1273647 ,ShubhAmrit Pal kaur, F2, Q: 36 Comment on Micro-insurance in non-life widening reach

INTRODUCTION

Defining Micro-Insurance

The draft paper prepared by the Consultative Group to Assist the Poor

(CGAP) working group on micro-insurance defines micro-insurance as “the

protection of low income households against specific perils in exchange for premium

payments proportionate to the likelihood and cost of the risk involved.” The paper

deliberates on the key roles to be played byall stakeholders – insurers, regulator and the Government. The working group also agrees that the cost of such cover should be

affordable.

DISCUSSION

Non-life insurance: factors impacting growth

The non-life insurance industry has been growing in excess of 20% over the last two years however the penetration was as low as 0.7% of the GDP in FY10. The key factors for growth include:

·         Product pricing, innovation and simplicity

·         Distribution

·         Compensation

·         Micro-insurance in non-life widening reach

·         Governance and regulatory changes

·         Health insurance

·         Innovative products to counter the competition

·         Improved fraud control mechanisms

·         Standardization to reduce claims loss

·         Reducing inefficiencies by revisiting third party administrator (TPA) agreements

 “The idea is that there should be a single product designed to deliver multiple benefits and cover multiple risks,” Irda chairman J. Hari Narayan told reporters. “The single product will also help to reduce cost and make distribution more efficient.”

CONCLUSION

Need for Micro-Insurance – Risks Faced by the Poor

 Micro-insurance is a key element in the financial services package for people at the bottom of the pyramid. The poor face more risks than the well-off, but

more importantly they are more vulnerable to the same risk. Usually, the poor face

two types of risks – idiosyncratic (specific to the household) and covariate (common,

eg., drought, epidemic, etc.). To combat these risks, the poor do pro-active risk

management – grain storage, savings, asset accumulation (specially bullocks), loans

from friends and relatives, etc.Poverty is not just a state of deprivation but has latent vulnerability. Micro-insurance should, therefore, provide greater economic and psychological security to the poor as it reduces exposure to multiple risks and cushions the impact of a disaster.

There is an overwhelming demand for social protection among the poor. Micro-insurance in conjunction with micro savings and micro credit could, therefore, go a long way in keeping this segment away from the poverty trap and would truly be an integral component of financial inclusion.