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UNIVERSITY SCHOOL OF MANAGEMENT STUDIES
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FINANCE PROJECT
T R E N D S A N D S T RAT E G I E S F O R F U RT H E R
EXTENSION
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Submitte
d by:
ACKNOWLEDEGMENT
I herby offer my sincere and profound thanks to M/s Divya – our financial
through out our project including analysis and presentation of the same. Without
I would also like to thank Mr. SHALENDRA GUPTA, Genaral Manager, TATA
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DECLARATION
I hereby declare that this project report is the result of hard core study done by
Micro insurance team – Govind Kumar Jha, Gaurav Asthana, Shiva Jangid, Indu
Bhushan, Rakesh, Himanshu Nirwan, Deepak, Manish and Lucky Talwar.
This is to further declare that this project report is authentic and not being
submitted by any other student previously.
DATE:
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Contents
Foreword........................................................................................
............... i
Introduction....................................................................................
...............1
• Development of Micro-insurance in
India........................................3
• On Extending Micro-
insurance .......................................................10
4.1 Flexibility in
Premium........ ................................................................11
4.2 Micro-insurance and micro-finance ...................................................16
• Conclusions.............................................................................
..........20
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Introduction
Insurance
Insurance is an essential part of running any business. If you are operating a
small business you need more than just property insurance. Taking out the
right insurance will help protect your business and minimize its exposure to
risk.
Your insurance requirements will vary according to the type of business you
are operating, but you should be aware that some forms of insurance are
compulsory, such as workers’ compensation and third party car insurance.
When you’re in business you deal with a variety of potential risks each day.
Risk is not something you can avoid, but it is something you can manage.
Risk management will increase the probability of success and reduce the
probability of failure of your business.
Types of insurance
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• Liability insurance
Covers the building, contents and stock of your business against fire and
other perils such as earthquake, lightning, storms, impact, malicious damage
and explosion.
Burglary
Insures your business assets against burglary, and is most important for
retailers or a business which maintains unattended premises.
Fidelity guarantees
Machinery breakdown
Protects your business when mechanical and electrical plant and machinery
at the work site break down.
Motor vehicle
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It is compulsory to insure all company or business vehicles for third party
injury liability. Many different types of policies are available, so make sure
you understand the options before making a decision. There are four basic
options:
People insurance
It includes:
• Superannuation
• Workers compensation requirements
Workers Compensation
You must provide accident and sickness insurance for your employees -
workers compensation - through an approved insurer. Workers compensation
is covered by separate state and territory legislation.
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If you are self employed you won’t be covered by workers compensation, so
you need to cover yourself for accident and sickness insurance through a
private insurer. There are several types of life insurance. Some are
investment-type funds where you contribute over a certain time and get
back your investment plus interest earnings at the maturity date. Others are
designed to cover risk - things that could happen to you.
Superannuation
If you are running a business or employing people, you are likely to have
superannuation obligations to your employees. If you are self-employed you
also need to provide for your retirement - superannuation is generally used
to provide for a retirement plan.
Liability insurance
Types of liability insurance you need to consider:
Public Liability
Public liability insurance protects you and your business against the financial
risk of being found liable to a third party for death or injury, loss or damage
of property or ‘pure economic’ loss resulting from your negligence.
Professional Indemnity
Professional indemnity insurance protects you from legal action taken for
losses incurred as a result of your advice. It provides indemnity cover if your
client suffers a loss - either material, financial or physical - directly attributed
to negligent acts.
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Product Liability
If you sell, supply or deliver goods, even in the form of repair or service, you
may need cover against claims of goods causing injury or damage. Product
liability insurance covers damage or injury caused to another business or
person by the failure of your product or the product you are selling.
On a daily basis, the poor around the world face a multitude of risks that
threaten to derail any progress they have made to work their way out of
poverty. The death of a family member, loss of property and livestock,
illness, and natural disasters each pose unique dangers. Protecting people
against these losses is an important step to alleviating global poverty.
Micro insurance - the protection of low-income people against specific perils
in exchange for regular monetary payments (premiums) proportionate to the
likelihood and cost of the risk involved – seeks to provide a suitable solution
for managing these risks.
