Insurance Article, The Insurance Times 2021, The Insurance Times August 2021

TECHNOLOGY CHANGING THE LANDSCAPE OF MICRO-INSURANCE IN INDIA

Definition:

The term “Microinsurance” which is also commonly known as “inclusive insurance”refers to the eco-system & different kinds approaches towards ensuring availability of insurance protection & services to the un-served, vulnerable&low-income populations in emerging markets with appropriate and affordable insurance products.

All the more absolutely, microinsurance is a method for ensuring low income individuals against explicit dangers in return for an affordable instalment of premiums whose sum is relative to the probability and cost of the hazard. The essential differentiation from conventional protection is in the focusing of low income individuals, which prompts unmistakable qualities and destinations, including tending to the specific dangers of low pay individuals, reasonableness and comprehensiveness, effortlessness and lucidity in documentation, open procedures, and building trust among target customers.

Reasons why microinsurance is important for developing nations:

Low-income families, group and even small ventures are especially defenceless against dangers, be it their financial/ health wellbeing or even property or business which are commonly seen in developing nations. Since very few of these groups actually have access to efficient and effective way of formal risk management and social protection mechanisms, recuperating of the losses and recovering from the shock is at best difficult, and more often impossible.

The key benefits of the insurance are not only limited to health. It is also for the small-scale farmers and micro entrepreneurs who take more risk and invest more in their businesses when they know that they are protected. Insurance can also be a factor to extend or supplement fir social protection benefits, particularly for the workers in the informal economy.

Microinsurance also supports in the sustainable development and contributes towards achieving the Millennium Development Goals (MDGs). Various studies alsodemonstrate that a causal link in between the development of the insurance industry and the national economic development by putting a price on the risk and supportingof entrepreneurship. Insurers are also a major source of long-term investment capital, and also can stimulate the development of debt and the equity markets.

Brief history of micro/inclusive insurance in India:

Inclusive insurance has a long history in India. With the formal nationalization of the insurance industry in year 1956, extending service to the rural & marginalised people have always been on the high agenda of the Govt & the Govt owned insurance companies. Life & General Insurance companies had in their portfolio many products which was specifically designed for rural & marginalised group with a different set of relaxed under-writing & servicing conditions. But because of the high cost of transaction such policies could never attain the desired result. With its wide distribution network LIC of India was in a position to do some justice in a better way compared to its GI counterparts. However, the inclusive insurance got a boost riding on the growth & accomplishment of Micro-Finance institutions in the early phase of the opening up. They were in the business of extending small credit to the rural / needy people even in urban locality for some productive purpose & wanted their credit part to be insured. This gave a launch of many group based life products.  Maybe the first such items to be brought into the market was the Credit Plus Policy presented by Aviva Life Insurance in 2002. Such items were designed to address the necessities of the Micro-Finance Institutions. The insurancecompanies had tie-ups with MFIs &there was insignificant contact between the insurance agency and the clients. This brought about low-quality assistance. There was complaint also about the intention / use of the claim payments. The end clients began building up a negative observation about the insurance agencies.

This issue came in to the notice of the Insurance Regulatory and Development Authority of India(IRDAI), and then the need for developing &regulating of the such market / distribution was felt.  The pathfor the first microinsurance regulations emerged with the Microinsurance Regulations,2005. This regulation was revised and then replaced in 2015, which is the new MicroinsuranceRegulations.

The Micro insurance Regulation then mandated filing of specific products under the “micro insurance“tag. The new channels were identified & such products were to be sold by those designated channels only. According to IRDAI’s most recent information, there are 26 micro insuranceplans in India which are offered by 16 life insurance companies.

Micro insurance regulations in India: Some of the measures taken by Insurance Regulatorydevelopment of India (IRDA) along with government were as:

Mandate: Rural areas and the social sector, and obligations for the private insurance industryDuring the nationalised insurance the phase approximate 48% of LIC’s customers were fromrural and semi-urban areas. After the liberalisation, the industry regulator was more concerned aboutinclusive insurance growth and rural exposure for the insurance companies. IRDAI, thereforemandated the insurance companies through the rural and social sector obligation 2002 tosafeguard of certain percentage of polices to be sold in rural areas and certain number of livesare covered in the social sector.

Permitting self-help groups (SHGs), NGOs, and MFIs as new micro insurance deliverychannels.

Entering into various Private Public Partnerships (PPP) agreements between the Indiangovernment and the insurance Companies.

