Microinsurance for people at the bottom of the pyramid

Dr. Sreemoyee Guha Roy
Dr. Sreemoyee Guha Roy

Poor people confront many of the same risks faced by the non-poor, but these risks have greater financial impact and occur with greater frequency. Moreover, the vulnerability of poor people is exacerbated each time they incur a loss, creating a vicious cycle that precludes lasting improvements in human and economic welfare. Key risks include death, illness or injury, loss of property (e.g., theft, fire), and natural disaster (e.g., earthquake, drought).

Approximately 3.75 million people (ILO, 2000) are covered by official social security programmes in the formal economy. Some of the (roughly) 60 percent of workers classified as ‘unorganized’ workers are in a position to pay significant insurance contributions. The lower – income groups and the poor can only afford small payments, however. Thirty percent of the unorganized workers in India consist of very poor groups who are unlikely ever to be in a position to make contributions and become members of a contributory social security system.

Across the world, low-income communities are often shut out of financial services like savings accounts, insurance or mortgages because they cannot afford premiums or fee, lack of formal and regular jobs, collateral, identification on credit history-or because they struggle to write and write.

In Asia, however, insurance has emerged as one of the fastest growing financial services catering to the poor, due to the large population and thanks to relatively developed insurance markets and regulations in some countries. Microinsurance is most prevalent in India.

Microinsurance can include government schemes, private plans and public-private partnerships. Insurance cover for life, accidents, and more and gives millions of people a safety net. After emergencies-such as earthquakes, floods, typhoons-it can help families avoid desperate measures such as abandoning children or taking them out of school, incurring debts or selling assets.

Between 2010-2012,Asia’s micro insurance market grew by 30% annually in terms of people covered, and 47% in premium generated, according to a 2014 report buy Munich Re Foundation and Germany’s GIZ aid agency.

India accounted for 65% of Asia’s micro insurance market, with some 37 million poor families signed up to Rashtriya Seva Bima Yojana(RSBY).

MicroinsuranceIn this book Microinsurance: Including the Excluded (Notion Press, 2015) by Dr. Sreemoyee Guha Roy (Assistant Professor, St.Xavier’s College, Kolkata), results and discussion have been combined in several chapters. The first chapter of the book is designed to provide a description of the background from which the study has emerged and what the study ultimately seeks to achieve. The second chapter investigates the microinsurance movement in international development with reference to Sustainable Livelihood Framework. Chapter 3 is designed to provide a brief review of the scenario of microinsurance in India and specifically the state of micro insurance in an developing economy. Chapter 4 is based on identification of risks faced by the people at the bottom of the pyramid and the tools and techniques to overcome such risks.This chapter shows the vulnerability of the people and enhances the need of micro insurance as a coping strategy.Chapter 5 takes us through the growth of LIC and other private players to provide microinsurance. Their survival strategy in a not so cost effective market and their compliance with the regulations by IRDA. Chapter 6, which is the last chapter of our thesis, summarizes our results and discussion.   This chapter identifies the limitations of the study and explores avenues for further research

The book reveals that microinsurance have proved to be quite effective in bringing about improvements among the low-income people. Positive effects that have been noticed including improvement in standard of living, providing education to children, protection against seasonality etc. But problems persist. The insurance market in these districts is highly concentrated; there are only a few providers that dominate and restrict the entry of others. Although the providers have achieved growth, its penetration into the territory of the poorest of the poor is still quite minimal. Low-income household struggle to save, and if they can save they prefer the traditional forms of savings. High premium amount, inflexibility in collection of premium, claim settlement is among other factors that appear to have a preventive effect upon respondents in choosing microinsurance as a savings option.But more and more players are entering the market and providing an active role.The outlook is cautiously optimistic.

The book is available on Amazon, Infibeam and Bookadda.