Affordable Insurance The Micro Way - By Hemant Bhargava, ED (MI) LIC of India started Micro insurance initiative immediately

y after the IRDA Micro Insurance regulations were issued by IRDA in Nov.2005.The main purpose of giving prime importance to micro insurance and opening a separate vertical for this channel was that, it is through only micro insurance i.e. small ticket policies, that the most vulnerable sections of society can be given the risk cover which has eluded them so far. The promulgation of regulations provided a fillip in propagating micro insurance as a conceptual issue. One of the main objectives of promoting financial inclusion packages is to economically empower those sections of society who are otherwise denied access to financial services, by providing banking and credit and risk cover services thereby focusing on bridging the rural financial security gap. The banking sector is focusing on financial inclusion on a priority basis. Vulnerability to various risk factors is one of the fundamental attributes of these sections of the society. Lack of protective elements may, thus, not serve the objective of promoting financial inclusion packages as the targeted section may fall back into the clutches of poverty in the event of unforeseen contingencies. Hence, to provide a hedge against these unforeseen risks, micro insurance is widely accepted as one of the essential ingredients of financial inclusion packages. Our prime objective since inception has been to To spread life insurance widely and in particular to the rural areas and to the socially and economically backward classes, with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. Vulnerability to risks from stress and shock due to premature death is known to all of us. The factor of this vulnerability multiplies hugely in case of economically under privileged group. Micro insurance is thus, a financial arrangement to protect low income people against specific perils in exchange for regular premiums payable proportionate to the likelihood and the cost of the risk involved. LIC today has more than 260 million policyholders. There are other private insurers also operating for last 10 years. Even then, an estimated 290 million people who are in proximity to the BPL mark are totally devoid of any insurance. The fact is that 60% of the world population does not have any cover. In the Banking World for the similar exclusion phenomenon, noble laureate Prof. Md. Yunus wrote Its not people who are not credit worthy. Its the Banks that are not people worthy.

In life insurance, we have to make the whole process of Insuring a person so simple that he is not intimidated. This is indeed what has been accomplished in micro insurance vertical by launch of simple products being sold through NGOs, SHGs & MFIs, the small ticket insurance is easy to understand and easy to live with. LIC has taken a very positive and facilitative approach adopted in the spirit of the micro insurance regulations, thereby extending insurance penetration to vulnerable segments of society. LICs first Micro Insurance Product Jeevan Madhur was launched on 28.09.2006 by Dr. A.P.J. Abdul Kalam, the then President of India, targeting to cover low income group, and especially those who have no fixed and stable income. This policy was intended for individuals in age group of 18 to 60 yrs and offered and with minimum and maximum sum assured of `Rs. 5000/- and `Rs. 30,000/- respectively with rates of premium as low as ` Rs.25/- per week to `Rs.100/- per month. JEEVAN MADHUR was introduced by LIC as the first initiative in this field as a simple savings related life insurance plan, wherein premiums are payable regularly at weekly, fortnightly, monthly, quarterly, half-yearly and annual intervals. On surviving the date of maturity, payment of maturity sum is paid along with vested bonus, if any. On the death of the policyholder, an amount equal to total premiums payable during the entire term of the policy will be paid along with vested bonus, if any. On death arising as a result of an accident during the term of the policy, an additional amount equal to sum assured shall be payable. In Sep.2009, LIC brought out its second Micro Insurance Product Jeevan Mangal A Term Assurance Policy with return of premium on maturity. The policy provides for Sum assured ranging from minimum of `Rs. 10,000/- to maximum of `Rs. 50,000/- . Mode of premium payment ranges from weekly to yearly and with single premium facility as well. The minimum premium installment is `Rs.15/- per week. By taking a Jeevan Mangal policy together with earlier Jeevan Madhur policy, low income policy holder can now avail the life coverage benefit of up to `Rs. 80,000/- . These policies have been sold through a distribution channel comprising Non Government Organizations, Self Help Groups, Micro Finance Institutions, Non Profit Associations, Corporate Agents, Brokers, and Non Profit Societies including Companies registered under Section 25 of Companies Act, who have been appointed as Micro Insurance Agents by LIC. Thus a total separate distribution network has been set up to take care of the small ticket policies in the most optimum manner.

The MI Vertical Channel has total strength of 8204 Micro Insurance Agents with 55056 Specified Persons trained by LIC as on 31/07/2010. Life Insurance Corporation has also put in place a very robust ITdriven micro insurance business process. All the Micro Insurance agents, all over the country, can log on to a central server and have all basic jobs completed for issuance and servicing of a micro insurance policy. The special software designed for micro insurance agents enable them to capture the proposal form data and send it directly to LIC office through internet or if required through other media. The Micro insurance agents are able to push all the proposal data, all premium collection data and other policy servicing requests through internet itself. In turn they are also able to receive the information about the completed policies, incomplete proposals, premium updates for the policies where premiums had been deposited, next month dues list etc. The robust software also enables the MI agent to print acknowledgement for the amounts collected thereby making him play full role from LIC view point. This enables better customer service, optimization in operations and wide market reach. TABLE 1 Information Technology Frame Work Customer Interface Transaction Data Analysis and Processing Processing Distribution Front-end Network Production Corporate Support Channels Tools MI Agents Enquiry module Transaction Reports Data Applications Reports Prem. Receipts Pol. Documents Collection Systems Premium Due List The micro insurance efforts of the Corporation are in addition to the sale of conventional life insurance products and social security (Government aided) schemes, which cater to the needs of the Data Transfer Entry Data Network Connection Security MIAS Services Host PCs Client Managemen t Record updation Central Data MIS Statutory Reports Training Updation of Software Integration

underprivileged section of the society. Thus MI Vertical of LIC has provided risk cover protection to the most vulnerable through 4.5 million Micro Insurance policies of which more than 97% have been sold in rural areas. LIC was conferred Skoch Challenger Award 2008 for Financial Inclusion in Insurance Sector through Jeevan Madhur initiatives. In todays India which is growing y-o-y @ approx. 8% per annum, the growth has to be as inclusive as possible with our efforts. In a fast growing economy, LIC is trying to cover maximum people through micro insurance, who would otherwise be left unattended if not given an option of suitable small ticket policy. The Micro Insurance segment needs to be strengthened by all insurance players to toughen the security fabric of the society. The skewed pattern of income distribution with the fast development and also expansion of more open economy requires some corrective initiatives going on simultaneously for the country. The channel is now well placed to cover the weak links and make greater strides in times ahead.
Mr. Hemant Bhargava, is the Executive Director, (Micro Insurance) with Life Insurance Corporation of India, currently posted in Mumbai