D Sattaiah VP Corporate HR & Insurance

1. Risks faced by Rural Households and Private Sector Insurance Initiatives in IndiaA paper presented on Aug 10, 2007 at Policy Forum ofAgriculture and Rural Development for reduction of poverty and hunger in Asia: In pursuit of inclusive growth and excellence D Sattaiah VP Corporate HR & Insurance

2. Indian Scenario • 72.4% Population is engaged in Agriculture • 72.3% Households live in Rural Areas • 28.3% Rural poverty (27.5% overall poverty) • Entire rural sector is un-organized • 99% rural HH in un-organized sector • Overall 92% in unorganized sector and • Unorginsed sector contributes 40% of GDP • Literacy over 64%

3. Indian Workforce

4. Vulnerability to risks is higher for those in the lower economic rungs Households Income/Assets Poverty Line A dose of micro-credit/ Ag-BDS Risk event Time Hence poor household insurance needs are obvious

5. Risk coping mechanism of rural poor Covariance . Asset sale, Migration Borrowings, Asset Pledging Savings – Self Insurance Severity

6. Indian Insurance Sector • Public Insurers Monopoly till year 2000. Today 24 private insurers in market • Penetration is < 3% insurable population as per GTZ study • Ranks 19 in aggregate premium and 54 in penetration • Mandated target to reach under • Rural sector business Life - 7% polices in year 1 to 18% in year 6; General 2% in year 1 to 5% in year 3 and so on • Social Sector – 5,000 polices in year 1 to 25, 000 in year 6 for both Life & General • IRDA Micro Insurance Guidelines • Products limits defined – commission for agents enhanced – given additional roles to mediators • Micro Finance Institutions given a vital role

7. Insurable Risks Faced by Rural Households

8. There are two types of products available • Group Products • Designed and delivered to an existing group of people • Such groups availability is limited • Most of the time they are linked to along with other services • Operating costs are low • Retail Products • Voluntary - Sold • Cost of selling and servicing is disproportionately high

9. Rural household common insurance needs – and retail products available

10. Farmer Insurance needs & retail products available

11. Labour insurance needs and retail products available

12. Artisans/enterprise holder – retail products available

13. Mission of BASIX Is to promote large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner. BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital markets and human resources on a continuous basis.

14. Our Strategy IDS (Institutional Development Services) Livelihood Triad LFS (Livelihood Financial Services) Ag/BDS (Agriculture/ Business Development Services)

15. BASIX’s Approach to insurance services Distribute Insurance Offer products Rural Customer Insurer BASIX Inputs for products Feedback on needs

16. BASIX collaborations in insurance • Life Insurance -AVIVA • Health Insurance-Royal Sundaram • Livestock Insurance –Royal Sundaram • Micro-Enterprise-Royal Sundaram • Rainfall Insurance- ICICI Lombard BASIX Equity for Equity

17. Products performance as on 31-03-2007

18. Technology use • Use software for insurance transactions • Se up Rural BPO for efficient transactions • Use online training facility • On line premium and claim transactions between BASIX and Insurer

19. Key Innovations … • Life Group product • Non exclusion of suicide for benefit • Life retail product • Coverage starts from 10th day of premium payment • 1 year grace period for premium payment • Limited Health Insurance – Group product • BASIX deployed claim facilitators who help insured to get medical care and build claim form

20. …. Key Innovations • Livestock –retail product • Overcome the constraint of lack of veterinarian by • Insurability certification by BASIX staff – (Non veterinarians) • Claims certification by surveyor • Rainfall – retail product • Product structure based on local crops, customer choice on trigger points and premium sizes • Facilitate set up the rain gauge stations by private company NCSML • Micro enterprise – retail product • Deduction of 10% of SI or 500 whichever is maximum

21. Insurance –Challenges & Possible responses • Sell insurance concept to poor • Educate on insurance utility • Sell protection products first • Demonstrate the effect of insurance; Exempt from taxes • Efficient distribution • Collaborate with alternate channels and share expertise • Pay remunerative commissions – a minimum level of commission to be allowed • Come out with appropriate product and process • Rationalize products , • Simplify process and • Adopt technology support,

22. Potential Strategy for Insurers Product Needs order of priority Premium to cover Investment + Savings + Term Risk, Expenses & profit through product differentiation Higher Income Risk, Expenses &marginal profit Middle Income Protection+ Savings Lower Income 26% Risk to begin with and costs increasingly Protection

23. Thank youdsattaiah@basixindia.comwww.basixindia.com