Micro Insurance One of the main objectives of promoting financial

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					                        Affordable Insurance – The “Micro” Way

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

        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 “It’s not people
who are not credit worthy. It’s 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. LIC’s 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 IT-driven 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 Processing       Data Analysis and Processing
Distribution      Front-end Tools Network         Production    Corporate        Support

MI Agents         Reports            Data Transfer    MIAS Services     Central Data       Training

Enquiry module    Prem. Receipts     Entry            Host PCs          MIS                Updation      of

Transaction       Pol. Documents     Data             Client            Statutory          Integration
Reports                              Network          Management        Reports
Data              Collection         Security         Record
Applications      Systems                             updation

                  Premium      Due

              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 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 today’s 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


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