Micro Insurance 2

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Chapter - 1
MICRO – INSURANCE
1.1 History
Micro insurance is generally, but inaccurately, referred to as a

new concept, at first appearing as a new financial service within
microfinance but increasingly becoming an independent
approach. In fact, it is only the term - Micro insurance, Micro-
Insurance or Micro Insurance - that is fairly new.
Micro insurance is defined as follows in different sources:
 The protection of low-income people against specific perils in

return for regular premium payments proportionate to the
likelihood and cost of the risk involved (Preliminary Donor
Guidelines, 2003).
 A risk transfer device characterised by low premiums and low
coverage limits, and designed for low-income people not served
by typical social insurance schemes (Micro Insurance
Academy, India, 2007).
 Insurance that is accessed by the low-income population,
provided by a variety of different entites, but run in accordance
with generally accepted insurance practices. Importantly this
means that the risk insured under a microinsurance policy is
managed based on insurance principles and funded by
premiums (International Association of Insurance Supervisors,
2007).
BBI TOLANI COLLEGE OF COMMERCE Page 1

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 A mechanism to protect poor people against risk (accident,

illness, death in the family, natural disasters, etc.) in exchange
for insurance premium payments tailored to their needs, income
and level of risk (Micro insurance Innovation Facility, 2008).
These different definitions have in common the element of

protection for low-income people, even though the delineation
between micro insurance and insurance and its role in social
protection is not clearly defined and is subject to different points of
view.
a) The Origins of Insurance
Commercial proprietors were the first to understand the need

for and invent a type of insurance. In about 3.000 BC in China
merchants and their investors wanted to ensure a profit from goods
shipped overseas and therefore developed a way of sharing the cost of
lost goods. A similar development took place in Babylon.
In around 600 AD, the Greeks and Romans had organised

guilds called “benevolent societies” which cared for the families and
paid funeral expenses of members upon death. In the dark and middle
ages, wealthier guilds had large coffers or reserves that acted as a kind
of insurance fund; money from the coffers could be used to rebuild the
burned down house of a guild member, or to support the family of a
suddenly disabled or killed member.

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In the late 1660’s, the London coffee shop of Edward Lloyd

became a meeting place for merchants and ship owners seeking
insurance. As an aftermath of the great fire of London in 1666 that
destroyed some 14 000 buildings marine insurance, underwriters
formed insurance companies to offer fire insurance policies. At the
end of the 17th Century, the first mortality table was created, which
enabled the subsequent development of modern life insurance.
b) The Phenomenon of Micro Insurance
Although, not known as “Micro insurance”, here are some

examples from Europe and the United States that predate the
development we know today:
 “Industrial life insurance” – life insurance policies with small

sums insured and weekly premiums collected door-to-door –
was marketed in the late 1800’s by Prudential Life Assurance
Society in the United Kingdom and by Metropolitan Life
Insurance Company in the United States.
 Folksam General Mutual Insurance Company was founded in

1908 by the co-operative movement in Sweden to provide
simple fire insurance policies on the contents of the flats of
low-income workers and on the contents of co-operative
shops.
 CUNA Mutual Insurance Society was founded in 1936 by the

credit union movement in the United States in order to provide
simple group term life insurance cover on loans made to

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members by the credit unions. This was the origin of “loan

protection insurance” which is used world-wide by credit
unions (or savings and credit societies, caisses populaires,
cooperativas de ahorro y credito, etc) to collectively protect all
borrowing members/their families as well as the lending credit
union from losses due to the death or total and permanent
disability of the borrower.
1.2 Introduction
What is Micro Insurance?
Rich or poor, we all face financial risk every day. But for many
poor people in the developing world, a multitude of risks threaten to
derail any progress they have made to work their way out of poverty.
Micro insurance - the protection of low-income people against

specific perils in exchange for regular monetary payments (premiums)

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proportionate to the likelihood and cost of the risk involved - seeks to

provide a suitable solution for managing these risks.
Until recently, there were very few formal insurance solutions

available to the poor, and many policies were too complicated, too
much out of line with the specific requirements of the poor, and just
too expensive. In many cases, unfortunate experiences with
inappropriate insurance products led to lack of understanding and
mistrust of insurance. Today, micro insurance aims to enable the poor
to manage risk through a range of suitable and affordable insurance
products.
Micro-insurance, the term used to refer to insurance to the low-

income people, is different from insurance in general as it is a low
value product (involving modest premium and benefit package) which
requires different design and distribution strategies such as premium
based on community risk rating (as opposed to individual risk rating),
active involvement of an intermediate agency representing the target
community and so forth. Insurance is fast emerging as an important
strategy even for the low-income people engaged in wide variety of
income generation activities, and who remain exposed to variety of
risks mainly because of absence of cost-effective risk hedging
instruments.
Although the type of risks faced by the poor such as that of

death, illness, injury and accident, are no different from those faced by
others, they are more vulnerable to such risks because of their
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economic circumstance. In the context of health contingency, for

example, a World Bank study (Peters et al. 2002), reports that about
one-fourth of hospitalized Indians fall below the poverty line as a
result of their stay in hospitals. The same study reports that more than
40 percent of hospitalized patients take loans or sell assets to pay for
hospitalization. Indeed, enhancing the ability of the poor to deal with
various risks is increasingly being considered integral to any poverty
reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).
Of the different risk management strategies, insurance that

spreads the loss of the (few) affected members among all the members
who join insurance scheme and also separates time of payment of
premium from time of claims, is particularly beneficial to the poor
who have limited ability to mitigate risk on account of imperfect
labour and credit markets.
In the past insurance as a prepaid risk managing instrument was

never considered as an option for the poor. The poor were considered
too poor to be able to afford insurance premiums. Often they were
considered uninsurable, given the wide variety of risks they face.
However, recent developments in India, as elsewhere, have shown
that not only can the poor make small periodic contributions that can
go towards insuring them against risks but also that the risks they face
(such as those of illness, accident and injury, life, loss of property etc.)
are eminently insurable as these risks are mostly independent or
idiosyncratic. Moreover, there are cost-effective ways of extending

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insurance to them. Thus, insurance is fast emerging as a prepaid

financing option for the risks facing the poor.
Micro-insurance is a key element in the financial services

package for people at the bottom of the pyramid. The poor face more
risks than the well-off, but more importantly they are more vulnerable
to the same risk. Usually, the poor face two types of risks –
idiosyncratic (specific to the household) and covariate (common, e.g.,
drought, epidemic, etc.). To combat these risks, the poor do pro-active
risk management – grain storage, savings, asset accumulation
(especially bullocks), loans from friends and relatives, etc. However,
the prevalent forms of risk management (in kind savings, self-
insurance, mutual insurance) which were appropriate earlier are no
longer adequate.
Poverty is not just a state of deprivation but has latent

vulnerability. Micro insurance should, therefore, provide greater
economic and psychological security to the poor as it reduces
exposure to multiple risks and cushions the impact of a disaster. There
is an overwhelming demand for social protection among the poor.
Micro insurance in conjunction with micro savings and micro credit
could, therefore, go a long way in keeping this segment away from the
poverty trap and would truly be an integral component of financial
inclusion.
Micro-insurance is a term increasingly used to refer to

insurance characterized by low premium and low caps or low

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coverage limits, sold as part of atypical risk-pooling and marketing

arrangements, and designed to service low-income people and
businesses not served by typical social or commercial insurance
schemes.
The institutions or set of institutions implementing micro-

insurance are commonly referred to as a micro insurance scheme.
1.3 DEFINATIONS
1. Micro-insurance is insurance with low premiums and low caps /

coverage. In this definition, “micro” refers to the small financial
transaction that each insurance policy generates. The Micro-
insurance Regulations, issued in 2005 by the Indian Insurance
Regulatory and Development Authority (IRDA), for
example, adopted this definition in explaining “micro-insurance
products” as those within defined (low) minimum and
maximum caps. The IRDA’s characterization of micro-

