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June 10, 2022 Driving Efficiency & Growth in Microinsurance through regulatory intervention 1/16 Ayandev Saha Driving Efficiency & Growth in Microinsurance through regulatory intervention – A Perspective 2012 RESEARCH CONFERENCE MICROINSURANCE April 11 – 13, 2012 University of Twente, Netherlands Views expressed are in the personal capacity and do not reflect the organization with which he is presently affiliated.

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Driving Efficiency & Growth in Microinsurance through regulatory intervention – A Perspective. 2012 RESEARCH CONFERENCE MICROINSURANCE April 11 – 13, 2012 University of Twente, Netherlands. - PowerPoint PPT Presentation

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Page 1: Ayandev Saha

April 21, 2023 Driving Efficiency & Growth in Microinsurance through regulatory intervention1/16

Ayandev Saha

Driving Efficiency & Growth in

Microinsurance through regulatory intervention –

A Perspective

2012 RESEARCH CONFERENCE MICROINSURANCEApril 11 – 13, 2012

University of Twente, Netherlands

Views expressed are in the personal capacity and do not reflect the organization with which he is presently affiliated.

Page 2: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention2/16 April 21, 2023

Agenda Agenda

Background

Need for Microinsurance (MI) Regulation

MI Regulation in the Indian Context

Effectiveness of MI Regulation - India

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Learnings

Way Forward

Page 3: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention3/16 April 21, 2023

Opportunity rather than obligation Opportunity rather than obligation

po

vert

y lin

eMedium

to high income

Conventional insurance market

Microinsurance market

(commercially viable)

2.6 billion people

USD 33 billion market

~ USD ($) 4/day

~ $ 2/day

~$ 1.25/day

Microinsurance through aid / Government support

1.4 billion people

USD 7 billion market

Note: $ amounts refer to poverty line in 2005 Purchasing Power Parity international dollars (PovcalNet / World Bank)

Source: Swiss Re, sigma No 6/ 2010

Swiss Re: Potential market is valued at up to USD 40 bn with current penetration ~ 2% - 3%

Lloyds: Potential market in developing economies is estimated to be between 1.5 – 3 bn policies

UNDP: Potential market size in India ranges between USD 1, 298 mn to USD 1, 755 mn

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 4: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention4/16 April 21, 2023

Issues and Challenges related to microinsuranceIssues and Challenges related to microinsurance

Demand Lack of insurance awareness; socio - cultural factors; limited perceived value

Operational

Maintaining low cost operational framework; providers limited knowledge of low income

segment and lack of skilled staff and resources; non diversified risk portfolios; claims

settlement issues

Underwriting Lack of quality data; coverage for hard to insure risks; policy language

Distribution Selection of channel partners; training; motivation level

Market Skepticism about profitability; short sighted focus of providers; low renewal rate

Infrastructure Lack of quality healthcare infrastructure / providers and weather stations

Regulatory No specific provisions for microinsurance; lack of or limited government support

Insurance Over-usage, fraud, adverse selection, moral hazard and covariant risk

Source: Swiss Re Economic Research & Consulting

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 5: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention5/16 April 21, 2023

Motivation / Literature Motivation / Literature

“Microinsurance Regulation”

• Making insurance markets work for the poor: microinsurance policy, regulation and supervision, CGAP

Working Group on Microinsurance, 2009

• Facilitating an appropriate regulatory and supervisory environment for microinsurance USAID

Microinsurance NOTE 8, USAID, 2008

• Issues in regulation and supervision of microinsurance IAIS and CGAP Working Group on Microinsurance,

2007

• Regulation and Supervisionof Microinsurance, Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ)

GmbH August 2004

“Market Overview”

• Microinsurance to the Last, the Least, and the Lost, Celent, December 2011

• Swiss Re, 2010, Sigma Report No 6/10: Microinsurance: risk protection for 4 billion people

• Lloyd’s 360° Risk Insight Insurance in developing countries: Exploring opportunities in microinsurance,

2009

• UNDP “Building security for the poor – potential & prospects for micro-insurance in India”

• Microinsurance beyond Social Responsibility, LIMRA Research

• “The next 4 billion” World Resource Institute and International Finance Corporation, March 2007

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 6: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention6/16 April 21, 2023

Need for Micro Insurance RegulationNeed for Micro Insurance Regulation

Time

% U

sag

e

100%

Source: Porteous, 2005

1. Have now

2. Market can reach now

3. Market can reach in future

4. Beyond the reach of the market

Do not want

Access frontier

Regulatory changes, as well as product and distribution innovation, can be used

to extend the reach of the market to this segment.