Microinsurance Regulations, 2005:

Micro Insurance Regulations 2005 clearly conveys the clarity on:

  • Product guidelines for the Distribution, Design and Issuance of policy contracts
  • Guidelines for the Agents Appointment, Remuneration, Code of conduct, Capacity Building etc.
  • Guidelines for the Life & non -life tie-ups: A life insurer may offer general microinsuranceproducts & vice versa
  • Mandate on the covering Rural and Social sectors

Insurance companies in India did very well riding on the micro-finance business growth. However the whole business model came crashing down with the collapse of the MFIs institutions on 2011-12. The performance of the agencies were also found lacking. SHGs channel remained non-starter where lots of complaints were received about the NGOs.

Taking lessons from the past experience, IRDAI came out with the new revised regulation in year 2015 & the same is still operative. The main highlight of the new regulations were as follows:

  • Capacity of building exercises were expanded by introducing additional 25 hours of training for micro agents. licensed to distribute general insurance MSME policies with mandatory refresher training in every three years.
  • Appointment of the Micro agents was expanded through tie ups with AIC and other health insurers are also permitted now.
  • Minimum number of 5 person from earlier cap of 20 was allowed for group policies
  • Definition of the micro-agents was expanded with inclusion of Regional Rural banks, Primary agricultural and other co-operative Societies, Bank correspondents of scheduled commercial banks etc.
  • Rural and Social Sector in Obligation: Life Insurers are required to cover a certain percentage of the total number of policies in rural areas and to Insure a given number of lives in the social sector.

Current status: In spite of good intention & push from the regulator, the micro-insurance portfolio did not achieve its desired level of performance. One of the key reasons was the failure of the different distribution channel & the operating cost associated with them. It remained a tool for the fulfilment of the compulsory “Rural / Social” business requirement imposed by the regulator. Missing the quota could result in an insurer being de-licensed in India. Despite the quota system, more than half of the respondents with the microinsurance portfolios have an in-force premium level of only 0-2% against their total insurance business portfolio.

Millenium.org conducted a survey of the insurance provider

Understanding the support towards microinsurance from the regulator is relatively very high,because of the compulsory quota system was imposed. On the other hand, the availability of demand of information, reinsurance, support from technical service providers (TSPs), as well as the availability of the actuarial data, were rated as medium to low levels of support by most respondents. Despite significant efforts made by the IRDAI.

The effectiveness of the quota system remains questionable. The contrast seen between the different drivers in the operating environment demonstrates the disconnect between government mandate and the appetite of the market to supply microinsurance. According to the research conducted, some of the insurers are dumping microinsurance products that are very poorly serviced onto customers solely to meet their quota.

PRESENT DYNAMICS OFINCLUSIVE INSURANCE IN INDIA

Outreach / present stage of Microinsurance:

Microinsurance is believed to work as powerful risk management tool for the low income and to the vulnerable groups by preventing them from falling into the poverty trap. But not much is known about outreach and efficacy of microinsurance across regions and groups.

In any case, not much is thought about the effort and viability of microinsurance across districts and gatherings. In India, however the administration assumes a proactive job in giving protection spread to the poor through financed protection plans and different projects. The size and capability of the microinsurance showcase are gigantic because of a sizeable part of poor people and low-pay populace who live with no proper protection.

As per latest IRDAI report (2018-19) around 12.20 crore individuals were covered under specified micro-life insurance policies either in their individual capacity or under a group schemes. The volume of combined premium was around Rs 3226 Crores. The year saw a death claim pay out of Rs 890 Cr under 308800 lives. As on 3/2019 there were 44 life products available from 16 life insurance companies out of which 20 were individual products where rest were of group policies. There were around 73000 of licensed micro-insurance agent’s majority of whom (90%) were individuals & the rest coming from NGOs/SHG/BCs etc.

The performance in non-life portfolio continues to be a poor & we had only sale of around 15000 micro-general policies.

Microinsurance and social security:

Social protection measure is regularly related with microinsurance for poor people and low pay gatherings. Microinsurance can assume an essential job as an exhaustive instrument to lessen neediness, disparity and powerlessness, especially where open social assurance measures are deficient and unevenly conveyed. Shockingly, the greater part of the world’s all out poor don’t profit by any type of social security measures. Since microinsurance is intended for the assurance of low-pay individuals to adapt to basic dangers, it can likewise endeavour to cover the rejected, for example, poor, ladies and laborers in casual area.