It is estimated that only eighty million out of the world's 2.5 billion poor are
now covered by some form of micro insurance. Most remain without access
to this critical financial service. In India and China, where organizations are
estimated to serve nearly 30 million micro insurance clients each, the
percentage of poor lives insured hovers below 3%. In Africa this figure is
much lower – just 0.3% of the continent’s poor are insured. According to
recent data, in 23 of the poorest 100 countries in the world, there is currently
no identified micro insurance activity, representing an unserved population
of 370 million.
The Micro Insurance Agency has its roots within Opportunity International, a
large microfinance network motivated by Jesus Christ’s call to serve the
poor. With a network of 47 microfinance institutions, Opportunity
International has been serving the entrepreneurial poor since 1971. In
partnership with Opportunity’s microfinance institutions, we began working
in 2002 on the development of a range of life, property, livestock, crop
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derivative, disability, unemployment and health insurance products to cover
the risks faced by Opportunity’s loan clients.
Micro Insurance Agency staff observed that the risks the poor face can often
set them back months and years behind where their loans and savings
products offered by Opportunity had taken them. For instance, a death of a
family member from HIV/AIDS – a “pre-condition” most insurance companies
would not cover – would often mean expensive funeral costs and the loss of
a breadwinner, resulting in increased economic hardship for the family. In
response, Micro Insurance Agency staff developed an affordable funeral
benefit product that did not exclude any pre-conditions, including HIV/AIDS.
This transformed the mindset of retail insurance providers in the country,
who later developed similar non-exclusive products in light of the competing
environment.
Through the experience of serving Opportunity’s microfinance institutions
and their clients, Micro Insurance Agency staff observed that the products
most demanded by the poor are not always the ones available. Health
insurance, for example, is a critical need of the poor but the most limited in
terms of supply. In addition, policies that are available are often based on
first world practices and are too complex for the simple coverage demanded.
Further, when offered on an individual, one-off basis, high premium
requirements and a need to pay in a single lump sum preclude a huge sector
of the market from access. New distribution models and channels were
needed to increase access and reduce the effective price charged to clients.
In 2005, the Micro Insurance Agency was founded by Opportunity
International as a fully-owned subsidiary capable of offering insurance
products and services to a wide range of customers.
Our mission is to empower the materially poor to transform their lives by
insuring them against financial risk and its consequences. Specifically, we
seek to serve the economically active poor who live on $4 per day or less in
developing countries and provide a safety net to reduce economic setbacks.
Definitions of micro-insurance
Micro-insurance, the term used to refer to insurance to the low-income
people, is different from insurance in general as it is a low value product
(involving modest premium and benefit package) which requires different
design and distribution strategies such as premium based on community risk
rating (as opposed to individual risk rating), active involvement of an
intermediate agency representing the target community and so forth.
Insurance is fast emerging as an important strategy even for the low-income
people engaged in wide variety of income generation activities, and who
remain exposed to variety of risks mainly because of absence of cost-
effective risk hedging instruments.
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Although the type of risks faced by the poor such as that of death, illness,
injury and accident, are no different from those faced by others, they are
more vulnerable to such risks because of their economic circumstance. In the
context of health contingency, for example, a World Bank study (Peters et al.
2002), reports that about one-fourth of hospitalized Indians fall below the
poverty line as a result of their stay in hospitals. The same study reports that
more than 40 percent of hospitalized patients take loans or sell assets to pay
for hospitalization. Indeed, enhancing the ability of the poor to deal with
various risks is increasingly being considered integral to any poverty
reduction strategy (Holzmann and Jorgensen 2000, Siegel et al. 2001).
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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 Rs. 250 billion by 2008 (ILO 2004).
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insurance providers overcome both informational disadvantage and high
transaction costs in providing insurance to the low-income people. This way
micro insurance combines positive features of formal insurance (pre paid,
scientifically organized scheme) as well as those of informal insurance (by
using local information and resources that helps in designing appropriate
schemes delivered in a cost effective way). In the absence of a nodal agency,
the low resource base of the poor, coupled with high transaction costs
(relative to the magnitude of transactions) gives rise to the affordability
issue. Lack of affordability prevents their latent demand from expressing
itself in the market. Hence the nodal agencies that organize the poor, impart
training, and work for the welfare of the low-income people play an
important role both in generating both the demand for insurance as well as
the supply of cost-effective insurance.
