Microinsurance Resource Center in India

Preliminary Inputs and Concept Notes

Authors:

John J. Wipf, Microinsurance Specialist

Ann Lin, Senior Consultant

Abstract:

To explore the potential of a microinsurance resource center (MIRC) in India, BearingPoint, Inc. recently initiated dialogues with several microinsurance stakeholders in the country. This brief paper is a summary of their reactions and inputs as well as a preliminary collection of ideas that will hopefully lead to further discussions and next steps towards realization of a MIRC.

1. Background

Microinsurance is a growing phenomenon - in many parts of India, with various types of schemes and experiments being initiated and developed with variable success. According to a recent study conducted by International Labour Organization Strategies and Tools against Social Exclusion and Poverty (ILO-STEP) in 2004, there are currently 51 operational microinsurance schemes in India. Of the 51, 25 schemes were launched in the past 4 years.^[1] Many initiatives are based on little more than trial and error, with the lessons learned along the way incorporated for improvement. Case studies of these pioneering schemes are being prepared by various donors and good and bad practices are being documented, analyzed and compared.

One of the key recognitions by many is that increased coordination as well as sharing of knowledge and resources among the various actors in the industry would greatly stimulate microinsurance development. This is especially true of health microinsurance for which few (if any) truly successful and sustainable programs have been observed to date.

For this reason the idea of a microinsurance resource center (MIRC) was conceptualized. The MIRC concept has been piloted in some countries with documented success. For instance, International Labour Organization Strategies and Tools against Social Exclusion and Poverty (ILO-STEP) and Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) have established MIRCs in Haiti and Tanzania respectively while Canadian Co-operative Association (CCA) and Canadian International Development Agency (CIDA) recently sponsored a MIRC in Philippines.

To explore the potential of a MIRC in India, BearingPoint, Inc. recently initiated dialogues with several microinsurance stakeholders in the country. Utilizing a protocol to guide the discussions, the authors conducted in-depth interviews with eight organizations:^[2] USAID, ILO-STEP, GTZ, Healing Fields Foundation, SKS Microfinance, Sa-Dhan, Futures Group, and Family Health Plan Limited. These organizations were selected to provide a broad overview of the current state of microinsurance in India and barriers faced by microinsurers.

This brief paper is a summary of their reactions and inputs as well as a preliminary collection of ideas that will hopefully lead to further discussions and possible next steps towards realization of a MIRC.

2. Terminology

In the interest of generalizing and broadening the concept, the term microinsurer here refers to the entire microinsurance program; in the case of the Partner-Agent model it includes both the insurance partner and the agent while in other cases the microinsurance project itself may be assumed to bear the insurance risk.

3. Stakeholder Analysis

The needs of potential MIRC stakeholders and how these may be addressed by the services offered through a resource center is a primary consideration. They may include:

Other major stakeholders that will have to be consulted are the likes of Small Industries Development Bank of India (SIDBI), National Bank of Agriculture and Rural Development (NABARD), and Federation of Indian Chambers of Commerce and Industry (FICCI).

4. Objectives, Activities, and Services

All participants favor the concept and agreed that collaboration is needed to further develop the industry. Considering their collective opinions the Vision Statement of the MIRC will likely be analogous to the following:

The stakeholders and clients of the Microinsurance Resource Center envision a network of professionally-managed microinsurers and accredited service providers offering affordable, comprehensive, quality risk protection to the majority of poor people in India.

Similarly, the Mission Statement may read as follows:

The Microinsurance Resource Center develops and offers risk management solutions to microinsurers and strengthens their capacity to provide risk protection services on a sustainable basis. The Microinsurance Resource Center is committed to building a vibrant microinsurance sector through collective advocacy and through concentration, leveraging, and focusing of resources and knowledge towards developing innovative technologies.