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 7: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention7/16 April 21, 2023

Microinsurance Regulations in India >>

Microinsurance Regulations in India >>

Based on the lifecycle of the insurer

− Rural defined as

% age of total policies written direct in that year (life)

% age of total gross premium income written direct in that year (general)

− Social - number of lives to be covered in the social sector

DemandDemand

SupplySupply

Known Facts

− Restricted as the largest and best known intermediaries are already taken and

have existing relationships with commercial insurers

− Limited perceived value

− Companies have preferred to sell insurance to relatively well off segment

− Products tend to address the needs of the poor only incidentally

− Perceived less as a potential business opportunity and more as a charity

oriented social obligation

Rural

Social Sectors

Obligations

2002

Rural

Social Sectors

Obligations

2002

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 8: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention8/16 April 21, 2023

>> Microinsurance Regulations in India

>> Microinsurance Regulations in India

Easing distribution challenges for inclusion

− Wider and more inclusive definition of microinsurance agents

− Allowing the same company to provide life and non-life cover

− Permitting composite products

− Revising commission structure upward

− Classification of products by fixing upper and lower coverage limits

Reducing procedural bottlenecks

− Allowing agents to distribute policy documents to clients

− Lowering the required training period for agents

− Permitting premiums to be collected and remitted by agents

− Contracts in vernacular languages

IRDA

Microinsurance

Guidelines

2005

IRDA

Microinsurance

Guidelines

2005

• MI as line of business has been able to demonstrate robust growth in the fast few years post the regulations

• In FY 2010-11, the total premium collected under life & non-life MI portfolios put together was `1,543 crore, of

which life insurance premium was `1,149 cr and non-life insurance premium was `393 cr

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 9: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention9/16 April 21, 2023

Effectiveness of Indian Microinsurance Regulation Effectiveness of Indian Microinsurance Regulation

• Steady increase in no. of policies sold to individuals with a fall in premium collected in

FY 2010-11

• For the overall category, in FY 2010 -11, private insurers have shown negative growth

both in the no. of policies sold (by 43%) and new business premium collected (by 14%)

over the last year

• 3.6 million individual policies are mostly self-funded (individual owners) which

indicates that the targeted segments have a need and are willing to purchase

insurance

• Under Group category, in FY 2010 -11, there has been a significant decline in the

premium collected (by 57%) and lives covered (by 10%) vis-à-vis the last FY (2009-10)

• In FY 2010-11, the individual renewal premium was `181 crore while the group renewal

premium for the year was `682 crore

• There has been a constant decline in the percentage of number of micro insurance

agents added to the same percentage corresponding to the last FY

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 10: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention10/16 April 21, 2023

Effectiveness of Indian Microinsurance RegulationEffectiveness of Indian Microinsurance Regulation

YearGross Written Premium

Gross Incurred Claims

Gross IncurredClaims Ratio (in per cent)

2009-10 193.14 126.65 65.57

2010-11 393.38 309.9 78.78

(Amount in ` crore) Source: IRDA Annual Reports

• Premium underwritten and claims paid by the non-life insurance companies

• Life insurers had 16 individual and 12 group micro insurance products in their

basket while general insurers had launched a total of 66 products

• Increasing realization that social security schemes of the Govt. are better administered

through insurers due to cost-efficiency, superior service-delivery and better accountability

(Aam Aadmi Bima Yojana (AABY), Janashree Bima Yojana and Rashtriya Swasthya Bima

Yojana (RSBY) have been handed over to insurers for administration)

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 11: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention11/16 April 21, 2023

Recommendations basis International market practicesRecommendations basis International market practices

Constraints / Challenges

Recommendations Insurer Customer Market Reference

a) Large number of

informal quasi-

insurance schemes

run by cooperatives,

churches; NGOs and

SHGs (operate in a

legal vacuum)

b) Policyholder

protection

Provision to

recognize the

informal schemes /

triggering

consolidation

activity or partnering

informal operators

with formal

underwriters

- Philippines - MBAs are

allowed to offer insurance

products under a reduced

regulatory burden and with

lower capital requirements

- South Africa - The

institutional space for

microinsurance is opened

up to friendly societies and

coop

a) High capital

requirement of over

$22 mn as per the

Indian Insurance Act

discourage

established insurers

from offering services

to low income HHs

Lower prudential

requirement or

evaluate the

minimum capital

requirements for the

locally organized

small MI institutions

- Philippines - Guaranty

fund for new / existing

MBAs has been reduced

from Pesos 125 mn to 5 mn

- South Africa – MI requires

R3 mn upfront capital (R5

mn / R10 mn for short /

long term insurers)

