The Hindu Business Line : Micro insurance offers new ways to combat poverty

About 90 per cent of the Indian population— some 950 million people— are not covered by insurance and signify an untapped market of nearly $2 billion.

New Delhi June 6 Helping the rural poor systematically manage financial risks to their livelihoods and lives through micro insurance offers innovative ways to combat poverty in India, says a new study commissioned by the United Nations Development Programme (UNDP).

Titled `Building security for the poor — Potential and prospects for micro insurance in India," the study led by Ms Anuradha Rajivan, Head of the Human Development Report Unit at the UNDP's Regional Centre in Colombo, states that 90 per cent of the Indian population — some 950 million people — are not covered by insurance and signify an untapped market of nearly $2 billion.

Though this enormous "latent market" is ripe for customised life and non-life insurance, serious mismatches exist between the needs of the insured and the insurers, pitting priorities against profits, the study said highlighting the abundant new avenues for energising the rural insurance market, building on robust economic growth, increasing the numbers of rural entrepreneurs and recent insurance regulations.

Stating that micro insurance is a set of market-based insurance products and processes designed to address both life and non-life risks faced by people at the bottom of the socio-economic pyramid, the study said the micro insurance potential is likely to be greater for those with income stream and assets to safeguard at least in the early days of market development.

Stakeholders' concerns

Analysing data from field investigations in rural areas in Orissa, Rajasthan and Tamil Nadu, the study found the concerns of different stakeholders dogging the micro insurance movement.

First, rural market is characterised by limited and inappropriate services, inadequate information and capacity gaps.

Second, challenges in product design exist, resulting in mismatch between needs and standard products on offer. Third, pricing including readiness to pay and the availability of subsidies sway the market.

This is borne out by the fact that in the absence of a historical database on claims, premium calculations are based on remote macro aggregates and overcautious margins. Fourth, difficulty in distribution is cited as a major reason for absence of rural insurance.

The high cost of penetrating rural markets, combined with under-utilisation of available distribution channels hinder the growth of rural insurance services.

Fifth, cumbersome and inappropriate procedures inhibit the development of this sector and finally contrasting perspectives of the insured and the insurers, cause low customisation of products and dismal demand for what is available.

Pointing out that one bad experience with an insurer in a small knit community could have long lasting adverse effect on client faith in insurance services, the study said that for the insurer, many of the needs of the poor do not translate into an insurable proposition due to questionable profitability.

The study said the key obstacles that need to be addressed pertain to addressing customer satisfaction (demand-supply gaps, appropriate products and pricing), distribution efficiencies for better outreach and procedural hassles for easier renewals and claim settlements.

"Unleashing the incipient potential for growth of the micro insurance sector needs a longer term perspective, replacing the current pre-occupation with immediate profits," the study said.

The study suggests extending support for innovation in concept design — product, pricing distribution processes, initiating database building and management, capacity development for insurers, insured and facilitators, development of technological innovations and their use and policy dialogue, entailing $1.65 million over a span of three years.

Put together this could form the ingredients for possible programme development and complemented by national efforts, this would pave the way for "a win-win situation" for catalysing micro insurance in India, the study said.

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