B Wealthy A
Middle Income
D
C
Poor
Severely Poor
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commercial products are being sold within the area marked “B”. The
aggregate market for microfinance providers is generally in the area
identified as “C”. Some MFPs require borrowers to obtain insurance for
property, or credit-life insurance as a means of protecting the institution’s
interests. Area “D” indicates the broad range of products offered by the
social security and public health insurance systems of developing country
governments. They include coverage for pensions, disability benefits,
primary health care, and medications. The weakness of this sector is
indicated by the dashed line that suggests incomplete coverage. The
potential market for microinsurance is indicated as “E”. This extends above
the MFP range in providing access to individuals and others that cannot
obtain appropriate products from the commercial sector. The microinsurance
range also extends below the MFP range because it addresses agricultural
coverage in some cases, and is now being sold through many delivery
channels other than MFPs. Just a few of these delivery channels include:
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This model has the advantage of offering micro-insurance schemes full
control, yet the disadvantage of higher risks.
Much interest over the last few decades has focused on helping communities
to establish mutual or community-based insurance schemes. Professionals
typically manage mutual insurance companies. Community-based schemes,
promoted by ILO STEP and CIDR among others, tend to be run by well
meaning local people who give freely of their time, but are not insurance
professionals. Often people who were simply in need of insurance end up
being insurance managers with these schemes. One member of the
management committee of a community- based scheme in Tanzania noted
that he “wants insurance, but doesn’t want to be an insurer.” In community-
based schemes, the limited management capacity frequently leads to a
range of difficulties. The key issues of concern for community-based
schemes include:
• Pricing – Often the process of pricing is focused on what people say they
can pay rather than being linked to the cost structure of benefits that
the group wants to receive.
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available to unregulated insurance schemes thus leaving them with no
ability to manage cash flow deficits.
• These schemes are limited in size to those people within the defined
local area. This reduces their ability to diversify a rather small risk
pool, and enhances the potential for adverse selection, both of which
make sustainability a serious challenge for local management.
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Background
Development Goal
To enable microinsurance to be an integral part of a country's wider
insurance system, it is important for every insurer to adjust its costs of
serving marginal clients in remote areas, collecting premiums and
installments, and offering doorstep services. It is also important to recognize
a wide network of intermediaries in the rural and social sectors and notify
regulations in order to guide and supervise the micro-insurance service
providers and their customers.
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Today we have a variety of microfinance institutions with national and local
outreach. Many of them have already become corporate agents or have
entered into referral
• Linking formal and non formal insurance institutions with banks and
self-help groups.
If insurers are to serve customers who differ widely in terms of service costs
and risks, the only viable inducement for them is an adequate margin, lest
they exclude small farmers, - micro-entrepreneurs and people in remote
areas. Only sound social insurance, which combines a social mandate with
profit-making, has a chance of sustainability.
Institutional Adaptation
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The experience so far has been that formal financial institutions serve but a
fraction of the population, which typically lies within the upper quartile of the
social hierarchy. Through adaptation to the microfinance market
requirements, they may gradually expand into the second-highest quartile
and into segments of the lower quartiles. Within the foreseeable future they
will normally not be able to fully serve that market.
Non formal finance mostly rests on local institutions which are directly
accessible to all segments of the population. Self-Help Groups (SHGs) are
member-owned and member-controlled local institutions. They may either be
financial groups, with financial intermediation as their primary purpose; or
non financial groups, with financial intermediation as a secondary purpose,
such as vendors' associations, family planning groups and numerous other
types of voluntary associations.
Linkage to Insurers
On a modest scale, various forms of life and health insurance have been
successfully practiced by different institutions in different countries,
particularly as part of loan protection schemes. Micro-insurance procedures
and services should be set by insurers rather than the regulator. Appropriate
procedures and services should be applied to attain:
(2) Convenient and safe savings premium collection and deposit facilities,
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(7) Effective information gathering, all of which may include cooperation
between different formal and non-formal intermediaries in fields where each
is most effective.
