Micro insurance products in Indian context

Abstract

Micro insurance is driven by micro finance institutions (MFIs), NGOs, banks, health institutions, agricultural and health cooperatives. There are often partnerships of these institutions with formal insurance companies thus ensuring wider reach while at the same time leveraging the expertise of the providers in product design. In India there is a huge market for micro insurance in life, health, agriculture (crop and livestock) and weather insurance. It is critical to understand how the target group manages risks in order to sell micro insurance products to them. The target group’s perception and knowledge of insurance, product-demand match, income, accessibility to service etc. influence the purchase decision. Thus the products should have the right balance of premium and coverage, easy application and claims processes and rapid payment. There exist 4 different models for delivering micro insurance out of which the partner-agent model and the mutual model are more prevalent. In the partner-agent model, an insurer who designs the product partners with the agent that markets and delivers the product. The agent benefits from lower risk but has lower control as well. In the mutual model, the policyholders manage the operations and work with external providers to offer the service. Agriculture and health insurance can be very valuable products to enter into for micro insurance companies. However, issues of high premium, limited coverage and inefficient healthcare plague health insurance in India. Different performance metrics can be used to measure the performance of micro insurance companies. Metrics related to financial performance, client service, outreach and sustainability can be measured to judge the impact of the micro insurance organization. Use of technology like smart cards, mobiles and IT systems can help improve the performance metrics. The case of non-banking financial institution (NBFI) called Grameen Koota was studied during the course of the project. Grameen Koota is a micro finance organization that follows the partner-agent model to provide life, health and livestock insurance to low-income people in Karnataka, Maharashtra and Tamil Nadu. They sell their insurance products along with their credit products thus leveraging on the already existing administrative systems. They have customer touch point centers called Kendras where the verification, collection and disbursement process takes place for clients. The case highlighted the importance of distribution strength and cross-selling. It also brought to the fore issues like bad documentation for claims, lack of trained personnel, and lack of investment. The scope of micro insurance in India depends upon clients, providers, regulators and the general environment. Clients need to be educated about micro insurance. New products should be developed to address specific needs of the clients. Government can play a role in making micro insurance reach a wider audience. Insurance providers should build capacity and expertise, reduce transaction and operating costs and use the right model and delivery channels. Regulators can give more power in the future to micro insurance companies to develop products. In addition to all this, the general environment should improve in terms of better healthcare facilities, disaster management systems and information management. For the business model of micro insurance to be sustainable, firms should follow strategies that balance coverage, costs and affordability. Firms can start with more affordable products to build a corpus for venturing into the micro insurance sector. They can limit the benefits and involve the clients in choosing the benefits. They should decide whether to choose high-cost low-probability items or low-cost high-probability items for insuring. Through the use of technology, firms can reduce transaction costs of payment and claims processes. They can control costs by educating customers about practices that would lower the probability of claims being made. The government can be approached for subsidizing their operations in the early stages.