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 12: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention12/16 April 21, 2023

Constraints / Challenges

Recommendations Insurer Customer Market Reference

a) Limited perceived value

b) Consumer Education / Financial Literacy is more treated as a “public” good

Regulator needs to play a pivotal role to create public awareness and consumer education on various financial products and its usage.

This in turn will reduce any form of information asymmetries and promote market transparency, competitiveness and efficiency

- Philippines - Insurance Commission promoted MI by declaring month of Jan every year as “MI month”. Concerned regulatory authorities in coordination with the Department of Finance conduct financial literacy trainings, seminars and workshops on MI - South Africa - Consumer awareness and education campaign to be implemented by the Financial Services Board with focus on creating awareness of insurance and its value proposition - Peru - Consumer protection and financial education programs is present in the supervisor's institutional agenda

Recommendations basis International market practicesRecommendations basis International market practices

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 13: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention13/16 April 21, 2023

Constraints / Challenges

Recommendations Insurer Customer Market Reference

Low –income clients also show a disproportionately high distrust of insurers and insurance, requiring particular attention to product design, the sales process and claims payment

Claim settlement should be given a higher priority with a well defined regulatory TAT (much less as compared to mainstream insurance)

- Peru - Claims should be paid within 10 days- Mexico - Claims should be paid within 5 working days; paid through a variety of channels, e.g. microfinance networks, through utility companies, or distribution networks (traditional intermediaries)- Philippines - All entities providing MI products shall process and settle claims within 10 working days. Submission of the required documents through electronic means shall be accepted- South Africa - All valid MI claims should be paid within a period of 48 hours

Recommendations basis International market practicesRecommendations basis International market practices

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 14: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention14/16 April 21, 2023

Constraints / Challenges

Recommendations Insurer Customer Market Reference

Low renewal

rate (high

lapsation / low

persistency)

as the

policyholders

mostly have

irregular

income (or

cash flow)

In addition to

consumer education

and awareness on

insurance the

regulator should

also encourage

features such as

extended grace

period

- South Africa - As a minimum, cover

will continue for 1 month after the

due date of the premium. For

policies that have been in force for

one year or more, the grace period

will be extended by one month for

each completed twelve month period

that the policy has been in force with

no reduction in cover. However, the

maximum grace period for a policy

will be 6 months.

- Philippines - The manner and

frequency of premium collections

shall, if possible, coincide with the

cash flow of the insured and may be

collected (e.g. weekly; monthly)

whichever is applicable

Recommendations basis International market practicesRecommendations basis International market practices

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 15: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention15/16 April 21, 2023

Constraints / Challenges

Recommendations Insurer Customer Market Reference

Products tend to address the needs of the poor only incidentally Need of more customer centric products & more importantly processes

Regulator should spell out more on product specifications and standards (to encourage more customer centric products) Faster product approval

- Peru - Deductibles / copayments are not allowed. No exclusions should be established (if necessary they should be minimum and in accordance to coverage)- Mexico - Exclusions can only be set in general and should not relate to the individual’s risk profile- South Africa - No surrender value be included in the MI product. No exclusions will be allowed for pre-existing conditions. It is proposed that micro insurers be required to submit all new MI products to the Registrar for review at least 60 calendar days before launching the products. Products may be launched if no objection is received within 60 calendar days after filing.

Recommendations basis International market practicesRecommendations basis International market practices

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 16: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention16/16 April 21, 2023

Constraints / Challenges

Recommendations Insurer Customer Market Reference

Agent /

aggregator not to

have

collaboration with

more than one life

and non-life

insurance

company acts as

deterrent to the

growth of

microinsurance

business

MI does not need the

traditional life/non-

life insurance

demarcation

- South Africa - Both life and

non-life underwriting is allowed

by a single entity.

