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BASIX Equity for Equity D Sattaiah VP Corporate HR & Insurance Risks faced by Rural Households and Private Sector Insurance Initiatives in India A paper.

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Presentation on theme: "BASIX Equity for Equity D Sattaiah VP Corporate HR & Insurance Risks faced by Rural Households and Private Sector Insurance Initiatives in India A paper."— Presentation transcript:

1 BASIX Equity for Equity D Sattaiah VP Corporate HR & Insurance Risks faced by Rural Households and Private Sector Insurance Initiatives in India A paper presented on Aug 10, 2007 at Policy Forum of Agriculture and Rural Development for reduction of poverty and hunger in Asia: In pursuit of inclusive growth and excellence

2 BASIX Equity for Equity Indian Scenario 72.4% Population is engaged in Agriculture 72.3% Households live in Rural Areas 28.3% Rural poverty (27.5% overall poverty) Entire rural sector is un-organized 99% rural HH in un-organized sector Overall 92% in unorganized sector and Unorginsed sector contributes 40% of GDP Literacy over 64%

3 BASIX Equity for Equity Indian Workforce WorkersTotalMain Marginal RuralUrban Total401 (100%) 312 (78%) 89 (22%) 308 (77%) 93 (23%) Farmers32%26%6%31%1% Agri Labour27%16%11%26%1% HH Industries4%3%1%3%1% Others38%33%5%18%20%

4 BASIX Equity for Equity Vulnerability to risks is higher for those in the lower economic rungs Time Households Income/Assets Poverty Line A dose of micro- credit/ Ag-BDS Risk event Hence poor household insurance needs are obvious

5 BASIX Equity for Equity Risk coping mechanism of rural poor. Savings – Self Insurance Borrowings, Asset Pledging Asset sale, Migration Severity Covariance

6 BASIX Equity for Equity Indian Insurance Sector Public Insurers Monopoly till year Today 24 private insurers in market Penetration is < 3% insurable population as per GTZ study Ranks 19 in aggregate premium and 54 in penetration Mandated target to reach under Rural sector business Life - 7% polices in year 1 to 18% in year 6; General 2% in year 1 to 5% in year 3 and so on Social Sector – 5,000 polices in year 1 to 25, 000 in year 6 for both Life & General IRDA Micro Insurance Guidelines Products limits defined – commission for agents enhanced – given additional roles to mediators Micro Finance Institutions given a vital role

7 BASIX Equity for Equity Insurable Risks Faced by Rural Households Occupation (% rural workers) Means of Income Risks facedPossible Insurance Products Farmers (31% ) Farming Yield Risk Crop Insurance, Weather insurance Price Risk Produce damage Implements damageAsset Insurance Livestock Death & DisabilityLivestock Insurance Labourers (26%) Human Body Illness, Accidental injuries, Scarcity of wage employment Health Insurance, Rainfall Insurance ArtisansMachines/Tools Breakdown & DamageAsset Insurance, Accident insurance TradersStock Theft, damageFire Policy For all households Life Insurance, Health, Disability Insurance

8 BASIX Equity for Equity There are two types of products available Group Products Designed and delivered to an existing group of people Such groups availability is limited Most of the time they are linked to along with other services Operating costs are low Retail Products Voluntary - Sold Cost of selling and servicing is disproportionately high

9 BASIX Equity for Equity Rural household common insurance needs – and retail products available Possible Insurance Products Public Insurers (1)Private Insurers (15) Term Life Insurance including accidental death benefits Only one product – Jana Shree Yojana – funded by Social Security Fund Most of the Companies have such nominal products but with very limited out reach to poor Health Insurance,All the 4 companies offer Universal Health Insurance Product funded by the Union Government – but with very limited out reach - Nil- Household item Insurance Not being offered currently. There were few products - Nil-

10 BASIX Equity for Equity Farmer Insurance needs & retail products available Possible Insurance Products Public InsurersPrivate Insurers Crop InsuranceOffered by only AIC- Nil- Weather InsuranceOffered by AICOnly 2 companies offer (ICICI Lombard & IFFCO Tokyo) Electrical Electric Pump Insurance Available but not sold actively Only 2 or 3 companies offer this product Livestock InsuranceOffered by all 4 companies but with limited out reach Only 2 to 3 companies offer this product (Royal Sundaram)

