Date: 14 – 15 October 2005 Jointly Conducted by:

1. Workshop on Micro Insurance Date: 14 – 15 October 2005 Jointly Conducted by: Insurance Regulatory and Development Authority of India (IRDA) Institute of Insurance and Risk Management (IIRM) United States Agency for International Development (USAID) Supported by: BearingPoint

2. MICRO INSURANCE FINANCING & DISTRIBUTION – ISSUES AND CHALLENGES Dr. G. Gandhi Faculty Member National Insurance Academy, Pune Presented on 15TH OCTOBER 2005

3. HEALTH FINANCING – INDIA’S POSITION • By the `degree of risk sharing’, India is one among those countries of `Medium Risk Sharing’ category of health financing system.----According to World Bank’s econometric study in 191 countries and its analysis based on : • …. Whether an “universal coverage system” achieved • ….. Financed in a social health insurance & general taxation system • ………….less-developed coverage system • (Ref : www.who.int/country-profiles/main.cfm)

4. HEALTH FINANCING – INDIA’S POSITION • Among 61 medium risk sharing countries… • – three following variants are observed – • Health Insurance covers all employees / self-employed ? • Only employees? • Specific groups only, using for instance, Mutual health funds and enterprise based Health Ins. for particular workers groups?

5. HEALTH FINANCING – INDIA’S POSITION • Five indicators of Health System Attainment : 1. DALE Idx (Disability Adjusted Life Expectancy), • IR Index ( Level of Responsiveness), • IFFC Index( Fairness of Financial Contribution) • IRD Index( Distribution of Responsiveness) • IECS Index (Equality of Child Survival) These 5 variables indicate “Countries with a health financing organisation in the advanced or medium-risk sharing categories are seen to have significant impact.”

6. HEALTH FINANCING – INDIA’S POSITION • `Micro insurance – especially Micro Health Insurance for the poorest of poor’-ie `BPL’ -has only attained just a tip of the ice-berg. • Out of app.300 million BPL, < 5 million are covered under some health ins. Scheme.

7. POOR , THE MOST VULNERABLE It is always the poor who are more vulnerable to all different kinds of risks, and hence suffer the most. Therefore, this aspect needs deeper analysis and ‘responsible research study’ in order to profile the risk properly in order to serve the very poor. And poor not to be equated with other segments of society.

8. HEALTH FINANCING – Reinsurance/ Social Re/ ART Model • STOP LOSS COVER Where smaller claims are numerous) it is based on premium vs. claims incurred %. • contribution by respective stakeholders • If it is to be assumed Rs.100 , is the premium contribution needed to raise the financial capital required to support `Health Insurance risk sharing for attainment of its goals’, it can be raised as below :

9. HEALTH FINANCING – Reinsurance/ Social Re/ ART Model Risk Profiles : Mass co-variant Risk of global scale- recent TSUNAMI 10% ART (Alternative Risk Transfer Mechanism) -------------------- 10% Social Re Pool ILO UNO USAID WB National Calamity- Cyclone, Flood, Drought,Epidemics, man –made disasters Disaster Pool GIC Commercial Reinsurance Donors- Central/ State Govt. (Regular) Commercial Insurers - (3% of annl.net profit.) + Private Insurers 1% Referrals -high hosptl. Expenenses Regular Hospitalization & Wellness Cover Micro insurance Units (MIUs)

10. Traditional `Business Models’ of LIC & GIC companies • Are they fit enough to have the `Reach’ or `scale of operations’ in Micro Insurance? • Do they have to restructure themselves? • Do they have to find new channels to partner with? • Are the regulations or Acts , if we are to introduce these new `models’ (business models which already proved effective for micro insurance ), need to be reformed or amended?

11. WHAT ARE NEW CHANNELS ?(POST IRDA) We‘ve seen already a plethora of tie up partners: • Bank assurance partners • Corporate Agents • Co.op. partners- Mutuality Society(new avatars) • NGO partners- MFIs ( new avatars ) • SHWGs-Micro insurance (micro health) agents • Others –Direct marketing agents,brokers, Internet(web world )Rural KIOSKS

12. WHAT ARE NEW CHANNELS ? E-marketing Channels:New Technology Extension Outreach • Internet(web world –Reliance) • Rural ‘Info-KIOSKS’ - (ITC(e- choupal), EID Parry, RAJiv Internet centres) • On line (web enabled) marketing of all insurers • Call Centres • Toll free IVR System in vernacular interface(interactive voice response ) • Simuter- a PDA (personal access device) - cost effective for extending outreach in remote areas • Smart KCC (Kissan credit card)…4.25 crores • Computer “Munshies”(CM)-To serve 100-300 SHGs in a specific ‘geo-span’ and that can be accessed by all stakeholders & social intermediaries.

