cape town march 5 20101 micro insurance in india—achievements and future challenges dr r kannan...
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Cape Town March 5 2010 1
Micro Insurance in India—Achievements and future challenges
Dr R Kannan
Member (Actuary)
Insurance Regulatory and Development Authority
INDIA
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Micro Insurance – Definition
• Micro insurance is defined as insurance provided for low-income people by a variety of insurers, run in accordance with generally accepted insurance principles, and funded by premiums
Comprises of risk-pooling products • Appropriate for the low-income market cost, terms,
coverage, and delivery mechanisms
• Micro Finance helps people improve livelihoods• Micro Insurance helps them to protect the gains in the
event of any unfortunate events
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Micro Insurance Potential
• Potential market for insurance in developing economies estimated to be between 1.5 and 3 billion policies.
• Significant demand for a range of insurance products – health, life, agricultural and property insurance, catastrophe cover
• Success of microcredit worldwide has shown that people with low incomes are a proven market for financial services if given appropriate products, processes, and knowledge.
• Microinsurance already covers around 135 million people, or 5% of the potential market. In many countries, annual growth is 10% or more.
• Microinsurance is effective even in markets with little experience of insurance, as long as products, procedures and policies are simple, the premiums are affordable, the administration is efficient, and distribution channels are innovative.
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Role of Policymakers and Regulators
• Increasing access to financial services– allows financial sector development– consumer empowerment by catalyzing the market provision of risk
management tools for poorer households
• Facilitate effective supervision and enforcement– safeguard the solvency and the soundness of institutions providing
insurance– increase the growth, competiveness and efficiency (innovation and
investment)– protecting consumers and developing trust
• An enabling policy and regulatory environment is the prerequisite for a micro insurance market to develop to its true potential
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Micro Insurance Regulations in India
• Objective is to bring low income people under the ambit of insurance
• Targeted sectors - Life, non life, pension and health • The existing regulations on rural and social sector
obligation was thought to be not sufficient to cover the low income group at desired level
• In order to meet the specific objectives, the IRDA issued Micro Insurance Regulations on 10th November, 2005
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Micro Insurance Regulations
• The Insurance Regulator (IRDA) has the role of regulating, promoting and ensuring orderly growth of insurance and reinsurance business.
• Obligations to rural and social sector is a licensing requirement
• In general life insurers cannot offer non-life products and non-life insurers cannot offer life covers.
• This is the first occasion where both are allowed to join together and offer a combined product.
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Micro Insurance Regulations
• MI agents exempt from licensing requirements – relaxation in distribution rules.
• MI agents can not sell any product other than MI products.
• Simplified product design and comply with ‘F&U’ procedure.
• All MI policies sold recognized for the fulfillment of obligations to rural and social sector.
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Micro Insurance Regulations
Comparison of Remuneration to MI agents
Parameter Micro-insurance Traditional
Single Premium 10% 2%
Regular Premium
First Year 20% 40%
Second Year 20% 7.50%
Third Year 20% 7.50%
Subsequent Years 20% 5%
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Type of cover Min. Amount of Cover
Max. Amount of
Cover
Term of Cover Min.
Term of Cover Max.
Min. Age at
entry
Max. Age at
entry
Term Insurance with or without return of premium
Rs.5,000 Rs.50,000 5 years 15 years 18 60
Endowment Insurance Rs.5,000 Rs.30,000 5 years 15 years 18 60
Health Insurance Contract (Individual)
Rs.5,000 Rs.30,000 1 year 7 years Insurer’s discretion
Insurer’s discretion
Health Insurance Contract (family)
Rs.10,000 Rs.30,000 1 year 7 year Insurer’s discretion
Insurer’s discretion
Accident benefit as arider
Rs.10,000 Rs.50,000 5 years 15 years 18 60
Micro Insurance Regulations (Life) product design Guidelines
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Type of cover Min. Amount of Cover Max. Amount of Cover
Term of Cover Min.
Term of Cover Max.
Min. Age at entry
Max. Age at entry
Dwelling and Contracts, or livestock or tools or crop insurance against all perils
Rs.5,000 Per asset / cover Rs. 30,000 Per asset/ cover
1 year 1 year NA NA
Health insurance Contract (Ind.)