In many creating nations like India, the extent of casual workforce in all out workforce is considerable and there is expanding propensity towards easy going nature of work.

With intrinsic restrictions of the current social security measures in the nation, there is additionally a popularity to battle the unfavourable effects of catastrophic events, for example, dry spell, floods, tornado, and so forth. Shockingly, the ex-post ways of dealing with stress basically upheld by the Government are not adequate and don’t cover all gatherings on the whole sector.

Key constraints and hindrance in Microinsurance:

(1) There are explicit purposes behind low interest for protection disregarding extraordinary need. Providers have their own interests, which help to clarify why there has been slow advancement in microinsurance showcase. The provincial money related markets portrayed by restricted and wrong administrations, lacking data and limit holes moreover frustrate in development of new products.

(2) There are difficulties in protection item plan, which bring about a confuse between customer’s needs and standard items on offer. Deficient exertion in item improvement could be because of alternate point of view of partners.

(3) Absence of satisfactory and appropriate protection information is a significant concern. In the nonattendance of an appropriate protection database count of premium, costs, benefits, ability to pay, in light of full-scale totals may not give real bits of knowledge. Building furthermore, sharing cases accounts can help in adjusting evaluating choices to actuarial computations, in this way diminishing cost.

(4) Demand is a complex issue, with trust, liquidity constraints, the quality of the client value proposition and behavioural constraints emerging as the most important determinants of demand.

(5) Cumbersome and wrong methodology hinder the improvement of this sector.

(6) Contrasting points of view of the guaranteed and the back up plans, lead to low customization of items and low interest for what is accessible.

TECHNOLOGY CHANGING THE LANDSCAPE OFINDIAN MICROINSURANCE

The main view point of technology changing the landscape is the place where technology can help in reaching masses of people, simplifying of products & solutions and replacing the repetitive tasks with AI, ML or by using software algorithms in Insurance industry is where Insurtech comes in to picture.

By increasing in the smart phone usage among the semi urban and rural areas in developing nations and especially in India shows that there is a huge potential and many potential customers for Microinsurance in present period.

Mobile microinsurance is a genuine case of InsurTech in the Microinsurance space. It tends to the current difficulties by utilizing mobile channels for correspondence, enlistment, instalment of premiums by means of broadcast appointment finding or digital cash, claims submission, and cases pay-outs. The utilization of climate stations and satellite information for crop protection is additionally a case of InsurTech, as is packaging of medical coverage with contributions, for example, tele-specialist administrations, which we are beginning to see a greater amount of. Here making of straightforward and easy to understand interface that figures out how to collaborate with various locales of individuals and various ages is the key factor.

Key opportunities by technology implementation in Microinsurance:

Mobility can be a distinct advantage, empowering developments like retail location innovation, solar powered deposit machines and advanced digital payments.

Real time connectivity can empower mass handling and adjusting of low-premium approaches, requiring negligible manual mediation and decreasing expenses, which also results in better customer engagement and 24*7 service engagement.

Adaptability and versatility are made by distributed computing, remarkably programming as-an administration (SaaS) stages.

According to highlights from International conference on Inclusive Insurance and from various authentic reports and websites key areas to concentrate for growth of Inclusive Insurance especially for India are of:

As per the telecom regulator TRAI statistics, India had over 102.5 crores of active mobile in India at the end of 2018. Out of this approximately 52 crores users were in rural belt. Mobile service tele-density was 155.48 in urban areas and 59.15 in rural areas. The number of broadband subscribers reached 518.55 million. India has 18.17 million wired broadband connections and 499.95 million wireless broadband connections in 2018. The cost of smart phone has come down drastically in recent past & the number of smartphone users is expected to touch a figure of around 36 crores by 2022 as Statista Research. This digital reach is of immense benefit to the business providers in terms of not only reaching to the targeted audience with business promotion but also to transact business over it.

By and large, microinsurance is characterized as a protection item that expects to give money related assurance to low-pay families especially those with estimated salary not as much as Rs. 250 every day. Be that as it may, the section in dubious to work as the normal ticket size is low as against the administration cost.One such back up plan, which has figured out how to showcase the microinsurance well in the market, is Shriram Life Insurance Company (SLIC). The organization for the most part centres around provincial India with least normal ticket size in the business (INR 13,749 contrasted with INR 49879 for the private business for Q1 FY 18-19).

