Making the State and Market work for the Poor:

Poverty elimination in Andhra Pradesh (A.P.), India

Raghunadan RaoProject Director, District Rural Development Agency

Andhra Pradesh, INDIA

Vijay KalavakondaFinancial Markets for Social Safety Nets

Financial & Private Sector Vice PresidencyThe World Bank, Washington DC

Outline

• PART – 1– Overview of the Andhra Pradesh (INDIA) Project (i.e.,

context setting)– Findings of the Social Risk Management Study (i.e.,

basis for insurance intervention)

• PART – 2– Community managed LIFE INSURANCE

• PART – 3– Role of the World Bank– Role of Regulators– Moving Forward (i.e., our vision)

• Q & A

• Statewide, community demand driven (CDD), rural poverty reduction project

• Started in year 2000, BUT builds on 15 years of statewide women’s self-help thrift movement.

• Financed by the World Bank. Total Project outlay – US$ 467 million, covering 910 mandals. Project till Sept 2008

• All project interventions are planned and implemented by the institutions of the poor.

• Coverage: to cover all rural poor households in A.P estimated at 8.0 million families

• Integral part of the state’s strategy for poverty eradication and good governance - builds poor people’s voice

The A.P. Model – Indira Kranthi Patham (IKP)/ VELUGU

The main objective is to enable the rural poor in the state, particularly the poorest of the poor to improve their livelihoods and quality of life through building their own institutions

Project design based on “faith in the capabilities” of poor to come out of poverty. Project’s mission is to enable them to manifest their true potential.

Project objective and design

To enable each poor family in the state, to improve their livelihoods and quality of life and come out of poverty.

a family out of poverty: improved status in society comprehensive food security – freedom from

hunger earns Rs.5000/- ($110) per month, from 2-3

stable livelihoods. house-hold expenditure controlled Social Security – risks to life, health, assets and

incomes are covered good shelter good education and health status.

Vision:

A balance sheet approach

Assets/ Income Consumption (or expenses)

Loans Food

Savings Health

Physical assets (Livestock, Farm Land…)

Death of breadwinner

Loss of asset

Income > Consumption ------- Asset Build-up

Livelihood Model Adopted in Andhra Pradesh

Work on both the sides of the EQUATION to address poverty and lead to sustainable development

• Institution Building – self-managed institutions of the poor (SHGs-Village Organisations – Mandal Samakhyas – Zilla Samakhyas)

• Building and Nurturing Social Capital - (grassroots women leadership, developing community activists and para professionals, community resource persons)

• Knowledge Dissemination – training and capacity building of S.H.Gs, paraprofessionals, project functionaries, etc.

• Livelihoods Expansion Increase in incomes and employment, decrease in expenditure, costs and risks

• Networking/linking Institutions of Poor with other Institutions – public services, financial sector, private sector, markets, educational/research institutes

Key Investments in the Project

Institutional Structure

ZS

MS910

VO28,000

Self-Help Groups630,000

Zilla Samakhya

Mandal Samakhya

Village Organization

District

Block

Village

7.9 million women members

10 – 15 members SELF SELECT to form a SHG

Critical Impacts

Financial Services

Savings and Credit

• Own savings and equity : US$ 587 million• Ten fold increase in loans in 5 years

• FY 01 : US$ 43 million

• FY 06 : US$ 440 million• Cumulative Credit since 2000: $1.1 Billion

• Annual Target FY 07: • 300,000 S.H.Gs

• US$780 million

• Repayment rates in excess of 95%

S.H.G – Bank linkage - 2001 - 06

197.7454.1

752.91017.7

2001.42

0

500

1000

1500

2000

2500

2001-02 2002-03 2003-04 2004-05 2005-06

Year

Rs.

in c

rore

s

90000

290000

Insurance and Other Safety Net Programs

• More than 2.5 million POOR WOMEN and their dependents have LIFE INSURANCE COVERAGE.

• More than 200,000 WOMEN have a separate HEALTH SAVINGS ACCOUNT and about an equal number participate in Health Insurance program.

• More than 2.5 million POOR WOMEN participate in the “market-based” Food Security Program

• PART – 1–Overview of the Andhra Pradesh

(INDIA) Project (i.e., context setting)

–Findings of the Social Risk Management Study (i.e., basis for insurance intervention)

Demand – Supply issue

Finding – 1• NO products to cover major “NEEDS”/ “LIVELIHOODS

RISKS” of the rural poor e.g., livestock.

• More than 50 - 60 percent of ALL INVESTMENTS by the Poor in some of livestock activity.

Finding - 2

• “Cookie-cutter” approach in product design i.e., same benefit structure BUT with lower sum assured and commensurately lower premium.

Universal Health Insurance Scheme

• All pre-existing diseases and disease contracted during the first 30 days from the commencement of risk.

• Hospitalization as a result of Malaria, Typhoid…..• Diseases such as Cataract, Benign Prismatic

Hypertrophy, Hysterectomy, hernia, Hydrocele, Fistula in anus, piles, sinusitis, Congenital internal disease are not covered.

