India is a country with a population of 1.2 billion. It is estimated that 37% of the total population live below poverty line (BPL). Social security for BPL people is a matter of concern for the nation. In this article, coverage is given to micro insurance which is one of the important social security measures for poor people like farmers, workers, labourers, etc.
We often come across news such as farmers committing suicides when cyclones or excess monsoon rain damage their crops. Poor farmers borrow money from private lenders who squeeze more interest than the principal amount of the loan. Illiteracy and non-availability of banking facilities, lack of structured insurance schemes or timely advice leave the poor people helpless and they face the fury of nature. Micro insurance is a solution for addressing these problems.
What is micro insurance
Micro insurance provides security to the low income group or poor people. It is a kind of a financial service package for poor people that covers their risks by paying a small amount of premium on regular basis. In villages, most people do not have a regular source of income. These people often don’t have means to earn income mainly due to illiteracy or use of traditional methods farming.
Life and assets of the insured / poor people need to be covered from risks arising out of natural calamities. The assets to be covered include food grains, crops, cattle, carts and associated accessories, loans availed from banks, etc.
Types of micro insurance
Micro insurance offers both life insurance products as well as general insurance products. It covers variety of risks health risks (illness, injury or death) and property risks (damage or loss). Among the various insurance products, life insurance is the most popular and essential product available in the market. People are driven by sentiment to protect their family in case of any eventuality and hence buy adequate insurance cover for themselves. Health insurance is another type of insurance which cover hospitalisation expenses.
Another type of insurance is crop insurance. It provides insurance in case of failure of crops or damage to crops. 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, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The other variant of this insurance is weather insurance which insures against weather variations.
Lives stock insurance reimburses losses incurred on death of cattle. Agents are able to sell life insurance with least efforts as there exists a tested formula in designing such products. But, covering risks of assets is a critical issue as there is no structured distribution network.
Need for income generation
Steady income is essential for making payment of premium for insurance coverage. Most people in villages depend on agriculture to earn their livelihood. They have limited earnings and in some cases no income at all. Through various schemes such as NREGA (Mahatma Gandhi National Rural Employment Guarantee) and SGSY (Swarna Jayanti Grameen Swarozgar Yojana), governments are trying to provide income to poor or raise their income levels. This is where NGOs, corporates and charitable trusts can play a significant role in working with villagers and improve the earnings of poor people.
How to make micro insurance work?
In the absence of banking facilities, small savings can be collected from the entire population of villagers or a particular region and such pooled resources can be used to meet the claims of losses when assets are damaged. Thus, micro insurance can be aligned with micro savings and micro credit to achieve better results. Micro insurance schemes should be run on no profit & no loss basis. If the pooled resources generate some income, the same should be ploughed back for the benefit of poor people. Micro insurance can be designed to meet specific needs/risks arising out of ill health, accident, death, retirement pension, accidents, etc.
The road blocks ahead
Micro insurance in India is still at the nascent stage. Some micro finance institutions (MFIs) and NGOs are working in this segment, but there is a risk of pooled resources that is not being managed properly or risks may not be covered fully when the entire village suffers. At present, there is a lack of regulated mechanism to protect the insured from unregistered MFIs or community based organisations. The savings generated by the organisations are due to insufficient coverage provided to the poor villagers when the entire village is affected.
Most underprivileged people being illiterate cannot understand the importance of savings linked insurance and don’t know how to approach insurance agencies or banks. Due to poor response, huge initial costs and perceived risks, insurance companies are showing reluctance to enter rural areas. Other perceived problems are lodging of claims and delay in settlement of claims which is a cumbersome process due to illiteracy and underdeveloped network of agents. Therefore, designing policies and strong support service through NGOs are essential for success of the micro insurance in India.
Way forward
Micro insurance in India can be compared to a glass of water either half empty or half full. If one is optimistic, there is a huge scope for developing the segment in the country. Many NGOs and MFIs such as Swayakrushi, Sewa and Spanadana Foundation are already doing commendable work for betterment of the deprived people in villages. They can be recognised as agents and their infrastructure can be used by insurance companies governed by IRDA. Many companies through their trusts and CSR activities are extending their support for betterment of villagers.
Even some banks through their rural branches are selling micro insurance products. State governments are also coming out with various schemes to improve the earnings and protect the poor from natural calamities. Some micro insurance schemes available in the market include Bajaj Allianz Life’s Jana Vikas Yojana, Saral Surakha Yojana, Alp Nivesh Yojana and Grameen Surakha, Birla Sun Life Insurance’s Bheema Suraksha Super, Bheema Dahan Sanchay, ICICI Prudential Life’s Sarva Jana Suraksha, ING Vysya’s Saral Suraksha, LIC’s Jeevan Madhur, etc.
According to the insurance business norms, the IRDA at present does not recognise MFIs working in villages. Keeping in view the obstacles that affect the growth of micro insurance, the regulator should come out with guidelines or relax its norms to facilitate join efforts of NGOs and MFIs so that the money collected as premiums is not misused and provides assured risk coverage to the insured.
The writer is the deputy general manager-legal at OCL India Ltd.
