Bundling Insurance Products to meet the needs of low income Households. By Anuj Tyagi Head Corporate & Rural & Agri Business

Transcription

1 TECHNOLOGY IN MICROINSURANCE Bundling Insurance Products to meet the needs of low income Households By Anuj Tyagi Head Corporate & Rural & Agri Business Date: 9 th November, 2011

2 Agenda Landscape Economic & Insurance Overview Industry & Product wise Position Rural Insurance in India HEGIC Experience Rural Risk Paradigm, Challenges & Solutions Bundling micro Solutions Case Studies Bundling Insurance Solutions along with Financial Inclusion Weather Insurance Defining HDFC ERGO Way Forward

3 Economic Landscape in India YoY FY09 FY10 FY11(E) GDP Growth Financial Services (Gr) GDP Composition Agriculture Industry Services Savings Rate 33 ~33 ~33 Fiscal Deficit Inflation Exch Rate( :` ) Source: CSO, RBI Annual Report Third largest economy in PPP($4 trillion) terms (nominal $1.75 trillion) GDP expected to grow at near two digit levels over the next 2-3 years Stable political environment Strong investment line up both in Infrastructure and manufacturing Corporate sector posting strong results this year Production(in Mn) FY09 FY10 FY11 Passenger Vehicles Commercial Vehicles Three Wheelers Two Wheelers India is the 7 th largest motor market globally Rural Consumer Rural Rich Rural Middle Class Rural Poor Source: SIAM R R - Products Health, Tractor, Motor, Fire ( SME based product) Demand of Insurance similar to urban customers RM - Products 2w, PA, Cattle, Weather, Health RM & RP Products JPA, Mass health, Cattle, Weather Unique requirement with customized product needs and innovative distribution strategy 3

4 Insurance Landscape in India Booming Sector growing at per cent per annum Contributes to 0.6% of GDP 70% of Indian Population living in Villages million Insurance Penetration Life Insurance 4.6% and non-life at 0.6% growing at 11.20% and 0.98% (CAGR )annually Life policies in force has increased nearly 12-fold over , and health insurance policies nearly 25-fold With over 13% of the 6.36 Lakh villages have population above 2000 and spread over 3.2 million sq km insurance potential is tremendous and challenges associated with reach are immense Out of 78% rural customers having awareness on life Insurance, only an estimated 27% bought insurance policies Indicates huge Potential, Low Penetration & development of unconventional channels mobile based Source: IRDA Annual Report( ) & independent survey

5 Industry : Size & Market Share in million Name of the FY FY YTD Sep FY11 YTD Sep FY12 Insurer GWP Mkt Shr GWP Mkt Shr GWP Mkt Shr GWP Mkt Shr Growth ICICI Lombard % % % % 19% Bajaj Allianz % 7.1% % 6.7% % 6.7% % 6.2% 13% IFFCO Tokio % % % % 12% HDFC ERGO % % % % 44% Reliance % % % % 12% Tata AIG % % % % 39% Royal Sundaram % 2.6% % 2.6% 81 25% 2.5% % 2.7% 33% Cholamandalam % % % % 40% Shriram % % % % 65% Future Generali % % % % 53% Bharti AXA % % % % 50% Others 4 0.1% 8 0.1% 4 0.1% 8 0.2% 117% Spl Health Cos Star Health % % % % 4% Others 3 0.0% 7 0.1% 2 0.1% 5 0.1% 111% Private Total 2, % 2, % 1, % 1, % 24.8% New India % 1, % % % 20% United India % % % % 28% National % % % % 24% Oriental % % % % 16% Public Total 3, % 3, % 1, % 2, % 22% Grand Total 5, % 0% 6, % 0% 3, % 3, % 23% Source: IRDA, GI Council Private sector increasing market share up from 42.5% in FY 10 to 43.1% in FY HDFC ERGO market share up from 3% in FY 10 to 3.5% in FY