Micro-insurance Product
1. A “life micro-insurance product” means any term insurance
contract with or without return of premium, any endowment
insurance contract or health insurance contract, with or without
an accident benefit rider, either on individual or group basis, as
per terms stated in the Table A below, filed with the Authority:
Table A:
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Insurance
NOTE: The present average sum insured is around Rs. 5,000. This is
highly
inadequate to provide any tangible relief even to an individual below
the
poverty line. Therefore, it is suggested that the minimum amount of
cover of Rs.
10,000 appear more realistic.
Micro-insurance Agent
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• Explanation: For the purposes of this regulation:
• He shall work either for one life insurer or for one general insurer or for
one life insurer and one general insurer;
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e) distribution of policy documents;
g) Nomination; and
j) All such agreements/ MOU must have the prior approval of the Head
office of the insurance company.
• Launches three new Micro Insurance products and five Micro Insurance
branches
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financial services, is the leading international insurance organization with
operations in more than 130 countries and jurisdictions. AIG companies
serve commercial, institutional and individual customers through the most
extensive worldwide property-casualty and life insurance networks of any
insurer. In addition, AIG companies are leading providers of retirement
services, financial services and asset management around the world. AIG's
common stock is listed in the U.S. on the New York Stock Exchange, as well
as the stock exchanges in London, Paris, Switzerland and Tokyo.
Cost of plans:
Tata AIG Life Micro insurance plans are available with or without survival
benefits and with death benefits ranging from Rs.5, 000 to Rs.50, 000. With
premiums as low as Rs.5** per month, there is now an affordable life
insurance product for nearly every rural household in India.
Policies Available:
The following special Micro Insurance products from Tata AIG Life are now
available for the rural population at the bottom of the pyramid.
• Navkalyan Yojana
• Ayushman Yojana
• Sampoorn Bima Yojana
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NAVKALYAN YOJANA
A regular premium payment, low cost term plan for the rural adults who seek
life insurance protection without any maturity benefit.
• Premiums paid under this plan are eligible for tax benefits as per the
Income Tax Act, 1961 and are subject to any amendments made
therein from time to time.*
AYUSHMAN YOJANA
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A single premium plan where the policyholder pays the premium at the
beginning of the policy term. This is especially useful for those rural people
who have a seasonal income.
• Premiums paid under this plan are eligible for tax benefits to the
extent of 20% of Sum Assured as per the Income Tax Act, 1961 and
are subject to amendments made therein from time to time.*
A low cost insurance plan where the policyholder receives all the premiums
paid during the policy term upon survival until the term of the policy.
Premiums are payable for only 10 years, while the coverage is up to 15
years.
How do we operate?
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We operate in 11 states with a specific relationship management team for
each state. A dedicated & trained sales and marketing team manages the
front end of the Micro insurance program. Our micro insurance distribution
model collaborates with NGO’s (Non-governmental organizations) and Rural
organizations with community level SHG (Self Help Group) women advisors
who provide insurance advisory services to the rural customers at their
doorstep. The grassroots level agents explain the product details in the local
language of the customer, thereby enabling the customer to make a
decision. The training programs, brochures, contract documents, and
application forms are available in 8 different languages other than English
and Hindi
Premiums paid under this plan are eligible for tax benefits as per the Income
Tax Act, 1961 and are subject to any amendments made therein from time
to time.* Anyone between ages 18 and 60 can apply for this policy.
RESEARCH OBJECTIVE
To find out potential depth in society for providing opportunities for further
extention for micro insurance
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Sub objective:
Determine need and ability of people segment whose per day
income is less than 100 bugs. What really matters to him or her
while think about insurance.