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insurance by the product features is further complemented by

their definition for micro-insurance agents, those appointed by
and acting for an insurer, for distribution of micro-insurance
products (and only those products).
2. Micro-insurance is a financial arrangement to protect low-

income people against specific perils in exchange for regular
premium payments proportionate to the likelihood and cost of
the risk involved. The author of this definition adds that micro-
insurance does not refer to: (i) the size of the risk-carrier (some
are small and even informal, others very large companies); (ii)
the scope of the risk (the risks themselves are by no means
“micro” to the households that experience them); (iii) the
delivery channel: it can be delivered through a variety of
different channels, including small community-based schemes,
credit unions or other types of microfinance institutions, but
also by enormous multinational insurance companies, etc.
3. Micro-insurance is synonymous to community-based financing

arrangements, including community health funds, mutual health
organizations, rural health insurance, revolving drugs funds,

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and community involvement in user-fee management. Most

community financing schemes have evolved in the context of
severe economic constraints, political instability, and lack of
good governance. The common feature within all, is the active
involvement of the community in revenue collection, pooling,
resource allocation and, frequently, service provision.
4. Micro-insurance is the use of insurance as an economic

instrument at the “micro” (i.e. smaller than national) level of
society. This definition integrates the above approaches into
one comprehensive conceptual framework. It was first
published in 1999, pre-dating the other three approaches, and
has been noted to be the first recorded use of the term “micro-
insurance”. Under this definition, decisions in micro-insurance
are made within each unit, (rather than far away, at the level of
governments, companies, NGOs that offer support in
operations, etc.).
5. The draft paper prepared by the Consultative Group to Assist

the Poor (CGAP) working group on micro-insurance defines
micro-insurance as “the protection of low income households
against specific perils in exchange for premium payments
proportionate to the likelihood and cost of the risk involved.”
The paper deliberates on the key roles to be played by all

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stakeholders – insurers, regulator and the Government. The

working group also agrees that the cost of such cover should be
affordable.
Insurance functions on the concept of risk pooling, and

likewise, regardless of its small unit size and its activities at the level
of single communities, so does micro-insurance. Micro-insurance
links multiple small units into larger structures, creating networks that
enhance both insurance functions (through broader risk pools) and
support structures for improved governance (i.e. training, data banks,
research facilities, access to reinsurance etc.). This mechanism is
conceived as an autonomous enterprise, independent of permanent
external financial lifelines, and its main objective is to pool both risks
and resources of whole groups for the purpose of providing financial
protection to all members against the financial consequences of
mutually determined risks.
The last definition therefore, includes the critical features of the

previous three:
1. transactions are low-cost (and reflect members’ willingness to

pay);
2. clients are essentially low-net-worth (but not necessarily
uniformly poor);
3. communities are involved in the important phases of the
process (such as package design and rationing of benefits); and
4. The essential role of the network of microinsurance units is to
enhance risk management of the members of the entire pool of
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microinsurance units over and above what each can do when

operating as a stand-alone entity.

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Chapter - 2
IRDA’S REGULATIONS ON MICRO-
INSURANCE
Building on the recommendations of the consultative group,

IRDA notified Micro-Insurance Regulations on 10th November 2005
with the following key features to promote and regulate micro-
insurance products. The regulations focus on the direction, design and
delivery of the products :
 A tie-up between life and non life insurance players for

integration of product to address risks to the individual, his
family, his assets and habitat,
 Monitoring product design through “file and use”
 Breakthrough in distribution channels with inclusion of NGOs,
SHGs, MFIs and PACS to provide micro-insurance, with
appropriate compensation for their services,
 Enlarged servicing activities entrusted to micro-insurance
agents,
 Issue of policy documents in simple vernacular language.
Currently the IRDA regulations do not favor composite insurance

(i.e., life and non-life insurances by the same company) and also limit
the agency tie-up to one life and one non-life insurer. However, in
recognition of the uniqueness of micro insurance, these regulations
enable life and non-life companies to tie-up for offering a combined
policy in rural areas. Further, the IRDA has allowed insurers to issue
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policies with a maximum cover of Rs. 50,000 for general and life
insurance under these regulations. The regulations have also eased the
norms for entry of agents relating to training and pre-recruitment
examination. As an attraction, remuneration to agents has also been
leveled across the term of the policy.
Another striking feature of the regulation is the provision of

extending coverage to the family as a unit as against the system of
insurance coverage to individual lives. The insurer has to take IRDA’s
prior approval for launching micro insurance products through the
“file and use” mode. The maximum cover will be Rs. 30,000 per
annum for a dwelling and contents or livestock or tools or implements
or other named assets or crop insurance against all perils. For
individual and group health insurance, the maximum cover is Rs.
30,000 per annum per individual. For personal accident policies the
maximum Rs. 50,000 per annum and is open to 5-70 age group.
In case of life micro-insurance products, the cover amount for

term insurance ranges between Rs. 5,000-50,000 for a minimum term
of five years and maximum of 15 years. The entry age for this product
is kept between 18-60. Endowment insurance policy provides cover
for Rs. 5,000-30,000 for a minimum five years and maximum 15
years for people aged between 18 and 60. Further, an insurer can
collect the premium for both life and general insurance components
directly from the consumer or agents.

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At the time of opening of the insurance sector, IRDA had

decided that all insurers, including the new entrants, should fulfill
certain obligations to spread insurance in rural areas. Specific
regulations have been issued prescribing targets in terms of quantum
of policies to be written in the rural sector consistent with the years of
their operations and also certain quantified target for coverage of lives
in the social sector. With a view to encouraging the insurers to meet
these obligations and give a fillip to micro-insurance products, IRDA
also decided that all micro-insurance products may be reckoned for
the purpose of fulfillment of the social obligation and where such
policy are issued in rural area they could also be reckoned for rural
sector obligation. IRDA has also proposed to benchmark the above
obligations with reference to quantified limits of sums assured under
micro-insurance policies. The above approach would ensure the faster
development of the micro-insurance market and take the insurance
penetration to rural areas.
The Committee wholly subscribes to the initiatives of IRDA in

widening outreach of micro-insurance products to the rural poor and
recommends that the same may be implemented with renewed zeal as
providing micro-insurance is a necessary and essential adjunct in the
inclusive process. The IRDA should continue to impose Rural and
Social Sector Obligations but there should be no unreasonable caps on
premiums and channel commissions. This is in line with the de-
tariffing process in other sectors also. In the long run, it is only when

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the insurance companies find it profitable to serve this market that

they will do so on their own.
Chapter – 3
MICRO-INSURANCE PRODUCTS
Micro-insurance, like regular insurance, may be offered for a

wide variety of risks. These include both health risks (illness, injury,
or death) and property risks (damage or loss). A wide variety of
micro-insurance products exist to address these risks, including crop
insurance, livestock/cattle insurance, insurance for theft or fire, health
insurance, term life insurance, death insurance, disability insurance,
insurance for natural disasters, etc.
Micro insurance has made a significant difference in countries

like Mali, Maxime Prud'Homme and Bakary Traoré describe.
Innovations in Sikasso Still, many countries face continuing
challenges. Specifically in Bangladesh, micro health insurance
schemes are having trouble with financial and institutional
sustainability, Syed Abdul Hamid and Jinnat Ara describe, but things
are improving.
3.1 Crop insurance:-
Crop insurance is purchased by agricultural producers,

including farmers, ranchers, and others to protect themselves against
either the loss of their crops due to natural disasters, such as hail,

