MICRO INSURANCE IN INDIA- ITS CHALLENGES

Transcription

1 Volume 3, Issue 9 (September, 2014) Online ISSN Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in MICRO INSURANCE IN INDIA- ITS CHALLENGES Limna M. Research Scholar, Department of Commerce & Centre of Research, PSMO College Tirurangadi, University of Calicut, India limnasasi@gmail.com ABSTRACT Poverty eradication is at the heart of everyone in the society. Government of India enacted a number of schemes for the development of the rural people. Micro insurance is one of the key elements in the financial service package introduced by the Government of India for the upliftment of rural people under the financial inclusion scheme.. Micro insurance helps to improve social stability and supports broad- based economic development. So regulations on micro insurance were officially gazetted by IRDA on 30 November Micro insurance has drawn attention of policy makers, insurers, business leaders and others in recent years. This paper presents importance of micro insurance, Products, policies growth, challenges and players in Indian insurance industry. Keywords: Micro Insurance; Micro Insurance Products; Players; Challenges INTRODUCTION Poverty eradication is at the heart of everyone in the society. Government, NGO s, corporate world & the poor themselves want to get out of this social inequity, which makes a section of the population, vulnerable. Poverty is the barometer of a nation s progress. A huge number of people living in poor conditions, indicates that the society is not a just society. The development of a nation has to include all sections of the population. The wealth of the nation in the hands of a few is a very risky proposition. For the country to reach its full potential, each and every section of the society has to move forward. So Government of India enacted a number of schemes for the development of the rural people. Micro insurance is one of the key elements in the financial service package introduced by the Government of India for the upliftment of rural people under the financial inclusion scheme. The poor are still facing the harsh economic conditions. Traditional insurance companies do not typically approach this segment because of their own rigidity. Micro insurance, on the other hand is proposed to be The Solution to this problem. Micro insurance is a low-premium-low-claim insurance plan meant for low income group targeted at rural or social sectors. In micro insurance, the premium (and consequently, the claim) has got to be low by design as it is targeting that particular segment. The potential of micro insurance to reduce the risks in the life of the poor will go a long way to establish an equitable society. They will be freed to use their resources for better purposes. OBJECTIVES OF THE STUDY: 1. To identify the different micro insurance products of life insurers in India. 2. To identify the Micro Life Insurance Companies who are playing in Indian Market. 3. To identify the challenges and current scenario of Micro Insurance Schemes in India. Definition of Micro Insurance A simple definition of micro insurance is offered by Churchill (2006) is that it is an insurance that (i) operates by risk pooling (ii) financed through regular premiums and (iii) tailored to the poor who Available online on 67

2 Abhinav National Monthly Refereed Journal of Research In would otherwise not able to take out insurance. Micro insurance cover to the vulnerable groups could be useful to protect them against common risks as illness, injury or death and supplement their risk managing capacity. Micro Insurance has the following Characteristics amongst Many Others: 1. Low income population as target 2. Protection is for specific risks 3. Payment of proportional premium in relation to the probability of the risk 4. Policies are easy to understand and straight forward 5. Premiums are low and maximum sums insured are low 6. Flexibility of premium payment 7. Mass consumption of policy holders 8. Claims documentation easy The Micro-insurance Regulations, 2005 Regulations on micro insurance were officially gazetted by the IRDA on 30 November The salient features of the regulation are presented below: A general or life insurance policy with a sum assured of Rs 50,000 or less. General micro-insurance product means any health insurance contract, any contract covering the belongings, such as, hut, livestock or tools or instruments or any personal accident contract, either on individual or group basis. Life micro insurance product means any term insurance contract with or without return of premium, any endowment insurance contract or health insurance contract, with or without an accident benefit rider, either on individual or group basis. Micro Insurance Products The range of available and potential micro insurance products can help low- income households manage risks related to their priorities. Micro insurance schemes may cover various risks (health, life, etc.); the most frequent micro insurance products are: Life Insurance: It provides coverage against death (accidental and natural). Beneficiaries receive compensation upon the death of the policyholder, who is typically the primary bread winner. Health Insurance: It provides reimbursement towards following hospitalisation expenses for illness/ diseases contracted or injury sustained by the insured person. Crop Insurance: It covers the loss of crops due to natural disaster, fire, lightening, riots, strike and terrorism. The cover of crop insurance is restricted to the cost of production up to the point when production is lost. Livestock/ Cattle Insurance: It is provided for the sum insured or the market value of the animal at the time of death whichever is less. Asset Insurance: It provides cover against loss of assets/ stock of rural entrepreneurs due to fire, flood, riots, strikes and malicious damage. For poor households, insurance for a hut, irrigation pump, a handloom or a bullock cart could have considerable economic significance. List of Micro Insurance Products of Life Insurers Details of Micro Life Insurance Companies who are playing in Indian market and their Products: VOL. 3, ISSUE 9 (September 2014) 68

