Insuring the poor in India: Micro insurance and Max Vijay

Abstract

The need for financial inclusion of the underprivileged in the society has become a pressing issue with even the 11th Five Year Plan stressing on the need to extend financial services to the vastly underserved population of the country. Even though providing financial security to the base of the pyramid has not been an easy task, micro insurance has come up as an effective solution for addressing this issue. In this paper, we evaluate the rationale for the existence of micro insurance products in India and subsequently study the current state of the sector. We study the types of micro insurance products which are possible and also map the existing IRDA certified micro insurance schemes in the country. Further on, we map the entire micro insurance value chain, in the process identifying the stakeholders; reinsurers, insurers, delivery channels, policy holders, regulator and support providers. We analyze the functions of each of the stakeholders, quoting examples from the Indian context and also study various types of delivery channels in detail. This study helps us identify gaps and voids in the present system which needs to be plugged for growth of the sector. The paper follows up the analysis of the micro insurance industry with a set of recommendations on various factors which govern a micro insurance product; like product design, risk management, distribution, marketing and technology and administration. These recommendations seek to fill the gaps identified in the previous sections and can be used to build a roadmap for strengthening the nascent micro insurance industry in the country. In the final section, we present a case study on Max Vijay, a pioneering life micro insurance product recently launched by Max New York Life (MNYL) India. Max Vijay seeks to bring about a revolution in the manner, by which commercial insurers have approached this sector by incorporating innovative features like flexible premium payments, lapse-free policy, micro premium payments as small as Rs. 10 and a guaranteed return on the savings. The paper attempts to analyze in detail the product development challenges faced by MNYL in designing such a product and also study the approach followed by the company in the crucial aspects of branding, marketing and distribution of this product. Product pricing is very crucial for a micro insurance scheme and Max Vijay has managed to keep its costs low through a variety of ways including outsourcing its technology and administration needs to IBM. The case study seeks to highlight the crucial steps undertaken by Max New York which has made Max Vijay so successful and has resulted in it getting awarded by the Golden Peacock Award 2008 for innovation.