Creating a purple patch: Social Security for poor

1. Creating a purple patch: Social Security for poor March 17, 2010 Financial Inclusion & Responsible Microfinance New Delhi

2. People who are slightly below the poverty line Entrepreneurial Poor Insurance Poor people who are meeting their basic needs by running micro-businesses Credit Self Employed Poor Farm laborers, domestics and unemployed workers Laboring Poor Safety Net Program People who have few (if any) assets – very limited chances to earn money Very Poor Savings Needs pyramid • Income increasing across socioeconomic classes • Availability of credit restricted to lesser categories • Most of the other classes still dependant on savings • Making them very vulnerable to risks and uncertainties Source : National sample survey organization (NSSO), Government of India, FINCA’s poverty pyramid

3. Impact of risk and response • Covariate (common) • Weather variations • Natural calamity • Epidemic • Crop failure • Price fluctuations RISK • Specific to household • Health Events • Life Cycle Event • CONSEQUENCES • Income Loss • Asset Loss • Need for Lump sum Cash • RESPONSE • Use Savings • Borrow: Informal/Formal sources • Sells assets • SECONDARY IMPACTS • Diversion of household resources • Depleted financial reserves • Indebted for future income • Loss of income • Loss of access to financial markets Protection : Affordability+Availability+Awareness

4. Protection tools: Current landscape • General Insurance penetration is 0.6% of GDP as compared to world average of 2.14% • Despite rising rural prosperity • Attributed to low consumer preference, untapped rural markets and constrained distribution channels • A survey conducted among urban and rural below poverty line showed • 67% of the respondents had used private healthcare • Spent Rs.100 to 250 per family per year on out patient services • Approximately 45% of the families borrowed money for health needs • Nearly 94% of the families had borrowed less than Rs.5000 Source :SKS Survey, 2005-2006; Health insurance trends

5. Micro-insurance fundamentals . . . • Simple Products • Transparent process • Quantification of Benefits Illiterate population • Online – Offline solutions, Smart cards • Over the counter enrolment • Door step service at villages Infrastructure • Direct Sales Model- Rural Agents • Kiosks • Use of alternate channels- Rural financial institutions, MFIs, SHGs, Rural Retail chains Admin • Index based weather products • Limited access healthcare -Micro Health Insurance • Protecting income generation assets -2W, Shops, Pumps Products

6. Universal insurance solution • Need for integrated coverage • Life, Accident, Health, Property, Weather • Simple and easy language • Flexible payment options • Ex. SampoornaSuraksha program launched with a NBFC, awarded with Golden Peacock Award for Service in Jan 2010 • Packaged offering: Major illness, Accident, Life, Shop cover • Multi lingual policy wordings • Premium linked with loan installments

7. Essentials at solution design stage Adverse selection Mandatory/Minimum Enrolment, Fixed Window periods Renewal linked to loan Renewal, Pre-authorization, Co-payments Moral hazard High operation costs Optimal use of Technology, simpler documentation Marketing initiatives at village level and doorstep education Product understanding Inadequate infrastructure Out Patient Clinics, Mapping of Health Seeking behavior and referrals Lack of trust Effective grievance, re-dressal in public meetings, Timely payments Biometric Identification, Audits and Analysis of claims Fraud Quality Networking of Credible Providers, Audits

8. Last Mile Connectivity Reaching the target Audience • Creating basic visibility • Mass media used to reach wider groups • Focused discussions with groups at the villages • Marketing initiatives at village level • Health camps • Capacity building measures undertaken Awareness • Multi- channel approach Availability Distribution Micro-finance Institutions Rural agents Govt. subsidized/ funded schemes E-enabled kiosks

9. Distribution channels • Insurers use MFI’s delivery mechanism to provide sales & Service • No risk participation from MFI • Administrative responsibility shared • Ex: BASIX, AP • Provider/Institution takes responsibility of product, process • Insurer takes financial risk & protection to provider • Ex: SEWA, Gujarat; Dharmasthala, Karnataka • Service provider and Insurer are same • Hospitals offer the protection and delivery as packaged offering • Ex: Yashasvini Scheme in Karnataka • Policy holders own and manage the insurance program • Negotiate with external health care providers • Ex: UPLIFT, Pune

10. Fairly priced & a relevant product Cost effective distribution Innovation Administration using technology Time Experimentation Assuring accessibility & quality In conclusion • Myth : Rural markets are expensive • Truth : Rural insurance is not only commercially viable but also profitable • TRUST is the key success factor Flexible Policy Improving the lives of the billions of people at the bottom of the pyramid is a noble endeavour. It can also be a lucrative one…C.K. Prahalad

11. Thank you