13. 4. What is the IT infrastructure available with Radiant to offer to Service Channel Partners? • Radiant is building a State of the Art IT infrastructure for the 5550 kiosks to connect to and provide services of business entities who become Service Channel Partners of Radiant • This will consists of a state of the art Data Centre, Disaster Recovery Centre, Call Centre & a Portal • World-class technologies from IBM will be employed to create a Stable Secure and Scalable Infrastructure • Suitable Application Software to manage the transactions will be developed as per business requirements or alternatively Application software solutions already developed by Service Channel Partners can be loaded on to our system • The kiosks at all the locations will have access to our IT infrastructure and deliver world class service

14. 5. Who is a Service Channel Partner? A Service Channel Partner is any business entity who has a product or service to offer to the rural markets and is interested in using the IT infrastructure and network of 5550 Internet enabled Centres managed by Radiant to expand their business 6. What are the benefits to the Service Channel Partners? • A business entity that intends to register as a Service Channel Partner can enjoy many benefits such as: • Saving of huge costs involved in setting up similar IT infrastructure required and the associated costs of the software and personnel required for management and maintenance. • Reach out to a huge geographical area of 2/3 rd of the state of Andhra Pradesh and 50 million people.

15. Building a retail network for the products • Advantage of the physical presence of the Kiosk operators in 5550 villages • Utilize the premises of the Internet centre for stocking goods retail sales • Utilize the premises for brand building and marketing campaigns • Advertise in the premises by means of Posters and Banners • Project /business development for : a. Contract Farming b. Fisheries c. Poultry Farming d. Forestry e. Animal Husbandry f. Commodity Exchange g. Distance Education h.Computer Education I. Training j.Data Acquisition k. Research l.Information Gathering m. Bio Mass Power n.Wasteland Development & Many Others….

16. NEW CHANNELS & CHALLENGES? New Technology Extension Outreach!- IT IS POSSIBLE REMOTELY To have a one -to-one contact physically……. “Creating a huge infrastructure of our own” – Impossible !! Can we utilize an already existing one ?– Yes! like for example the PDS (Public Distribution System)–Largest retail network in India Govt. of Maharastra already decided to hand over to the SHGs /NGOs the handling of affairs of PDS - Local self governance-empowering women to manage themselves under private cos.(ITC) platform for logistics and back end support.

17. ROLE OF VARIOUS GOVT./ NON-GOVT./ AGENCIES/ INTERMEDIARIES I. Role of gram panchayats/ block/ disctirct level – DRDAs • Various Govt. Depts. & development corps – Tribal development corps • Women & Child Welfare • SC/ ST/ BC Dev. Corps. • Social welfare dept. • Slum clearances –ex. THADCO for Housing development for weaker section.

18. Role of Various Govt./ Non-Govt./ agencies/ intermediaries II Co-operatives (segmental)Fishermen cos. FISHCOFED • Palm gur co-ops • Artisans & Handicrafts co.ops. • Handloom weavers co.ops. • Grape growers co-operatives • Sugarcane growers co-op. • Dairy co-operatives • Marketing co-operatives

19. Banking & non-banking financial institutions NABARD thro’ MFIs Public sector Banks & private sector Banks RRBs & Branches (lowest NPAs,highest recovery rates,creating volumes) Primarily creating the major “missing link”’ i.e. access to credits for entering into livelihood enterprises Role of Various Govt./ Non-Govt./ agencies/ intermediaries

20. Role of Various Govt./ Non-Govt./ agencies/ intermediaries • Role of NGOs/ Non-formal institutions/ trusts (based on trust created for building sustainable civic institutions) • Facilitation • Capacity building-leadership training • Organizational • All sorts of Micro finance interventions. …. micro savings • Creating forward & backward linkages-for micro credit delivery & servbices.

21. Role of Various Corporates co.s/ MNCs (Corporate Social Responsibility) HLL – Sakthi (consumer goods) ITC- E-CHOUPAL(soya choupal) EID Parrys- Rural Kiosk-Agri. Info.

22. State/ Central Govt.’s Role • Provide necessary budgetary allocation to provide the subsidy. • To facilitate passing of bills / amendments of Acts. • Provides the required `infrastructural’ development in Rural Areas • Road network access • Telecommunication & IT • Health • Education • Food processing/ cold storage chains like that of Dairy industry

23. State/ Central Govt.’s Role • Cross subsidizing from other segments like • Health tourism- Health Bonds • IT Dept.-VDS- Investing in health bonds – while proceeds go & subsidise – rural health insurance • Create a kind of “social re” : all the stakeholders right from grass root level SHGs.to Global Leaders/Institutions to contribute for creating the ‘social –re pool.

24. Donor agencies Role in Micro Insurance To develop their skills before involvement • Knowledge to develop low income markets • Technical expertise in insurance • Access to local market knowledge • To look for right `operator-support’ SOLUTION : • To encourage commercial insurer to work with MFIs • To limit self funding of donors • Encash on “MDG” of Donor agencies & Govts.

25. Issues and Challenges • Pricing – sustainable low-cost are suitable to lowest income group • 15 – 20% - set aside on commission • 15 – 20% - operational cost • 5 - 10% - policy taxes • 10% - towards frauds, reinsurance cost • friction costs (inefficiencies) • 45% - set aside for claim payout • SHGs & NGOs – Legally fit ? • Other informal & socially backward segments … Who would organise them?……. (contd.)

26. Issues and Challenges…contd. 4.Recommendation & transaction costs “simplification of products and procedures 5.Affordability issues – needs are growing? 6.Financials – cross subsidization & its administration – big example – Uni Health Insurance 7.Corporate social responsibility of regular insurers – “can it be pure commercial business models” 8.Self regulatory organisations-issues.

27. Thank you