micro insurance 2

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BBI TOLANI COLLEGE OF COMMERCE Page 1

Chapter - 1

MICROINSURANCE

1.1 History

Micro insurance is generally, but inaccurately, referred to as a

new concept, at first appearing as a new financial service within

microfinance but increasingly becoming an independent

approach. In fact, it is only the term - Micro insurance, Micro-

Insurance or Micro Insurance - that is fairly new.

Micro insurance is defined as follows in different sources:

The protection of low-income people against specific perils inreturn for regular premium payments proportionate to the

likelihood and cost of the risk involved (Preliminary Donor

Guidelines, 2003).

A risk transfer device characterised by low premiums and lowcoverage limits, and designed for low-income people not served

by typical social insurance schemes (Micro Insurance

Academy, India, 2007).

Insurance that is accessed by the low-income population,provided by a variety of different entites, but run in accordance

with generally accepted insurance practices. Importantly this

means that the risk insured under a microinsurance policy is

managed based on insurance principles and funded by

premiums (International Association of Insurance Supervisors,

2007).


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A mechanism to protect poor people against risk (accident,illness, death in the family, natural disasters, etc.) in exchange

for insurance premium payments tailored to their needs, income

and level of risk (Micro insurance Innovation Facility, 2008).

These different definitions have in common the element of

protection for low-income people, even though the delineation

between micro insurance and insurance and its role in social

protection is not clearly defined and is subject to different points of

view.

a) The Origins of Insurance

Commercial proprietors were the first to understand the need

for and invent a type of insurance. In about 3.000 BC in China

merchants and their investors wanted to ensure a profit from goods

shipped overseas and therefore developed a way of sharing the cost of

lost goods. A similar development took place in Babylon.

In around 600 AD, the Greeks and Romans had organised

guilds called benevolent societies which cared for the families and

paid funeral expenses of members upon death. In the dark and middle

ages, wealthier guilds had large coffers or reserves that acted as a kind

of insurance fund; money from the coffers could be used to rebuild the

burned down house of a guild member, or to support the family of a

suddenly disabled or killed member.


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In the late 1660s, the London coffee shop of Edward Lloyd

became a meeting place for merchants and ship owners seeking

insurance. As an aftermath of the great fire of London in 1666 that

destroyed some 14 000 buildings marine insurance, underwriters

formed insurance companies to offer fire insurance policies. At the

end of the 17th Century, the first mortality table was created, which

enabled the subsequent development of modern life insurance.

b) The Phenomenon of Micro Insurance

Although, not known as Micro insurance, here are some

examples from Europe and the United States that predate the

development we know today:

Industrial life insurance life insurance policies with smallsums insured and weekly premiums collected door-to-door

was marketed in the late 1800s by Prudential Life Assurance

Society in the United Kingdom and by Metropolitan Life

Insurance Company in the United States.

Folksam General Mutual Insurance Company was founded in1908 by the co-operative movement in Sweden to provide

simple fire insurance policies on the contents of the flats of

low-income workers and on the contents of co-operative

shops.

CUNA Mutual Insurance Society was founded in 1936 by thecredit union movement in the United States in order to provide

simple group term life insurance cover on loans made to


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members by the credit unions. This was the origin of loan

protection insurance which is used world-wide by credit

unions (or savings and credit societies, caisses populaires,

cooperativas de ahorro y credito, etc) to collectively protect all

borrowing members/their families as well as the lending credit

union from losses due to the death or total and permanent

disability of the borrower.

1.2 Introduction

What is Micro Insurance?

Rich or poor, we all face financial risk every day. But for many

poor people in the developing world, a multitude of risks threaten to

derail any progress they have made to work their way out of poverty.

Micro insurance - the protection of low-income people against

specific perils in exchange for regular monetary payments (premiums)


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proportionate to the likelihood and cost of the risk involved - seeks to

provide a suitable solution for managing these risks.

Until recently, there were very few formal insurance solutions

available to the poor, and many policies were too complicated, too

much out of line with the specific requirements of the poor, and just

too expensive. In many cases, unfortunate experiences with

inappropriate insurance products led to lack of understanding and

mistrust of insurance. Today, micro insurance aims to enable the poor

to manage risk through a range of suitable and affordable insuranceproducts.

Micro-insurance, the term used to refer to insurance to the low-

income people, is different from insurance in general as it is a low

value product (involving modest premium and benefit package) which

requires different design and distribution strategies such as premium

based on community risk rating (as opposed to individual risk rating),

active involvement of an intermediate agency representing the target

community and so forth. Insurance is fast emerging as an important

strategy even for the low-income people engaged in wide variety of

income generation activities, and who remain exposed to variety of

risks mainly because of absence of cost-effective risk hedging

instruments.

Although the type of risks faced by the poor such as that of

death, illness, injury and accident, are no different from those faced by

others, they are more vulnerable to such risks because of their


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economic circumstance. In the context of health contingency, for

example, a World Bank study (Peters et al. 2002), reports that about

one-fourth of hospitalized Indians fall below the poverty line as a

result of their stay in hospitals. The same study reports that more than

40 percent of hospitalized patients take loans or sell assets to pay for

hospitalization. Indeed, enhancing the ability of the poor to deal with

various risks is increasingly being considered integral to any poverty

reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).

Of the different risk management strategies, insurance that

spreads the loss of the (few) affected members among all the members

who join insurance scheme and also separates time of payment of

premium from time of claims, is particularly beneficial to the poor

who have limited ability to mitigate risk on account of imperfect

labour and credit markets.

In the past insurance as a prepaid risk managing instrument was

never considered as an option for the poor. The poor were considered

too poor to be able to afford insurance premiums. Often they were

considered uninsurable, given the wide variety of risks they face.

However, recent developments in India, as elsewhere, have shown

that not only can the poor make small periodic contributions that can

go towards insuring them against risks but also that the risks they face

(such as those of illness, accident and injury, life, loss of property etc.)

are eminently insurable as these risks are mostly independent or

idiosyncratic. Moreover, there are cost-effective ways of extending


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insurance to them. Thus, insurance is fast emerging as a prepaid

financing option for the risks facing the poor.

Micro-insurance is a key element in the financial services

package for people at the bottom of the pyramid. The poor face more

risks than the well-off, but more importantly they are more vulnerable

to the same risk. Usually, the poor face two types of risks

idiosyncratic (specific to the household) and covariate (common, e.g.,

drought, epidemic, etc.). To combat these risks, the poor do pro-active

risk management grain storage, savings, asset accumulation

(especially bullocks), loans from friends and relatives, etc. However,

the prevalent forms of risk management (in kind savings, self-

insurance, mutual insurance) which were appropriate earlier are no

longer adequate.

Poverty is not just a state of deprivation but has latent

vulnerability. Micro insurance should, therefore, provide greater

economic and psychological security to the poor as it reduces

exposure to multiple risks and cushions the impact of a disaster. There

is an overwhelming demand for social protection among the poor.

Micro insurance in conjunction with micro savings and micro credit

could, therefore, go a long way in keeping this segment away from the

poverty trap and would truly be an integral component of financial

inclusion.

Micro-insurance is a term increasingly used to refer to

insurance characterized by low premium and low caps or low
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coverage limits, sold as part of atypical risk-pooling and marketing

arrangements, and designed to service low-income people and

businesses not served by typical social or commercial insurance

schemes.