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drought, and floods, or the loss of revenue due to declines in the

prices of agricultural commodities. The two general categories of crop
insurance are called crop-yield insurance and crop-revenue insurance.
Crop-yield insurance: There are two main classes of crop-yield

insurance:
 Crop-hail insurance is generally available from private

insurers (in countries with private sectors) because hail is
a narrow peril that occurs in a limited place and its
accumulated losses tend not to overwhelm the capital
reserves of private insurers. The earliest crop-hail
programs were begun by farmers cooperatives in France
and Germany in the 1820s.
 Multi-peril crop insurance (MPCI): covers the broad
perils of drought, flood, insects, disease, etc., which may
affect many insureds at the same time and present the
insurer with excessive losses. To make this class of
insurance, the perils are often bundled together in a
single policy, called a multi-peril crop insurance (MPCI)
policy. MPCI coverage is usually offered by a
government insurer and premiums are usually partially
subsidized by the government. The earliest MPCI
program was first implemented by the Federal Crop
Insurance Corporation (FCIC), an agency of the U.S.
Department of Agriculture, in 1938. The FCIC program
has been managed by the Risk Management Agency

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(RMA), also a U.S. Department of Agriculture agency,

since 1996.
 Crop-revenue insurance: is a combination of crop-yield

insurance and price insurance. For example, RMA establishes
crop-revenue insurance guarantees on corn by multiplying each
farmer's corn-yield guarantee, which is based on the farmer's
own production history, times the harvest-time futures price
discovered at a commodity exchange before the policy is sold
and the crop planted. There is a single guarantee for a certain
number of dollars. The policy pays an indemnity if the
combination of the actual yield and the cash settlement price in
the futures market is less than the guarantee. In the United
States, the program is called Crop Revenue Coverage.
Crop-revenue insurance covers the decline in price that

occurs during the crop's growing season. It does not cover
declines that may occur from one growing season to another.
That would be called "price support," and would raise a series
of complex agricultural-policy and international-trade issues
3.2 Health insurance:-
Health insurance like other forms of insurance is a form of

collectivism by means of which people collectively pool their risk, in
this case the risk of incurring medical expenses. The collective is
usually publicly owned or else is organized on a non-profit basis for

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the members of the pool, though in some countries health insurance

pools may also be managed by for-profit companies. It is sometimes
used more broadly to include insurance covering disability or long-
term nursing or custodial care needs. It may be provided through a
government-sponsored social insurance program, or from private
insurance companies. It may be purchased on a group basis (e.g., by a
firm to cover its employees) or purchased by an individual. In each
case, the covered groups or individuals pay premiums or taxes to help
protect themselves from unexpected healthcare expenses. Similar
benefits paying for medical expenses may also be provided through
social welfare programs funded by the government.
By estimating the overall risk of healthcare expenses, a routine

finance structure (such as a monthly premium or annual tax) can be
developed, ensuring that money is available to pay for the healthcare
benefits specified in the insurance agreement. The benefit is
administered by a central organization such as a government agency,
private business, or not-for-profit entity.
3.3 Term life insurance :-
Term life insurance or term assurance is life insurance which

provides coverage at a fixed rate of payments for a limited period of
time, the relevant term. After that period expires coverage at the
previous rate of premiums is no longer guaranteed and the client must
either forgo coverage or potentially obtain further coverage with
different payments and/or conditions. If the insured dies during the
term, the death benefit will be paid to the beneficiary. Term insurance
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is the most inexpensive way to purchase a substantial death benefit on

a coverage amount per premium dollar basis.
Term life insurance is the original form of life insurance and

can be contrasted to permanent life insurance such as whole life,
universal life, and variable universal life, which guarantee coverage at
fixed premiums for the lifetime of the covered individual. Many
permanent life insurance products also build a predetermined cash
value over the life of the contract, available for later withdrawal by
the client under specific conditions. However, on most cash value
policies like Whole Life insurance, the only way to receive the
"savings" is to cash out the policy. The beneficiaries receive the face
value of the insurance but NEVER the cash value with Whole Life
policies. Financial advisers generally advise buying term life
insurance and investing the difference elsewhere.
Term insurance functions in a manner similar to most other

types of insurance in that it satisfies claims against what is insured if
the premiums are up to date and the contract has not expired, and does
not expect a return of Premium dollars if no claims are filed. As an
example, auto insurance will satisfy claims against the insured in the
event of an accident and a home owner policy will satisfy claims
against the home if it is damaged or destroyed by, for example, an
earthquake or fire. Whether or not these events will occur is uncertain,
and if the policy holder discontinues coverage because he has sold the
insured car or home the insurance company will not refund the
premium. This is purely risk protection.

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3.4 Disability insurance:-
Disability insurance, often called disability income insurance,

is a form of insurance that insures the beneficiary's earned income
against the risk that disability will make working (and therefore
earning) impossible. It includes paid sick leave, short-term disability
benefits, and long-term disability benefits.

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Chapter - 4
AGRICULTURAL MICROINSURANCE:
GLOBAL PRACTICES AND PROSPECTS
4.1 Introduction to agricultural microinsurance
Agricultural micro insurance is about providing insurance to small-

scale farmers in developing countries. This in itself presents a number
of particular challenges to insurers:
 Uncontrollable: Ideally the occurrence of an insured event

should not be under the direct control of the insured person.
However, this is not always the case with many kinds
agriculture insurance.
 Unequivocal: Assessing agricultural loss can be very difficult
and costly, as the loss could be caused by a combination of the
insured-against events.
 Fraud: Farms are often physically remote, which creates
opportunities for fraud.
 Moral hazard: Physical remoteness makes it hard for an
insurer to check whether insured farmers are diligently taking
care of their crops or livestock.
 Adverse selection: can have a destabilising effect on an
insurance system, because the principle of risk-pooling will not
work if only those negatively affected buy the insurance.

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 Covariant risk: In agriculture, covariant risk is frequently an

issue because droughts, pests and animal or crop epidemics are
likely to affect many farmers at the same time.
All these factors, together with the costs of loss adjustment, can make
agricultural indemnity insurance a very costly business, difficult to
make profitable or indeed to break even. In fact hardly any
agricultural insurance programs cover their costs (indemnity
payments & administrative costs) from premiums. Almost all are
subsidised, as agriculture is a much politicised sector.
Animal insurance: Livestock insurance can cover losses resulting

from death, disease and accidental injury to livestock. It can cover an
individual animal or a herd.
Crop insurance: Crop insurance covers the loss of crops due to one
or more perils, and can be covered in a number of different way: yield
loss (a lower-than-anticipated yield), quality loss (crops of a lower
quality than anticipated), revenue loss (due to price fluctuations), or a
combination of these. The two most common types of crop insurance
are Named-peril crop insurance (policies payed out according to the
actual damage that results) and, Multi-peril crop insurance (based on
shortfalls on expected yield, rather than on the dam¬age caused by a
particular loss event.)
Index-based insurance: is a way of providing protection against

correlated risk such as extreme weather events. It is not strictly
insurance, as individual losses are not assessed – instead it pays-out to

