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Ayandev Saha

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

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Ayandev Saha

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  1. 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. Ayandev Saha Driving Efficiency & Growth in Microinsurance through regulatory intervention

  2. Agenda Background Need for Microinsurance (MI) Regulation MI Regulation in the Indian Context Effectiveness of MI Regulation - India Learnings Way Forward Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  3. Opportunity rather than obligation poverty line Medium to high income Conventional insurance market ~ USD ($) 4/day 2.6 billion people USD 33 billion market ~ $ 2/day Microinsurance market (commercially viable) ~$ 1.25/day 1.4 billion people USD 7 billion market Microinsurance through aid / Government support 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  4. Issues and Challenges related to microinsurance Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  5. 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  6. Need for Micro Insurance Regulation Do not want 100% 4. Beyond the reach of the market 3. Market can reach in future % Usage 2. Market can reach now Access frontier 1. Have now Source: Porteous, 2005 Time 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  7. 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 Rural Social Sectors Obligations 2002 Known Facts Demand • 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 Supply Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  8. >> 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 • 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  9. 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  10. Effectiveness of Indian Microinsurance Regulation • 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  11. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  12. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  13. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  14. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  15. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  16. Recommendations basis International market practices Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  17. Way 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 Driving Efficiency & Growth in Microinsurance through regulatory intervention

  18. 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. Driving Efficiency & Growth in Microinsurance through regulatory intervention

  19. New Business under Microinsurance Portfolio (Individual) Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  20. New Business under Microinsurance Portfolio (Group) Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  21. Micro Insurance Agents of Life Insurers Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

  22. Consumer Education / Financial Literacy is a “public” good Regulator Build awareness & trust (perception of value) Financial Instruments & Concept of Insurance Creating a market place Financial planning & cash management Budgeting & Lifestyle Financial Literacy Policy T & C Product & Services Consumer Awareness Insurer and distribution channel Creating a customer base Brand Awareness Belief Trust Background MI Regulation Indian Context Effectiveness Learnings Way Forward Driving Efficiency & Growth in Microinsurance through regulatory intervention

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