“A Critical Study on Micro

Insurance in India”

Prepared by:
Mohammad Abdullah
MBA 4th Semester
Roll Number: 1804070007
Enrollment No.180407008249
 MICRO INSURANCE
India is enjoying rapid growth and benefits from a young population. Its middle class is growing rapidly but 70 percent of population is still rural, often very poor, and handicapped by poor health and health services, and low literacy rates. Although the type of risks faced by others, they are more vulnerable to such risk because of their economic
circumstance. According to World Bank study (Peters et al. 2002), reports that about one-fourth of hospitalized Indians fall below the poverty line as a result of their study in hospitals. The same study reports that more than 40 percent of hospitalized patients take loans or sell assets to pay for hospitalization.
When a poor‘s family‘s income generator dies, when a child of a poor family is hospitalized, or home of a poor family is destroys by flood, earthquake or fire. Every illness every accident or every natural disaster leads to deeper poverty to a poor family. That‘s where micro insurance comes in. Microinsurance is the protection of low income households
against specific perils in exchange for premium payments proportionate to the likelihood and cost of the risk involved. It is specifically designed for the protection of low income people with affordable insurance products to help them cope with and recover from common risk. A key strategy for enhancing economic development and alleviating poverty is
to make financial systems more inclusive, for example by improving access to savings and credit services for under-served markets. In part, Poverty stems from the fact that low-income households and markets do not have the same opportunities to finance, investments, accumulate capital or protect assets (including human assets). The poor’s heavy
reliance on informal financial services such as moneylenders, under-the-mattress savings and assistance societies can be inefficient and expensive, and may even exacerbate poverty. An inclusive financial sytem makes insurance available to low- income persons.
However, many commercial insurers and policymakers believe that providing insurance to the poor is the responsibility of the state. Although many governments have social protection programmes, the targeting of these schemes is often ineffective. The poorest segments do not always benefit from the subsidy, while people who can afford insurance
often find ways to access these benefits. In general, governments have made little effort to shift the burden of risk-pooling to market-led schemes; and the private sector (commercial insurers) seems to have little incentive to seek out this market segment. In principle, micro-insurance works like any typicaly insurance business. But there are several
things that differentiate it from normal insurance. First, it is group insurance that can cover thousands of customers under one contract. Second, micro-insurance requires an intermediary between the customer and the insurance company. Preferably, this intermediary is a non governmental organization (NGO) or microfinance institution, for example a

rural bank that can handle the whole distribution and most of the administration process .
 OBJECTIVE
  1.To study about history & progress of micro insurance in India.
2.To study about various problems in growth of micro insurance in India.
3.To know the prospects of micro insurance programs.
4.To analyse trends of micro insurance.
  
IMPORTANCE
1.Research project helps to understanding the micro insurance.
2. Research project helps to knowing trend in micro insurance.
3. Research project helps to knowing the growth of micro insurance.
4. Research project helps to knowing the performance of micro insurance.
 
 SCOPE
 1.This project give brief description of micro insurance.
2.It traces the growth of micro insurance in India.
3.It tries to analyse the problem faced by micro insurance.
4.In future customer requirement could be added with the product and services for getting an edge over competitors.
 
 LIMITATIONS
Micro insurance is very vast subject. It is not possible to provide information regarding all the different types of policie which provide different benefits. The project would have been much better if the comprehensive study all the different companies is undertaken.
The study based on secondary data, published data represent specific area of our country.

Need of consumer are not specific in terms of data. Time & cost constraints were also there .
 GROWTH OF MICRO INSURANCE
As per World insurance Report 2018, published by reinsurance major Swiss Re,
the economic environment for insurers improved only marginally in 2018, as global real gross domestic product (GDP) rose by 2.7%.
The growth of gross
domestic product (GDP) was 2.5 per cent in 2013. They are below the 10 years
average of 2.8 per cent. The improvement was driven by advanced markets, lead
by UK. The growth in UK was based on a recovery in domestic consumption due
to lower unemployment and lower than expected fiscal tightening. Growth in the
US accelerated slightly to 2.4% but was held back by disruptive harsh winter conditions.
The growth was also stronger in Western Europe. In advanced Asia,
growth slowed due to ongoing sluggishness in Japan. In contrast, the emerging
markets grew at a slower aggregate rate of 4.1% in 2018, down from 4.6% in
2017. Many countries struggled with domestic difficulties, structural deficiencies
and uncertainty about the impact of the US Federal Reserve (Fed) cutting
back its quantitative easing program. Advanced countries' equity markets outperformed
their emerging market peers and government bond yields remained
very low. As per the report, the total direct premiums written grew by 3.7% in
2018 to USD 4778 billion.
As per the report, global life insurance premium underwritten were US$ 2608 billion
in 2013 and US$ 2655 billion in 2018, up 4.3% after a decline of 1.8% in
2017. There was considerable variation in the growth patterns across regions and
countries. Of the advanced markets, Oceania registered strong growth. Western
Europe and Japan regained momentum and premium in North America continued
to decline. Premium growth in emerging Asia strengthened but slowed in
Latin America and Africa. In central and Eastern Europe premium fell again. Notwithstanding
 the acceleration in 2014, advanced market life insurance premium
growth has generally stagnated since the financial crisis in 2013. Advanced Asia
and Oceania are the only regions to have higher average annual premium growth.
The recovery in Non life insurance sector continued in 2019 with global premiums
up 2.90% to US$ 2124 billion, slightly higher than the 2.7% growth of 2013
and also better than the pre-crisis average growth. The advanced markets were
the main drivers with regional variations. There was slightly slower but still
robust 8.0% growth in emerging market premium, down from 8.6% in 2018, but
below the pre-crisis average of 10% (Swiss Re, Sigma No. 04/2019).

