Micro insurance in India MicroMicro InsuranceInsurance InIn IndiaIndia A study funded by International Labour Organisation By Girija Srinivasan Ramesh S Arunachalam October 2002 1 Micro insurance in India Microinsurance in India Currency unit – Indian rupee One U.S.$ = Rupees. 47. 10 (August 2001) Abbreviations AMTC Association men’s thrift co operatives ASA Association of Social Activists ATC Association of thrift co operatives AWTC Association of Women’s Thrift Co operatives CDF Co operative Development Foundation DRAS Death Relief Assistance Scheme ICNW Indian Co operative Net work of Women IRDA Insurance Regulatory and Development Authority of India LEAD League for Education and Development LIC Life Insurance Corporation of India MFI Micro Finance Institution MSE Micro Small enterprises NABARD National Bank for Agriculture and Rural Development NGO Non Governmental Organisation NIC National Insurance Company RMK Rashtriya Mahila Kosh SHG Self Help Group SIDBI Small Industries Bank of India SWSS Social Welfare Security Scheme TC Thrift Co operative 2 Micro insurance in India 1. Introduction and background .............................................................................................................................. 5 2.0 Insurance in India ............................................................................................................................................... 6 2.1.Regulation of Insurance Industry ______________________________________________________ 7 2.1.1.Insurance Regulation and Development Authority( IRDA) ........................................................................ 7 2.1.2.Registration with IRDA ................................................................................................................................... 8 2.1.3.Prudential norms of IRDA .............................................................................................................................. 8 2.1.4.Norms for insurance in the rural social and disadvantaged sector ............................................................. 8 2.1.5.Norms for certification and appointment of agents ...................................................................................... 9 2.1.6. Opening up of the sector and what it means for microinsurance ............................................................... 9 3.0 Microinsurance scheme of Microfinance Institutions ____________________________________ 10 3.1.Details of the insurance schemes _____________________________________________________ 10 3.1.1.Co- operative Development Foundation ..................................................................................................... 10 3.1.3. League For Education And Development .................................................................................................. 17 3.1.4. Indian Co operative Network for Women .................................................................................................. 20 3.2. Analysis of the insurance schemes of the MFIs _________________________________________ 28 3.2.1.Entry strategies ............................................................................................................................................. 28 3.2.3. Types of coverage .......................................................................................................................................... 28 3.2.4.Voluntary/ compulsory ................................................................................................................................. 29 3.2.6. Marketing of insurance and building client awareness ............................................................................. 29 3.2.7. Staff involvement ........................................................................................................................................... 30 3.2.8. Procedural ease ............................................................................................................................................ 31 3.2.9.Protection/ prevention against moral hazard and adverse selection ....................................................... 31 3.2.10. Co variance of risks ..................................................................................................................................... 34 3.2.11. Risk mitigation ............................................................................................................................................ 34 3.2.12.Trade off between various services ............................................................................................................ 35 3.2.13.MIS and review mechanism ........................................................................................................................ 35 3.2.14.Outreach ....................................................................................................................................................... 35 3.2.15. Acceptance among the clients .................................................................................................................... 36 3.2.16. Financial performance ................................................................................................................................ 38 3.2.17 Lessons from partnering with formal insurance companies .................................................................... 44 3.2.18. Regulation issues - Legal status ................................................................................................................. 45 4.0. Risks faced by the MSEs ___________________________________________________________ 47 4.1. Demographics and brief background of the MSE households .................................................................... 47 4.2.Profile of Enterprises ....................................................................................................................................... 47 3 Micro insurance in India 4.3. Access to financial services .............................................................................................................................. 47 4.3.Life cycle events, setbacks and emergencies and coping mechanism ........................................................... 48 4.4. Life cycle events ................................................................................................................................................ 48 4.5. Major emergencies/ setbacks .......................................................................................................................... 48 4.6. Risk profile of the MSEs ___________________________________________________________ 49 4.7. Summary of observations on risks faced by MSEs _______________________________________ 50 4.8. Insurance Aspects - Present and intended insurance coverage of the households ..................................... 54 5.0. Conclusions ...................................................................................................................................................... 55 Annexure 1 ............................................................................................................................................................... 60 JANASHREE BIMA YOJNA GUIDELINES ...................................................................................................... 60 Annexure - 2 ............................................................................................................................................................ 62 List of MFIs offering insurance to the clients ....................................................................................................... 62 ___________________________________________________________________________________ 62 Annexure 3 .............................................................................................................................................................. 65 Case studies of Micro insurance programmes of MFIs ....................................................................................... 65 THE ACTIVISTS FOR SOCIAL ALTERNATIVES (ASA) .............................................................................. 84 League For Education And Development ......................................................................................................... 109 INDIAN COOPERATIVE NETWORK FOR WOMEN (ICNW) ................................................................... 130 4 Micro insurance in India Microinsurance in India 1. Introduction and background Micro and small entrepreneurs (MSEs) have a variety of financial needs. While some of these needs can be predicted with a great degree of certainty, there are others that are uncertain. Savings and credit products are better suited for the events that will occur with certainty such as old age, marriage, education, purchase of income generating asset etc. The uncertain events such as sickness, accident, theft, fire, flood, etc which make the poor incur irregular or unplanned for costs, are better met by insurance especially where the amount required to mitigate or cope with the event is high. The micro and small entrepreneurs, whether in urban or rural area, are time and again choked by uncertain events, but they have not taken recourse to buying insurance from formal insurers for a variety of reasons. The reasons for this include lack of knowledge, the inaccessibility of the existing insurance schemes,