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all policy holders in a geographic area when certain conditions are

reached in the proxy, or index.
Index insurance solves three of the most difficult challenges of

agricultural insurance, and greatly reduces the prospects of fraud:
 Moral hazard: the farmer cannot influence an index that is

based on weather.
 Adverse selection: whether farmers opt in or out, this will have
no impact on the risk, because the risk would be based on the
index, e.g. level of rainfall.
 Costs of loss adjustment: it is not necessary for a loss adjustor
to visit the farm and calculate losses, as once the index trigger
is exceeded, the payment is sent regardless of loss.
 Reduces the prospects for fraud.
Unfortunately index insurance is not quite a panacea, because it

introduces new challenges. One challenge is basis risk, which can be
described as the mismatch between the amount received because the
index has been triggered and the amount actually lost by the client.
Improved data collection and product design may be able to minimize
basis risk however this typically makes the product more complex and
more difficult for the low-income market to understand.
4.2 The landscape of agricultural micro insurance
The 2007 landscape survey undertaken by the Micro Insurance

Centre, attempts to map the extent of agricultural micro insurance

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worldwide by studying specific areas of micro insurance such as

regional distribution, types of micro insurance cover, the risk carriers,
the schemes and pilot programs, and finally the state of
microinsurance regulations. The main conclusions of which are as
follows:
 There are very few agricultural insurance schemes in

developing countries with products that are accessible to poor
farmers. The landscape survey found a total of 122 schemes
worldwide, and not all of these are fully operational.
 Agricultural microinsurance is concentrated in Latin America.
 There are very few dedicated agricultural microinsurance
schemes in developing countries. Those that do exist use
existing agent infrastructures which end up perpetuating non-
viable business models.
 Agricultural microinsurance is highly subsidized, and run on
business models that are not sustainable.
4.3 Increasing access to agricultural microinsurance
Non-insurance intervention can play a direct role in mitigating risk,

given the difficulties associated with agricultural insurance. The most
obvious way to reduce risk is to prevent it from happening in the first
place (vaccinating livestock, strengthening systems to prevent stock
theft, planting more drought and pest-resistant crops.) Another
common way of mitigating risk is for household members to share
risk by pursuing multiple livelihoods, including off-farm activities,
and pooling their income. Other ways include sharecropping (farmer
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has a contract with a landowner to use land in return for giving the
landowner a share of the farmer’s harvest), and the use of forward
contracts, which reduces the risk of price fluctuation but agreeing
contractually the price beforehand. Nevertheless, non-insurance
options cannot mitigate the effects of catastrophic losses, other than
intervention by governments and aid agencies; there are few real
substitutes for insurance.
Interventions can take place at three levels: the macro level

(supporting the policy environment), the meso level (supporting the
infrastructure necessary to support agricultural microinsurance e.g.
institutes to train insurance staff, reinsurers and agricultural support
staff), and the micro level (improving the sustainability of risk carriers
and distributors).
4.4 Levels
(A) Macro level
Regulations: There is evidence that the lack of regulation or the

existence of inappropriate regulation can impede the progress of
microinsurance, although there has as yet not been any analysis of the
impact of existing regulation on agricultural microinsurance. Evidence
of regulatory impediments to the spread of agricultural
microinsurance is mostly anecdotal. By and large there is a distinct
lack of information regarding this area and more studies need to be
allocated to examine either what regulations need to be put into place
or what changes could improve current regulations.

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Policy: There is invariably a need to subsidise agricultural

microinsurance, and these come in various different forms (the
distributor can be subsidised, the risk carrier can be subsidised, the
government can take on the reinsurance risk at a subsidised rate…etc).
Another policy matter is whether to compel insurance companies to

sell agricultural micro-insurance products. The Indian government has
done this with microinsurance, with mixed results. On the positive
side this policy has made India the world’s largest supplier of
microinsur¬ance and an engine of innovation. On the negative side
many insurers treat the policy as a “cost of doing business” and
provide low quality, poorly serviced products.
(B) Meso level
Microinsurance in general has a strong need for trained special¬ist

staff (loss adjustors and actuaries), agricultural microinsurance
necessitates additional skills, and for example in livestock insurance,
relies on veterinarians for a number of functions such as managing
risk, underwriting, loss adjustment and fraud control. To begin
building specialist insurance capacity, development agents such as
donors, gov¬ernments, development banks, NGOs and MFIs, need to
undertake landscape studies at country level to establish the supply of
agricultural insurance expertise and develop ways to improve it.
Another important area of intervention is improving data collection

(livestock mortality, morbidity rates, weather…etc). This lack of data

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not only makes the design of products difficult but, also can act as a
barrier to insurers considering entering the market.
Consumer education: A problem throughout the microinsurance

sector, the lack of understanding and trust towards insurance will limit
the demand and impede the functioning of a scheme, even when
people do participate.
(C) Micro level
Leveraging existing distribution infrastructure: In order to keep

costs down it is clear that agricultural microinsurance products should
be sold through an aggregator so the costs of selling and servicing
agricultural microinsurance can be reduced by using its distribution
infrastructure.
The availability of affordable reinsurance is patchy at best, and in

tropical regions, which face frequent covariant risk events such as
droughts, cyclones, plagues and floods, there is no real substitute for
reinsurance. Studies need to be organised to understand what kinds of
agricultural microinsurance risks commercial reinsurers would be
prepared to cover, and which ones they would not, or else look at new
means of providing reinsurance - by setting up a dedicated reinsurer,
or subsidizing commercial reinsurance premiums, or working with
government to accept some of this risk.
Better product design: Certain errors in product design are

commonly repeated because products are not designed specifically for

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people on low income. In too many cases the insurer merely reduces
the premium and benefit of conventional agricultural insurance, while
keeping the other features constant, resulting in products that cover
for minor losses and tend to be expensive and overly complex. The
best microinsurance products are those designed through a process of
close consultation with potential policy holders. More research needs
to be done in terms of creating a list of the best and worst practices.
Reducing costs: We cannot avoid the conclusion that microinsurance

is a low cost, high volume business, and unless costs are contained,
agricultural microinsurance cannot be sustainable. A few interesting
cost-contained strategies emerged in the case studies in Chapter 2.
 ADR-TOM, in its Burkina Faso plough oxen scheme, made

very effective use of its policy holders in reducing the costs of
risk management through group co-payments. Attaching the
insurance product to existing group structures such as credit
solidarity groups will greatly reduce cost.
 Technological advances are likely to bring costs down and
increase access. The only significant technological innovation
uncovered in the landscape survey was the use of sealed low
cost weather stations that send their data via satellite for use in
index insurance schemes.
 The cost structure of agricultural microinsurance simply does
not allow for products to be sold individually though agents.
Agricultural microinsurance needs more specialized
aggregators who provide access to large numbers of potential

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policy holders and, are linked in some significant way to the

livelihoods of the farmer policyholders.
Chapter – 5
MICRO-INSURANCE DELIVERY
MODELS
One of the greatest challenge for micro-insurance is the actual

delivery to clients. Methods and models for doing so vary depending
on the organization, institution, and provider involved. As Dubby
Mahalanobis states, once must be thorough and careful when making
policies, otherwise microinsurance could do more harm than good. In
general, there are four main methods for offering micro-insurance the
partner-agent model, the provider-driven model, the full-service
model, and the community-based model. Each of these models has
their own advantages and disadvantages.
 Partner agent model: A partnership is formed between the

micro-insurance scheme and an agent (insurance company,
microfinance institution, donor, etc.), and in some cases a third-
party healthcare provider. The micro-insurance scheme is
responsible for the delivery and marketing of products to the
clients, while the agent retains all responsibility for design and
development. In this model, micro-insurance schemes benefit
from limited risk, but are also disadvantaged in their limited
control.