The institutions or set of institutions implementing micro-

insurance are commonly referred to as a micro insurance scheme.

1.3 DEFINATIONS

1. Micro-insurance is insurance with low premiums and low caps /coverage. In this definition, micro refers to the small financial

transaction that each insurance policy generates. The Micro-

insurance Regulations, issued in 2005 by the IndianInsurance

Regulatory and Development Authority (IRDA), for

example, adopted this definition in explaining micro-insurance

products as those within defined (low) minimum and

maximum caps. The IRDAs characterization of micro-
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insurance by the product features is further complemented by

their definition for micro-insurance agents, those appointed by

and acting for an insurer, for distribution of micro-insurance

products (and only those products).

2. Micro-insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular

premium payments proportionate to the likelihood and cost of

the risk involved. The author of this definition adds that micro-

insurance does not refer to: (i) the size of the risk-carrier (some

are small and even informal, others very large companies); (ii)

the scope of the risk (the risks themselves are by no means

micro to the households that experience them); (iii) the

delivery channel: it can be delivered through a variety of

different channels, including small community-based schemes,

credit unions or other types of microfinance institutions, but

also by enormous multinational insurance companies, etc.

3. Micro-insurance is synonymous to community-based financingarrangements, including community health funds, mutual health

organizations, rural health insurance, revolving drugs funds,
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and community involvement in user-fee management. Most

community financing schemes have evolved in the context of

severe economic constraints, political instability, and lack of

good governance. The common feature within all, is the active

involvement of the community in revenue collection, pooling,

resource allocation and, frequently, service provision.

4. Micro-insurance is the use of insurance as an economicinstrument at the micro (i.e. smaller than national) level ofsociety. This definition integrates the above approaches into

one comprehensive conceptual framework. It was first

published in 1999, pre-dating the other three approaches, and

has been noted to be the first recorded use of the term micro-

insurance. Under this definition, decisions in micro-insurance

are made within each unit, (rather than far away, at the level of

governments, companies, NGOs that offer support in

operations, etc.).

5. The draft paper prepared by the Consultative Group to Assistthe Poor (CGAP) working group on micro-insurance defines

micro-insurance as the protection of low income households

against specific perils in exchange for premium payments

proportionate to the likelihood and cost of the risk involved.

The paper deliberates on the key roles to be played by all
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stakeholders insurers, regulator and the Government. The

working group also agrees that the cost of such cover should be

affordable.

Insurance functions on the concept of risk pooling, and

likewise, regardless of its small unit size and its activities at the level

of single communities, so does micro-insurance. Micro-insurance

links multiple small units into larger structures, creating networks that

enhance both insurance functions (through broader risk pools) and

support structures for improved governance (i.e. training, data banks,

research facilities, access to reinsurance etc.). This mechanism is

conceived as an autonomous enterprise, independent of permanent

external financial lifelines, and its main objective is to pool both risks

and resources of whole groups for the purpose of providing financial

protection to all members against the financial consequences of

mutually determined risks.

The last definition therefore, includes the critical features of the

previous three:

1. transactions are low-cost (and reflect members willingness topay);

2. clients are essentially low-net-worth (but not necessarilyuniformly poor);

3. communities are involved in the important phases of theprocess (such as package design and rationing of benefits); and

4. The essential role of the network of microinsurance units is toenhance risk management of the members of the entire pool of
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microinsurance units over and above what each can do when

operating as a stand-alone entity.


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Chapter - 2

IRDAS REGULATIONS ON MICRO-

INSURANCE

Building on the recommendations of the consultative group,

IRDA notified Micro-Insurance Regulations on 10th November 2005

with the following key features to promote and regulate micro-

insurance products. The regulations focus on the direction, design and

delivery of the products :

A tie-up between life and non life insurance players forintegration of product to address risks to the individual, his

family, his assets and habitat,

Monitoring product design through file and use Breakthrough in distribution channels with inclusion of NGOs,

SHGs, MFIs and PACS to provide micro-insurance, with

appropriate compensation for their services,

Enlarged servicing activities entrusted to micro-insuranceagents,

Issue of policy documents in simple vernacular language.

Currently the IRDA regulations do not favor composite insurance

(i.e., life and non-life insurances by the same company) and also limit

the agency tie-up to one life and one non-life insurer. However, in

recognition of the uniqueness of micro insurance, these regulations

enable life and non-life companies to tie-up for offering a combined

policy in rural areas. Further, the IRDA has allowed insurers to issue


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policies with a maximum cover of Rs. 50,000 for general and life

insurance under these regulations. The regulations have also eased the

norms for entry of agents relating to training and pre-recruitment

examination. As an attraction, remuneration to agents has also been

leveled across the term of the policy.

Another striking feature of the regulation is the provision of

extending coverage to the family as a unit as against the system of

insurance coverage to individual lives. The insurer has to take IRDAs

prior approval for launching micro insurance products through the

file and use mode. The maximum cover will be Rs. 30,000 per

annum for a dwelling and contents or livestock or tools or implements

or other named assets or crop insurance against all perils. For

individual and group health insurance, the maximum cover is Rs.

30,000 per annum per individual. For personal accident policies the

maximum Rs. 50,000 per annum and is open to 5-70 age group.

In case of life micro-insurance products, the cover amount for

term insurance ranges between Rs. 5,000-50,000 for a minimum term

of five years and maximum of 15 years. The entry age for this product

is kept between 18-60. Endowment insurance policy provides cover

for Rs. 5,000-30,000 for a minimum five years and maximum 15

years for people aged between 18 and 60. Further, an insurer can

collect the premium for both life and general insurance components

directly from the consumer or agents.


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At the time of opening of the insurance sector, IRDA had

decided that all insurers, including the new entrants, should fulfill

certain obligations to spread insurance in rural areas. Specific

regulations have been issued prescribing targets in terms of quantum

of policies to be written in the rural sector consistent with the years of

their operations and also certain quantified target for coverage of lives

in the social sector. With a view to encouraging the insurers to meet

these obligations and give a fillip to micro-insurance products, IRDA

also decided that all micro-insurance products may be reckoned for

the purpose of fulfillment of the social obligation and where such

policy are issued in rural area they could also be reckoned for rural

sector obligation. IRDA has also proposed to benchmark the above

obligations with reference to quantified limits of sums assured under

micro-insurance policies. The above approach would ensure the faster

development of the micro-insurance market and take the insurance

penetration to rural areas.

The Committee wholly subscribes to the initiatives of IRDA in

widening outreach of micro-insurance products to the rural poor and

recommends that the same may be implemented with renewed zeal as

providing micro-insurance is a necessary and essential adjunct in the

inclusive process. The IRDA should continue to impose Rural and

Social Sector Obligations but there should be no unreasonable caps on

premiums and channel commissions. This is in line with the de-

tariffing process in other sectors also. In the long run, it is only when


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the insurance companies find it profitable to serve this market that

they will do so on their own.

