Micro and Mass Insurance

Micro Insurance
• Micro insurance is one of the unique and important segments of
insurance which provides financial assistance to the poor people in
the country.
• According to IRDA the term micro insurance comprises two words
“Micro” which means “Affordable to the poor” and Insurance means
“Risk Pooling to compensate to individual and group”. Micro
insurance is a key element in the financial services package people,
particularly for economically weaker section of people
• These are products accessible to the low-income population through
proportionate premium payments in accordance with the risks
covered by the policy and are designed to respond to the protection
needs of low-income people.
• They can take the form of individual or group
insurance, and be sold via intermediaries
serving low-income people and micro
entrepreneurs, with monthly premium not
exceeding 2% of the national minimum wage.
 Micro Insurance in India
• Keeping in mind concerns that a competitive, open environment could
lead to the neglect of the rural and weaker sections of India, the Insurance
Regulatory and Development Authority of India (IRDA) passed the IRDA
(Obligation of Insurers to Rural or Social Sectors) Regulations Act in
2002. After that, every insurance company was required to engage with
the rural and social sectors by complying with mandatory obligations.
• The IRDA regulations set rural insurance targets for each company. These
require that 7 per cent of all life insurance business should be generated
from the rural social sector in the first financial year, and this should
increase annually to reach 18 per cent by the sixth financial year.
• For general insurance, 2 per cent of insured premium in the first financial
year should be from rural social business, increasing annually to 5 per
cent in the sixth year.
• In a bid to boost the micro insurance sector,
Insurance Regulatory and Development Authority
(IRDA) have proposed to widen the product
portfolio and distribution network of micro-
insurance.
• To widen the distribution network of micro
insurance, IRDA has proposed to allow cooperative
banks, regional rural banks, primary agricultural
co-operative societies to act as microinsurance
agents
• In 2002 IRDA developed rural and social sector
obligation norms that mandated every insurance
company to achieve:
– Percentage of polices to be sold in rural areas;
– Number of lives to be covered in the social sector
• A consultative group on micro insurance was set up
in 2003 to look into the issues which highlighted the:
– Non-viability of stand alone micro insurance programme
– apathy of insurance companies towards micro insurance
– the potential of alternative channels
 IRDA REGULATION,2005
• Insurance Regulatory and Development Authority of India (IRDAI) has
created a special category of insurance policies called micro-insurance
policies to promote insurance coverage among economically vulnerable
sections of society. India is among the few countries to draft and
implement specific micro insurance regulations. The IRDA Micro-
insurance Regulations, 2005 defines and enables micro-insurance.
• A micro-insurance policy is:
– A general or life insurance policy with a sum assured of Rs 50,000 or less
• A general micro-insurance product is any:
– Health insurance contract
– Any contract covering belongings such as
– Hut, Livestock
– Tools or instruments or
– Any personal accident contract
– They can be on an individual or group basis
• A life micro-insurance product is:

– A term insurance contract with or without return of premium

– Any endowment insurance contract or
– A health insurance contract
– They can be with or without an accident benefit rider and
– Either on an individual or group basis

• There is flexibility in the regulations for insurers to offer composite covers

or package products that include life and general insurance covers
together
• Intermediaries:
– Micro- insurance business is done through the following intermediaries:

– Non-Government Organisations
– Self-Help Groups
– Micro-Finance Institutions
 TYPES OF MICROINSURANCE
• Life Insurance- Life insurance pays benefits to designated beneficiaries upon
the death of the insured. There are three broad types of life insurance
coverage: term, whole-life, and endowment. Term life insurance policies
provide a set amount of insurance coverage over a specified period of time,
such as one, five, ten, or twenty years. Whole life insurance is a cash-value
policy that provides lifetime protection. Endowment life insurance pays the
face value of insurance if the policyholder dies within a specified period.
• Health Insurance- Health insurance provides coverage against illness and
accidents resulting in physical injuries. MFIs have realized that expenditures
related to health problems have been a significant cause of defaults and
people's inability to continue improving their economic conditions. Several
MFIs have therefore, either started their own health insurance programs or
have linked their clients to existing programs.
• Property Insurance- Property insurance provides coverage against loss or
damage of assets. Providing such insurance is difficult because of the need to
verify the extent of damage and determine whether loss has actually
occurred.
• Disability Insurance- Disability insurance in most cases is tied to life
insurance products. It provides protection to the policy holder and her family,
should she or some of her family suffers from a disability.
• Crop Insurance- Crop insurance typically provides policy holders protection
in the event their crops are destroyed by natural calamities such as floods or
droughts. To improve the ability of rural farmers to repay loans from
agricultural development banks (ADBs), many governments developed crop
insurance programs in the 1970s and 1980s.
• Disaster Insurance- Disaster insurance is through a reinsurance arrangement
that broadens the risk pool across countries and regions, and protects insurers
against catastrophic losses.
 Govt-sponsored schemes
• Under the new public-private-partnership mantra, many
insurers have begun to underwrite government-
sponsored mass insurance programmes to help the poor.
• For example, there are five State-sponsored programmes.
The United India Insurance Company and ICICI Lombard
cover the maximum number of districts in partnership
with the Central and State governments.
• Premiums are subsidized completely or partially by the
government.
 Mass insurance

• These are standardised products constructed in simple language

which are easy to understand and do not require special conditions.
• A simple acceptance by the insured is considered sufficient. They
could be sold via a wide range of entities or “mass marketers.”
• Provide low priced insurance cover to all your members/
customers/ employees as the master policyholder
• Secure the life of all your members automatically
• Have the flexibility to enroll new members during the policy
term as the master policyholder
• The master policyholder enjoys tax benefits on the premiums
paid as per prevailing income tax law
• Members can secure their loved ones in case of an
uncertainty
• Members, enjoy tax benefits on the premiums you pay as per
prevailing income tax law
 D/B mass and Micro Insurances

• Products within both models are generally

simple with few exclusions. However, mass
products are designed primarily to suit the
channel used, whereas micro insurance
products are, in principle, supposed to be
designed to meet the protection needs of the
low-income segment.
• Mass insurance addresses the wide-ranging
client base of the mass channel irrespective of
their socio-economic status, whereas micro
insurance primarily addresses the low-
income segment. Client segments for the two
models can overlap but are not necessarily the
same.