3 Abhinav National Monthly Refereed Journal of Research In Insurer Name of the Product Date of Name of the Date of Launch Product Launch Individual Category Group Category Aviva Gramin Suraksha 12 th June, 2007 Credit Plus 6 th Aug,2002 Bajaj Allianz Jana Vikas 4 th Apr, 2007 Bajaj Bajaj Allianz Saral 4 th Apr, 2007 Allianz Suraksha Bajaj Allianz Alp Nivesh 4 th Apr,2007 Birla Bima Dhan Sanchay 31 st Aug, 2007 Sunlife Bima Suraksha Super 31 st Aug,2007 Canara Sampooma Kavach HSBC Plan OBC 15 th Jan,2009 DLF DLF Pramerica Sarva Pramerica Suraksha 30 th Mar,2009 Sarva Suraksha 30 th Mar,2009 Edelweiss Tokio HDFC Standard IDBI Federal ICICI Prudential ING Vysya Raksha Kavach Dhan Nivesh Bima Gramin Bima Kalyan Sarvagrameen Bachat 29 th Oct., th Dec, th Jan, th Jan, 2011 Sarva Jana Suraksha 15 th July, 2008 PNB Met Vishwas 15 th July, 2008 MetLife Met Grameen Ashray 29 th July, 2010 Sahara Sahara Sahyog 26 th June, 2006 SBI Life Grameen Bima 15 th Feb,2013 Shriram Star Union Tata AIA Tata AIG Life Ayushman Tata AIG Life Navkalyan Tata AIG Life Sampoom Bima Tata AIG Sumangal Bima 8 th Aug, th Aug, th Aug, nd Sept,2008 Group Micro insurance Plan Generic Group Term Insurance for Social Sector ING Saral Suraksha 16 th Dec, th Mar, th Nov,2007 Grameen Shakti 6 th Dec, 2007 Grameen Super Suraksha 6 th Dec,2007 Shri Sahay- SP 19 th Mar,2007 Shri Sahay- AP 15 th May, 2007 SUD Life Paraspar Suraksha Plan 17thMay,2009 VOL. 3, ISSUE 9 (September 2014) 69

4 (Contd.) Insurer LIC Abhinav National Monthly Refereed Journal of Research In Name of the Product Date of Name of the Date of Launch Product Launch Individual Category Group Category Jeevan Madhur 28 th Sept,2006 Janashree Bima Jeevan Mangal 3 rd Sept, 2009 (JBY)** 10 th Aug,2000 Jeevan Deep 27 th Aam Aadmi Bima Aug, 2012 (AABY)** 2 nd Oct, 2007 Source: Annual Report , IRDA Source: Annual Reports, IRDA Number of Micro Insurance policies (growth) A new wave of change came with the introduction of micro insurance Regulation 2005, as a result of which 14 life insurance companies registered 23 micro insurance products with IRDA. The registered micro insurance products have seen accelerated growth. Chart- 1 shows that the growth in number of micro insurance policies of life insurers. Micro insurance policies have considerably increased from 2.15 million in to 5.03 million in Challenges of Micro Insurance Schemes Micro insurance industry has performed very well in past few years and is fast picking up in terms of value and volume. Yet it faces a lot of challenges on systemic, institutional, operational and financial front. A brief description of the challenges faced by the micro insurance industry is given below: Strategic positioning issue is one of the main challenges of micro insurance. The insurers and their distributors are still struggling to figure out whether micro insurance can be an independent revenue generator or a value addition over their existing services. The absence of financial literacy, people do not understand the value and importance of insurance and they often make unproductive financial decisions. Therefore, insurance literacy is a must before expanding the reach of micro insurance in rural areas. High risk allocation and lack of interest of the stakeholders has restricted product innovation in micro insurance. Regulatory bias promotes short term single benefit product as compared to long term comprehensive insurance. VOL. 3, ISSUE 9 (September 2014) 70

5 Abhinav National Monthly Refereed Journal of Research In There exist a wide gap between demand and supply for micro insurance particularly in rural areas. Insurers implementing a new micro- insurance programme often find that the target market take- up is much lower than the projected rate thereby creating a gap between demand and supply. The sum assured is low compared to the actual indemnity experience of the clients, making the products unattractive. Awareness of clients about insurance and products features is limited. It creates latent demand for micro insurance, is still a limiting factor for the growth of voluntary micro insurance in India. The design of micro insurance product or the process of delivering micro insurance benefits should take care of the issues of adverse selection, moral hazard and fraud. Careful development of regulation that effectively balances the need for consumer protection with the flexibility needed to develop and service a massive market. Difficulty in distribution is one of the most cited reasons for absence of rural insurance. The high cost of penetrating rural markets, combined with underutilization of available distribution channels, hinder the growth of rural insurance services. CONCLUSION Micro insurance holds much hope for extension of protection to millions of resource-poor households in India. At the same time, there is a need to pay attention to the specificities of the clients at the micro level, and customize solutions that meet their needs, are affordability and are provided by trusted institutions. Involvement of communities in the process represents much scope for limiting adverse selection, moral hazard and fraud, and thus making the schemes more sustainable. Micro insurance is becoming increasingly popular yet it is a new field. The micro insurance figures shows that there is consistent increase in its business. With the notification of the IRDA (Micro-insurance) Regulations 2005, by the Authority, there has been a steady growth in the design of products catering to the needs of the poor. The challenges faced by India offer learning opportunities for the countries where micro insurance is still in its infancy. To overcome the challenges, it is imperative that measures are taken to encourage regulatory modification, product development, distribution optimization and financial education. Regulators need to move away from the prescriptive regulation towards a regulatory framework that incentives innovation, so that insurance industry stakeholders can innovate flexibly. REFERENCES 1. Krishnaswami O R and Dr. Rangarajan M (2005), Methodology of Research in Social Sciences, Himalaya Publishing House, Delhi. 2. IRDA Annual Reports to Mr. Hemant Bhargava ED (MI), Affordable Insurance- The Micro Way, 4. Nidhi Choudhari, (Aug.2013), Micro Insurance- Concept, Performance & Challenges, The Indian Banker, Vol VIII No.8 5. M Kalyanasundaram, Micro Insurance in India- Perspectives and Challenges, INAFI-INDIA. 6. Premasis Mukherjee, (February 2012), Challenges of Micro insurance in India, Micro Save India Focus Note Shahid Husain (Dec. 2010), Growth of LIC of India during post privatization period, vol.vi, no VOL. 3, ISSUE 9 (September 2014) 71

6 Abhinav National Monthly Refereed Journal of Research In VOL. 3, ISSUE 9 (September 2014) 72