Chapter3

MICRO-INSURANCE PRODUCTS

Micro-insurance, like regular insurance, may be offered for a

wide variety of risks. These include both health risks (illness, injury,

or death) and property risks (damage or loss). A wide variety of

micro-insurance products exist to address these risks, including crop

insurance, livestock/cattle insurance, insurance for theft or fire, health

insurance, term life insurance, death insurance, disability insurance,

insurance for natural disasters, etc.

Micro insurance has made a significant difference in countries

like Mali, Maxime Prud'Homme and Bakary Traor describe.

Innovations in Sikasso Still, many countries face continuing

challenges. Specifically in Bangladesh, micro health insurance

schemes are having trouble with financial and institutional

sustainability, Syed Abdul Hamid and Jinnat Ara describe, but things

are improving.

3.1 Crop insurance:-

Crop insurance is purchased by agricultural producers,

including farmers, ranchers, and others to protect themselves against

either the loss of their crops due to natural disasters, such as hail,
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drought, and floods, or the loss of revenue due to declines in the

prices of agricultural commodities. The two general categories of crop

insurance are called crop-yield insurance and crop-revenue insurance.

Crop-yield insurance: There are two main classes of crop-yield

insurance:

Crop-hail insurance is generally available from privateinsurers (in countries with private sectors) because hail is

a narrow peril that occurs in a limited place and its

accumulated losses tend not to overwhelm the capital

reserves of private insurers. The earliest crop-hail

programs were begun by farmers cooperatives in France

and Germany in the 1820s.

Multi-peril crop insurance (MPCI): covers the broadperils of drought, flood, insects, disease, etc., which may

affect many insureds at the same time and present theinsurer with excessive losses. To make this class of

insurance, the perils are often bundled together in a

single policy, called a multi-peril crop insurance (MPCI)

policy. MPCI coverage is usually offered by a

government insurer and premiums are usually partially

subsidized by the government. The earliest MPCI

program was first implemented by the Federal Crop

Insurance Corporation (FCIC), an agency of the U.S.

Department of Agriculture, in 1938. The FCIC program

has been managed by the Risk Management Agency
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(RMA), also a U.S. Department of Agriculture agency,

since 1996.

Crop-revenue insurance: is a combination of crop-yieldinsurance and price insurance. For example, RMA establishes

crop-revenue insurance guarantees on corn by multiplying each

farmer's corn-yield guarantee, which is based on the farmer's

own production history, times the harvest-time futures price

discovered at a commodity exchange before the policy is sold

and the crop planted. There is a single guarantee for a certain

number of dollars. The policy pays an indemnity if the

combination of the actual yield and the cash settlement price in

the futures market is less than the guarantee. In the United

States, the program is called Crop Revenue Coverage.

Crop-revenue insurance covers the decline in price that

occurs during the crop's growing season. It does not coverdeclines that may occur from one growing season to another.

That would be called "price support," and would raise a series

of complex agricultural-policy and international-trade issues

3.2 Health insurance:-

Health insurance like other forms of insurance is a form of

collectivismby means of which people collectively pool their risk, in

this case the risk of incurring medical expenses. The collective is

usually publicly owned or else is organized on a non-profit basis for
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the members of the pool, though in some countries health insurance

pools may also be managed by for-profit companies. It is sometimes

used more broadly to include insurance covering disability or long-

term nursing or custodial care needs. It may be provided through a

government-sponsored social insurance program, or from private

insurance companies. It may be purchased on a group basis (e.g., by a

firm to cover its employees) or purchased by an individual. In each

case, the covered groups or individuals pay premiums or taxes to help

protect themselves from unexpected healthcare expenses. Similar

benefits paying for medical expenses may also be provided through

social welfare programs funded by the government.

By estimating the overall risk of healthcare expenses, a routine

finance structure (such as a monthly premium or annual tax) can be

developed, ensuring that money is available to pay for the healthcare

benefits specified in the insurance agreement. The benefit is

administered by a central organization such as a government agency,

private business, or not-for-profit entity.

3.3 Term life insurance :-

Term life insurance or term assurance islife insurancewhich

provides coverage at a fixed rate of payments for a limited period of

time, the relevant term. After that period expires coverage at the

previous rate of premiums is no longer guaranteed and the client must

either forgo coverage or potentially obtain further coverage with

different payments and/or conditions. If the insured dies during the

term, the death benefit will be paid to thebeneficiary. Term insurance
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is the most inexpensive way to purchase a substantial death benefit on

a coverage amount per premium dollar basis.

Term life insurance is the original form of life insurance andcan be contrasted to permanent life insurance such as whole life,

universal life, andvariable universal life, which guarantee coverage at

fixed premiums for the lifetime of the covered individual. Many

permanent life insurance products also build a predetermined cash

value over the life of the contract, available for later withdrawal by

the client under specific conditions. However, on most cash value

policies like Whole Life insurance, the only way to receive the

"savings" is to cash out the policy. The beneficiaries receive the face

value of the insurance but NEVER the cash value with Whole Life

policies. Financial advisers generally advise buying term life

insurance and investing the difference elsewhere.

Term insurance functions in a manner similar to most othertypes of insurance in that it satisfies claims against what is insured if

the premiums are up to date and the contract has not expired, and does

not expect a return of Premium dollars if no claims are filed. As an

example, auto insurance will satisfy claims against the insured in the

event of an accident and a home owner policy will satisfy claims

against the home if it is damaged or destroyed by, for example, an

earthquake or fire. Whether or not these events will occur is uncertain,

and if the policy holder discontinues coverage because he has sold the

insured car or home the insurance company will not refund the

premium. This is purely risk protection.
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3.4 Disability insurance:-

Disability insurance, often called disability income insurance,

is a form of insurance that insures the beneficiary's earned income

against the risk that disability will make working (and therefore

earning) impossible. It includes paid sick leave, short-term disability

benefits, and long-term disability benefits.
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Chapter - 4

AGRICULTURAL MICROINSURANCE:

GLOBAL PRACTICES AND PROSPECTS

4.1 Introduction to agricultural microinsurance

Agricultural micro insurance is about providing insurance to small-

scale farmers in developing countries. This in itself presents a number

of particular challenges to insurers:

Uncontrollable: Ideally the occurrence of an insured eventshould not be under the direct control of the insured person.

However, this is not always the case with many kinds

agriculture insurance.

Unequivocal: Assessing agricultural loss can be very difficultand costly, as the loss could be caused by a combination of the

insured-against events.

Fraud: Farms are often physically remote, which createsopportunities for fraud.

Moral hazard: Physical remoteness makes it hard for aninsurer to check whether insured farmers are diligently taking

care of their crops or livestock.

Adverse selection: can have a destabilising effect on aninsurance system, because the principle of risk-pooling will not

work if only those negatively affected buy the insurance.


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Covariant risk: In agriculture, covariant risk is frequently anissue because droughts, pests and animal or crop epidemics are

likely to affect many farmers at the same time.

All these factors, together with the costs of loss adjustment, can make

agricultural indemnity insurance a very costly business, difficult to

make profitable or indeed to break even. In fact hardly any

agricultural insurance programs cover their costs (indemnity

payments & administrative costs) from premiums. Almost all are

subsidised, as agriculture is a much politicised sector.

Animal insurance: Livestock insurance can cover losses resulting

from death, disease and accidental injury to livestock. It can cover an

individual animal or a herd.