11 BASIX Equity for Equity Labour insurance needs and retail products available Possible Insurance Products Public InsurersPrivate Insurers Rainfall Insurance – for wage loss compensation; community assets like ponds for fishing - Nil- Accident Policy – particularly to cover the prominent risks coming out of the nature of labour engaged in Janata Accident Policy available but wit limited reach - Nil-

12 BASIX Equity for Equity Artisans/enterprise holder – retail products available Possible Insurance Products Public InsurersPrivate Insurers Asset Insurance for traders, service providers and petty manufacturers - Nil – Has shop keepers policy where the deduction is minimum Rs 10,000, hence excludes all the tiny enterprisers Only one company is offering the product – Royal Sundram Alliance General Insurance Company( Royal Sundaram) Sheep insurance - Nil- - Though used to be available One company is offering but very insignificant reach (Royal Sundaram)

13 BASIX Equity for Equity Mission of BASIX Is to promote large number of sustainable livelihoods, including for the rural poor and women, through the provision of financial services and technical assistance in an integrated manner. BASIX will strive to yield a competitive rate of return to its investors so as to be able to access mainstream capital markets and human resources on a continuous basis.

14 BASIX Equity for Equity Our Strategy LFS (Livelihood Financial Services) Ag/BDS (Agriculture/ Business Development Services) IDS (Institutional Development Services) Livelihood Triad

15 BASIX Equity for Equity Insurer BASIX Rural Customer Offer products Distribute Insurance Feedback on needs Inputs for products BASIX’s Approach to insurance services

16 BASIX Equity for Equity BASIX collaborations in insurance BASIX Equity for Equity Life Insurance -AVIVA Health Insurance-Royal Sundaram Livestock Insurance –Royal Sundaram Micro-Enterprise-Royal Sundaram Rainfall Insurance- ICICI Lombard

17 BASIX Equity for Equity Products performance as on ProductSinceCoverage (cum) person/policy years Claims (cum)Premium outgo current and cumulative Life – GroupOct ,0001,48793% (68%) HealthMay ,0004,03331% (24%) LivestockOct ,0001,00598% (95%) RainfallJune ,5003,716144% (87%) M. EnterpriseMar-20064, % -Too early to assess 10,248

18 BASIX Equity for Equity Technology use Use software for insurance transactions Se up Rural BPO for efficient transactions Use online training facility On line premium and claim transactions between BASIX and Insurer

19 BASIX Equity for Equity Key Innovations … Life Group product Non exclusion of suicide for benefit Life retail product Coverage starts from 10 th day of premium payment 1 year grace period for premium payment Limited Health Insurance – Group product BASIX deployed claim facilitators who help insured to get medical care and build claim form

20 BASIX Equity for Equity …. Key Innovations Livestock –retail product Overcome the constraint of lack of veterinarian by Insurability certification by BASIX staff – (Non veterinarians) Claims certification by surveyor Rainfall – retail product Product structure based on local crops, customer choice on trigger points and premium sizes Facilitate set up the rain gauge stations by private company NCSML Micro enterprise – retail product Deduction of 10% of SI or 500 whichever is maximum

21 BASIX Equity for Equity Insurance –Challenges & Possible responses Sell insurance concept to poor Educate on insurance utility Sell protection products first Demonstrate the effect of insurance; Exempt from taxes Efficient distribution Collaborate with alternate channels and share expertise Pay remunerative commissions – a minimum level of commission to be allowed Come out with appropriate product and process Rationalize products, Simplify process and Adopt technology support,

22 BASIX Equity for Equity Potential Strategy for Insurers Protection Risk to begin with and costs increasingly Middle Income Higher Income Lower Income 26% Protection+ Savings Investment + Savings + Term Risk, Expenses &marginal profit Risk, Expenses & profit through product differentiation Premium to coverProduct Needs order of priority

23 BASIX Equity for Equity Thank you


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