6 Positioning : Product wise Mar-11 Rank Fire/Mar/Engg/Avia Motor Health PA Liability Total 1 ICICI Lombard Bajaj Allianz ICICI Lombard HDFC ERGO TATA -AIG ICICI Lombard 2 Bajaj j Allianz ICICI Lombard Star Health TATA -AIG ICICI Lombard Bajaj j Allianz 3 IFFCO-Tokio Reliance General Bajaj Allianz ICICI Lombard Bajaj Allianz IFFCO-Tokio 4 TATA -AIG IFFCO-Tokio HDFC ERGO Bajaj Allianz HDFC ERGO Reliance General 5 HDFC ERGO Royal Sundaram Apollo Munich Royal Sundaram IFFCO-Tokio HDFC ERGO 6 Reliance General Shriram Reliance General Chola MS Reliance General TATA -AIG 7 Future Generali Chola MS IFFCO-Tokio Reliance General Royal Sundaram Royal Sundaram 8 Chola MS TATA -AIG Royal Sundaram IFFCO-Tokio Future Generali Chola MS 9 Royal Sundaram HDFC ERGO Chola MS Future Generali Chola MS Shriram Mar-09 Rank Fire/Mar/Engg/Avi Motor Health PA Liability Total 1 ICICI Lombard Bajaj Allianz ICICI Lombard TATA -AIG TATA -AIG ICICI Lombard 2 Bajaj Allianz ICICI Lombard Star Health ICICI Lombard ICICI Lombard Bajaj Allianz 3 IFFCO-Tokio Reliance General Bajaj Allianz Bajaj Allianz Bajaj Allianz Reliance General 4 Reliance General IFFCO-Tokio Reliance General Reliance General IFFCO-Tokio IFFCO-Tokio 5 TATA -AIG Royal Sundaram Chola MS Chola MS HDFC ERGO TATA -AIG 6 Chola MS Chola MS IFFCO-Tokio Royal Sundaram Reliance Gener Royal Sundaram 7 Royal Sundaram TATA -AIG Royal Sundaram IFFCO-Tokio Chola MS Chola MS 8 HDFC ERGO HDFC ERGO TATA -AIG Future Generali Royal SundaramStar Health 9 Future Generali $ Shriram HDFC ERGO HDFC ERGO Future Generali HDFC ERGO 6

7 Rural Insurance In India Government & Regulatory emphasis on rural insurance Subsidized Health Schemes, mandatory motor insurance, weather & crop insurance Discussions on Universal Health Scheme RSBY Insurance Scenario Considering it as a mere compliance requirement rather than an untapped business potential Non-Developmental l rural business, qualified as rural thereby cannibalizing i the true rural opportunity Low hanging fruits more than real development & expansion Motor & Health ( Government Sponsored ) continue to be focus areas 13% of the 6.36 Lakh villages have population above 2000 and spread over 3.2 million sq km. Rural Sales Penetration Life insurance penetration - 4 % out of which 26% are rural customers 55 per cent of LIC policies, 60% of FMCG business, 50% of the 2 million BSNL connections are from small towns/villages. A recent forecast revealed that the Indian Cellular Services revenue will grow at a rate of 18.4 per cent with most of the growth coming from rural markets.. Rural Definition : Census of India defines rural as any habitation with a population density less than 400 per sq. km., where at least 75 percent of the male working population is engaged in agriculture and where there exits no municipality or board.

8 HEGIC RABG Incubator One of the few companies to have a dedicated rural team Incubator approach, away from conventional business mindset and focused on rural as an independent business vertical Believe in Insurance Inclusion at micro level instead of macro Inclusion Portfolio - bigger than the stipulated requirements of IRDA Focus Innovative channels with strong rural distribution network Primary Agriculture Societies (PACS), rural kiosk, NGOs, MFIs, BC model, branches of HDFC Groups Our strategic vision goes beyond fulfilling the regulator s obligatory requirement Aim is Growth in Top Line and Bottom Line.

9 Perception of Farmer's Risk

10 Challenges & Solutions - SADEC Simplicity Low Literacy Levels Ease of Process Low Awareness & decision making capabilities Affordability Ever changing Socio- Cultural, Linguistic & Economic Landscape D Credibility Distribution Scattered over wide geographical Landscape & Poor Infrastructure Delayed Payments Government Schemes

11 Rural Risk Paradigm Financial Risks Assets / Agri Allied Activities - Motor/Tractor, Dwelling, Livestock Fatal Risks Life Cycle Risks Death, Birth, Maternity, Economic Loss of Employment, Wages due to Temporary Disablement Health Treatments, Critical Illness, Injury, accident, disability Crops Natural Factors e.g. Catastrophic t epidemic i, All inadequate rainfall, Market risks - Natural Risks price Catastrophic All Natural Risks

