 "Insurers use cost-effective ways to boost renewal premiums")
Micro-insurance products have now become not just a means to penetrate rural areas, but a business generator too. Insurers have now started to adopt cost-effective measures to boost renewal premiums in this segment, which has resulted in a rise in renewals.
Micro-insurance which constitutes about 20-30% of the product portfolio of insurers have seen a reduction in costs by almost 35% and seen rise in renewals, due to these strategies.
Insurers said that renewal process in micro-insurance policies is a difficult process due to the fact that resources are limited and processes have to be designed in such a way that costs are managed.
However, the company has used tools like handwritten post cards in their local language and even use tools like drum beating exercise reminding customers of renewing premiums and street plays for educating and intimating the customer.
"We faced a lot of challenges in the initial phase, but our experience in this sector helped us to design innovative and cheaper tools like use of postcards, tele-calling, panchayat meets and activities like 'Nukkad Nataks'. These activities are conducted in villages across the country reinforcing messages around the essence and importance of renewals," said Gupta.
Effective use of local manpower is also a mechanism, which insurers are using to boost renewal premiums for these products in rural areas. This is due to the fact that income is seasonal and cash flow is irregular. Rural bank branches that remind customers to renew their policy, micro-finance institutions (MFIs) which are visited by customers on a regular basis and non-governmental organisations have been effectively mobilised by insurers to drive renewals in this segment.
Take Aviva Life Insurance for example. TR Ramachandran, CEO & MD, Aviva India said in order to renew the policy, the staff of micro-insurance and corporate agent has to visit each customer’s residence and the cost involved for each of such visit is significantly high , as this includes staff travel cost, daily allowance.
"To make this a viable business model, MFIs typically club premium collection with other activities like loan recovery or financial literacy camps. The costs involved here are higher than in urban areas where customers are able to visit branches or pay online or using causing bank services or credit cards. Keeping these constraints in mind, our products that are designed for the MFI segment are single premium or limited premium paying term," said Ramachandran.
Aviva Life has been working with their partners, BASIX and Anjali Microfinance to bring down premium collection costs and make the process simpler. Due to mechanisms that have adopted, including back-end support in terms of premium due data, facility of adjusting premium from float account on receipt of advice from agent and through financial literacy programmes, the company has seen a lift in their renewal collections. Micro and rural insurance contribute close to 15% to their portfolio in terms of number of policies.
Apart from this, Utilisation of the intermediaries' infrastructure have helped up renewals for this segment rise by 20 to 25%. According to Gupta, Bajaj Allianz has achieved a persistency level of about 70% in rural areas. He added that for ease of collection process, the renewal premium from the customers is collected by the team of Bajaj Allianz from the branches of intermediaries, which effectively reduces cost.
Bank promoted insurance companies, too, have used the bank's rural branches to their advantage. GV Nageswara Rao, MD & CEO of IDBI Federal Life Insurance said that apart from MFIs and NGOs, they have been able to boost renewals in a cost-effective manner by operating though the rural branches of their partner bank.
While these strategies have been adopted, insurers said that there are still challenges in terms of cost and reach. Ramachandran said that post the recent MFI crisis, most MFIs have taken cost control steps and have taken a call to close down quite a few of their branches in rural areas, which has had its impact on the renewal collection efforts. "However with banks looking at investing in MFIs again we expect things to improve significantly as MFIs would be setting up local infrastructure in rural areas," he added.
Also the recent guidelines for microinsurance is likely to increase the insurance penetration in rural areas. Illustratively the guidelines talk about enabling local kirana, fair-price and medical store owners (who also act like banking correspondents) to sell microinsurance products. This is likely to improve the services impacting renewal premiums also positively.
Micro-insurance regulations for the insurance sector is set to be announced soon. The Micro Insurance Regulations prescribe a framework within which insurers can offer affordable Micro Insurance products to a targeted group of rural and urban insurable population. Last year, under these regulations, Irda had proposed to allow other categories like district cooperative banks, regional rural banks, primary agricultural co-operatives societies, individual agents to be eligible as Micro Insurance agents.
According to the Insurance Regulatory and Development Authority's (Irda) annual report for 2011-12, for life insurers, while the renewal premium accounted for 60.31% (56.66% in 2010-11) of the total premium received by life insurers, first year premium contributed the remaining, that is 39.69% (43.34% in 2010-11).
