Transcript Slide 1

Micro Insurance in India—Achievements
and future challenges
Dr R Kannan
Member (Actuary)
Insurance Regulatory and Development
Authority
INDIA
Cape Town
March 5 2010
1
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
Cape Town
March 5 2010
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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.
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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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.
Cape Town
March 5 2010
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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.
Cape Town
March 5 2010
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Micro Insurance Regulations
Comparison of Remuneration to MI agents
Parameter
Micro-insurance
Single Premium
Traditional
10%
2%
First Year
20%
40%
Second Year
20%
7.50%
Third Year
20%
7.50%
Subsequent Years
20%
5%
Regular Premium
Cape Town
March 5 2010
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Micro Insurance Regulations (Life) product design
Guidelines
Type of cover
Min. Amount
of Cover
Max.
Amou
nt 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
Cape Town
March 5 2010
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Micro Insurance Regulations (Non-Life) product design
Guidelines
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
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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Micro Insurance Product Statistics
Year
No. of Products approved
2006-07
5
2007-08
11
2008-09
6
2009-as on
date
1
Total
23
Cape Town
March 5 2010
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Micro Insurance Product Statistics
Individual
Year
2007-08
2008-09
182.31
365.656
65%
101%
Proportion to total New
premium Income
0.04%
0.08%
Number of Policies
0.9 Mn
2.2 Mn
72%
129%
2.21%
4.79%
Premium (INR Mn)
Growth rate
Growth rate
Proportions of New lives
covered
Cape Town
March 5 2010
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Micro Insurance Product Statistics
Group
2007-08
2012.75
Year
Premium (INR Mn)
Growth rate
Proportion of total
New premium
Income
Number of Policies
Growth rate
Proportions of New
lives covered
Cape Town
2008-09
2059.53
1.2%
2%
1.70%
1.50%
12.2 Mn
1.5%
12.5 Mn
3%
42.67%
36.65%
March 5 2010
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MI Vs. Regular Products - Few Actuarial Issues
Parameters
Benefit structure (A particular Product
)
Micro Insurance
Individual Pure Term
Assurance
Average Sum Assured (INR) assumed
in pricing
Traditional
Individual Pure Term Assurance
10,000
Mortality (IALM(-94-96))
150% to 225% depending on
age
Rate of Interest
7.75% p.a.
500,000
90%
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%
2.78
4.66
Premium Rate per INR 1000 SA for a
male of 40 Yrs and term 5 yr term
Cape Town
March 5 2010
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MI Vs. Regular Products - Few Actuarial Issues
Parameters
Benefit structure (A particular Product
)
Micro Insurance
Term assurance with return of
premium
Traditional
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%
20%
30%
Second Year
5%
7.50%
Third Year
5%
7.50%
Subsequent Years
5%
5.00%
12.15
15.65
Commission
RP
First Year
Premium Rate per INR 1000 SA for a
male of 35 Yrs and term 10 yr
term
Cape Town
March 5 2010
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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.
Cape Town
March 5 2010
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MI Vs. Regular Products – Other Issues
Other Parameters (On average)
Parameter
Microinsurance
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
Cape Town
March 5 2010
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MI Vs. Regular Products - Other issues
Parameters
Micro Insurance
Regular Product
Product Design
Simple
More Complex
Policy Wording
Simple language and few
exclusions
Complex policy wording
Premium rates
Based on little historical
data and price
sensitive
Good quality data and better
reflect individual risk
characteristics
Premium Collection
Match 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
Simple and quick
procedure
More complex and lengthy
procedure with
requirements of various
documents
Claims Handling
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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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
Cape Town
March 5 2010
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Thank You
Cape Town
March 5 2010
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