12 Risk Mitigation Tools Risk Solutions Assets / Agri Allied Activities - Motor/Tractor, Dwelling, Livestock Economic Loss of Employment, Wages due to Temporary Disablement Agriculture / crop damage Life Cycle Risks Death, Maternity Health Treatments, Critical Illness, Injury, accident, disability of bread earner Outstanding loan / credit Catastrophic - Natural Disasters and Calamities, Epidemics Property, Tractor, Livestock & Cattle Insurance Personal Accident, Life Insurance, Disability Crop insurance, Weather Insurance Life Insurance, Health Insurance Health Insurance, Personal Accident Credit Shield, Endowment Largely dependent on Government Fund allocation

13 RURAL & AGRI BUSINESS GROUP INCUBATOR Bundling micro Solutions CASE STUDIES

14 Successful Business Model - Tractor Insurance Challenges Reach into Interior Villages Renewals Cost effective Paper Issuance on site Accomplishments Insured 25,000 tractors in 10 States in FY Premium 2.22 million Operating Loss Ratio < 30% Enabled immediate penetration and access to farming community POS Issuance of onsite online to farmers reducing frauds (e.g. third party losses) Cost Efficiency Scalability

15 Arogya Raksha Yojana Mobile Enrolment Technology

16 ARY - Product Features SURGICAL COVER COMMON SURGERIES COVERED - Over 1600 surgeries covered with cashless facility Treatment ONLY at the listed Network Hospitals & in General Ward MEDICAL COVER Medical Hospitalization of a patient that DOES NOT LEAD TO SURGERY Maximum of 3 days PER ADMISSION & PER CARD amounting to a maximum of Rs Minimum of 24 hours. Hospitalization Treatment t ONLY in the General Ward. Room charges Professional Fees Nursing Care COMMON ILLNESSES ADDITIONAL BENEFITS ARY members can access good primary healthcare treatment at the ARY clinics: i

17 ARY Process Flow Paper -less enrollment on the mobile phone and the member s photograph is captured on the phone. This data is sent directly from the mobile phone to the insurance company s server.

18 ARY- Mobile Enrollment Challenges Anti Selection - Voluntary basis enrollment Scalability Affordability Non availability of subsidy Activity Mobile Enrollment Real Time Data Flow Extensive Claims Analysis helping in Product Redesigning Increase in Severity (Per life cost 141 to 208 due to Increase in high end surgeries) Frequency remains the same Product modifications Family Definition, Enrollment Parameters Learning Operational Efficiency Enables Scalability - Expansion to more States ( currently operational in Bangalore rural ) Error minimized Effective Cost management Social Initiative The Center for Health Market Innovations (CHMI) is a global network of partners that seeks to improve the functioning of health markets in developing countries with large numbers of private health care providers. CHMI is funded by the Bill & Melinda Gates Foundation and the Rockefeller Foundation.

19 Cattle Insurance - RFID Technology

20 CATTLE Challenges & Product Challenges Animal identification Plastic Tags Operational Process Retagging, Manual Data on health certificate Availability of Paravets / Vet Scalability Due to Cost inefficiency Product Features es Coverage : Death Only Type of Cattle : Cow and Buffalo Sum Insured 85% of the Loan amount / market value Age : Maximum upto 7 years

21 Cattle insurance using RFID technique Activity Identification by RFID - Unique bar coded no's which can't be duplicated. Risk Sharing - Limited indemnity 85% Online Policy issuance Transaction on real time basis Process Management by DNE Dependable database management and health of animal Learning's Fraud Control Health Record Management by the Paravets ( Selection, tagging & Post enrollment vaccination & de worming e.t.c) Elimination of moral hazard - Self Insurance Administrative Ease Online Policy Delivery Overall reduction in mortality rate RFID Radio Frequency Identification Device, DNE Dairy Network Enterprise

22 Bundling Insurance Products on Financial Inclusion Platform to be able to reach low income Households

23 What is Financial Inclusion? Definition Delivery of financial services at an affordable cost to vast sections of disadvantaged and low income groups Services Savings Credit Insurance Remittance facilities etc. Why is FI needed? High transactions costs of savers High transactions costs of borrowers High Costs of banks High risk cost inappropriate products Source : Nabard