Micro-insurance which constitutes about 20-30% of the product portfolio of insurers have seen a reduction in costs by almost 35% and seen rise in renewals, due to these strategies.
Insurers said that renewal process in micro-insurance policies is a difficult process due to the fact that resources are limited and processes have to be designed in such a way that costs are managed.
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Yogesh Gupta, Head-Business Procurement and Micro Insurance, Bajaj Allianz Life Insurance said that in rural areas, renewal of insurance policies have been very challenging due to various issues like customer's low literacy level, low awareness, language barrier, lack of infrastructure and most of the times the untraceable customers.
However, the company has used tools like handwritten post cards in their local language and even use tools like drum beating exercise reminding customers of renewing premiums and street plays for educating and intimating the customer.
"We faced a lot of challenges in the initial phase, but our experience in this sector helped us to design innovative and cheaper tools like use of postcards, tele-calling, panchayat meets and activities like 'Nukkad Nataks'. These activities are conducted in villages across the country reinforcing messages around the essence and importance of renewals," said Gupta.
Effective use of local manpower is also a mechanism, which insurers are using to boost renewal premiums for these products in rural areas. This is due to the fact that income is seasonal and cash flow is irregular. Rural bank branches that remind customers to renew their policy, micro-finance institutions (MFIs) which are visited by customers on a regular basis and non-governmental organisations have been effectively mobilised by insurers to drive renewals in this segment.
Take Aviva Life Insurance for example. TR Ramachandran, CEO & MD, Aviva India said in order to renew the policy, the staff of micro-insurance and corporate agent has to visit each customer’s residence and the cost involved for each of such visit is significantly high , as this includes staff travel cost, daily allowance.
"To make this a viable business model, MFIs typically club premium collection with other activities like loan recovery or financial literacy camps. The costs involved here are higher than in urban areas where customers are able to visit branches or pay online or using causing bank services or credit cards. Keeping these constraints in mind, our products that are designed for the MFI segment are single premium or limited premium paying term," said Ramachandran.
Aviva Life has been working with their partners, BASIX and Anjali Microfinance to bring down premium collection costs and make the process simpler. Due to mechanisms that have adopted, including back-end support in terms of premium due data, facility of adjusting premium from float account on receipt of advice from agent and through financial literacy programmes, the company has seen a lift in their renewal collections. Micro and rural insurance contribute close to 15% to their portfolio in terms of number of policies.
Apart from this, Utilisation of the intermediaries' infrastructure have helped up renewals for this segment rise by 20 to 25%. According to Gupta, Bajaj Allianz has achieved a persistency level of about 70% in rural areas. He added that for ease of collection process, the renewal premium from the customers is collected by the team of Bajaj Allianz from the branches of intermediaries, which effectively reduces cost.
Bank promoted insurance companies, too, have used the bank's rural branches to their advantage. GV Nageswara Rao, MD & CEO of IDBI Federal Life Insurance said that apart from MFIs and NGOs, they have been able to boost renewals in a cost-effective manner by operating though the rural branches of their partner bank.
While these strategies have been adopted, insurers said that there are still challenges in terms of cost and reach. Ramachandran said that post the recent MFI crisis, most MFIs have taken cost control steps and have taken a call to close down quite a few of their branches in rural areas, which has had its impact on the renewal collection efforts. "However with banks looking at investing in MFIs again we expect things to improve significantly as MFIs would be setting up local infrastructure in rural areas," he added.
Also the recent guidelines for microinsurance is likely to increase the insurance penetration in rural areas. Illustratively the guidelines talk about enabling local kirana, fair-price and medical store owners (who also act like banking correspondents) to sell microinsurance products. This is likely to improve the services impacting renewal premiums also positively.
Micro-insurance regulations for the insurance sector is set to be announced soon. The Micro Insurance Regulations prescribe a framework within which insurers can offer affordable Micro Insurance products to a targeted group of rural and urban insurable population. Last year, under these regulations, Irda had proposed to allow other categories like district cooperative banks, regional rural banks, primary agricultural co-operatives societies, individual agents to be eligible as Micro Insurance agents.
According to the Insurance Regulatory and Development Authority's (Irda) annual report for 2011-12, for life insurers, while the renewal premium accounted for 60.31% (56.66% in 2010-11) of the total premium received by life insurers, first year premium contributed the remaining, that is 39.69% (43.34% in 2010-11).