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 Full service model: The micro-insurance scheme is in charge

of everything; both the design and delivery of products to the
clients, working with external healthcare providers to provide
the services. This model has the advantage of offering micro-
insurance schemes full control, yet the disadvantage of higher
risks.
 Provider-driven model: The healthcare provider is the micro-

insurance scheme, and similar to the full-service model, is
responsible for all operations, delivery, design, and service.
There is an advantage once more in the amount of control
retained, yet disadvantage in the limitations on products and
services.
 Community-based/mutual model: The policyholders or

clients are in charge, managing and owning the operations, and
working with external healthcare providers to offer services.
This model is advantageous for its ability to design and market
products more easily and effectively, yet is disadvantaged by its
small size and scope of operations.

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Chapter – 6
MICRO INSURANCE SCHEME
A micro insurance scheme is a scheme that uses, among others,

an insurance mechanism whose beneficiaries are (at least in part)
people excluded from formal social protection schemes, in particular
informal economy workers and their families. The scheme differs
from others created to provide legal social protection to formal
economy workers. Membership is not compulsory (but can be
automatic), and members pay, at least in part, the necessary
contributions in order to cover benefits.
The expression "microinsurance scheme" designates either the

institution that provides insurance (e.g., a health mutual benefit
association) or the set of institutions (in the case of linkages) that
provide insurance or the insurance service itself provided by an
institution that also handles other activities (e.g., a micro-finance
institution).
The use of the mechanism of insurance implies:
 Prepayment and resource-pooling: the regular prepayment of

contributions (before the insured risks occur) that are pooled
together.
 Risk-sharing: the pooled contributions are used to pay a
financial compensation to those who are affected by

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predetermined risks, and those who are not exposed to these

risks do not get their contributions back.
 Guarantee of coverage: a financial compensation for a number
of risks, in line with a pre-defined benefits package.
Microinsurance schemes may cover various risks (health, life,

etc.); the most frequent microinsurance products are:
 Life microinsurance (and retirement savings plans)

 Health microinsurance (hospitalisation, primary health care,
maternity, etc.)
 Disability microinsurance
 Property microinsurance – assets, livestock, housing
 Crop microinsurance

MICRO INSURANCE
Chapter – 7
DEVELOPMENT OF MICRO-
INSURANCE IN INDIA
Historically in India, a few micro-insurance schemes were

initiated, either by nongovernmental organizations (NGO) due to the
felt need in the communities in which these organizations were
involved or by the trust hospitals. These schemes have now gathered
momentum partly due to the development of micro-finance activity,
and partly due to the regulation that makes it mandatory for all formal
insurance companies to extend their activities to rural and well-
identified social sector in the country (IRDA 2000). As a result,
increasingly, micro-finance institutions (MFIs) and NGOs are
negotiating with the for-profit insurers for the purchase of customized
group or standardized individual insurance schemes for the low-
income people. Although the reach of such schemes is still very
limited---anywhere between 5 and 10 million individuals---their
potential is viewed to be considerable. The overall market is estimated
to reach Rs. 250 billion by 2008 (ILO 2004).
The insurance regulatory and development authority (IRDA)

defines rural sector as consisting of
(i) a population of less than five thousand,
(ii) a density of population of less than four hundred per
square kilometer, and

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(iii) more than twenty five per cent of the male working
population is engaged in agricultural pursuits. The
categories of workers falling under agricultural pursuits
are: cultivators, agricultural labourers, and workers in
livestock, forestry, fishing, hunting and plantations,
orchards and allied activities.
The social sector as defined by the insurance regulator consists

of (i) unorganized sector (ii) informal sector (iii) economically
vulnerable or backward classes, and (iv) other categories of persons,
both in rural and urban areas.
The social obligations are in terms of number of individuals to

be covered by both life and non-life insurers in certain identified
sections of the society. The rural obligations are in terms of certain
minimum percentage of total polices written by life insurance
companies and, for general insurance companies, these obligations are
in terms of percentage of total gross premium collected. Some aspects
of these obligations are particularly noteworthy. First, the social and
rural obligations do not necessarily require (cross) subsidizing
insurance. Second, these obligations are to be fulfilled right from the
first year of commencement of operations by the new insurers. Third,
there is no exit option available to insurers who are not keen on
servicing the rural and low-income segment. Finally, non-fulfillment
of these obligations can invite penalties from the regulator.

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In order to fulfill these requirements all insurance companies

have designed products for the poorer sections and low-income
individuals. Both public and private insurance companies are adopting
similar strategies of developing collaborations with the various civil
society associations. The presence of these associations as a mediating
agency, or what we call a nodal agency, that represents, and acts on
behalf of the target community is essential in extending insurance
cover to the poor. The nodal agency helps the formal insurance
providers overcome both informational disadvantage and high
transaction costs in providing insurance to the low-income people.
This way microinsurance combines positive features of formal
insurance (pre paid, scientifically organized scheme) as well as those
of informal insurance (by using local information and resources that
helps in designing appropriate schemes delivered in a cost effective
way).
In the absence of a nodal agency, the low resource base of the

poor, coupled with high transaction costs (relative to the magnitude of
transactions) gives rise to the affordability issue. Lack of affordability
prevents their latent demand from expressing itself in the market.
Hence the nodal agencies that organise the poor, impart training, and
work for the welfare of the low-income people play an important role
both in generating both the demand for insurance as well as the supply
of cost-effective insurance.

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Chapter – 8
SUPPLY AND DEMAND SIDE

DEVELOPMENTS
8. 1) Supply of micro-insurance
Recently, the ILO (2004a) prepared a list of products of all
insurance companies, public as well as private, for the disadvantaged
groups in India. Some of the observations made on the basis of the list
are presented below:
 Out of 80 listed insurance products, 45 (55%) cover only a

single risk. The other products, covering a package of risks,
mostly focus on 2 (20%) or 3 (18%) risks.
 The available products cover a wide range of risks. However,
the broad majority of the insurance products cover life (40
products or 52%) or accident-related risks. The health coverage
remains very limited (12 products).
 Most life insurance products (23 out of 42) are addressed to
individuals. However, some products may be bought both by
individuals and groups.
 Most life insurance products (55%) have been designed to
cover an extended contract duration ranging from 3 to 20 years.
 Out of 42 life insurance products, 23 are pure risk products. The
other 19 products propose various types of maturity benefits.

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 Out of the 12 currently available health insurance products, 7

have been designed and are restricted to groups.
 Out of the total 12 health products, 7 products propose the
reimbursement of hospitalization expenses while the other 5
have chosen to narrow down the coverage to some specific
critical illnesses.
 Most of the health insurance products specifically exclude
deliveries and other pregnancy-related illnesses. Most of these
products also mention amongst their exclusion clauses,
HIV/AIDS.
 Most products whether life or non-life require a single payment
of premium ( i.e., a one-time payment) upon subscription.
 Private insurance companies have three times more products
than the public companies.
As per the IRDA statistics, the public insurance companies still

play a predominant role in the present coverage of the rural and social
sectors. This is only to be expected since the incumbent public
insurers have been in the market for a number of years now.
8.2) Demand for micro-insurance

On the demand side too, the ILO (2004b) has recently prepared an
inventory of micro-insurance schemes operational in India. Based on
this list some of the observations are made below:
 The inventory lists 51 schemes that are operational in India.