Determine awareness about insurance among them. if aware
then source of information
To determine the govt. and private sector proceeding in this area
and extent of their success
RESEARCH METHODOLGY
Data collection
Data analysis
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of graphs and tables
SURVEY RESULTS
The following are our findings regarding the survey conducted by us. The
following graphs show the potential depth from different perspectives, as
shown below:
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S. No. Sex No of Respondents Percentage
1. Male 50 91
2. Female 05 09
Total 55 100
Chart 1:
Gender of the respondents
No of Respondents
9% 0% 1
2
3
4
5
6
7
8
9
91% 10
Inference:
The above reveals the fact that Majority of the respondents, about 91%
belong to the category of male and 9% belong to the category of female.
AGE 1
2
3
38% 4
33%
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25 20
Inference:
The above reveals the fact that Majority of the respondents, about 38%
belong to the category of 2 age and 33% belong to the category of 3 of age,
17% belong to category 2 and 12% belong to the category 1 of age.
30 22
20 1
10 42% 2
1 1
0 3
54%
1 2 3 4 5 6 7 8 9 10 4
catagory of education
Inference:
The above result reveal that majority of respondents (22+28)% were either
uneducated or educated only upto primary level
30
no.of respondent
20 1
f req
45% 2
10
0
55% 3
1 2 3 4 5 6 7 8 9 10 4
age catagory
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Inference:
Above result reveals that majority of respondent 55% live with joint family or
have big size of family
40 33
30 Series4
16 1
20 Series5 31%
2
10 2 1 Series6
3
0 Series7
63% 4
freq Series8
earning member/family Series9
Series10
Inference:
From the above result it can be clearly seen that about 63% of the
respondent were the only earning member of their family, 31% have 2
earning member because of size of family.
24 22
Series4
20
Series5 46% 1
10 6
Series6 2
0 Series7 3
freq Series8 42%
incom e catagory Series9
Series10
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Inference:
The above result reveals that 46% of respondent have income level 1 while
42% and 12% have income level 2 and 3 respectively.
30
holder
20 11 1
8
10 2
21%
0
3
1 2 3 4 5 6 7 8 9 10 64%
no.of account
Inference:
The above result reveals that 64% of respondent don’t have any account any
where while 36% have their own bank or post office account.
40 36
no.of respondent
30
20 1
10 12%
10 6 2
0 3
1 2 3 4 5 6 7 8 9 10 69%
background catagory
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Inference:
15 1
10 8
6 2
4
5 3
29%
0 4
1 2 3 4 5 6 7 8 9 10
5
no. of de pendent/family
35%
Inference:
The above result reveal that majority of respondent (35+29)% have no. of
dependent more than 1 and less than 4. 16% have only 1 dependent and
12%have 4 or more than 4 dependent in their family.
26.5 4
26
48%
5
25.5 25
25 52% 6
24.5 7
24
8
1 2 3 4 5 6 7 8 9 10
9
1-yes ,2-no
10
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Inference:
Above result reveals that 52% have ID proof but almost there were equal no
that hadn’t any id proof.
40
20 12 1
2
0
1 2 3 4 5 6 7 8 9 10
1-yes, 2-no 77%
Inference:
Above result shows that 23% of respondent didn’t face any problem related
with health or asset but 77% faced a serious health of asset loss in past of
their life.
10 40%
10 2
3
5 1 3
0 6% 4
1 2 3 4 5
5
w ay of m anage 31%
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Inference:
The above result reveals that majority of the respondent 40% managed their
financial problem by way 1, 31% by way2 and 21% by way4 and rest
managed their problem by pattern of ways shown above in chart12.
20
11 1
10 3 2
0 3
67%
1 2 3 4 5 6 7 8 9 10
times fell ill/month
Inference:
The result above reveals that 67% of the respondent don’t have serious
health problem and they hardly use to fell ill once in a month. But beside of
this some sector 26% and 7% respectively are those who use to fall twice or
thrice in month.
28
27
27 48%
response
26 1
25
25 52% 2
24
1 2 3 4 5 6 7 8 9 10
1-yes, 2-no
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Inference:
The above result reveals that 52% of the respondent didn’t had any risk on
job but almost equal proportion 48% who had serious job risk.
40 35
33%
30
response
17
20
1
10
2
0 67%
1 2 3 4 5 6 7 8 9 10
1-ye s, 2-no
Inference:
Above result reveals that a majority of respondent 67% don’t have any risk
toward their asset while 33% were those who have. Reason might be
because of their low income they hadn’t had any significant asset.