More specifically activities and services of the MIRC may include the following:

• To diagnose the feasibility and requirements of proposed microinsurance projects;

• To develop and offer comprehensive, feasible, customized technical solutions complete with onsite guidance and implementation assistance;

• To develop a core competence of strengthening the technical and cost effective management capacities of microinsurance practitioners;

• To analyze and document the leading and best practices in the microinsurance industry;

• To provide a forum for regular exchange and dissemination of ideas, innovations, lessons learned, achievements, and international best practices;

• To develop and support management information systems and tools;

• To develop microinsurance performance standards and prudential indicators, and the supporting technologies and tools that will enable microinsurers to meet these standards;

• To provide a rating service of microinsurers with respect to the standards and indicators;

• To facilitate and strengthen collaboration and partnerships among the various microinsurance actors;

• To establish linkages between microinsurers and resource institutions such as funding agencies, financial institutions, and research institutions;

• To accredit a network of providers delivering affordable, quality health care through use of clinical protocols and negotiated tariff schedules;

• To provide and manage a data repository;

• To conduct industry experience studies and share results for use in pricing and management purposes;

• To represent the microinsurance sector to the Government of India and lobby for favorable and enabling policy;

• To identify and facilitate networking and business opportunities among the various stakeholders; and

• To elevate the insurance consciousness of the BPL sector though awareness campaigns and education.

Some of the activities, such as product design, are already being carried out by insurance companies. However, since microinsurance differs greatly from commercial insurance it requires unique design, marketing, and distribution strategies and skills. The MIRC, with its personnel focused and specializing in microinsurance, with access to copious amounts of current data, and with concentration of knowledge about the industry would be positioned to produce superior solutions in these areas.

5. Organization, Registration, Ownership

When asked about the registration, organization, and ownership of the MIRC one participant reasoned extensively for registering as a co-operative:

“The cooperative model (or the mutual benefit model), meaning that MIRC would serve the interest of the various community-based microinsurance schemes organized through the co-operative movement (which already widely extends to the SHG movement… since the next development stage for SHGs is to organize and register under the cooperative state laws such as in the cases of Gujarat, West Bengal, Rajasthan…). This would mean that MIRC should become a new integrated component of the cooperative movement, providing services to all its members (cooperative societies, and cooperatives-to-be like SHG federations…), while promoting its interests, and working for its overall empowerment and development.”

“There are quite a few strong arguments to opt for this model. First of all, the co-operative movement is very strong, claiming to regroup some 220 million people (official NCUI – the national apex – 2003 statistics… even considering that half of it is true… this is still the strongest organized movement in India), the cooperative movement is government-driven… meaning that a long-standing (financial) support from both Central and State governments (which are really supportive… see last Union Minister of Finance budget speeches…) is really possible, some cooperative sectors generate a lot of revenue (milk cooperatives… see AMUL in Gujarat, the equivalent movement in Rajasthan…), cooperative laws also allow for 10% of yearly surplus to be invested in social/welfare activities (the way some Karnataka cooperative societies enrolled in the Yeshasvini scheme…), some major cooperative sectors have already tied up with insurance companies (fishery cooperatives in Kerala, weavers cooperatives in UP, dairy cooperatives in Rajasthan, Bihar, Karnataka…), all in all (although some banks were recently in trouble… based on a recent evaluation) the co-operative financial sector is financially sound and generates high surplus (remember the Yeshasvini presentation in Delhi conference… how Department of Cooperatives in Karnataka required 1% of co-operative surplus to be collected this year in order to support the Yeshasvini scheme), and some state governments are already looking at specific ways to provide insurance to cooperative members (Punjab, Maharashtra…).”

“This option would follow the model used in the credit union movement which already spreads over various continents. In Latin America and the Caribbean Islands, WOCCU has set up a separate entity (CUNA) to manage the insurance business in all credit unions. A similar entity is also operational in Asia.…”

“Besides the high probability of enlisting active support (and financial support) from in-country organizations like NABARD, NCUI and the sectoral apex cooperative structures, this option has also the advantage of linking up easily with other co-operative organizations beyond India…”

Other participants however argued strongly against this option. They felt that unless the MIRC was catering exclusively to co-operative sector based microinsurers, it should not be organized as a secondary co-operative since membership would be limited to primary co-operatives. This would be far too exclusive given the numerous and significant non-cooperative microinsurance players in the country. For instance, study shows that currently  22% of the schemes are implemented by community based organizations,  12% by health care providers, and 33% are linked to MFIs (Ahuja, 2005)^[3].

The participants also deliberated on other organizational forms such as corporations and NGOs. As an NGO it could be registered as a society under the Societies Registration Act, 1860, as a company under Section 25 of the Companies Act, or as a charitable trust.