Crop insurance: Crop insurance covers the loss of crops due to one

or more perils, and can be covered in a number of different way: yield

loss (a lower-than-anticipated yield), quality loss (crops of a lower

quality than anticipated), revenue loss (due to price fluctuations), or a

combination of these. The two most common types of crop insurance

are Named-peril crop insurance (policies payed out according to the

actual damage that results) and, Multi-peril crop insurance (based on

shortfalls on expected yield, rather than on the damage caused by a

particular loss event.)

Index-based insurance: is a way of providing protection against

correlated risk such as extreme weather events. It is not strictly

insurance, as individual losses are not assessedinstead it pays-out to


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all policy holders in a geographic area when certain conditions are

reached in the proxy, or index.

Index insurance solves three of the most difficult challenges ofagricultural insurance, and greatly reduces the prospects of fraud:

Moral hazard: the farmer cannot influence an index that isbased on weather.

Adverse selection: whether farmers opt in or out, this will haveno impact on the risk, because the risk would be based on the

index, e.g. level of rainfall.

Costs of loss adjustment: it is not necessary for a loss adjustorto visit the farm and calculate losses, as once the index trigger

is exceeded, the payment is sent regardless of loss.

Reduces the prospects for fraud.

Unfortunately index insurance is not quite a panacea, because it

introduces new challenges. One challenge is basis risk, which can be

described as the mismatch between the amount received because the

index has been triggered and the amount actually lost by the client.

Improved data collection and product design may be able to minimize

basis risk however this typically makes the product more complex and

more difficult for the low-income market to understand.

4.2 The landscape of agricultural micro insurance

The 2007 landscape survey undertaken by the Micro Insurance

Centre, attempts to map the extent of agricultural micro insurance


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worldwide by studying specific areas of micro insurance such as

regional distribution, types of micro insurance cover, the risk carriers,

the schemes and pilot programs, and finally the state of

microinsurance regulations. The main conclusions of which are as

follows:

There are very few agricultural insurance schemes indeveloping countries with products that are accessible to poor

farmers. The landscape survey found a total of 122 schemes

worldwide, and not all of these are fully operational.

Agricultural microinsurance is concentrated in Latin America. There are very few dedicated agricultural microinsurance

schemes in developing countries. Those that do exist use

existing agent infrastructures which end up perpetuating non-

viable business models.

Agricultural microinsurance is highly subsidized, and run onbusiness models that are not sustainable.

4.3 Increasing access to agricultural microinsurance

Non-insurance intervention can play a direct role in mitigating risk,

given the difficulties associated with agricultural insurance. The most

obvious way to reduce risk is to prevent it from happening in the first

place (vaccinating livestock, strengthening systems to prevent stock

theft, planting more drought and pest-resistant crops.) Another

common way of mitigating risk is for household members to share

risk by pursuing multiple livelihoods, including off-farm activities,

and pooling their income. Other ways include sharecropping (farmer


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has a contract with a landowner to use land in return for giving the

landowner a share of the farmers harvest), and the use of forward

contracts, which reduces the risk of price fluctuation but agreeing

contractually the price beforehand. Nevertheless, non-insurance

options cannot mitigate the effects of catastrophic losses, other than

intervention by governments and aid agencies; there are few real

substitutes for insurance.

Interventions can take place at three levels: the macro level

(supporting the policy environment), the meso level (supporting the

infrastructure necessary to support agricultural microinsurance e.g.

institutes to train insurance staff, reinsurers and agricultural support

staff), and the micro level (improving the sustainability of risk carriers

and distributors).

4.4 Levels

(A) Macro level

Regulations: There is evidence that the lack of regulation or the

existence of inappropriate regulation can impede the progress of

microinsurance, although there has as yet not been any analysis of the

impact of existing regulation on agricultural microinsurance. Evidence

of regulatory impediments to the spread of agriculturalmicroinsurance is mostly anecdotal. By and large there is a distinct

lack of information regarding this area and more studies need to be

allocated to examine either what regulations need to be put into place

or what changes could improve current regulations.


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Policy: There is invariably a need to subsidise agricultural

microinsurance, and these come in various different forms (the

distributor can be subsidised, the risk carrier can be subsidised, the

government can take on the reinsurance risk at a subsidised rateetc).

Another policy matter is whether to compel insurance companies to

sell agricultural micro-insurance products. The Indian government has

done this with microinsurance, with mixed results. On the positive

side this policy has made India the worlds largest supplier of

microinsurance and an engine of innovation. On the negative side

many insurers treat the policy as a cost of doing business and

provide low quality, poorly serviced products.

(B) Meso level

Microinsurance in general has a strong need for trained specialist

staff (loss adjustors and actuaries), agricultural microinsurance

necessitates additional skills, and for example in livestock insurance,

relies on veterinarians for a number of functions such as managing

risk, underwriting, loss adjustment and fraud control. To begin

building specialist insurance capacity, development agents such as

donors, governments, development banks, NGOs and MFIs, need to

undertake landscape studies at country level to establish the supply of

agricultural insurance expertise and develop ways to improve it.

Another important area of intervention is improving data collection

(livestock mortality, morbidity rates, weatheretc). This lack of data


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not only makes the design of products difficult but, also can act as a

barrier to insurers considering entering the market.

Consumer education: A problem throughout the microinsurancesector, the lack of understanding and trust towards insurance will limit

the demand and impede the functioning of a scheme, even when

people do participate.

(C) Micro level

Leveraging existing distribution infrastructure: In order to keepcosts down it is clear that agricultural microinsurance products should

be sold through an aggregator so the costs of selling and servicing

agricultural microinsurance can be reduced by using its distribution

infrastructure.

The availability of affordable reinsurance is patchy at best, and in

tropical regions, which face frequent covariant risk events such as

droughts, cyclones, plagues and floods, there is no real substitute for

reinsurance. Studies need to be organised to understand what kinds of

agricultural microinsurance risks commercial reinsurers would be

prepared to cover, and which ones they would not, or else look at new

means of providing reinsurance - by setting up a dedicated reinsurer,

or subsidizing commercial reinsurance premiums, or working withgovernment to accept some of this risk.

Better product design: Certain errors in product design are

commonly repeated because products are not designed specifically for


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people on low income. In too many cases the insurer merely reduces

the premium and benefit of conventional agricultural insurance, while

keeping the other features constant, resulting in products that cover

for minor losses and tend to be expensive and overly complex. The

best microinsurance products are those designed through a process of

close consultation with potential policy holders. More research needs

to be done in terms of creating a list of the best and worst practices.

Reducing costs: We cannot avoid the conclusion that microinsurance

is a low cost, high volume business, and unless costs are contained,

agricultural microinsurance cannot be sustainable. A few interesting

cost-contained strategies emerged in the case studies in Chapter 2.

ADR-TOM, in its Burkina Faso plough oxen scheme, madevery effective use of its policy holders in reducing the costs of

risk management through group co-payments. Attaching the

insurance product to existing group structures such as creditsolidarity groups will greatly reduce cost.

Technological advances are likely to bring costs down andincrease access. The only significant technological innovation

uncovered in the landscape survey was the use of sealed low

cost weather stations that send their data via satellite for use in

index insurance schemes.

The cost structure of agricultural microinsurance simply doesnot allow for products to be sold individually though agents.