Source: Swiss Re, Sigma No 3/2018 and 4/2019

Table 2 Region wise Life and Non Life Insurance Premium
(Premium in USD Billion)

Source: Swiss Re, Sigma 3/2018 & 4/2019;

Note: Figures in brackets indicate share of the segment in percent
The burgeoning insurance market in India has been able to generate considerable interest and awareness among people. Insurance field is creating new vistas for attracting talent and in this process has
reduced unemployment problem. Within the national economy, two measures are used to define insurance. One is insurance density which is average annual per capita premiums within a country and
the other is insurance penetration which is a ratio of yearly direct premiums written to gross domestic product. In the non life insurance market, global non life premium growth slowed down to 2.3
percent in 2018 from 2.7 percent in 2017, with total premium of USD 2033 billion. The advanced markets barely moved up, with premium up just 1.1 percent due to stagnation in Western Europe and a
slowdown in advanced Asia. In Oceania growth remained significant at 5.1 per cent and in North America it was roughly unchanged at 1.9 percent. The emerging markets continued to drive global
growth. The emerging markets continued to drive global growth. Performance was firm across all emerging regions with the exception of Central and Eastern Europe (CEE). Expansion in emerging Asia was based on sustained
strong growth in Southeast Asia and China, and growth was also robust in Latin America (Premium up 7.2 percent). Post crisis average
premium growth from 2014 to 2019 was well below pre-crisis rates in advanced markets. The post crisis average was also lower, but still strong(+7.6 percent), inemerging markets(IRDA Report 2018-19)

*Insurance Density is measured as ratio of premium

(in USD) to total Population
*Insurance Penetration is measured as ratio of
Premium (in USD) to GDP (in
USD).
*The data of insurance penetration is available with
rounding off to one digit
after decimal from 2006.
Source: Swiss Re, Sigma, Various issues.
 Advantage of Micro Insurance
1) Individual Benefits
Health Risks:
Like illness, accidents and disability can lead to high expenditure on medical treatment and high indirect costs such as loss of income.
Lifecycle Risks:
The death of the earning person of the family can lead to accurate poverty conditions with no or limited sources of income. Many low-income households are also not financially prepared to face major events like retirement and old-age.
Financial Risks:
Like spoilage of crop, less income from the produce, death of livestock or major losses in small business can cause an adverse impact on the earnings of poor families.
Disaster Risk:
Natural calamities such as flood, tsunami and earthquake will not only lead to casualties, but can also cause widespread economic damages that affect the livelihood of poor people.
 CHALLENGES OF MICRO-INSURANCE
1- The greatest hurdle in the delivery of microinsurance products through financial
institutions is due to the different perspective of the insured.
2- Other basic problems in institutional insurance mainly include wrong selection of
products, moral hazards and poor infrastructure facilities which leads to high administrative
cost and claims leading to insufficient compensation need to be addressed properly, for
developing a sustainable model.
3-Creating awareness among people to invest in the micro-insurance products is a very
difficult challenge.
4- Lack of availability of data related to potential claims which could have helped the insurers
in designing good-quality products.
5- As farm laborers keep moving from one area to another so portability of micro-insurance
products is a crucial issue.
6- In most cases it is observed that there has been a large number of dropouts in insurance
programmes as people are not able to pay premiums in times of crisis, due to which the
premiums paid previously, is also forfeited by the insurance providers.
7- In most of the cases it is observed that the impact of any shock affects a women more
than a men. Moreover, there are many other problems like unstable marriage, high level of
illiteracy and other health problems such as pregnancy with women which are not covered
under micro-insurance.
8- Due to difference in the sum assured offered for accidental deaths and natural deaths by
different insurers there is a lot of confusion in the minds of the people regarding which
micro-insurer product to buy.
 CONCLUSION
Poverty reduction requires not just the generation of sustainable income streams among poor but also protection of incomes through effective risk management.
But risk management among poor has received much less attention in comparison to income generation schemes. Micro insurance is an important constituent of broader poverty reduction strategy. The first Millennium Development Goal
aims to eradicate extreme poverty and hunger. The Goal also aims at gender equality and empowerment of women. Micro insurance is an instrument to achieve these goals. Insurance is an ex ante risk management tool through which
individuals and business hedge potential financial loss in exchange of fixed premium payment. Micro insurance is a set of market based products designed to address both life and non life risks faced by people at the bottom of the socio economic pyramid (BoP). These products are priced at rate affordable for intended clients. In contrast with the
well established insurance industry in developed countries, it is in a state of infancy in developing countries. For Bottom of Pyramid (BoP) population there are both supply and demand side bottleneck resulting
in a missing market.
This study seeks to answer to the question of how insurance services for the rural poor can manage two seemingly contradictory objectives-the social bottom line and financial bottom line. A well developed insurance sector has both micro implications for households and macro implications for the economy. At the household level, insurance
serves as a tool for addressing ex ante risks while at macro level, insurance provides long term funds that can be used for infrastructure development. The necessity of insurance for poor is very urgent but market based insurance may not be applicable to all the categories of the bottom of pyramid population. Insurance as an instrument may not
be immediately suitable for all categories of the rural poor. For example the ultra poor, the destitute, the old and infirm , children and other who do not have current productive potential, may require other social security schemes. Just as microcredit is not a panacea to address poverty in its many dimensions, micro insurance should not be seen as
the only instrument for all poor persons. It is beneficial for those with income streams and assets to protect. Some 52.4 percent of India's population of 1.21 billion earns less than US$ 2 a day (PPP term) of which one third is estimated to earn less than US$ 1 a day. Micro insurance can be an important constituent of a broader poverty reduction
strategy to protect incomes and minimize loss of development gains among low income populations.
END