24 Measures & Benefits of Financial Inclusion No-Frills banking account* with Private Money Lender Overdraft Facility. Amount of loan = Remittance Product for Electronic Interest t taken = 1500 Benefit Transfer and other remittances. Net loan given = 8500 Pure Savings Product Repayable in 100 days at the rate of Entrepreneurial Credit such as General Rs.100 a day. Credit Card, Kissan Credit Card. Interest - Rs.5475 per annum Simplified KYC norms Hassle Free loans upto Rs.25,000/ Bank s Finance Amount of Loan = Use of Intermediaries Business Correspondents Net loan given = Linking MFI s with the Banks Repayment Rs.300 per week (As against Rs.700 per week in the Others previous case.) Robust IT based delivery platform Interest charged by the bank is about Financial Education & Counseling Rs.1200/- *(A No-Frills Account - no minimum balance is insisted upon and no service charges for not maintaining the minimum balance.) Source : Nabard

25 Extent of Financial Inclusion - India Almost half the country is unbanked. Only 55 per cent of the population have deposit accounts and 9 per cent have credit accounts with banks. Highest no. of households (145 million) excluded from Banking. Only one bank branch per 14,000 people. 6 lakh villages in India, rural branches of SCBs including RRBs number 33,495. Less than 20% of the population has any kind of life insurance & 9.6% of the population has non life insurance coverage. 8 per cent have debit cards & less than 2 per cent had credit cards. Source : K.C Chakraboathy, DG, RBI

26 Facts, Challenges and Solutions According to recent road accident report* over 61% of fatalities are reported from rural roads - rural areas had more fatalities (61.7%) than urban pockets (38.3%) 3%) in Injured persons were (60.2%) as compared to urban zones (39.8%). Further research stated that half of all road traffic casualties are in the age group years, almost (54% )of the total accidents involving loss of the main earning member - leading to lower living standards. Challenge Design simple insurance product Addressing their requirements in terms of : Pricing Simplicity in understanding Affordability - Value for Money Easy of purchase Solutions Coverage at a competitive price Family protection in case of eventuality Source: Road Transport & Highways Ministry

27 Risks of Low income households Risks such as fatal (death, illness, injury & accident ) and financial faced by rural poor are no different from those faced by others, however they are more vulnerable to such risks because of their economic circumstance. Causes for Accidental Deaths 2009 By Electrocution By Causes Not Known By Natural Causes By Fire By Sudden Deaths By Drowning By Poisoning By Other Un Natural Causes By Accidents 5% 2% 6% 7% 45% 7% 7% 8% 13% Source: Ministry of Home Affairs-India (National Crime Records Bureau)

28 Insurance Solution-Personal Accident Product Affordable Premium : Rs 100 ($2) per annum Coverage Accidental Death Benefits 100 % of the Sum Insured The disablement CompensationExpressed p as a percentage total of Sum Insured Permanent Total Disablement 100% Permanent Total Loss of two Limbs 100% Permanent Disablement due to an Accident Permanent Total Loss of sight in both Eyes 100% Permanent Total Loss of sight of one Eye and and one Limb 100% Permanent Total Loss of one Limb 50% Permanent Total Loss of sight of one Eye 50%

29 Prospecting v/s Penetration Covered over 200,000 lives in a span of 10 months Prospect Insured , Jun-Jul'10 Aug-Dec'10 Jan-Mar'11

30 Distribution Business Correspondent model Working on FI for Banks providing mobile banking solutions, through Smart card Technology at customer door step using POT machines Cross sells personal accident product across India to all smart card holders Trained Over 10, agents PAN India Instant coverage confirmation Automated process Avoids Fraud - Uses Thumb impression to access POS Enables scalability Sale of multiple products Covered over 450,000 customers till date Partnering to launch technology ( Combination of POT & Mobile ) enabled model to sell a new product in micro space in India - Hospital Cash with Telemedicine

31 Pot Machine Process Flow ENROLLEMNT DATA CAPTURED THROUGH SMART CARD IS TRANSFERD ONTO THE POT MACHINE POT MACHINE DATA FLOWS FROM THE POT INTO AGENT SERVER DATA TRANSPORTED FROM THE AGENTS SERVER ON THE INSURANCE COMPANY SERVER POLICY NUMBER GENERATED & AGENT DOWNLOADS POLICY INSTANT CONFIRMATION RECEIPT HANDED OVER TO CUSTOMER

32 Learning & Advantage BC Model Delivery of low cost Insurance Solutions bundled with Financial services in remote locations with minimum connectivity and infrastructure Enroll customers in the field using smart cards Customer data collected during the enrollment process & uploaded on backend systems for data de- duplication checks Avoids Fraud - Uses Thumb impression to access POT Enables scalability Sale of multiple products