Rs 5,000 Rs30,000 1 year 1 year Insurers’ discretion
Health insurance Contract (family) (Option to avail limit for Individual / Float on family)
Rs.10,000 Rs.30,000 1 Year 1 Year Insurers’ discretion
Personal Accident (per life earning member of family)
Rs.10,000 Rs.50,000 1 Year 1 Year 5 70
Micro Insurance Regulations (Non-Life) product design Guidelines
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MI Product Feature
• Both on individual and Group basis• Individual
- Pure Term
- Pure Term with return of premium
- Endowment Assurance on Non-par basis
- Accidental death rider only• Group: Only pure term and yearly renewal basis• Minimum size of group is 25
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Year No. of Products approved
2006-07 5
2007-08 11
2008-09 6
2009-as on date
1
Total 23
Micro Insurance Product Statistics
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YearIndividual
2007-08 2008-09
Premium (INR Mn) 182.31 365.656
Growth rate 65% 101%
Proportion to total New premium Income
0.04% 0.08%
Number of Policies 0.9 Mn 2.2 Mn
Growth rate 72% 129%
Proportions of New lives covered
2.21% 4.79%
Micro Insurance Product Statistics
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YearGroup
2007-08 2008-09
Premium (INR Mn) 2012.75 2059.53
Growth rate 1.2% 2%
Proportion of total New premium Income
1.70% 1.50%
Number of Policies 12.2 Mn 12.5 Mn
Growth rate 1.5% 3%
Proportions of New lives covered
42.67% 36.65%
Micro Insurance Product Statistics
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Parameters Micro Insurance Traditional
Benefit structure (A particular Product )
Individual Pure Term Assurance
Individual Pure Term Assurance
Average Sum Assured (INR) assumed in pricing
10,000 500,000
Mortality (IALM(-94-96))150% to 225% depending on
age90%
Rate of Interest 7.75% p.a. 6% p.a. on average
Commission
RP
First Year 20% 35%
Second Year 5% 7.50%
Third Year 5% 7.50%
Subsequent Years 5% 5.00%
Premium Rate per INR 1000 SA for a male of 40 Yrs and term 5 yr term
2.78 4.66
MI Vs. Regular Products - Few Actuarial Issues
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Parameters Micro Insurance Traditional
Benefit structure (A particular Product )
Term assurance with return of premium
Term assurance with return of premium
Average Sum Assured (INR) assumed in pricing
25000 220,000
Mortality (IALM(-94-96)) 125% 80%
Rate of Interest 6.25% 6.25%
Commission
RP
First Year 20% 30%
Second Year 5% 7.50%
Third Year 5% 7.50%
Subsequent Years 5% 5.00%
Premium Rate per INR 1000 SA for a male of 35 Yrs and term 10 yr term
12.15 15.65
MI Vs. Regular Products - Few Actuarial Issues
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MI Vs. Regular Products - Few Actuarial Issues
• Actuarial assumptions vary greatly because of the specific characteristics of the target market
• Interest rate – on long term basis at the time of filing the product
• Higher mortality – No underwriting • In general commission rates are higher in MI
products• Lower death benefit and higher per unit cost.• Higher profit margin with higher volatility• Variation is less seen in all counts for products
other than pure term.
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Other Parameters (On average)
ParameterMicroinsurance Traditional
Pure Term Assurance Product
Age Range (Yrs) 18-60 0-80
SA Range (Rs.) 5000-50000 50000 - No Limit
Average Policy Term (Yrs)
10 20
Average Age (Yrs) 35 35
Average SA (Rs.) 25000 500000
MI Vs. Regular Products – Other Issues
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Parameters Micro Insurance Regular Product
Product Design Simple More Complex
Policy WordingSimple language and few
exclusionsComplex policy wording
Premium ratesBased on little historical
data and price sensitive
Good quality data and better reflect individual risk characteristics
Premium CollectionMatch frequent and
irregular payments
All modes of payment and also sold thru' direct innovative channels
Insurance Risk
Broad eligibility, low SA and risk factored into pricing generally no underwriting
Limited eligibility, on medical and non medical basis, generally with underwriting
Claims HandlingSimple and quick
procedure
More complex and lengthy procedure with requirements of various documents
MI Vs. Regular Products - Other issues
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Challenges ahead
• Low insurance awareness among the targeted segment
• Need of more innovative but simple and flexible products taking into account the life style and needs of the low income group people
• Simplification Product development—exclusions must be made clear and simple Proposal approval Premium payment Maturity / death claim settlement
Challenges ahead
Grievance redressal mechanism Affordability of premium—limited disposable
income Mobility of the targeted population High volatility and uncertainty of income Enhanced role of SHGs All documents must be in vernacular language• Developing insurance awareness amongst the
low income band people
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Challenges ahead
• Need to develop Health micro insurance products
• Need of good quality data• Standardizing underwriting procedures for MI.
• Regulatory assistance
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Thank You