Agricultural microinsurance needs more specialized

aggregators who provide access to large numbers of potential


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policy holders and, are linked in some significant way to the

livelihoods of the farmer policyholders.

Chapter5

MICRO-INSURANCE DELIVERY

MODELS

One of the greatest challenge for micro-insurance is the actual

delivery to clients. Methods and models for doing so vary depending

on the organization, institution, and provider involved. As Dubby

Mahalanobis states, once must be thorough and careful when making

policies, otherwise microinsurance could do more harm than good. In

general, there are four main methods for offering micro-insurance the

partner-agent model, the provider-driven model, the full-service

model, and the community-based model. Each of these models has

their own advantages and disadvantages.

Partner agent model: A partnership is formed between themicro-insurance scheme and an agent (insurance company,

microfinance institution, donor, etc.), and in some cases a third-

party healthcare provider. The micro-insurance scheme is

responsible for the delivery and marketing of products to the

clients, while the agent retains all responsibility for design and

development. In this model, micro-insurance schemes benefit

from limited risk, but are also disadvantaged in their limited

control.


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Full service model: The micro-insurance scheme is in chargeof everything; both the design and delivery of products to the

clients, working with external healthcare providers to provide

the services. This model has the advantage of offering micro-

insurance schemes full control, yet the disadvantage of higher

risks.

Provider-driven model: The healthcare provider is the micro-insurance scheme, and similar to the full-service model, is

responsible for all operations, delivery, design, and service.

There is an advantage once more in the amount of control

retained, yet disadvantage in the limitations on products and

services.

Community-based/mutual model: The policyholders orclients are in charge, managing and owning the operations, and

working with external healthcare providers to offer services.This model is advantageous for its ability to design and market

products more easily and effectively, yet is disadvantaged by its

small size and scope of operations.


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Chapter6

MICRO INSURANCE SCHEME

A micro insurance scheme is a scheme that uses, among others,

an insurance mechanism whose beneficiaries are (at least in part)

people excluded from formal social protection schemes, in particular

informal economy workers and their families. The scheme differs

from others created to provide legal social protection to formal

economy workers. Membership is not compulsory (but can be

automatic), and members pay, at least in part, the necessary

contributions in order to cover benefits.

The expression "microinsurance scheme" designates either the

institution that provides insurance (e.g., a health mutual benefit

association) or the set of institutions (in the case of linkages) that

provide insurance or the insurance service itself provided by aninstitution that also handles other activities (e.g., a micro-finance

institution).

The use of the mechanism of insurance implies:

Prepayment and resource-pooling: the regular prepayment ofcontributions (before the insured risks occur) that are pooled

together.

Risk-sharing: the pooled contributions are used to pay afinancial compensation to those who are affected by


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predetermined risks, and those who are not exposed to these

risks do not get their contributions back.

Guarantee of coverage: a financial compensation for a numberof risks, in line with a pre-defined benefits package.

Microinsurance schemes may cover various risks (health, life,

etc.); the most frequent microinsurance products are:

Life microinsurance (and retirement savings plans) Health microinsurance (hospitalisation, primary health care,

maternity, etc.)

Disability microinsurance Property microinsuranceassets, livestock, housing Crop microinsurance


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Chapter7

DEVELOPMENT OF MICRO-

INSURANCE IN INDIA

Historically in India, a few micro-insurance schemes were

initiated, either by nongovernmental organizations (NGO) due to the

felt need in the communities in which these organizations were

involved or by the trust hospitals. These schemes have now gathered

momentum partly due to the development of micro-finance activity,

and partly due to the regulation that makes it mandatory for all formal

insurance companies to extend their activities to rural and well-

identified social sector in the country (IRDA 2000). As a result,

increasingly, micro-finance institutions (MFIs) and NGOs are

negotiating with the for-profit insurers for the purchase of customized

group or standardized individual insurance schemes for the low-

income people. Although the reach of such schemes is still very

limited---anywhere between 5 and 10 million individuals---their

potential is viewed to be considerable. The overall market is estimated

to reach Rs. 250 billion by 2008 (ILO 2004).

The insurance regulatory and development authority (IRDA)

defines rural sector as consisting of

(i) a population of less than five thousand,(ii) a density of population of less than four hundred per

square kilometer, and


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(iii) more than twenty five per cent of the male workingpopulation is engaged in agricultural pursuits. The

categories of workers falling under agricultural pursuits

are: cultivators, agricultural labourers, and workers in

livestock, forestry, fishing, hunting and plantations,

orchards and allied activities.

The social sector as defined by the insurance regulator consists

of (i) unorganized sector (ii) informal sector (iii) economically

vulnerable or backward classes, and (iv) other categories of persons,

both in rural and urban areas.

The social obligations are in terms of number of individuals to

be covered by both life and non-life insurers in certain identified

sections of the society. The rural obligations are in terms of certain

minimum percentage of total polices written by life insurance

companies and, for general insurance companies, these obligations are

in terms of percentage of total gross premium collected. Some aspects

of these obligations are particularly noteworthy. First, the social and

rural obligations do not necessarily require (cross) subsidizing

insurance. Second, these obligations are to be fulfilled right from the

first year of commencement of operations by the new insurers. Third,

there is no exit option available to insurers who are not keen on

servicing the rural and low-income segment. Finally, non-fulfillment

of these obligations can invite penalties from the regulator.


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In order to fulfill these requirements all insurance companies

have designed products for the poorer sections and low-income

individuals. Both public and private insurance companies are adopting

similar strategies of developing collaborations with the various civil

society associations. The presence of these associations as a mediating

agency, or what we call a nodal agency, that represents, and acts on

behalf of the target community is essential in extending insurance

cover to the poor. The nodal agency helps the formal insurance

providers overcome both informational disadvantage and high

transaction costs in providing insurance to the low-income people.

This way microinsurance combines positive features of formal

insurance (pre paid, scientifically organized scheme) as well as those

of informal insurance (by using local information and resources that

helps in designing appropriate schemes delivered in a cost effective

way).

In the absence of a nodal agency, the low resource base of the

poor, coupled with high transaction costs (relative to the magnitude of

transactions) gives rise to the affordability issue. Lack of affordability

prevents their latent demand from expressing itself in the market.

Hence the nodal agencies that organise the poor, impart training, and

work for the welfare of the low-income people play an important role

both in generating both the demandfor insurance as well as the supply

of cost-effective insurance.


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Chapter8

SUPPLY AND DEMAND SIDE

DEVELOPMENTS

8. 1) Supply of micro-insurance

Recently, the ILO (2004a) prepared a list of products of all

insurance companies, public as well as private, for the disadvantaged

groups in India. Some of the observations made on the basis of the list

are presented below:

Out of 80 listed insurance products, 45 (55%) cover only asingle risk. The other products, covering a package of risks,

mostly focus on 2 (20%) or 3 (18%) risks.

The available products cover a wide range of risks. However,the broad majority of the insurance products cover life (40

products or 52%) or accident-related risks. The health coverage

remains very limited (12 products).

Most life insurance products (23 out of 42) are addressed toindividuals. However, some products may be bought both by

individuals and groups.

Most life insurance products (55%) have been designed tocover an extended contract duration ranging from 3 to 20 years.