One participant said, “The advantages of a society is that it gives a corporate appearance to the organization and provides greater flexibility since it is easier to amend the memorandum and bylaws of the society than in case of a trust, terms of which are strictly manifested in the trust deed.”

Location was another issue raised in the interviews. One participant suggested that given the diversity that exists in India, a separate MIRC should be organized in each state, or region.  A national MIRC would be overwhelming and too difficult to manage. Furthermore, since states have the mandates for health systems, conditions and challenges for health insurance development varies considerably and thus requires a MIRC in each state.

Most schemes (74%) operate in southern states of India: Andhra Pradesh, Tamil Nadu, Karnataka, and Kerala, and two western states, Maharashta (12%) and Gujarat (6%) account for 18% of the schemes.^[4] There has been increasing interest among NGOs and donors to develop schemes in West Bengal. One idea may be to develop pilot MIRC in the south and replicate in other parts of India, as the needs arise.

Still other participants felt that a separate MIRC should be set up along the lines of major sectors. For example, the MFI sector could organize a MIRC that would specialize in solutions for MFI based microinsurance development. Similarly, a different MIRC would focus on the co-operative sector, and so on.

There was little specific input offered with regards to ownership but the majority consensus seems to be for strong local partnership and control in order to get the buy-in and mandate necessary for the MIRC to be effective in its mission.

As one participant put it, “There should be an equal partnership with NGOs, donors and insurance companies. The IRDA should not be directly involved however they should be included as an observer.”

Another said, “Whatever its final form, the MIRC should be a network and should constitute representatives from various MFIs, NGOs, SIDBI, NABARD, IRDA and insurance companies.”

6. Scope of Services

The MIRC will address all lines of microinsurance. Some felt that it should focus exclusively on health insurance since health coverage remains very limited. According to a recent ILO study, the majority of microinsurance products offered by insurance companies cover life, crop, or accident-related risks.  This may be a result of insurance regulation that obligates all insurers to do a certain percentage of business in the rural and social sector.

Other participants however recommended that microinsurers should offer comprehensive and integrated risk protection for the poor (current regulation does not permit life and non-life products to be bundled but they may be sold together). As such, the MIRC should design complete and integrated product solutions for which the various risks would be ceded to insurance companies.

The best approach perhaps, and as the proposed objectives and services above indicate, is to retain the scope of the MIRC over the entire range of insurance. Efficiencies can be gained through integrated microinsurance management and microinsurers therefore need complete service packages. The extraordinary challenges and specialized skills required for health microinsurance development however will warrant the creation of a special health division within the MIRC.

7.  Sustainability and Funding

All participants agreed that the MIRC’s long-term sustainability is an important issue that should be addressed from the start. Some of the suggestions include the following:

• All partners should provide funding from the beginning, including donors.

• In the short-run, donor organizations should take the lead and finance the organization and establishment of the MIRC entirely. In the first 2-3 years however the MIRC would make the transition from donor funding to member / client funding and fees-for-service. This would require a sound business plan and professional management from inception.

• In the long run the MIRC could depend on a combination of the following: membership fees, nominal service fees, social franchising levies as solutions are replicated, revenues generated from brokering business partnerships between the various microinsurance players, revenues generated from networking activities, and so on.

8. General Considerations for the Indian Context

Some additional comments made are worth noting:

• Some donors noted that the microinsurance industry is changing rapidly. Currently the number of Partner-Agent microinsurers is growing but the next emerging trend appears to be government sponsored microinsurance programs. This rapid change will drive the MIRC concept.

• Governments should not be directly involved in MIRC but need to be kept abreast of its activities.

• Backing from a retired high-level official or high profiled individual may elevate MIRC’s visibility.

• All insurance companies have to fulfill social obligation to the poor. As such, they will play a key role in establishing the MIRC.

• The range of microinsurance models is very diverse in India and solutions will need to be equally diverse and customizable.

• Data sharing/gathering may be difficult. Microinsurers and MFIs see data as proprietary and may not be willing to share.

• Strong marketing will be necessary to garner support from NGOs – especially for services such as standard/indicators and data collection. Many NGOs may not be used to operating insurance as a “business” and will be thus slow to take up professional management practices such as accrual accounting, accurate pricing, etc.

9. Way forward

The suggested way forward is as follows: