Microinsuring the Poor

A large part of India still has no access to structured financial instruments and services, which could help secure them financially, through either savings, credit or insurance. What rural populace needs is an insurance product that covers liability and at the same time provides an opportunity to save systematically, says Yogesh Gupta

01 January, 2012 Opinion, Finance
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As is evident, this is quite a challenging feat to achieve, and to counter the challenges pertinent to covering this segment of the Indian population, Bajaj Allianz Life Insurance conducted a detailed need analysis exercised across MFI’s, Rural Banks, dairy boards and Co-operatives with the sole objective of introducing a product aimed at addressing and meeting the needs of this untapped Indian customer segment. The result was the creation of a very flexible and simple rural plan designed by Bajaj Allianz Life Insurance, which on one hand covers the customer’s impending liability, and on the other provides an opportunity to save systematically.

Case in Point

A 40-year-old woman and her husband owned a piece of land and a cow, which just enabled them to keep a roof over their family’s heads. Unfortunately, her husband had an accident, was hospitalised and then succumbed to his injuries. The family would have faced financial problems if the couple had not forethought to take the Survivors’ and Invalidity insurance policy from Bajaj Allianz which cost them Rs. 100 for a single year term policy.

Most of the people in rural India have absolutely no opportunity to take insurance, even if they could spare a few rupees a month to do so, as covering them at such low premiums is not considered a viable business for insurers. Also, demeographic challenges, servicing issues and high-cost of distribution prohibit insurers to expand their rural & microinsurance business portfolio.

Microinsurance could be a remedy. Premiums are small enough to afford, and it provides protection against loss to those who need it most, when they need it most. The concept of microinsurance is not familiar in India. From the provider perspective, it is often considered to be too complex and cost-intensive to be marketed successfully in the poor excluded areas.

Bajaj Allianz first began to look into the market of low-income households couple of years ago. Fast forward to today and Bajaj Allianz has enrolled 7.5 million microinsurance customers across India (which includes Savings & Risk Protection Scheme).

Sarve/Swayam Shakti Suraksha (popularly known as SSS) & Group term life are flexible and simple rural plans. SSS offers the customer insurance protection against unforeseen events and an opportunity to save systematically, while Group Term Life (GTL) offers pure risk protection to rural/poor population. The SSS offers risk coverage with a savings option and is available at a premium as low as Rs 45 per month or Rs 500 yearly. In the very first year of launch in April 2008, a total of 1.8 million customers were enrolled.

SSS is a product for all the group members and their families guarantying assurance of a lasting financial security and peace of mind. Covers employer-employee group and other groups like association/co-operative societies, self help groups, MFI’s, Regional Rural Banks, banking correspondent, affinity groups, and so on. Systematic savings plan only for the members and employees of the group and it is less complex and almost paperless.

Financial Literacy

Dealing with life cycle events, emergencies and planning for future are some aspects in which financial intervention can help. A large part of this financially underserved segment resides in rural India, integration of which into economic mainstream will boost rural households incomes and have multiple effects on the demand for goods and services across the economy while promoting financial inclusion.

Customers have no or little knowledge about insurance and limited trust in formal insurers, let alone foreign ones. To foster the same, Bajaj Allianz has taken the initiative to design an exhaustive Insurance Literacy & Awareness Toolkit using the present day technology to reach out to the grassroots and achieve the underlying objective of financial security through insurance.

Our research has shown that in India, 90 percent of our rural customer base has never heard of the concept of insurance. To address this issue of financial and insurance literacy and to provide these individuals with some easy to understand tools and aids, Allianz has associated with GIZ (German Development Co-operation) under PPP (public private partnership) and have signed a strategic cooperation agreement on microinsurance. It has designed a comprehensive IEC (Information, Education and Communication) program including audio, video and visual aids to help them understand the value of insurance and protection.

Designing a Solution

As 70 percent of India lives in rural areas, Bajaj Allianz is focused on entering Tier-II & Tier-III cities and further strengthening its rural presence. To reach out to new customers, targeting traditional rural population in India is a major challenge. No one has attempted this so far for reasons of high processing and operational costs while serving a very low investment value.

Bajaj Allianz Life Insurance, through its Business Procurement & Micro Insurance channel took this as a challenge to serve the financially excluded population. We made a giant progress in the area of livelihood protection and development of life insurance products related to savings mobilisation for the poor. The result was SSS & GTL – first ever solutions launched by a life insurance company for this particular segment.

Bajaj Allianz India (Business Procurement & Micro Insurance channel) has taken this as a challenge to serve the financially excluded. The result was Sarve/Swayam Shakti Suraksha & Group Term Life – first ever solutions towards savings related insurance launched by a life insurance company for this particular segment

Prior to development of these solutions, insurance companies used “a-one-size-fits-all” approach to address insurance requirements of all such customers. A majority of such projects failed, as companies were not able to develop a product with such unique features and all other products required very comprehensive documentation making it difficult to justify the policy issuance costs for such segments. In the case of SSS, paperwork has been simplified with minimal documentation both for application and claims servicing. This, combined with savings and risk coverage and low ticket size, SSS has been well received so far. Moreover, all the marketing collateral is available in regional languages to appeal to the insurer. Built on a group insurance platform, the product can be suited and customised as per the requirements.

