MICRO INSURANCE IN INDIA PERSPECTIVES AND CHALLENGES M Kalyanasundaram Chief Executive INAFI-INDIA E-mail: indiainafi@touchtelindia.net
Poverty & Micro Finance Poverty A state of deprivation A state of vulnerability Microfinance as a tool to address poverty - Savings - Credit - Insurance
Poor & Microfinance a) potential for savings b) exploding the myth - poor cannot save - poor is not bankable c) Insurance - untried - no experience
Poor & Microfinance (Contd ) Insurance Savings Credit Savings first Credit next Graduated process for insurance services Savings and credit fuelling insurance
Socio Economic Indicators (Relevant to Insurance Sector) Population > 1 Billion Growth rate : 1.6% Life Expectancy Male : 62.30 years Female: 65.30 years Literacy rate: 52% Infant mortality per 1000 birth: 41 GDP : $ 450 billion Rank in the world: 11 Service sector vs GDP - 42% - $190 billion Public expenditure on health : 0.6% Public expenditure on Education: 3.2%
INSURANCE SECTOR History and Characteristics As old as any insurance industry in other parts of world. Beginnings in 1818 in Kolkata Both Indian and Foreign insurance firms operator Nationalisation in 1960 s (Owing to un-ethical practices, weak regulation) Committee on reforms for insurance - 1994 Establishing Insurance Regulatory Authority - IRDA, 1999 (Insurance Regulatory and Development Authority) Thrown open to private sector including foreign participation with local companies - 2000
INSURANCE SECTOR History and Characteristics (Contd ) Urban bias / orientation Life insurance - Tax driven Non-life insurance - Bank driven Life insurance products essentially having saving focus For poor, insurance as a risk product coping mechanism
INSURANCE STATUS COMPARISON INSURACE PENETRATION (PREMIUMS AS % OF GDP-2000) Countries Total Non-life Life Advanced/Matured Economies United States 8.55 4.32 4.23 United Kingdom 13.35 3.05 10.30 Germany 6.52 3.55 2.96 France 8.52 2.82 5.70 Japan 11.17 2.30 8.87 Other Economies India 2.00 0.61 1.39 PR China 1.63 0.61 1.02 Malaysia 3.88 1.72 2.16 Brazil 2.01 1.6 0.35 Mexico 1.68 0.86 0.82 Russia 2.13 1.34 0.78
INSURANCE STATUS - COMPARISON INSURANCE DENSITY (PREMIUMS PER CAPITA IN USD-2000) Countries Total Non-life Life Advanced/Matured Economies United States 2921.1 1474.4 1446.6 United Kingdom 3244.3 741.5 2502.8 Germany 1675.7 913.5 762.2 France 2080.9 688.6 1392.3 Japan 3908.9 805.5 3103.4 Other Economies India 8.5 2.4 6.1 PR China 13.3 5.0 8.3 Malaysia 140.4 62.3 78.1 Brazil 68.6 56.7 11.8 Mexico 84.6 43.3 41.3 Russia 26.8 17.0 9.9
REGULATORY MANDATE INSURANCE IN RURAL SECTOR Life Insurance 5% in the first financial year 7% in the second financial year 10% in the third financial year 12% in the fourth financial year 15% in the fifth financial year of total policies written direct in that year. General Insurance 2% in the first financial year 3% in the second financial year 5% thereafter of total gross premium income written direct in that year.
REGULATORY MANDATE INSURANCE IN SOCIAL SECTOR 5000 lives in the first financial year 7500 lives in the second financial year 10000 lives in the third financial year 15000 lives in the fourth financial year 20000 lives in the fifth year Note: Market potential is high but business mobilized is negligible.
Need for insurance Poverty reduction Go beyond savings & credit Project poor against vulnerabilities sudden illness loss of earning member loss of assets loss of employment natural calamities Support during the crisis and arrest the income drain Economic and psychological security for the members
Need for insurance (Contd ) Complement savings & credit services to ensure repayment & support credit graduation Reduce the risks of lending Safeguards loan portfolio of the groups Innovate and demonstrate the viability of the insurance products for poor Build linkages with mainstream insurance companies to benefit poor
Micro insurance Sector in India Big picture Total insurance premium income Rs.71,300 Crores Life Insurance -- Rs.55,700 General insurance -- Rs.15,600 Huge market 350 millions Present reach negligible Estimated turnover Rs.10000 Crores Demand met so far negligible Essentially regulatory driven
Challenges Accessibility Affordability Availability
Challenges (Contd ) Technical competence Risk assessment Insurance literacy Design of appropriate products Promotion of products Ensuring financial viability System for management Collaboration
Challenges (Contd ) A basket of products or solutions or Mono product Vs Combo product Life cover Health insurance Asset insurance Pension products Solvency funds Reinsurance for risk sharing Building database
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