• Vaccination, inoculation, change of life or cosmetic treatment or surgery HIV, AIDS, Sterility, Venereal Disease, Intentional Self injury, use of Intoxicating Drugs/ Alcohol.

• Treatment for Pregnancy, Childbirth, Miscarriage, abortion

What was needed?

• Aligning products with the NEEDS. Given the “low-value” and “cost of product development” limited investments made by insurance company to develop new products.

Awareness, Perception and Expectations

Awareness and Usage of Insurance

• 6% and 51% have heard of major policies, but usage levels range between 0.27 and 4%.

Type of Policy % Who have heard about Insurance

% Who have used Insurance

Personal Accident Policy 51 % 4 %

Livestock Insurance 28 % 3 %

Postal Life Insurance 18 % 1.65 %

Janarogya Bhima 18 % 0.24 %

Asset Insurance 12 % 0.24 %

Plantation or Horticulture Insurance

9 % 0.24 %

Poultry Insurance 8 % 0.24 %

Credit Insurance 6 % 0.47 %

Others (Mainly LIC) 8.47 %

Experience with Claims

0.71

0.26

0.16

0.06

0%

10%

20%

30%

40%

50%

60%

70%

80%

% o

f Res

pond

ents

Informalpayment for

claimssettlement

Claim neversettled

Claim tooklong time to

settle

Claim settledprompt

Design of Scheme: Through Whom Should Claim be Received?

• 31% of respondents opted to receive claims through an SHG/VO/MMS, while another 30% preferred to receive from banks.

0.31 0.30

0.19

0.17

0.020.005

0%

5%

10%

15%

20%

25%

30%

35%

% o

f re

spon

den

ts

Design of Scheme: Through Whom Should Premium be Paid?

• Payment of premium through SGH was the preferred choice among 34% of the respondents.

0.34

0.18 0.18 0.17

0.06 0.05

0.01 0.0080%

5%

10%

15%

20%

25%

30%

35%

% o

f re

spon

den

ts

How would you like to pay premium?

• Over 90% of respondents wanted to pay premium out of pocket, rather than using a common risk fund or bonus amounts.

1%

90%

1%

5%

3%

Out of Pocket

MMS Bonus AmtLoan Common Risk Fund

Other

Willingness & Ability to Pay and Premium Pricing

Willingness to Pay – Comparisons by Income

Average contribution

RISKSPer Month

(in Rs)

Per Year

(in Rs)

Health for self 17 204 ($4.9)

Health for family 24 288 ($6.1)

Life for self 18 216 ($5.1)

Cost of DistributionActivities 1st Year Cost (Rs) 1st Year Cost Per

POLICY (Rs)

Setting up and building channels

236,000

Servicing the Channel 295,000

Administration costs per policy

Rs 250

Servicing the customer (3000 Policies)

Rs 106

Developing and sustaining the market

327,000

Trust building measures

E-Bima 552,000

TOTAL 1,490,000 Rs 356

Source: FORTE Foundation, FICCI (2004)

What does this translate into?

• In order to sustain the level of investments in setting-up, servicing the clients and in sustaining the channels the AVERAGE PREMIUM PER POLICY PER YEAR is Rs 3230 (or US$ 70)

The NEED for exploring LOW COST and ALTERNATE DISTRIBUTION

CHANNELS

PART - 2

Community managed LIFE INSURANCE

PART – 3–Role of the World Bank

–Role of Regulators

–Moving Forward (i.e., our vision)

Role of The World Bank• Investments in BUILDING THE INSTITUTIONAL

INFRASTRUCTURE• Investments in developing SOCIAL CAPITAL

– 100,000 Community Activists and Community Facilitators who are working at village level.

– 6639 Paraprofessionals at village level to provide livelihood support (incl. Quality Controllers).

– 2727 Community Coordinators– 170 Livelihood Associates – 2000 Master book Keepers– 850 Mandal Training Coordinators

• Linkages with the PRIVATE SECTOR• Providing TECHNICAL ASSISTANCE

Role of the Regulator

• Regulation: Defining “the Policyholder”

Individual vs. the Federation of SHGs

• If Individual – all insurance claims had to be settled in the name of the INSURED/ BENEFICIARY Delays in CLAIM SETTLEMENT

• Amendment – Federation of SHGs were recognized as a GROUP, similar to EMPLOYER GROUP

MOVING FORWARD

• Having tested the proof of CONCEPT, i.e., the institutional model, the role of the community in managing the insurance product, and taking into consideration the satisfaction of the beneficiaries

• Moving into NEWER Products – Livestock and Health Insurance

MOVING FORWARD• The A.P. Model is being replicated across

INDIA and also in South Asia• Estimated “microinsurance” market by

2010 is– more than 15 to 20 million POOR covered by

LIFE INSURANCE– more than 3 – 5 million Cattles Insured– more than 5 million poor having HEALTH

INSURANCE coverage– Estimated PREMIUM VOLUME from

MICROINSURANCE Business by 2010 is in excess of US$150 million

MOVING FORWARD• Similar to A.P. Projects are underway in –

– Latin America– Africa – East Asia

• with an estimated market opportunity of more than 100 million beneficiaries

Thanks for your patience

Q & A