of private (including foreign) insurance companies.• At the beginning of 2005 there were 14 life and non -life insurers operating in India.

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

INSURANCE

LIFE

INSURANCE

GENERAL

INSURANCE

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

Definitions of Micro Iinsurance

• Micro insurance is insurance with low premiums and low caps / coverage.

In this definition, "micro" refers to the small financial transaction that each

insurance policy generates.

• The IRDA’s characterization of micro insurance by the product features is

further complemented by their definition for micro insurance agents, those

appointed by and acting for an insurer, for distribution of micro insurance

products (and only those products).

• Micro insurance is a financial arrangement to protect low-income people

against specific perils in exchange for regular premium payments

proportionate to the likelihood and cost of the risk involved.

• Micro insurance is the use of insurance as an economic instrument at the

"micro" (i.e. smaller than national) level of society. (It was first published

in 1999)

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

Features Of Micro Insurance

• transactions are low-cost (and reflect members’ willingness to pay);

• clients are essentially low-net-worth (but not necessarily uniformly poor);

• the essential role of the network of microinsurance units is to enhance risk management of the members of the entire pool of microinsurance units over and above what each can do when operating as a stand-alone entity.

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Products In Micro Insurance

• A general or life insurance policy with a sum assured of Rs 50,000 or less

• A general micro-insurance product is any:

Health insurance contract

Any contract covering belongings such as

Hut

Livestock

Tools or instruments or

Any personal accident contract

They can be on an individual or group basis

• A life micro-insurance product is:

A term insurance contract with or without return of premium

Any endowment insurance contract or

A health insurance contract

They can be with or without an accident benefit rider and

Either on an individual or group basis12

Micro Insurance Providing companies

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Total Microinsurance market in India:

Rs.62.30 to 84.27 billion per year

Pension for unorganised workforce:

Rs.201.3 billion (US$2.5billion) per year

Life Health

Crop Livestock

(Source: “Potential and Prospects of Microinsurance in India; UNDP Regional Centre of Human Development Unit 2009) 10

Market share In India “Micro Insurance”

73%

5%

4%

4%

2%

2%

2%

8% LIC

ICICI Prudential

HDFC Standard

SBI Life

Bajaj Alliance

Max Life

Birla Sunlife

Others

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Microinsurance scheme

A microinsurance scheme is a scheme that uses, among others, an insurance mechanism whose beneficiaries are (at least in part) people excluded from formal social protection schemes, particularly, informal economy workers and their families. The scheme differs from others created to provide legal social protection to formal economy workers. Membership is not compulsory (but can be automatic), and members pay, at least in part, the necessary contributions in order to cover benefits.

The expression "microinsurance scheme" designates either the institution that provides insurance (e.g., a health mutual benefit association) or the set of institutions (in the case of linkages) that provide insurance or the insurance service itself provided by an institution that also handles other activities (e.g., a micro-finance institution).

The use of the mechanism of insurance implies:

Prepayment and resource-pooling: the regular prepayment of contributions (before the insured risks occur) that are pooled together.

Risk-sharing: the pooled contributions are used to pay a financial compensation to those who are affected by predetermined risks, and those who are not exposed to these risks do not get their contributions back.

Guarantee of coverage: a financial compensation for a number of risks, in line with a pre-defined benefits package.

Microinsurance schemes may cover various risks (health, life, etc.)

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Micro Insurance

Models

Partner Agent Model

Full Service Model

Provider Model

Community base Model

Microinsurance Delivery Model

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Microinsurance delivery model

I. Partner agent model: A partnership is formed between the micro insurance(partner as MFI) scheme and an agent (insurance companies), and in some cases a third-party healthcare provider. The microinsurance 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, microinsurance schemes benefit from limited risk, but are also disadvantaged in their limited control. Micro Insurance Centre is an example of an organization using this model.

II. Full service model: The microinsurance 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 microinsurance schemes full control, yet the disadvantage of higher risks.

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Microinsurance delivery model

III. 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.

IV. 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.

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Microinsurance and development

• Micro insurance is recognized as a useful tool in economic development. As many low-income people do not have access to adequate risk-management tools, they are vulnerable to fall back into poverty in times of hardship, for example when the breadwinner of the family dies, or when high hospital bills force families to take out loans with high interest rates. Furthermore, microinsurance makes it possible for people to take more risks. When farmers are insured against a bad harvest (resulting from drought), they are in a better position to grow crops which give high yields in good years, and bad yields in year of drought. Without the insurance, however, they will be inclined to do the opposite; since they have to safeguard a minimal level of income for themselves and their families, crops will be grown which are more drought resistant, but which have a much lower yield in good weather conditions. Microinsurance and development

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STRATIGIC CHANGE IN MICROINSURANCE

Issues in Product Design

Marketing Micro insurance

Distribution channels

Consumer Protection

Data Collection

Micro insurance awareness

Work Force

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• 90% of the Indian population, and 88%of the Indian workforce (the majority of unorganised workforce) are still excluded from any kind of insurance cover and pension cover respectively.

• the importance of microinsurance, both from social security and business opportunity points of view can hardly be over-emphasised.

References

Internet:

• IRDA website

• UNDP Report

• Wikipedia

Books:

i.Insurance Management(text and cases)

ii.Risk Management

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Thank you…1