Talking about the fragment potential in India, Casparus Krumholtz, MD and CEO, SLIC shares that the division should move past the definition and the attention ought to be on spreading the insurance net to the layer of society that is monetarily generally defenseless, where the passing of a provider rises above into budgetary fiasco for the family and now and again no food on the table.

“Working with this mass market has requested different operational and item developments. We endeavour to create items that enhance the portion and appropriation channels in technology space that guarantee mass reach,” he included.

KEY CHANGES OBSERVED IN TECHNOLOGY IMPLEMENTATIONS OF RECENT TIMES IN INDIAN INSURANCE INDUSTRY:

Insurance companies have already started implementing technology on a larger scale in all stages of a insurance contract. Starting from pre-policy issuance which is verification of an applicant’s proposal to paying out the claim. The digital push by the government along with a strong push towards a cashless economy also has provided considerable help in implementing digitization that has touched every aspect in the insurance industry.

Major changes were observed in:

Customer awareness:One of reason for people were not purchasing insurance is the lack of awareness. In an initiative towards connect & engage   the potential customers, mainly the younger generation   insurance companies are using the digital platform extensively. The beautiful text / audio / video ads put on social media platforms reach to the urban / rural clients with same ease. The very objective of such sessions was to engage and educate respondents online. The companies are now using the social media platforms as a strategic tool & bringing people / target customers under their fold.

As on March, 2018 Bajaj Allianz a leading general insurance company had 2.3 million followers on Facebook, 88000 on twitter, 212000 on LinkedIn & 5000 subscribers on YouTube.

Similarly, ICICI Lombard the largest general insurance among private company had a follower base of 900000 followers on Facebook.

If there are any new product launched agents are now sending video content in which it explains about the policy and details in infographic style videos. It is not only cost effective but at the same time agent can reach to multiple customers. Follow up actions can always be taken subsequently.

On Boarding:The recent regulatory intervention in distribution space & introduction of new channels such as Common service centres &PoS have brought a big positive change in spreading the wings of not only the old established companies but the new age #InsureTech ventures operating in distribution space. Toffee Insurance & Turtle mint are the two shining examples in this space.

True to its name, Toffee Insurance is working on a model where it is offering product as per the very specific singular need of the customer. It came in highlight offering “only Dengue” small ticket size policy & after that it continued doing similar product innovations & offerings. The organization is disseminating plans through various channels like APIs, versatile, and SMS exchanges. Their present portfolio incorporates cycle protection, salary security protection, every day drive protection, and dengue protection. The organization has prevailing with regards to selling policies to 115K+ Indians, of which 80% are first-time purchasers. At present, Toffee Insurance is accomplices with Hero Cycles, Wildcraft, Eko, and Apollo Hospitals and is supported by ICICI Prudential, Religare, HDFC Ergo, and Tata AIG Insurance among numerous others.

Turtlemint gave an innovation stage to insurance agents to sell items, and presently has around 75,000 partners/agents (PoS) working with it on Pan India basis. Being a broker they are in a position of offer a bouquet of retail plans for the benefit of their agency / client base. Such accessibility was not possible without the use of technology.

 By implementing of virtual offices companies have leveraged technology to compress distance and time to make the process of getting insurance efficient and cost-effective. The aim is to be able to reach market penetration in Tier 3 and 4 cities making the benefits of insurance available to individuals and communities across the country.

Company like Bajaj Allianz have nearly 4000 virtual offices in India which maximises the reach of insurance to masses which is very important.The concept of virtual office is an extension of tablet-based application through which the officials can receive premium payments, issues policies and also settle claims. The virtual office can integrate all these applications and provide a 24×7 sales and service to the customers.

This kind of new POS is cost efficient and effective way of reaching customers as well and also creates multiple job opportunities in those cities.

Common service centres: A large number of digitally trained individuals are leading a silent entrepreneurship revolution in the heart of Indian villages. Through common service centres (CSC) or Jan SevaKendras. Insurance companies comes with an agreement to sell the non-complex polies through Rural Authorised Person (RAP), Such personal touch points through RAPs have given those in villages access to simple-to-understand products to mitigate the risk to life, motor, agriculture pump sets, personal accident insurance and farmers’ package policies. By limiting the sum insured of these products to 2 lakhs (other than for motor insurance), insurers are able to extend such micro-covers and obviate the risk emerging from such groups.

The digital on boarding process is made very easy for micro policies which require minimum details, uploading of necessary documents to payment of premium can done with in very less time, the policy is issued within a minute. In some cities there are popup stores in which a human interaction will be there to ease the process in semi urban and rural areas.

