 "Micro-insurance sees 35% fall in costs")
Micro-insurance products, which offer coverage to low income households, have now become not just a means to penetrate rural areas but a business generator, too.
Insurers have started adopting cost-effective measures to boost renewal premiums in this segment, resulting in a rise. As a result, micro-insurance, which constitutes 20-30 per cent of the product portfolio of insurers, has seen a reduction in costs by almost 35 per cent. At the same time, there has been a rise in renewals.
According to insurers, renewal in micro-insurance is a difficult process. This is because the resources are limited and the processes have to be designed in such a way that costs are managed.
Yogesh Gupta, head (business procurement and micro insurance) at Bajaj Allianz Life Insurance, said renewal of policies have been very challenging in rural areas due to factors such as customers' low literacy, low awareness, language barrier, lack of infrastructure, and 'untraceable' customers.
The company has used tools such as handwritten post cards in the local language, public announcements accompanied by drum-beating, etc, to remind customers to renew premiums. It also conducts street plays to educate customers.
"We faced a lot of challenges in the initial phase but our experience in this sector helped us 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 to boost renewal premiums for these products. In rural areas, income is seasonal and cash flow is irregular.
To drive renewals in this segment, insurers use rural bank branches, non-governmental organisations (NGOs), and micro-finance institutions (MFIs) that the locals visit regularly, to remind customer.
"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 partners BASIX and Anjali Microfinance to bring down premium collection costs and make the process simpler. Notably, using the intermediaries' infrastructure has helped renewals for this segment rise 20-25 per cent. In terms of number of policies, micro and rural insurance contribute close to 15 per cent to Aviva's portfolio.
According to Gupta, Bajaj Allianz has achieved a persistency level of about 70 per cent in rural areas. The renewal premium is collected by a team of Bajaj Allianz from the branches of intermediaries. This effectively reduces cost, said Gupta.
Insurance companies promoted by banks also make use of their banks' rural branches. G V Nageswara Rao, MD & CEO of IDBI Federal Life Insurance, said 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. However, there are challenges in terms of cost and reach, according to insurers. After the recent MFI crisis, most MFIs have taken cost control steps and decided to close a few of their branches in rural areas, said Ramachandran. This has had its impact on renewal collection efforts.
According to experts, micro-insurance guidelines, which are to be announced soon, could increase the insurance penetration in rural areas. 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 renewal of premiums, too, experts said.
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, the Insurance Regulatory and Development Authority (Irda) had proposed to allow other categories such as district cooperative banks, regional rural banks, primary agricultural co-operatives societies, and individual agents to be eligible as micro insurance agents.
According to Irda's annual report for 2011-12, while the renewal premium accounted for 60.31 per cent (up from 56.66 per cent in 2010-11) of the total premium received by life insurers, first-year premium contributed the remaining, that is 39.69 per cent (43.34 per cent in 2010-11).
Insurers have started adopting cost-effective measures to boost renewal premiums in this segment, resulting in a rise. As a result, micro-insurance, which constitutes 20-30 per cent of the product portfolio of insurers, has seen a reduction in costs by almost 35 per cent. At the same time, there has been a rise in renewals.
According to insurers, renewal in micro-insurance is a difficult process. This is because the resources are limited and the processes have to be designed in such a way that costs are managed.
Yogesh Gupta, head (business procurement and micro insurance) at Bajaj Allianz Life Insurance, said renewal of policies have been very challenging in rural areas due to factors such as customers' low literacy, low awareness, language barrier, lack of infrastructure, and 'untraceable' customers.
The company has used tools such as handwritten post cards in the local language, public announcements accompanied by drum-beating, etc, to remind customers to renew premiums. It also conducts street plays to educate customers.
"We faced a lot of challenges in the initial phase but our experience in this sector helped us 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 to boost renewal premiums for these products. In rural areas, income is seasonal and cash flow is irregular.
To drive renewals in this segment, insurers use rural bank branches, non-governmental organisations (NGOs), and micro-finance institutions (MFIs) that the locals visit regularly, to remind customer.
"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 partners BASIX and Anjali Microfinance to bring down premium collection costs and make the process simpler. Notably, using the intermediaries' infrastructure has helped renewals for this segment rise 20-25 per cent. In terms of number of policies, micro and rural insurance contribute close to 15 per cent to Aviva's portfolio.
According to Gupta, Bajaj Allianz has achieved a persistency level of about 70 per cent in rural areas. The renewal premium is collected by a team of Bajaj Allianz from the branches of intermediaries. This effectively reduces cost, said Gupta.
Insurance companies promoted by banks also make use of their banks' rural branches. G V Nageswara Rao, MD & CEO of IDBI Federal Life Insurance, said 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. However, there are challenges in terms of cost and reach, according to insurers. After the recent MFI crisis, most MFIs have taken cost control steps and decided to close a few of their branches in rural areas, said Ramachandran. This has had its impact on renewal collection efforts.
According to experts, micro-insurance guidelines, which are to be announced soon, could increase the insurance penetration in rural areas. 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 renewal of premiums, too, experts said.
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, the Insurance Regulatory and Development Authority (Irda) had proposed to allow other categories such as district cooperative banks, regional rural banks, primary agricultural co-operatives societies, and individual agents to be eligible as micro insurance agents.
According to Irda's annual report for 2011-12, while the renewal premium accounted for 60.31 per cent (up from 56.66 per cent in 2010-11) of the total premium received by life insurers, first-year premium contributed the remaining, that is 39.69 per cent (43.34 per cent in 2010-11).