Out of 42 life insurance products, 23 are pure risk products. Theother 19 products propose various types of maturity benefits.


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Out of the 12 currently available health insurance products, 7have been designed and are restricted to groups.

Out of the total 12 health products, 7 products propose thereimbursement of hospitalization expenses while the other 5

have chosen to narrow down the coverage to some specific

critical illnesses.

Most of the health insurance products specifically excludedeliveries and other pregnancy-related illnesses. Most of these

products also mention amongst their exclusion clauses,

HIV/AIDS.

Most products whether life or non-life require a single paymentof premium ( i.e., a one-time payment) upon subscription.

Private insurance companies have three times more productsthan the public companies.

As per the IRDA statistics, the public insurance companies stillplay a predominant role in the present coverage of the rural and social

sectors. This is only to be expected since the incumbent public

insurers have been in the market for a number of years now.

8.2) Demand for micro-insurance

On the demand side too, the ILO (2004b) has recently prepared an

inventory of micro-insurance schemes operational in India. Based on

this list some of the observations are made below:

The inventory lists 51 schemes that are operational in India.


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Most schemes are still very young, having started theiroperations during the last few years. Of the 39 schemes for

which this information is available, around 24 schemes came up

during the last 4 years, and about 7 schemes have operated for

more than a decade.

As regards the beneficiaries, the 43 schemes for which theinformation is available cover 5.2 million people.

Most insurance schemes (66%) are linked with micro financeservices provided by specialized institutions (17 schemes) or

non-specialized organizations (17 schemes). Twenty two

percent of the schemes are implemented by community based

organizations, and 12% by health care providers.

Life and health are the two most popular risks for whichinsurance is demanded: 59% of schemes provide life insurance

and 57% of them provide health insurance.8 In SEWAs9

experience health insurance tops the list of risks for which thepoor need insurance.

Twenty-five out of 37 schemes received some external funds toinitiate their schemes. Twenty out of 32 schemes received

external technical assistance in the form of advisory services,

technical services, training or even referral services for their

schemes.

In the majority of the schemes special staff had been recruitedto manage the insurance activities. The other schemes kept

relying on their regular staff while recognizing them the


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additional responsibilities linked to the management of the

scheme.

Most schemes (74%) operate in 4 southern states of India:Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%)

and Kerala (8%), and the two western states (Maharashtra

(12%) and Gujarat (6%)) account for 18% of the schemes.

56% of schemes deal with one single risk. Most schemes require single yearly premium at the time of

subscription. Of the 43schemes, 6 use a monthly payment for

their contribution, while 2 others have linked the contributions

to some other activities developed with their members

(disbursement of loan etc.).

Most of the schemes (27) rely on voluntary contribution, while10 schemes imposed compulsory contributions, and 7 adopted a

mix of voluntary and compulsory contributions (based on the

type of service provided).

Any nodal agency keen on buying insurance for their members

now have a choice of insurers and approach those who offer them the

best deal. According to the ILO inventory, schemes have already

entered into partnerships with at least 2 insurance companies (public

or commercial), and 3 schemes have already entered simultaneous

partnerships with both public and commercial insurance companies.

Clearly, health and life are two most important risks for which

insurance is demanded. Indeed, at low-income level, when much of


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the income goes into meeting basic needs, the scope of having varying

priority needs is very limited. On the supply side we observe that out

of 80 odd products only 7 products are health insurance products that

provide for reimbursement of hospital expenses. Admittedly,

compared to life insurance, which is a relatively straightforward

business, health insurance is a much more complex service as it

involves addressing the provision of healthcare that is location

specific. The design and sale of products are currently driven by the

objective of meeting the regulatory obligation and the making of

profits or reducing losses. In this situation, there is a danger of certain

priority needs getting neglected by the insurance companies.

Most products require single yearly premium at the time of

subscription. It is well known that rural incomes are irregular and

uncertain to enable payment of premium in one go, and more so when

only a part of the remuneration is paid in cash. In the above, we find

only a few schemes offer flexibility in paying premium. This could act

as a serious drawback in increasing the membership. We find that

most of the schemes are concentrated in the southern region of the

country. The southern regions are well known for the social

mobilization of low-income people. In contrast, the northern region is

bereft of such mobilization as the nodal agencies are either non-

existent or dysfunctional. Creating and nurturing nodal agencies can

be quite involved and can take a long time to develop. Local

government, that can also perform the role of nodal agency, will take

a long time to strengthen as a result of decentralization process


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currently underway in most Indian states. There has to be alternative

approaches to extending insurance in regions where nodal agencies do

not exist.

Even before insurance is bought for all important contingencies,

affordability constraint is likely to kick in, especially for the low-

income people. The issue then is how to cover for these other

important contingencies. One of the ways suggested is to impose a tax

at industry level (this could be on the turnover or profits of the

industry), and use the tax proceeds for the benefit of workforce

involved in activities peripheral to the industry.

Finally, the type of contingency and the number of people

covered under it are important parameters, but so is the extent of

benefit provided should the contingency happen. Currently, the

benefit or protection provided under some insurance schemes is quite

shallow.

The attitude of insurers on these obligations has been mixed.

Some have taken a positive view of the regulatory obligations and

have made a genuine attempt to understand the rural and low-income

segment of the market. Indeed, a few insurers have actually surpassed

their obligations by a wide margin. These companies have realised

that there is potential in the rural and low-income segment but tapping

that potential requires a different kind of approach. In some cases,

insurance companies have actually cross subsidised their micro-


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insurance products while in other cases insurers have been able to find

a donor for paying premium, at least in part, on behalf of the low-

income people.

The impact of rural and social obligations on extending

insurance to the intended people has been positive. However,

development of micro-insurance needs further guidance from the

insurance regulator by way of supplementary provisions. Sensing this,

the insurance regulator has already come out with a concept paper on

micro-insurance in which it has spelled out its thinking on what these

supplementary provisions could be.


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Chapter - 9

MICROINSURANCE NEED TECHNOLOGY

PUSH A CHALLENGE

Microinsurance in rural India has

not really taken off. Insurance

companies can benefit by

harnessing technology to leverage

this under-explored market while

doing their bit for all-inclusive

development.

Din Dayal owns two bighas of land in the suburbs of Mandla in

Madhya Pradesh. Like others of his ilk, he waits for the monsoons

every summer, prays that it will rain on time, neither too much nor too

little. His livelihood and hence, life centres on the fickle

weather. With a hand-to-mouth existence, Din and his family hover

dangerously close to the poverty line. An illness, disability, death of

cattle, floods or earthquake can send the whole family down th e

poverty spiral. For millions of farmers like Din, ensuring their

families a safe and happy future remains a distant dream.


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It is thus ironical that this same low-income population in most

developing countries has a global annual purchasing power of $5

trillion. The question is: how does the world, which is in the throes of

a financial meltdown, capitalise on this enormous opportunity?

The requirement for sustainable financial structures at the

bottom of the pyramid has spawned hundreds of cooperatives,

microfinance institutes and NGOs. But amongst the many facets of

microfinance, microinsurance remains significantly under-penetrated;

its growth restricted by challenges of reach and sustainability in

Indias colossal hinterland. However, theres a solution in sight;

technology can turn the game around, transforming rural India into

one of the most lucrative markets for microinsurance.