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 Most schemes are still very young, having started their

operations during the last few years. Of the 39 schemes for
which this information is available, around 24 schemes came up
during the last 4 years, and about 7 schemes have operated for
more than a decade.
 As regards the beneficiaries, the 43 schemes for which the
information is available cover 5.2 million people.
 Most insurance schemes (66%) are linked with micro finance
services provided by specialized institutions (17 schemes) or
non-specialized organizations (17 schemes). Twenty two
percent of the schemes are implemented by community based
organizations, and 12% by health care providers.
 Life and health are the two most popular risks for which
insurance is demanded: 59% of schemes provide life insurance
and 57% of them provide health insurance.8 In SEWA’s9
experience health insurance tops the list of risks for which the
poor need insurance.
 Twenty-five out of 37 schemes received some external funds to
initiate their schemes. Twenty out of 32 schemes received
external technical assistance in the form of advisory services,
technical services, training or even referral services for their
schemes.
 In the majority of the schemes special staff had been recruited
to manage the insurance activities. The other schemes kept
relying on their regular staff while recognizing them the

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additional responsibilities linked to the management of the

scheme.
 Most schemes (74%) operate in 4 southern states of India:
Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%)
and Kerala (8%), and the two western states (Maharashtra
(12%) and Gujarat (6%)) account for 18% of the schemes.
 56% of schemes deal with one single risk.
 Most schemes require single yearly premium at the time of
subscription. Of the 43schemes, 6 use a monthly payment for
their contribution, while 2 others have linked the contributions
to some other activities developed with their members
(disbursement of loan etc.).
 Most of the schemes (27) rely on voluntary contribution, while
10 schemes imposed compulsory contributions, and 7 adopted a
mix of voluntary and compulsory contributions (based on the
type of service provided).
Any nodal agency keen on buying insurance for their members

now have a choice of insurers and approach those who offer them the
best deal. According to the ILO inventory, schemes have already
entered into partnerships with at least 2 insurance companies (public
or commercial), and 3 schemes have already entered simultaneous
partnerships with both public and commercial insurance companies.
Clearly, health and life are two most important risks for which
insurance is demanded. Indeed, at low-income level, when much of

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the income goes into meeting basic needs, the scope of having varying
priority needs is very limited. On the supply side we observe that out
of 80 odd products only 7 products are health insurance products that
provide for reimbursement of hospital expenses. Admittedly,
compared to life insurance, which is a relatively straightforward
business, health insurance is a much more complex service as it
involves addressing the provision of healthcare that is location
specific. The design and sale of products are currently driven by the
objective of meeting the regulatory obligation and the making of
profits or reducing losses. In this situation, there is a danger of certain
priority needs getting neglected by the insurance companies.
Most products require single yearly premium at the time of

subscription. It is well known that rural incomes are irregular and
uncertain to enable payment of premium in one go, and more so when
only a part of the remuneration is paid in cash. In the above, we find
only a few schemes offer flexibility in paying premium. This could act
as a serious drawback in increasing the membership. We find that
most of the schemes are concentrated in the southern region of the
country. The southern regions are well known for the social
mobilization of low-income people. In contrast, the northern region is
bereft of such mobilization as the nodal agencies are either non-
existent or dysfunctional. Creating and nurturing nodal agencies can
be quite involved and can take a long time to develop. Local
government, that can also perform the role of nodal agency, will take
a long time to strengthen as a result of decentralization process

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currently underway in most Indian states. There has to be alternative

approaches to extending insurance in regions where nodal agencies do
not exist.
Even before insurance is bought for all important contingencies,

affordability constraint is likely to kick in, especially for the low-
income people. The issue then is how to cover for these other
important contingencies. One of the ways suggested is to impose a tax
at industry level (this could be on the turnover or profits of the
industry), and use the tax proceeds for the benefit of workforce
involved in activities peripheral to the industry.
Finally, the type of contingency and the number of people

covered under it are important parameters, but so is the extent of
benefit provided should the contingency happen. Currently, the
benefit or protection provided under some insurance schemes is quite
shallow.
The attitude of insurers on these obligations has been mixed.

Some have taken a positive view of the regulatory obligations and
have made a genuine attempt to understand the rural and low-income
segment of the market. Indeed, a few insurers have actually surpassed
their obligations by a wide margin. These companies have realised
that there is potential in the rural and low-income segment but tapping
that potential requires a different kind of approach. In some cases,
insurance companies have actually cross subsidised their micro-

MICRO INSURANCE
insurance products while in other cases insurers have been able to find
a donor for paying premium, at least in part, on behalf of the low-
income people.
The impact of rural and social obligations on extending

insurance to the intended people has been positive. However,
development of micro-insurance needs further guidance from the
insurance regulator by way of supplementary provisions. Sensing this,
the insurance regulator has already come out with a concept paper on
micro-insurance in which it has spelled out its thinking on what these
supplementary provisions could be.

MICRO INSURANCE
Chapter - 9
MICROINSURANCE NEED TECHNOLOGY

PUSH A CHALLENGE
Microinsurance in rural India has

not really taken off. Insurance
companies can benefit by
harnessing technology to leverage
this under-explored market while
doing their bit for all-inclusive
development.
Din Dayal owns two bighas of land in the suburbs of Mandla in

Madhya Pradesh. Like others of his ilk, he waits for the monsoons
every summer, prays that it will rain on time, neither too much nor too
little. His livelihood — and hence, life — centres on the fickle
weather. With a hand-to-mouth existence, Din and his family hover
dangerously close to the poverty line. An illness, disability, death of
cattle, floods or earthquake can send the whole family down th e
poverty spiral. For millions of farmers like Din, ensuring their
families a safe and happy future remains a distant dream.

MICRO INSURANCE
It is thus ironical that this same low-income population in most

developing countries has a global annual purchasing power of $5
trillion. The question is: how does the world, which is in the throes of
a financial meltdown, capitalise on this enormous opportunity?
The requirement for sustainable financial structures at the

bottom of the pyramid has spawned hundreds of cooperatives,
microfinance institutes and NGOs. But amongst the many facets of
microfinance, microinsurance remains significantly under-penetrated;
its growth restricted by challenges of reach and sustainability in
India’s colossal hinterland. However, there’s a solution in sight;
technology can turn the game around, transforming rural India into
one of the most lucrative markets for microinsurance.
9.1 Viability and Relevance
In the context of designing and marketing products, rural India

is a different world altogether. First, companies need to design
products that suit the lifestyle and needs of the target population. For
instance, illness, weather insurance, livestock insurance and insurance
against natural disasters will be more relevant than, say, insuring a
house.
Second, companies need to solve the challenges of reach and

sustainability. Rural India is one huge collection of villages, each a
hub for a small population, but lacking proper connectivity with other
villages or cities. Reaching people in such locations is a challenge as
the cost of travel might itself exceed the transaction amount.

MICRO INSURANCE
Even if companies can reach the rural interiors, the claims

processing procedure would also need innovation. The claimant might
not understand the policy conditions or the claim process, and might
not have a bank account to receive the claim cheque. How can an
insurance company overcome these unique challenges and, in turn,
enable the marginalised millions to benefit from insurance?
9.2 Solution is in innovation
For any insurance company to be successful in this space, it

must target large rural populations, design simple and flexible
products and enable efficient administration. Technology can be a
great enabler in this regard.
By negating factors such as distance and reach, and by bringing

in transparency and accountability in all transactions, technology can
open up hitherto unexplored markets and transform the financial
picture at the bottom of the pyramid. A number of innovations that
have already made headway into rural India are:
Web-based solutions: Web-based point-of-sale application enables

instant policy issuance and receipt generation even in remote areas.
This helps in not only enhancing customer satisfaction but also
reducing the use of cover notes, which has always been riddled with
large scale mis-use/frauds.
Alternatively, there is off-line point-of-sale application which allows

policy generation with the help of a program residing in the point-of-

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sale computer instantly. As soon as connectivity is regained, the

policy details are synchronised with the base server.
PDAs and Mobiles: Currently there is a considerable time lag