The technology has made it possible for the companies to set-up mini offices having 2/3 staffs. IffcoTokio General Insurance Co is one such organization which is opening “bima Kendra” in rural part. “We are trying to open offices in smaller towns and rural areas and are working on smaller products that will cater to that segment of the society. The industry is working on customised bite size insurance products that have lower premium, shorter tenure but high volume” said Mr. WarinderSinha, MD & CEO in his interview given to Indian Express.

Customer engagement: Personalized online video is a new trend in customer engagement. Advancement in video hosting and distribution technology platforms made it possible to create and share videos with ease that are tailored to customer’s interest, demographics, and behaviour. Content of the videos are crafted using personalized tokens to make customer feel important and valued for the organization, which goes a long way in developing longstanding customer relationship.

Social media is a recent phenomenon, which took everyone by storm including businesses. The insurance industry too is looking at social media as a platform to enhance visibility, build brand, build trust, listen to customer likes/dislikes, provide customer support and generate leads.

The website, portals & the tools available there has made many of the services available at the click of the mouse for which one needed to visit offices travelling far distances earlier. This has added to the trust factor making general insurance accepted by the people even in rural part.

 Getting premium quotes on various products

 Getting instant information about branch and network hospital locations

 Getting a status update about a claim or policy

 Knowing claims procedure details

 Getting policy soft copy and even

 Buying insurance online

Examples for many service handling accounts in platforms like Twitter, Facebook and LinkedIn which we are seeing widely in present days.

All the above mentioned points were driving present insurance industry to growth in which the technology is the key aspect enabling us to.

Claim Settlement:In spite of the fact that majority of the insurance companies are making under-writing losses i.e. paying more claims than the premium received, the general perception is negative about the sector.

There are two factors leading to such impression. The first is of the terms & conditions & second is about the delay in claim settlement process. Thanks to the regulator’s efforts all the policies sold through micro0-insurance or PoS are very simple / pre-underwritten kind there by reducing the possibility of conflicts at claim stage & the digital technology has started helping in the second one i.e. speedy selection of the claims.

Reliance general insurance company settled few home insurance claims using the two-way video chat to show the damage in rural home in the recent Kerala flood.

“We took a blended approach and did a few home insurances claims on video on an experimental basis,” said Rakesh Jain, CEO, Reliance General Insurance, referring to the Kerala home insurance claims. Broadly speaking, they are using emerging technologies, including artificial intelligence, big data analytics and block chain to transform IT systems.Getting minor motors claims using the claim interface in mobile app is a common feature now. The companies have started extensive use of WhatsApp / video etc in claim assessment. This technology-based initiative   involves customer him/herself in the process of settlement of their motor claim up to the limit allowed by the insurance regulator

All such quick claim settlement add value to the industry & raises the trust bar.

FUTURE / WAY FORWARD FOR MICROINSURANCE IN INDIA

India is a country with a population of around 1.3 billion. It is also estimated that around 40% of the actual total population live below poverty line (BPL). Though there are some different Govt social security schemes for this vulnerable section but because of the reasons mentioned earlier and due key changes in technology transformation they are yet to avail the benefit of the same.

The Govt gave a big push in 2014 through the Pradhanmantri Jan Dhan Yojana by opening no-frill bank accounts & providing subsidised life & personal accident policies. The implementation of Pradhan Mantri Jan Aayush Yojana (Aayushman Bharat) in 2018 there by covering around 50 crores individual under family floater heath cover gave a big fillip to the realization of universal health coverage.

Both these schemes are technology driven & there are very less manual intervention. Success pg such mass scheme & the benefits seen by the people have added trust element in insurance schemes & helping a lot.

Illiteracy and non-availability of banking facilities, lack of structured insurance schemes or timely advice leave the poor people helpless and they face the fury of nature. Micro insurance is a solution for addressing these problems along with proper awareness.

Technology is already playing and going to play huge role in terms of various innovative products like sachet products, better customer awareness and engagement, innovative distribution models and faster claim settlements.

Customer centric approach, affordable pricing & ease of transacting business are the three crucial points which can help insurance companies making good inroad. Fortunately, the new technology is making all these three converge at one place. The growing use of tech based third party distribution network is a reality giving a good cost arbitrage to the insurance companies. The new age #fintech & #insuretech venture are bringing new opportunities.

We have started witnessing the disruption in insurance industry & the days are not far away when the existing protection gaps would be a matter of history.

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