9.1 Viability and Relevance

In the context of designing and marketing products, rural India

is a different world altogether. First, companies need to design

products that suit the lifestyle and needs of the target population. For

instance, illness, weather insurance, livestock insurance and insurance

against natural disasters will be more relevant than, say, insuring a

house.

Second, companies need to solve the challenges of reach andsustainability. Rural India is one huge collection of villages, each a

hub for a small population, but lacking proper connectivity with other

villages or cities. Reaching people in such locations is a challenge as

the cost of travel might itself exceed the transaction amount.


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Even if companies can reach the rural interiors, the claims

processing procedure would also need innovation. The claimant might

not understand the policy conditions or the claim process, and might

not have a bank account to receive the claim cheque. How can an

insurance company overcome these unique challenges and, in turn,

enable the marginalised millions to benefit from insurance?

9.2 Solution is in innovation

For any insurance company to be successful in this space, it

must target large rural populations, design simple and flexible

products and enable efficient administration. Technology can be a

great enabler in this regard.

By negating factors such as distance and reach, and by bringing

in transparency and accountability in all transactions, technology can

open up hitherto unexplored markets and transform the financial

picture at the bottom of the pyramid. A number of innovations that

have already made headway into rural India are:

Web-based solutions: Web-based point-of-sale application enables

instant policy issuance and receipt generation even in remote areas.

This helps in not only enhancing customer satisfaction but also

reducing the use of cover notes, which has always been riddled withlarge scale mis-use/frauds.

Alternatively, there is off-line point-of-sale application which allows

policy generation with the help of a program residing in the point-of-


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sale computer instantly. As soon as connectivity is regained, the

policy details are synchronised with the base server.

PDAs and Mobiles: Currently there is a considerable time lagbetween the actual collection of premium and the deposit made at the

insurers office. This becomes an issue when there is a claim in the

interim period. Technology could be an aid here in the form of PDAs

and mobiles.

A PDA can be used to issue a receipt as and where the claimant makes

a payment, while the SIM card could be used to transfer the details of

the transaction immediately to the insurers server. Even the

possibility of fraud decreases as the time and date are mentioned in all

transactions.

Bio-metric cards: A bio-metric card is like a debit card that contains

the insureds name, age, identification number and thumb-print.

Already made compulsory by the government under the Rashtriya

Swasthya Bima Yojna (RSBY), such cards minimise the possibility of

fraud and speed up the processing of claims.

In the event of a claim, all the insured needs to do is to swipe the card

in the card-reader installed in the hospital and match the thumb print

with the data base.

Upon discharge, the claim amount is debited from the claimants

account and the balance is utilised in the next hospitalisation. Under


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the RSBY, about 5 lakh cards have been issued in 16 States and over

1,500 people have benefited from the scheme.

RFID tags for cattle: Currently cattle insurance is tracked usingtagging on the ears of cattle. Since this is not a fraud-proof method,

insurance companies have incurred huge losses. RFID (Radio

Frequency Identification device) tags negate the possibility of fraud

by implanting a microchip that has a unique identification number,

near the ears of animals.

At the time of claim, the unique ID number in the chip is matched

with the number in the records, negating the possibility of frauds.

Weather insurance: Modern automated weather stations calculate

relative humidity and temperature apart from rain, and are better

equipped to predict weather changes. However basis risk the risk

of experienced loss being different from calculated loss is a matter of

concern for underwriters.

To reduce this risk, Normalised Difference Vegetation Index (NDVI)

is seen to be an improved way to design weather products. This is a

hybrid weather-cum satellite imagery-based weather index, where

claims settlement is done on the basis of satellite image of foliage,

type of soil and moisture data from satellite image along with

temperature and rainfall data from weather station.


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Blue Ocean Strategy

There are two facts to be considered. First, urban insurance markets

are already saturated. Second, microinsurance in rural India hasntreally taken off. Put together, it simply means that if companies want

to grow, they need to harness technology to leverage the under-

explored rural market.

Insurers must remember that, if assisted, the low-income policy holder

of today can grow into the middle-class of tomorrow, and hence create

a bigger market for the future. Therefore, the need to look beyond

short-term gains, to leverage technology smartly, and reap profits

patiently in the long run.

Doing well while doing good is indeed very possible. The time to

implement a blue ocean strategy is now. All one needs is innovation,

drive and an all-inclusive vision to grow together.


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Chapter10

MICROINSURANCE PLANS BY

LIFE INSURANCE OF INDIA (LIC)

Micro Insurance plans comes under the special plans of LIC.

LICs Special Plans are not plans but opportunities that knock on our

door once in a lifetime. These plans are a perfect blend of insurance,

investment and a lifetime of happiness!

There are two policy plans for microinsurance:-

1. Jeevan Madhur2. Jeevan Mangal

10.1) Jeevan Madhur

Introduction:

It is a simple savings related life insurance plan where you may paypremiums regularly at weekly, fortnightly, monthly, quarterly, half-

yearly or yearly intervals over the term of the policy. Minimum

installment premium for different modes of premium payment shall

be:

Weekly: Rs. 25/-

Fortnightly: Rs. 50/-

Monthly: Rs. 100/-

Quarterly/Half-

yearly/Yearly:

Rs. 250/-


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Further, the premium chosen by you shall be subject to the minimum

and maximum sum assured of Rs. 5,000/- and Rs. 30,000/-

respectively payable on death and maturity under this plan.

Benefits:

Maturity Benefit:

On your surviving to the date of maturity, payment of the

Maturity Sum Assured along with vested bonuses, if any.

The specimen Maturity Sum Assured per Rs. 1200/- annual

premium are given below for some of the decennial ages and terms:

Age at EntryPolicy Term

5 years 10 years 15 years

20 5089 11219 18561

30 5081 11173 1839640 5026 10910 17572

50 4847 10066 14884

Benefit Illustration:

Statutory warning :

Some benefits are guaranteed and some benefits are variable

with returns based on the future performance of your Insurer carrying

on life insurance business. If your policy offers guaranteed returns

then these will be clearly marked guaranteed in the illustration table

on this page. If your policy offers variable returns then the


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illustrations on this page will show two different rates of assumed

future investment returns. These assumed rates of return are not

guaranteed and they are not the upper or lower limits of what you

might get back, as the value of your policy is dependent on a number

of factors including future investment performance.

10.2) Jeevan Mangal:

Features :

1. Introduction:LICs Jeevan Mangal is a term assurance plan with return of

premiums on maturity, where you may pay the premiums either

in lump sum or regularly at Yearly, Half Yearly, Quarterly,

Monthly, fortnightly or weekly intervals over the term of the

policy.

2. Eligibility Conditions and Other Restrictions:Minimum age at entry : 18 years (completed)

Maximum age at entry : 60 years (nearest birthday)

Maximum age at maturity : 70 years (nearest birthday)

Term : 10 to 15 years for regular premium.

10 years for single premium.

Minimum Instalment Premium :Rs 15/-Minimum Sum Assured : Rs. 10,000/-

Maximum Sum Assured : Rs. 50,000/-

(Sum Assured shall be in multiples of Rs. 1,000/-)


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3. Mode of Premium Payment :The modes of premium payment allowable are Yearly, Half

Yearly, Quarterly, Monthly including SSS, fortnightly, weeklyand Single Premium. (Single premium is allowed for 10 year

term only.)

