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 250 billion by 2008 (ILO 2004).
The Micro-insurance Regulations, 2005
Regulations on micro-insurance were officially gazette by the IRDA on 30 November 2005. The salient features of the regulation are presented below.
The regulation defines micro-insurance products
The regulation provides definitions of micro-insurance products covering life and general insurance.
General micro insurance product:
General micro insurance product means any health insurance contract, any contract covering the belongings, such as, hut, livestock or tools or instruments or any personal accident contract, either on individual or group basis, as per terms stated in Schedule-l appended to these regulations.
Life micro insurance product:
Life micro insurance product means any term insurance contract with or without return of premium, and endowment insurance contract or health insurance contract, with our without an accident benefit rider, either on individual or group basis, as per terms stated in Schedule-ll appended to these regulations.
(a) “micro-insurance policy” means an insurance policy sold under a plan which has been specifically approved by the Authority as a micro insurance Product.
(b) “micro-insurance product” includes a general micro- insurance product or life insurance product, proposal form and all marketing materials in respect thereof.
c) Every insurer shall be subject to the “file and use” procedure with the IRDA.
(d) No one other than insurer be it a micro-insurance agent or anyone else-can underwrite a micro-insurance proposal.
(e) Rural business transacted under micro-insurance by an insurer will be counted for quota fulfillment both for rural as well as social sector obligations.
The micro-insurance regulations promote extensive use of intermediaries by the insurers for selling and servicing various micro-insurance products. The regulation also creates a new intermediary called the micro-insurance agent. The regulation clearly defines Micro Insurance agents and has imposed minima in terms of the number of years of experience (at least 3) of working with low income groups. It also emphasizes the need for such agents to have appropriate aims and objectives, a good track record, transparency and accountability stated in the bye-laws with demonstrated involvement of committed people. This has been done in order to prevent the engagement of dishonest operators in the activity. However, the responsibility for the selection of appropriate Micro Insurance agents and their capacity building lies with the insurance company.
The micro insurance agent can be a Non-Governmental Organization (NGO), MFI or other community organization such as Self Help Groups (SHG) appointed by an insurer to distribute micro-insurance through specified persons. Micro-insurance agents enter into a “deed of agreement with the insurer. They abide by the code of conduct defined by the IRDA and attend 25 hours of training (down from 100 hours originally required for conventional insurance agents but now reduced to 50 hours) in the local language at the expense of the insurer. There is no qualifying examination, unlike the case of ordinary insurance agents.
According to the regulation,
(a) Non-Government Organization (NGO) means a non- profit organization registered as a society under any law, and has been working at least for three years with marginalized groups, with proven track record, clearly stated aims and objectives, transparency and accountability as outlined in its memorandum, rule, by- laws or regulations as the case may be, and demonstrates involvement of committed people.
(b) Self Help Groups (SHG) means any informal group consisting of ten to twenty or more persons and has been working at least for three years with marginalized groups, with proven track record, clearly stated aims and objectives, transparency and accountability as outlined in its memorandum, rules, by-laws or regulations, as the case may be, and demonstrates involvement of committed people.
(c) Micro-Finance Institutions (MFI) means any institution or entity or association registered under any law for the registration of societies or co-operative societies, as the case may be, inter alia, for sanctioning loan/finance to its members.
IRDA has recognized four categories of intermediaries: brokers, agents, corporate agents, and Micro-insurance (MI) agents. Categories other than MI agents may sell micro- insurance but they do not benefit from the concessions allowed for the MI agents. However, a micro-insurance agent shall not distribute any product other than a micro insurance product.
The regulation provides for MI agents to perform the following functions
- Collection of proposal forms
- Collection of self-declaration from the proposer that he/ she is in good health.
- Collection and remittance of premium
- Distribution of policy documents
- Maintenance of registers of all those insured and their dependents covered under the micro insurance scheme, together with details of name, sex, age, address, nominees and thumb impression/signature of the policyholder.
- Assistance in the settlement of claims
- Ensuring nomination to be made by the insured
- Any policy administration service