33 Weather Insurance New Discovery on Financial Inclusion Platform

34 Weather Insurance: Market Landscape Largest Market in the world for Agri based Weather Insurance Estimated Market size: 200 million 95% - Government sponsored, 5% - Non Government Expected Market size by Agriculture billion, Non Agriculture billion WBCIS Notified in 20 states and over 120 districts by Govt of India Regulation - For loanee farmers compulsorily bundled d product offering and optional for non loanee farmers Our Achievements First company to get Pan-India notification to cover Loanee in the 2 nd season of implementation Second largest private player in Non Loanee segment of WBCIS * Source : WRMA (Weather Risk Management Association)

35 Our Journey so far- WBCIS Sales Activity: Market Survey to identify potential and customer buying pattern Meeting with district agri officials agriculture for product briefing Potential channel Identification Mass marketing activity Press Release, Van Campaign Challenges: Low Awareness level Geographically scattered segment Short sales period time Poor Infrastructure in Villages Cash Collection Weather Insurance Sales Accomplishment: Positive word of mouth resulting Stupendous response Premium Collected million Covered over 110,000 farmers Learning and Future Plan: Non-Loanee reach through extensive marketing activities Plays,Van & Radio Campaigns Use of technology platform to manage cash handling Messaging Service Policy & Claims Data update Expected premium of around 7.7 in (FY ) Expected coverage of 13 states and 0.5 million farmers by

36 Claims We at HDFC ERGO Claims have this simple but extremely effective saying very close to our heart. Our philosophy of excellence in providing service extends to all claim areas. Our health service providers are instructed to go out of their way to ensure that within the policy parameters we ease the load of financial expenses in case of sickness. And certainly, no reading the fine print!!! We care for you, for your family. And, whose shoulders are broad enough to lean on, in times of need? Family, off course!!!

37 About us 74:26 JV between HDFC Ltd. and ERGO, Munich Re s primary insurance company Strong partnership combining HDFC s understanding of domestic corporate sector & Munich Re Group s technical & reinsurance capabilities Market ranking up from 8th to 5th in private sector last year Market share up from 0.8% in FY08 to 3.5% in H1FY12 Ranking up from 5 th to 4 th in H1 FY12 Strong market presence across corporate lines of business 5% of industry and 13% of pvt sector in Fire/Engg. in H1 ~10% of industry and 15% of pvt sector in Liabilities in H1 Largest Bancassurance partnership in non-life industry An ICRA iaaa rated for claims paying ability and ISO 9001 certified company 37

38 Our parentage Amongst the largest financial services Group in India Flagship company : HDFC Ltd - Pioneer and leader in mortgages finance with ~35% market share; Assets size over 18 bn; Market capitalization over 15bn Second largest private sector Bank; overall market share in banking of ~5%; network of 1725 branches across 780 cities; Assets of over 40 bn & Mkt cap ~ 16 bn; amongst the highest CASA ratio in the banking sector. Second largest AMC; Managing assets of over 15bn across 4mn investors Leading investment banking and stock broking company. Services diverse customer base of institutional and retail clients 3rd largest private life insurance company (in JV with Standard Life. AUM ~ 4bn, over 3mn policies in force, strong base of ~ 200,000 agents 5 th largest private general insurance company (in JV with ERGO); Premium of 206 million and over 2 million policies issued this year HDFC Group has two of the four largest financial services companies in India by market cap (collectively, it is the largest) CRISIL (S&P company) has rated only two financial services companies in India with highest Corporate Governance rating (GVC1)- both are HDFC Group cos. HDFC is the sole Indian company to figure in the Ethisphere Institute s list of most ethical companies 38

39 our parentage ERGO is the primary insurance arm of Munich Re Presence across Life, Non-Life and Health insurance European market leader in health and legal expenses insurance International presence across 30 countries in Europe and Asia Asia Presence : Operational - South Korea (Non-life), India (non-life) and Vietnam (non-life); Setting up- China (Life) and India (life) Total premium 20 billion Investments 116 billion Consolidated group results 355 million Customer base 40 million 39

40 Way forward Rural Insurance Viable Market not a mere compliance requirement Full Commitment from Shareholders & Top Management Unconventional Thoughts will continue to drive our philosophy Technology Enabled Solutions Policy & Claims Product Innovation Solutions for Catastrophic Risks OTC products Innovative Solutions Cattle Internal RFID, Claims Messaging Services Weather & MNAIS to be the Flagship bearer of our rural initiatives More Focus on Partnerships to address the awareness / distribution challenges INSURANCE INCLUSION 40

41 Thank You