Distribution of Micro Insurance Products In India

1. Distribution of Micro Insurance Products In India K. Muralidhara Rao General Manager, micro Credit Innovations Department, NABARD, Mumbai

2. Presentation Outline… • Introduction • IRDA’s Initiatives in Micro Insurance • Micro Insurance Models • Challenges in Micro Insurance Penetration • Distribution Channels • Conclusion

3. IRDA’s Initiatives… • Definition of micro insurance • Introduce the concept of “micro insurance product” and “micro insurance agent • Recognition of wide network of intermediaries in rural and social sectors • Offer alternative strategic entry points for intermediaries

4. IRDA’s Initatives (contd) • Recognition that procedures and services should be set by the insurers rather than the regulator • Permitting an insurer to workout mechanism to provide life as well as general insurance products • Review of existing definition of rural area

5. Micro Insurance Models • Direct Marketing by the insurance company • Partner-agent model • De-linked model • Service Provider Model

6. Direct Marketing by the insurance company • Identification of clients, selling of policies, collection of premium, receipts of claims and settlement of claims etc., all are done by the insurance companies • Outreach to provide micro insurance to poor through this model has been very limited

7. Partner-agent model • Approved intermediary organisations act as insurance agents. • Identify the customers, negotiate with insurance companies about the adequacy of products and premium rates to be paid, collect the premium • Assist in clients in claim processing and settlement • Dominant model

8. De-linked model • Community based insurance facility where NGO/MFI or federation of the groups act as insurer • Coverage of risk remains with the insurer • Sum insured, design and pricing of products, adverse selection, collection, claim verification and settlement data collection and maintenance, assessing client satisfaction etc are undertaken internally by the insurer

9. Service Provider Model NGOs generally provide basic health care facilities to the rural population since necessary amenities were simply not present in their area of operation. Instead of premium, the service providers charge a membership fees to partly cover their costs

10. Challenges in Micro Insurance Penetration • Designing of products suiting the rural market • Using the right distribution channel mix to reach the potential customer • Intermediaries being able to build personal credibility with the clients

11. Distribution Channels • Agents • Formal Banks • Regional Rural Banks • Cooperative Banks • SHGs & their Federations • NGOs & MFIs • Post Offices • Internet & Rural Kiosks & Rural Knowledge Centers

12. Agents • Prime channel for insurance distribution in urban areas • Trust of the company & customer must • Knowledge of different products • Postman,School teacher, shopkeeper, gram sevikas, gram sahayaks • Training & educating poses a challenge • Not an optimum channel as 42 % of 600,000 villages have population of less than 500

13. Formal Banks • 27 PSBs have19, 104 rural branches and 30 Pvt.SBs 1,111 • Private banks are constrained by their lack of reach and meager branch strength • Banking sector has shown propensity towards the larger size accounts • Within the foreseeable future they will normally not be able to fully serve that market

14. Regional Rural Banks • 177 RRBs together with14,150 branches cover 516 districts and serve a client base of close to 62.70 million • RBI has permitted RRBs to undertake insurance business as corporate agent without risk participation • Chitradurga Gramin Bank has -in close cooperation with the NABARD GTZ-Project- introduced a new deposit scheme for SHGs called “Rakshith” Savings Bank Scheme in tie up with LIC and UIICo. Ltd

15. Cooperative Banks • ST structure comprises of 30 SCBs, 367 DCCBs and over 112,309 PACS • RBI has allowed scheduled licensed SCBs and licensed DCCBs having a networth of Rs. 500 million to undertake insurance business as corporate agents without risk participation • Given their poor governance structures it is unlikely that they would emerge as efficient distribution channels

16. SHGs & their Federations • 1.6 million SHGs comprising 24.1 million families are linked to banks • Rapidly growing year after year • Many SHG promoters have formed federations • Federations provide both financial and non financial services • Federations promoted by DHAN Foundation are participating in Mutual Insurance Scheme as well as intermediary

17. NGOs and MFIs • Large number of NGOs and MFIs are involved in social as well as financial services intermediation • Out of 61 sample MFIs studied by Sa-Dhan 34 were providing insurance services • While all 34 MFIs provided life insurance products, only 9 facilitated non life insurance products • The most significant range in amount of cover was in the category of Rs.10,000 and above

18. Challenges faced by NGO & MFIs • Many of them are working as pure service provider particularly in health insurance, private insurer, intermediary • Poor live for the present and do not plan for the future. Given their fatalistic attitude, it is difficult to explain the concept of insurance to poor • Given this mindset, premium is seen as additional expenditure rather than risk cover • Without the availability of basic health infrastructure in rural areas, health insurance is difficult to sell

19. Challenges faced by NGO & MFIs • Cooperation with the insurance company has not proved successful. Limited motivation on both sides to improve the cooperation • Delays in settling claims and complicated formalities • Challenge to pick up the necessary insurance techniques and adjust them to the needs of their members • No legal status as a private insurer. This complicates the matter further when it comes to reinsurance

20. Post Offices • There are about 129,000 rural post offices. • Post Office itself is offering insurance products to the poor • Its efficacy as an intermediary channel needs to be explored

21. Internet, Rural kiosks & Knowledge Centers • Using net for transactions has been catching up in urban areas. Many banks provide online banking • Most of the insurance companies have product information and/or illustrative tools on the web • In rural areas too rural knowledge centers are being set up to bring information close to the people. The insurance companies can use these centers to create awareness about insurance • Can only be enablers for the human channels

22. Conclusion • micro Finance sector is in evolving phase • Innovations are required at all stages for products, in pricing policy and in delivery channels • Success of marketing micro insurance depends on understanding the social and cultural needs of the target population • Clients should also receive price differentials for using different channels • Groups & their promoters can provide ideal platform to kick start the micro insurance

23. Thank you