Micro-insurance in India : Analysis of current trends and guidelines for sustainable business models

Abstract

Micro-insurance reduces the susceptibility of people at the base of pyramid from the unexpected financial trauma in exchange of premium paid to insurers. Though it can be beneficial for any individual but it is really important for poor people, as the state of deprivation makes the poor people more vulnerable to financial shocks than their richer counterparts. Moreover, poor people from developing countries like India face uneven amount of risk pertaining to low nutrition, poor infrastructure support for education and health. With approximately one-third population below poverty line, India needs micro-insurance products to provide safety net to poor people and prevent them from falling into poverty trap at the occurrence of a single incidence. With as high as 40% of all hospitalized people have to borrow money to meet their medical expenses, it is very important to address the social need of providing health micro-insurance to poor. Low government spending on public health care, low penetration of micro-insurance to the majority of India are other reasons to highlight the importance of health micro-insurance. It will not just cater to the untapped market but will also create high social impact in the lives of poor people. Indian insurance regulatory body, IRDA has instructed insurance companies to fulfill their social and rural sector obligations. Still, currently, Indian health micro-insurance market covers just 25% of the Indian population and is driven by government subsidized schemes such as RSBY and localized Community Based Health Insurance (CBHI) such as Karuna Trust. In health micro-insurance, different delivery models such as partner agent model, full service model and provider-driven model exist and a single player can perform roles of different players in value chain. Globally, except for in Bangladesh, no private player has been able to tap the health microinsurance market with financially sustainability. However, it also has the problem of people reluctance to choose it because of co-payment mechanism. In India, the primary reasons for the under-development of this market is insurer's inability to provide customized products that cater to the real need of the poor, low awareness of health insurance, presence of exceptionally large unorganized labor force and the absence of scalable distribution models that ascertain low transaction costs and efficient monitoring of the claims settlement process. Some of the proposed solutions include increasing consumer awareness through NGOs and public media, developing healthcare infrastructure, formation of Public-Private Partnerships, collaboration with MHIs and simplifying the product design. Due to high costs, OPD care has to be kept out of the purview of health micro-insurance. Moreover, there is an intrinsic problem of monitoring of OPD expenditure which supports its exclusion from insurance purview. People who are marginally better off than the BPL are also susceptible to falling in the poverty trap due to health costs but the subsidized schemes cannot be extended to them as it increases the financial burden on the Government. In the current state of affairs, a private player needs considerable help from the government for financial support and building trust among the target population. To establish a sustainable business, it should leverage the existing distribution network of MFIs and post-offices use low cost IT infrastructure, target employers for selling health insurance to the organized sector and engineer the product so as to serve local needs.