between the actual collection of premium and the deposit made at the
insurer’s office. This becomes an issue when there is a claim in the
interim period. Technology could be an aid here in the form of PDAs
and mobiles.
A PDA can be used to issue a receipt as and where the claimant makes
a payment, while the SIM card could be used to transfer the details of
the transaction immediately to the insurer’s server. Even the
possibility of fraud decreases as the time and date are mentioned in all
transactions.
Bio-metric cards: A bio-metric card is like a debit card that contains

the insured’s name, age, identification number and thumb-print.
Already made compulsory by the government under the Rashtriya
Swasthya Bima Yojna (RSBY), such cards minimise the possibility of
fraud and speed up the processing of claims.
In the event of a claim, all the insured needs to do is to swipe the card
in the card-reader installed in the hospital and match the thumb print
with the data base.
Upon discharge, the claim amount is debited from the claimant’s

account and the balance is utilised in the next hospitalisation. Under

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the RSBY, about 5 lakh cards have been issued in 16 States and over
1,500 people have benefited from the scheme.
RFID tags for cattle: Currently cattle insurance is tracked using

tagging on the ears of cattle. Since this is not a fraud-proof method,
insurance companies have incurred huge losses. RFID (Radio
Frequency Identification device) tags negate the possibility of fraud
by implanting a microchip that has a unique identification number,
near the ears of animals.
At the time of claim, the unique ID number in the chip is matched

with the number in the records, negating the possibility of frauds.
Weather insurance: Modern automated weather stations calculate

relative humidity and temperature apart from rain, and are better
equipped to predict weather changes. However ‘basis risk’ – the risk
of experienced loss being different from calculated loss is a matter of
concern for underwriters.
To reduce this risk, Normalised Difference Vegetation Index (NDVI)

is seen to be an improved way to design weather products. This is a
hybrid weather-cum satellite imagery-based weather index, where
claims settlement is done on the basis of satellite image of foliage,
type of soil and moisture data from satellite image along with
temperature and rainfall data from weather station.

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Blue Ocean Strategy
There are two facts to be considered. First, urban insurance markets

are already saturated. Second, microinsurance in rural India hasn’t
really taken off. Put together, it simply means that if companies want
to grow, they need to harness technology to leverage the under-
explored rural market.
Insurers must remember that, if assisted, the low-income policy holder

of today can grow into the middle-class of tomorrow, and hence create
a bigger market for the future. Therefore, the need to look beyond
short-term gains, to leverage technology smartly, and reap profits
patiently in the long run.
Doing well while doing good is indeed very possible. The time to
implement a blue ocean strategy is now. All one needs is innovation,
drive and an all-inclusive vision to grow together.

MICRO INSURANCE
Chapter – 10
MICRO – INSURANCE PLANS BY

LIFE INSURANCE OF INDIA (LIC)
Micro –Insurance plans comes under the special plans of LIC.

LIC’s Special Plans are not plans but opportunities that knock on our
door once in a lifetime. These plans are a perfect blend of insurance,
investment and a lifetime of happiness!
There are two policy plans for micro – insurance:-

1. Jeevan Madhur
2. Jeevan Mangal
10.1) Jeevan Madhur
Introduction:
It is a simple savings related life insurance plan where you may pay
premiums regularly at weekly, fortnightly, monthly, quarterly, half-
yearly or yearly intervals over the term of the policy. Minimum
installment premium for different modes of premium payment shall
be:
Weekly: Rs. 25/-

Fortnightly: Rs. 50/-
Monthly: Rs. 100/-
Quarterly/Half- Rs. 250/-
yearly/Yearly:

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Further, the premium chosen by you shall be subject to the minimum

and maximum sum assured of Rs. 5,000/- and Rs. 30,000/-
respectively payable on death and maturity under this plan.
Benefits:
Maturity Benefit:
On your surviving to the date of maturity, payment of the
Maturity Sum Assured along with vested bonuses, if any.
The specimen Maturity Sum Assured per Rs. 1200/- annual

premium are given below for some of the decennial ages and terms:
Policy Term
Age at Entry
5 years 10 years 15 years
20 5089 11219 18561
30 5081 11173 18396
40 5026 10910 17572
50 4847 10066 14884
Benefit Illustration:
Statutory warning :
“Some benefits are guaranteed and some benefits are variable
with returns based on the future performance of your Insurer carrying
on life insurance business. If your policy offers guaranteed returns
then these will be clearly marked “guaranteed” in the illustration table
on this page. If your policy offers variable returns then the

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illustrations on this page will show two different rates of assumed

future investment returns. These assumed rates of return are not
guaranteed and they are not the upper or lower limits of what you
might get back, as the value of your policy is dependent on a number
of factors including future investment performance.”
10.2) Jeevan Mangal:
Features :
1. Introduction:
LIC’s Jeevan Mangal is a term assurance plan with return of
premiums on maturity, where you may pay the premiums either
in lump sum or regularly at Yearly, Half Yearly, Quarterly,
Monthly, fortnightly or weekly intervals over the term of the
policy.
2. Eligibility Conditions and Other Restrictions:
Minimum age at entry : 18 years (completed)
Maximum age at entry : 60 years (nearest birthday)
Maximum age at maturity : 70 years (nearest birthday)
Term : 10 to 15 years for regular premium.
10 years for single premium.
Minimum Instalment Premium :Rs 15/-
Minimum Sum Assured : Rs. 10,000/-
Maximum Sum Assured : Rs. 50,000/-
(Sum Assured shall be in multiples of Rs. 1,000/-)

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3. Mode of Premium Payment :
The modes of premium payment allowable are Yearly, Half

Yearly, Quarterly, Monthly including SSS, fortnightly, weekly
and Single Premium. (Single premium is allowed for 10 year
term only.)
4. Sample Premium Rates:
Following are some of the sample premium rates per Rs. 1000/-
Sum Assured:
Annual Premium for Rs.1000 Sum Assured:
Age (yrs.) Term of the Policy (years)

10 15
20 39.90 24.35
30 41.30 25.95
40 49.25 32.55
50 69.65 47.75
Single Premium for Rs.1000 Sum Assured (Available for 10

year term only)
Age (yrs.) Term of the

Policy (years)
20 99.60
30 105.20
40 136.65
50 220.70

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Benefits:
1. Benefits :
Death Benefit: On death during the term of the policy the Sum
Assured under the basic plan is payable, provided the policy is
kept in force.
Maturity Benefit: On surviving to the date of maturity, an

amount equal to the total amount of premium paid during the
term of the contract excluding the accident benefit premium and
all extra premium, if any, is payable ,provided the policy is kept
in force
2. Optional Rider:
Accidental Benefit Rider: On death arising as a result of

accident during the term of the policy, an additional amount,
equal to Accident Benefit Rider Sum Assured is payable .
On total and permanent disability arising due to accident

(within 180 days from the date of accident), the Accident
Benefit will be payable in monthly instalments spread over 10
years. If the policy becomes a claim either by way of death or
maturity before the expiry of the said period of 10 years, the
disability benefit instalments which have not fallen due will be
paid along with the claim.