The entire process of distributing the policy to the individual is done through the intermediaries such as MFI’s, NBFC’s, Dairy Boards, Co-operative Societies, NGO’s, etc. Insurance literacy is taken care of by SHGs. The operational process is built on a strong technology platform, with automation thereby ensuring data processing on a large scale.

Yogesh Gupta is Sr Vice President and Head – Business Procurement & Micro Insurance, Bajaj Allianz Life Insurance

Underwriting policies for all these individuals using conventional means was not only operationally intensive but also expensive. Using this solution has made it possible to approach and service customers in remote rural areas across the country, and specifically in areas, which do not have connectivity and infrastructure. Premiums across customers in these regions can be easily collected, wired via a centralised banking account, and then adjusted through this system. Having such a process and workflow helps to do away with the physical presence and infrastructure, which is otherwise needed by insurance companies to operate in these geographies.

Customers can conveniently apply for insurance coverage, as much as also avail of policy servicing benefits at their doorstep. Thereby, ensuring that there is no loss of wages and no undue travel is required to nearest towns or cities for these individuals. Deployment of this solution has also bought down the turnaround times otherwise experienced in underwriting conventional insurance policies. Post upload of documents on the server; the total time taken from adjustment of premiums to issuance of Certificate of Insurance PDF’s is roughly around 48-72 hours. The customer residing in remote rural areas receives policy documents and other information pertaining to his insurance policy within a span of 21 working days.

A Tried and Tested Solution

The poor need insurance. This was the mantra — learnt first in India — with which Allianz set out to launch its global microinsurance business, first in Indonesia, and then in Egypt, Columbia, Ivory Coast and nine African countries.

Four years later, Allianz exported its first microinsurance product out of India, and is today, shipping out a new mantra: the poor need savings first.

This savings-linked microinsurance scheme has been tried and tested in India. Post deployment of this solution, the impact generated was tremendous. In the very first year of its operation, a total of 1.8 million customers were enrolled through this system that has jumped to 7.5 million today.

Claims Settlement Process

One of the biggest challenge in the Insurance sector, especially when it comes to rural & microinsurance is Claims handling & settlement.

Claim processes in the rural sector needs to be as simple as possible (e.g. minimise documentation requirements and risks exclusions) with the collection of documents being fully delegated to the delivery channel (or possibly to an intermediary). This has ensured the claims settlement ratio at more than 99% and the claims settlement period that has reduced to 7-10 days only.

The Strategy

For this solution to be sustainable there was a need to underwrite policies in large volumes across the customer base that required a specialized solution, which could handle such data volumes while keeping customer experience simple and uncomplicated.

There were two components of this solution, which played a very crucial role – one the development of an auto underwriting solution and the other simplified documentation, which would make the enrolment process relatively simpler.

Apart from SSS, rural population is being covered through the low-cost pure risk & protection scheme i.e. Group Term Life, where Sum Assured starts from as low as Rs 1,000 for a single year term and under group term life there’s no underwriting/no documentation required.

Bajaj Allianz has covered more than 2.5 million lives under this scheme through microfinance & other rural organizations. We are also in talk with few government, semi-government & non-government institutions or organisations to make this product available to rural masses. We would also like to launch this product under pension, subject to clarification from regulator on guidelines on pension product.

As noted by the Raghuram Rajan Committee on Financial Sector Reforms, financial inclusion is about expanding access to financial services, such as payments, savings products, insurance products and inflation-protected pension. This is a complete view of financial inclusion, rather than just opening of bank accounts and giving them credit. Until insurance and pension products reach the masses it will remain limited to banking financial inclusion and the mission will not be complete.

Our learnings essentially are as follows:

  1. Introducing insurance products that were simple and involve less documentation;
  2. Evolving new distribution mechanism;
  3. Creating new underwriting process and streamlining operations creatively so that its cost effective too;
  4. Dovetailing the premium collection mechanism to suit the paying capacity and habit of customers;
  5. Need to educate prospective clients about the advantages of such instruments;
  6. Improving service delivery; and,
  7. Insurance literaracy.

We can literally attribute the success so far to financial and insurance literacy aided by our service at the doorstep policy. Akin to a business correspondent, the Bajaj Allianz Life Insurance sales officer has become a single point of contact for conduct of a customer’s all service needs. This is a maiden end-to-end solution provided to all its customers by any insurance company in the country.

Despite this success, Allianz still sees insuring the poor as a learning process. A considerable number of challenges remain: How to calculate risks in the absence of data? How to sell and administer policies efficiently? How to get more people, who live in deep poverty, to understand insurance benefits and to invest in them? But a beginning has been made!

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