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Presentation Outline

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  1. Workshop on Microinsurance Insurance and Regulatory Development (IRDA)Institute of Insurance and Risk Management (IIRM)United States Agency for International Development (USAID)Hyderabad14 & 15 October 2005Pricing Microinsurance ProductsExamplesDenis GarandConsultantBearingPoint Inc.Indian Insurance Reform Projectwww.bearingpoint.com

  2. Presentation Outline • Summary of key pricing components • Insurance principals • Order of difficulty in pricing • Life insurance example • Health example 1 • Health example 2 • Health example 3

  3. Premium calculation 1. Expected claims 2. Administrative expenses 3. Profit

  4. Insurance principals • Large number of similar units exposed to the risk • E.g. Probability of death 1 per thousand, 1 person ─ 10,000 people, similar risk • Limited policyholder control over the insured event • E.g. Health insurance ─ hospitalization cannot be planned • Existence of insurable interest • E.g You must suffer a lost; insuring ─ neighbors livestock? • Losses are determinable and measurable • E.g. Hut insurance ─ must be able to determine value of hut • Losses should not be catastrophic • E.g. Kutch Earthquake ─ Requires reinsurance • Chance of loss is calculable • Premiums are economically affordable

  5. Difficulty in pricing Rank from easiest to hardest • Accidental death • Life insurance, tied to loan • Life insurance, community based • Hut insurance • Health and livestock (prevention, links with medical professionals important) • Crop insurance

  6. Life expected claims

  7. Life plan design Plan design Rs 5,000 life insurance Community rate Voluntary participation Scenario 1 10,000 women age 27 Expected claims (5*2.96*10,000)/(10,000) = Rs 14.8 per insured Scenario 2 5,000 women age 27 ; 5,000 men age 32 Expected claims (5*2.96*5,000 +5*4.53*5,000)/(10,000) = Rs 18.7 per insured

  8. Life: History of one MI

  9. Health: Example 1 Child health insurance Benefit Rs 2,000 per household Voluntary Hospitalization Expected claims Year 1 Rs 97 Year 2 Rs 85 Year 3 Rs 70 What happened? Percentage of households with insurance increased

  10. Health: Example 2 Health insurance Surgical benefit Voluntary Expected claims Year 1 Rs 65 Year 2 Rs 95 What happened? Insured issued a photo ID Large variations by region Monitoring found one hospital had high rate of hysterectomies

  11. Health: Example 3 Health insurance Primary care, hospitalization Voluntary Attributes Strong community participation Reduction in hospitalization rates Health promotion strategy Viable

  12. Conclusions • Understand the demographics of the group • Understand how the plan is managed • Know the targeted populations • Manage data and monitor

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