Recommendations basis International market practicesRecommendations basis International market practices

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 17: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention17/16 April 21, 2023

Way ForwardWay Forward

• Future Research: To map the effectiveness of country specific regulations

(clause) in terms of growth of microinsurance business (premium

earned); products approved; customer benefitted

Policy:

• To create a microinsurance regulatory framework for the countries

(markets) which are presently not under any form of regulation

• There should be a common platform for regulators to exchange

experience ideas and thoughts to incorporate the learnings in their

respective regulatory framework

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 18: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention18/16 April 21, 2023

You’ll learn more about a road by

traveling on it rather than by

consulting all the maps in the

world…Views expressed are in the personal capacity and do not reflect the organization with which he is presently affiliated.

Page 19: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention19/16 April 21, 2023

New Business Microinsurance Policies (Individual)

0.70

2.95

0.61

1.00

0.080.85

1.99

1.54

0.94

2.15

2.98

3.65

0

0.5

1

1.5

2

2.5

3

3.5

4

2007-08 2008-09 2009-10 2010-11

Mill

ions

Private LIC Total

New Business Microinsurance Premium (Individual)Premium in ` lakh

7.355.38 8.40

2.10

123.06

16.13

149.83

31.1918.23

36.57

158.22

130.41

0

20

40

60

80

100

120

140

160

180

2007-08 2008-09 2009-10 2010-11

Hu

nd

red

s

Private LIC Total

  Policies Premium

Insurer 2007-08 2008-09 2009-10 2010-11 2007-08 2008-09 2009-10 2010-11

Private 83153 610851 998809 699733 209.74 537.81 839.78 735.09

LIC 854615154121

81985145 2951235 1613.36 3118.74 14982.51 12305.76

Total 937768215206

92983954 3650968 1823.1 3656.55 15822.29 13040.85

Source: IRDA Annual Report (Premium in ` lakh)

New Business under Microinsurance Portfolio (Individual) New Business under Microinsurance Portfolio (Individual)

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 20: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention20/16 April 21, 2023

Lives Covered (Group Policies)

13.28

15.26

0.87 1.50 1.90 1.98

11.0511.37

14.95

16.84

12.24 12.55

0

2

4

6

8

10

12

14

16

18

2007-08 2008-09 2009-10 2010-11

Lives Covered

Mill

ions

Private LIC Total

Premium in ` lakh (Group Policies)

138.04155.23

8.7133.27

14.72 17.19

172.69192.56

228.70

243.42

201.27 205.95

0

50

100

150

200

250

300

2007-08 2008-09 2009-10 2010-11

Premium

Hun

dred

s

Private LIC Total

  Lives Covered Premium

Insurer 2007-08 2008-09 2009-10 2010-11 2007-08 2008-09 2009-10 2010-11

Private 874901 1498994 1895143 1983537 871.23 3326.8 1472.09 1719.14

LIC 11367126 11052815 14946927 1327546419256.2

317268.5

422869.7

213803.67

Total 12242027 12551809 16842070 1525900120127.4

620595.3

424341.8

115522.81

Source: IRDA Annual Report (Premium in ` lakh)

New Business under Microinsurance Portfolio (Group) New Business under Microinsurance Portfolio (Group)

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 21: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention21/16 April 21, 2023

79418 603 770 758

1232

4166

6647

7906

9724

1311

4584

7250

8676

10482

0

2000

4000

6000

8000

10000

12000

2006 -07 2007-08 2008-09 2009-10 2010-11

Private LIC Total

Micro Insurance Agents of Life Insurers (Additions) 

  06 -07 07-08 08-09 09-10 10-11

Private 79 341 281 309 139

LIC 1232 2934 2482 2071 2171

Total 1311 3275 2763 2380 2310

As on March 31st of the respective year

(Source: IRDA Annual Reports)

Micro Insurance Agents of Life Insurers Micro Insurance Agents of Life Insurers

Background MI Regulation Indian Context Effectiveness Learnings Way Forward

Page 22: Ayandev Saha

Driving Efficiency & Growth in Microinsurance through regulatory intervention22/16 April 21, 2023

Consumer Education / Financial Literacy is a “public” good Consumer Education / Financial Literacy is a “public” good

Trust

Belief

BrandAwareness

Budgeting & Lifestyle

Financial Instruments & Concept of Insurance

Policy T & CProduct & Services

Consu

mer A

ware

ness

Fin

anci

al Li

tera

cy

Financial planning & cash managementRegulator

Build awareness& trust

(perception of value)

Creating a market place

Insurer and distribution

channel

Creating a customer base

Background MI Regulation Indian Context Effectiveness Learnings Way Forward