4. Sample Premium Rates:Following are some of the sample premium rates per Rs. 1000/-

Sum Assured:

Annual Premium for Rs.1000 Sum Assured:

Age (yrs.) Term of the Policy (years)

10 15

20 39.90 24.3530 41.30 25.95

40 49.25 32.55

50 69.65 47.75

Single Premium for Rs.1000 Sum Assured (Available for 10

year term only)

Age (yrs.) Term of the

Policy (years)

20 99.60

30 105.2040 136.65

50 220.70


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Benefits:

1. Benefits :Death Benefit: On death during the term of the policy the Sum

Assured under the basic plan is payable, provided the policy is

kept in force.

Maturity Benefit: On surviving to the date of maturity, an

amount equal to the total amount of premium paid during the

term of the contract excluding the accident benefit premium andall extra premium, if any, is payable ,provided the policy is kept

in force

2. Optional Rider:Accidental Benefit Rider: On death arising as a result of

accident during the term of the policy, an additional amount,

equal to Accident Benefit Rider Sum Assured is payable .

On total and permanent disability arising due to accident

(within 180 days from the date of accident), the Accident

Benefit will be payable in monthly instalments spread over 10

years. If the policy becomes a claim either by way of death or

maturity before the expiry of the said period of 10 years, thedisability benefit instalments which have not fallen due will be

paid along with the claim.


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The disability due to accident should be total and such that the

Life Assured is unable to carry out any work to earn the living.

Following disabilities due to accidents are covered:

a) irrevocable loss of the entire sight of both eyes, or

b) amputation of both hands at or above the wrists, or

c) amputation of both feet at or above ankles, or

d) amputation of one hand at or above the wrist and one foot at

or above the ankle

The future premiums shall be waived after the disability claim

is admitted.

3. Exclusions:Suicide : If the Life Assured commits suicide (whether sane or

insane at that time) at any time on or after the date on which the

risk under the policy has commenced but before the expiry of

one year from the date of commencement of risk under this

policy, the sum assured under this policy shall not be payable,

instead all the premiums paid under this policy shall be

refunded in such cases.

Accident Benefit: The Corporation shall not pay the accidental

benefit in case accidental death/ disability arises due to

following reasons:

(i) intentional self injury, attempted suicide, insanityor immorality or whilst the Life Assured is under


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the influence of intoxicating liquor, drug or

narcotic; or

(ii) injuries resulting from riots, civil commotion,rebellion, war (whether war be declared or not),

invasion, hunting, mountaineering, steeple chasing

or racing of any kind; or

(iii) result from the Life Assured committing anybreach of law; or

(iv) arises from employment of the Life Assured in thearmed forces or military service of any country at

war (whether war be declared or not) or from

being engaged in police duty in any military, naval

or police organization; or

(v) occur after 180 days from the date of accident ofthe Life Assured.

Note : The above is the product summary giving the key features of

the plan. This is for illustration purpose only. This does not represent

a contract and for details please refer to your policy document.

Benefit Illustration:

LICs Jeevan Mangal

Age (yrs.) 35Terms years 10sum Assured 30000

AnnualPremium

1324.50


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End ofyear

TotalPremium paidtill end of year

Benefit payable ondeath during theyear

Benefit payable onsurvival/maturityduring the year

Guaranteed Guaranteed1 1324.50 30000 02 2649.00 30000 03 3973.50 30000 0

4 5298.00 30000 05 6622.50 30000 06 7947.00 30000 0

7 9271.50 30000 08 10596.00 30000 0

9 11920.50 30000 010 13245.00 30000 13245.00

End ofyear

TotalPremiumpaid till endof year

Benefit payable ondeath during theyear

Benefit payable onsurvival/maturityduring the year

Guaranteed Guaranteed1 3489.00 30000 0

2 3489.00 30000 03 3489.00 30000 0

4 3489.00 30000 05 3489.00 30000 06 3489.00 30000 07 3489.00 30000 0

8 3489.00 30000 09 3489.00 30000 010 3489.00 30000 3489.00

Age (Yrs.) 35Terms Yrs 10

sum Assured 30000

SinglePremium

3489


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Chapter11

CONCLUSION

a) Micro insurance is a young financial with few proven bestpractices. Demand is strong and indicative of an important

potential market.

b) Along with savings and emergency loans, micro-insurance hasa role to play in poor peoples risk management.

c) There are challenges to provide micro-insurance to the poor andthere is no need for greater innovation and experimentation.

d) Regulation within the industry is also critical. Workingtogether, micro-insurance can be both a successful business

venture and advantageous to the poor. However, the current

move of IRDA towards effective regulation requires a

collective effort otherwise the issue will not gain attention.


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Following a structured product development process can be

time consuming and require significant effort. However, the

benefits generated include:

Faster acceptance by potential clients because:

- The product are designed to meet the real needs of potential

policyholders

- The product education and marketing campaign is appropriate

for the low-income market

- The sales people have been well trained and appreciate the

benefits of the product they are selling

Better renewal rates because service provision was tested and

perfected.

Limited chance of systems or process failure because these were

fully tested

Like traditional agricultural insurance, agricultural

microinsurance is difficult and costly. For development agents

wanting to help reduce the risks for low-income farmers, its

adoption needs to be considered against a number of potentially

easier to implement risk management strategies. These include

reducing the chance of the risk occurring in the first place (e.g.

vaccinations in the case of livestock), or reducing the impact of the

risk once it has occurred (e.g. through the provision of savings and

credit facilities).


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However useful strategies are, they cannot deal with

catastrophic risks such as droughts, cyclones, floods and plagues,

and this is where agricultural microinsurance clearly does have a

role to play. As the various interventions suggested show, there is

an important role for development agents and other stakeholders to

help it become an effective risk management tool.


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BIBLIOGRAPHY

www.microinsurancenetwork.orghttp://en.wikipedia.org/wiki/Microinsurance

www.ilo.org/microinsurance

www.microensure.com/microinsurance.aspx

www.lloyds.com

www.MicroSave.org

www.nabard.org

www.csmonitor.com

www.grameen-info.org

www.microcreditsummit.org

www.globalenvision.org

www. knowledge.allianz.com

www.licindia.in
http://www.microinsurancenetwork.org/http://en.wikipedia.org/wiki/Microinsurancehttp://www.ilo.org/microinsurancehttp://www.ilo.org/microinsurancehttp://www.microensure.com/microinsurance.aspxhttp://www.microensure.com/microinsurance.aspxhttp://www.lloyds.com/http://www.microsave.org/http://www.nabard.org/http://www.csmonitor.com/http://www.grameen-info.org/http://www.microcreditsummit.org/http://www.globalenvision.org/http://www.globalenvision.org/http://www.microcreditsummit.org/http://www.grameen-info.org/http://www.csmonitor.com/http://www.nabard.org/http://www.microsave.org/http://www.lloyds.com/http://www.microensure.com/microinsurance.aspxhttp://www.ilo.org/microinsurancehttp://en.wikipedia.org/wiki/Microinsurancehttp://www.microinsurancenetwork.org/

micro insurance 2

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