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The disability due to accident should be total and such that the
Life Assured is unable to carry out any work to earn the living.
Following disabilities due to accidents are covered:
a) irrevocable loss of the entire sight of both eyes, or
b) amputation of both hands at or above the wrists, or
c) amputation of both feet at or above ankles, or
d) amputation of one hand at or above the wrist and one foot at
or above the ankle
The future premiums shall be waived after the disability claim

is admitted.
3. Exclusions:
Suicide : If the Life Assured commits suicide (whether sane or

insane at that time) at any time on or after the date on which the
risk under the policy has commenced but before the expiry of
one year from the date of commencement of risk under this
policy, the sum assured under this policy shall not be payable,
instead all the premiums paid under this policy shall be
refunded in such cases.
Accident Benefit: The Corporation shall not pay the accidental

benefit in case accidental death/ disability arises due to
following reasons:
(i) intentional self injury, attempted suicide, insanity

or immorality or whilst the Life Assured is under

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the influence of intoxicating liquor, drug or

narcotic; or
(ii) injuries resulting from riots, civil commotion,
rebellion, war (whether war be declared or not),
invasion, hunting, mountaineering, steeple chasing
or racing of any kind; or
(iii) result from the Life Assured committing any
breach of law; or
(iv) arises from employment of the Life Assured in the
armed forces or military service of any country at
war (whether war be declared or not) or from
being engaged in police duty in any military, naval
or police organization; or
(v) occur after 180 days from the date of accident of
the Life Assured.
Note : The above is the product summary giving the key features of
the plan. This is for illustration purpose only. This does not represent
a contract and for details please refer to your policy document.
Benefit Illustration:
LIC’s Jeevan Mangal
Age (yrs.) 35
Terms years 10
sum Assured 30000
Annual 1324.50
Premium

MICRO INSURANCE
End of Total Benefit payable on Benefit payable on

year Premium paid death during the survival/maturity
till end of year year during the year
Guaranteed Guaranteed
1 1324.50 30000 0
2 2649.00 30000 0
3 3973.50 30000 0
4 5298.00 30000 0
5 6622.50 30000 0
6 7947.00 30000 0
7 9271.50 30000 0
8 10596.00 30000 0
9 11920.50 30000 0
10 13245.00 30000 13245.00
Age (Yrs.) 35
Terms Yrs 10
sum Assured 30000
Single 3489
Premium
End of Total Benefit payable on Benefit payable on

year Premium death during the survival/maturity
paid till end year during the year
of year
Guaranteed Guaranteed
1 3489.00 30000 0
2 3489.00 30000 0
3 3489.00 30000 0
4 3489.00 30000 0
5 3489.00 30000 0
6 3489.00 30000 0
7 3489.00 30000 0
8 3489.00 30000 0
9 3489.00 30000 0
10 3489.00 30000 3489.00

MICRO INSURANCE
Chapter – 11
CONCLUSION
a) Micro insurance is a young financial with few proven best
practices. Demand is strong and indicative of an important
potential market.
b) Along with savings and emergency loans, micro-insurance has
a role to play in poor people’s risk management.
c) There are challenges to provide micro-insurance to the poor and
there is no need for greater innovation and experimentation.
d) Regulation within the industry is also critical. Working
together, micro-insurance can be both a successful business
venture and advantageous to the poor. However, the current
move of IRDA towards effective regulation requires a
collective effort otherwise the issue will not gain attention.

MICRO INSURANCE
Following a structured product development process can be

time consuming and require significant effort. However, the
benefits generated include:
• Faster acceptance by potential clients because:
- The product are designed to meet the real needs of potential

policyholders
- The product education and marketing campaign is appropriate

for the low-income market
- The sales people have been well trained and appreciate the
benefits of the product they are selling
• Better renewal rates because service provision was tested and

perfected.
• Limited chance of systems or process failure because these were

fully tested
Like traditional agricultural insurance, agricultural

microinsurance is difficult and costly. For development agents
wanting to help reduce the risks for low-income farmers, its
adoption needs to be considered against a number of potentially
easier to implement risk management strategies. These include
reducing the chance of the risk occurring in the first place (e.g.
vaccinations in the case of livestock), or reducing the impact of the
risk once it has occurred (e.g. through the provision of savings and
credit facilities).

MICRO INSURANCE
However useful strategies are, they cannot deal with

catastrophic risks such as droughts, cyclones, floods and plagues,
and this is where agricultural microinsurance clearly does have a
role to play. As the various interventions suggested show, there is
an important role for development agents and other stakeholders to
help it become an effective risk management tool.

MICRO INSURANCE
BIBLIOGRAPHY
www.microinsurancenetwork.org
http://en.wikipedia.org/wiki/Microinsurance
www.ilo.org/microinsurance
www.microensure.com/microinsurance.aspx
www.lloyds.com
www.MicroSave.org
www.nabard.org
www.csmonitor.com
www.grameen-info.org
www.microcreditsummit.org
www.globalenvision.org
www. knowledge.allianz.com
www.licindia.in

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MICRO INSURANCE

Micro insurance is generally, but inaccurately, referred to as a

Micro insurance is defined as follows in different sources:

 The protection of low-income people against specific perils in

BBI TOLANI COLLEGE OF COMMERCE Page 1

 A mechanism to protect poor people against risk (accident,

These different definitions have in common the element of

a) The Origins of Insurance

Commercial proprietors were the first to understand the need

In around 600 AD, the Greeks and Romans had organised

BBI TOLANI COLLEGE OF COMMERCE Page 2

In the late 1660’s, the London coffee shop of Edward Lloyd

b) The Phenomenon of Micro Insurance

Although, not known as “Micro insurance”, here are some

 “Industrial life insurance” – life insurance policies with small

 Folksam General Mutual Insurance Company was founded in

 CUNA Mutual Insurance Society was founded in 1936 by the

BBI TOLANI COLLEGE OF COMMERCE Page 3

members by the credit unions. This was the origin of “loan

What is Micro Insurance?

Micro insurance - the protection of low-income people against

BBI TOLANI COLLEGE OF COMMERCE Page 4

proportionate to the likelihood and cost of the risk involved - seeks to

Until recently, there were very few formal insurance solutions

Micro-insurance, the term used to refer to insurance to the low-

Although the type of risks faced by the poor such as that of

economic circumstance. In the context of health contingency, for

Of the different risk management strategies, insurance that

In the past insurance as a prepaid risk managing instrument was

BBI TOLANI COLLEGE OF COMMERCE Page 6

insurance to them. Thus, insurance is fast emerging as a prepaid

Micro-insurance is a key element in the financial services

Poverty is not just a state of deprivation but has latent

Micro-insurance is a term increasingly used to refer to

BBI TOLANI COLLEGE OF COMMERCE Page 7

coverage limits, sold as part of atypical risk-pooling and marketing

The institutions or set of institutions implementing micro-

1. Micro-insurance is insurance with low premiums and low caps /

BBI TOLANI COLLEGE OF COMMERCE Page 8

insurance by the product features is further complemented by

2. Micro-insurance is a financial arrangement to protect low-

3. Micro-insurance is synonymous to community-based financing

BBI TOLANI COLLEGE OF COMMERCE Page 9

and community involvement in user-fee management. Most

4. Micro-insurance is the use of insurance as an economic

5. The draft paper prepared by the Consultative Group to Assist

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stakeholders – insurers, regulator and the Government. The

Insurance functions on the concept of risk pooling, and

The last definition therefore, includes the critical features of the

1. transactions are low-cost (and reflect members’ willingness to

microinsurance units over and above what each can do when

BBI TOLANI COLLEGE OF COMMERCE Page 12

Building on the recommendations of the consultative group,

 A tie-up between life and non life insurance players for

Currently the IRDA regulations do not favor composite insurance

Another striking feature of the regulation is the provision of

In case of life micro-insurance products, the cover amount for

BBI TOLANI COLLEGE OF COMMERCE Page 14

At the time of opening of the insurance sector, IRDA had

The Committee wholly subscribes to the initiatives of IRDA in

BBI TOLANI COLLEGE OF COMMERCE Page 15

the insurance companies find it profitable to serve this market that