Introduction
Risk is pervasive in the lives of poor and low-income groups. Economic, social, natural, and other factors distort household’s risk management capability and their struggle to come out of poverty. Faced with multiplicity of risks, poor and weaker sections are often forced to deplete their financial, physical, social and human assets just to cope with the contingencies. Micro insurance can play a crucial role as a comprehensive tool to reduce poverty, inequality and vulnerability, particularly where public social protection measures are inadequate and unevenly distributed.
Micro insurance is designed for the protection of low-income people to cope with common risks, it can also strive to cover the excluded such as poor, women and workers in informal sector. In many developing countries like India, the proportion of informal workforce in total workforce is substantial and there is increasing tendency towards casual nature of labour.
Under this situation, it becomes daunting task on the part of the government to provide social security to all. About 90 percent of the working population of India is employed in the informal sector and about thirty percent of the unorganized workers are very poor who need public social security supports.
Although current social protection measures consist of health, disability, death, old age and economic risks are prioritized, its funding and implementation remain challenging. In India social protection being a concurrent subject, it has its own political economy. So in the absence of a dependable social protection, the importance of micro insurance becomes interminable.
Micro Insurance
Micro insurance is a means of financial protection that targets low-income communities generally excluded from public and private schemes. Protection is provided in exchange for regular premiums proportionate to the likelihood and severity of the risk involved. The types of products offered typically range from health, life, livestock, crop and weather insurance.
In simple Micro insurance refers to insurance designed to protect under-served low-income people against specific perils in exchange for low premiums.
Motto of Microinsurance
The main aim of the Micro insurance is to reduce the vulnerability that poor households face and as a consequence, enable the poor to improve their lives.
Micro Insurance Products
The insurance companies offer composite covers or package products based on the catering needs of the poor. The main products are as follows.
1. Protection (Term insurance)
This scheme provides accident benefit. In addition to that some companies also offer permanent disability benefits.
2. Endowment/ Savings/ Pension
Under this category the insurance company offers life protection, both on survival and death. Pension can also be built into the product. Some Insurers offer accident benefit and permanent disability benefit during the premium paying term only, or for the full term. The sum is capped between Rs 30,000 and Rs 50,000. A majority of the insurers offer policies under the non-medical scheme.
3. Health
This scheme covers Disability, hospitalisation loss, etc. This scheme offers a fixed sum in case of the hospitalisation (Pre, during and Post). The details of claim are as follows
Hospitalisation Expenses Rs.150 per day
Consultant Fee up to Rs. 4500 per hospitalisation
Diagnostic Expenses Rs. 4500 per hospitalisation
Transportation Expenses Rs. 350 per hospitalisation.
4. Property
This policy gives protection against key risks faced by low-income households like package cover and crop insurance product. This policy also cover loss to livestock due to death, disease and accident dwellings
5. Personal Accident
This scheme is applicable to Low income groups, Kissan Credit card holders, girl child parents and married ladies. This scheme offers Death, Permanent Total Disablement, Total and irrecoverable loss of limb or eye sight. It also offers medical expenses facilities during, pre and post hospitalization.
Microinsurance Delivery Model
One of the greatest challenges for micro insurance is the actual delivery to clients. There are four main methods for offering micro insurance. Each of these models has its own advantages and disadvantages.
1. Partner-agent model:
Under this model the MFI [Micro-Finance Institution] acts as the agent, marketing and selling the product to its existing clientele through a distribution network which has already established for its other financial services. The insurance provider acts as the partner for providing actuarial, financial, and claims-processing expertise, and the capital required for initial investments and reserves as required by law. The insurer also absorbs the risk. The clients can access an insurance product which is managed by a professional and it provides better “return on investment” than with an informal means of insurance.
In simple this model is based on the collaboration between a partner agency (usually a formal insurance company) and a dealing agent that provides services to low-income clients. The company (the partner) feeds the financial resources, sets the premiums, monitors the insurance claims and ensures that legal obligations are observed. The agent ensures that the risks, resources and knowledge are transferred and shared rationally between the formal and informal sectors.
2. The mutualised insurance or community-based organisations model
Credit and savings cooperatives often offer borrower’s insurance contracts that cover the balance of a loan to be paid back. Moreover, they offer savings in the form of life insurance, to stimulate saving habits. Some also sell Housing, Funeral, Invalidity and Disease insurance, and even Accident policies, yet more rarely. These products come in addition to mainstream credit and savings services.
In the countries of Sub-Saharan Africa, many mutualised health insurances have also been created on the basis of a voluntary membership. In exchange for the premiums they send to a fund, policyholders are entitled to certain benefits.
3. Full service model:
In this model the MFI provides insurance services in charge of everything. The MFI is taking care of design and delivery of products to the clients. It also undertook sales, services and claims assessment. The MFI works with external healthcare providers to provide the services. The insurers (MFIs) are wholly responsible for all insurance-related costs and losses, but they also retain all profits. Under this model MFIs has full control over the micro insurance.
4. Provider-driven model:
Under this model, the service provider and insurer are the same. Similar to the full-service model, the insurer is responsible for all operations, delivery, design, and service.
5. The “franchise” model
In this model, the professional insurer franchises their license and assigning part of their capital to the licensee through a reinsurance treaty. The licensee is incharge of designing the product, setting the prices as well as handling the losses and gains.
Intermediaries of Micro Insurance:
Micro- insurance business is done through the following intermediaries:
- Non-Government Organisations
- Self-Help Groups
- Micro-Finance Institutions
Conclusion
India is enjoying rapid growth and benefits from a young population. But 70 percent of the population is still rural, often very poor, and handicapped by poor health and health services, and low literacy rates. Serious illness, accident and natural disaster threatens the very existence of poor people and usually leads to deeper poverty. Micro-insurance provides opportunities for protection of the poor and their families against perils. The emerging opportunity of micro-insurance is not only to promote business perspective but also, social development and protection to the poor people.