40
20 1
4
0 2
1 2 3 4 5 6 7 8 9 10
1-ye s, 2-no 92%
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Inference:
20
8 8
10 5
1 0 2 0 1
0 35% 31%
1 2 3 4 5 6 7 8 9 10
source
7%
Inference:
The result above reveals that 35% of the respondent got the information
about insurance from source 7, 31% got info. from source 5 and remaining
from the source pattern shown above.
2%
40 31
30 38%
responses
20
20 1
10 1 60% 2
0 3
1 2 3 4 5 6 7 8 9 10
no.of insurance taken
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Inference:
Above shown result reveals that a majority of respondent 60% were not
insured from any where , 38% had taken life insurance but 2% were also
there who were very well awared and had 2 or more than 2 insurance.
20 17 16
41% 44%
responses
15
10 1
6
5 2
0 3
1 2 3 4 5 6 7 8 9 10
15%
reason
Inference:
The result got above reveals that 44% were not insured because of reason1,
41% because of reason3 and 15% were not insured because of reason 2.
18 14%
responses
20
1
8
10 5 46% 2
0 3
1 2 3 4 5 6 7 8 9 10 4
type of ins urance
31%
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Inference:
Above result reveals that 46% of respondent like to have life insurance, 31%
like to have health insurance but there are some 14% who are awared
toward their child education and like to have education insurance, while
some 9% want to minimize risk toward their assets and like to have asset
insurance as well.
27% 24%
20
15 14
15 12
responses
10 1
10 2
5 3
0
20% 29% 4
1 2 3 4 5 6 7 8 9 10
type of prem ium
Inference:
Above result reveals that in this particular sector all the respondent were
almost have equally distributed opinion about premium package. 24% were
ready to pay a sound premium, majority were aligned toward premium
package 2, 20% were ready to pay premium 3, while 27% agreed to pay
premium package 4.
40 2%
31 2%
30 2% 1
responses
35%
18 2
20
3
10 4
1 1 1
0 59% 5
1 2 3 4 5 6 7 8 9 10
members/family
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Inference:
The above shown result reveals that majority of respondent 59% like to
insured two members of their family apart from self but 35% were those who
can’t bear even so less premium of micro insurance product and like to
insure only one member apart from self rest are distributed as shown above.
40 36
9% 0% 7% 1
4%
responses
30 2
16%
20 3
9
10 4 5
0 2 4
0
64% 5
1 2 3 4 5 6 7 8 9 10
6
location catagory
Inference:
21%
25 29%
20
20 1
15
15 2
11
10 3
6
5 12% 4
38%
0
1 2 3 4 5 6 7 8 9 10
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Inference:
The result found above reveals that a majority of respondent 38% like the
insurance for the duration of 5-10 years, 29% upto 15-20 years, 12% upto
10-15 years but some were also those 21% who can’t bear even so less
premium and want to have insurance policy upto duration of 0-5 years.
FINDINGS
• Study reveals that majority of people whose daily income is less than 100
bugs have big family
• Earning member in majority of family is only male.
• Income level lies between 100-200 bugs per day
• Majority of respondent didn’t had any saving account because of no ID
proof
• Majority of respondent have more spending on travel & rent, after that on
food & cloth and Medicare & entertainment
• Majority of respondent are the only earning member in family size of 5-8.
• Majority of respondent hadn’t significant asset
• Majority of them managed critical financial problem from some lender like
master of their service
• They hadn’t any significant job risk but yes they had asset loss risk
• Many of them awared about insurance but not of micro insurance and best
source of information medium found to be “Radio” and “advertisement
banners”.
• Many of respondents were not insured just because of either high premium
or lack of complete information.
• Some complaint about bad approachability of insurance provider company
to them as well.
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• Majority of respondent shows keen interest in micro-insurance policy in life
and health , some were very sensitive toward education and like to have
education insurance as well
• Because of low income they are ready to pay 150-200 bugs per year for
insurance and like to have atleast one more member of their family to be
insured
• They are ready to pay premium 15-20 years.
CONCLUSION:
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