Creating a purple patch: Social Security for poor

March 17, 2010Financial Inclusion & Responsible Microfinance New Delhi

Needs pyramid

Source : National sample survey organization (NSSO), Government of India, FINCA’s poverty pyramid

People who have few (if any) assets – very limited chances to earn money

Credit

Savings

Entrepreneurial Poor

Self Employed Poor

Laboring Poor

Very Poor

People who are slightly below the poverty line

Insurance

Poor people who are meeting their basic needs by running micro-businesses

Farm laborers, domestics and unemployed workers

Safety Net Program

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

Impact of risk and response

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

RISK

Protection :Affordability+Availability+Awareness

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

Micro-insurance fundamentals . . .

Illiterate population

• Simple Products

• Transparent process

• Quantification of Benefits

• Simple Products

• Transparent process

• Quantification of Benefits

Infrastructure

• Online – Offline solutions, Smart cards

• Over the counter enrolment

• Door step service at villages

• Online – Offline solutions, Smart cards

• Over the counter enrolment

• Door step service at villages

Products

• Index based weather products

• Limited access healthcare -Micro Health Insurance

• Protecting income generation assets -2W, Shops, Pumps

• Index based weather products

• Limited access healthcare -Micro Health Insurance

• Protecting income generation assets -2W, Shops, Pumps

Admin

• Direct Sales Model- Rural Agents

• Kiosks

• Use of alternate channels- Rural financial institutions, MFIs, SHGs, Rural Retail chains

• Direct Sales Model- Rural Agents

• Kiosks

• Use of alternate channels- Rural financial institutions, MFIs, SHGs, Rural Retail chains

Universal insurance solution

Need for integrated coverage

Life, Accident, Health, Property, Weather

Simple and easy language

Flexible payment options

Ex. Sampoorna Suraksha 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

Adverse selection

Moral hazard

High operationcosts

Product understanding

Mandatory/Minimum Enrolment, Fixed Window periods

Renewal linked to loan Renewal, Pre-authorization, Co-paymentsOptimal use of Technology, simpler documentation Marketing initiatives at village level and doorstep education

Out Patient Clinics, Mapping of Health Seeking behavior and referrals

Effective grievance, re-dressal in public meetings, Timely payments Biometric Identification, Audits and Analysis of claims

Networking of Credible Providers, Audits

Inadequate infrastructure

Lack of trust

Fraud

Quality

Essentials at solution design stage

•Multi- channel approach•Multi- channel approach

Last Mile ConnectivityReaching 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

•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

Availability Distribution

Rural agentsRural agents

E-enabled kiosksE-enabled kiosks

Micro-finance InstitutionsMicro-finance InstitutionsGovt. subsidized/ funded schemes

Govt. subsidized/ funded schemes

Distribution channels

Myth : Rural markets are expensive Truth : Rural insurance is not only commercially

viable but also profitable TRUST is the key success factor

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

Fairly priced & a relevant productFairly priced & a relevant product

Cost effective distributionCost effective distribution

Administration using technology Administration using technology

Assuring accessibility & quality Assuring accessibility & quality

Experimentation

Innovation

Time

Flexible Policy

In conclusion

Thank you