Any debate on financial inclusion usually begins and ends with the role of the banking sector — how banks have opened over 35 million no-frills accounts. It’s a different matter, however, that just about 11 per cent of these accounts are operational.
What doesn’t figure so much in the discussions is the role insurance firms have played in providing solutions that help rural India manage uncertainties like floods, drought, loss of employment, famine, ill-health and crop failure, which are critical in an agrarian economy like ours.
Latest figures show various mass insurance schemes in areas of weather and health reach out to over 40 million families at the bottom of the pyramid, touching over 100 million lives. The penetration is obviously much less than what it is in developed countries, but it’s a feat that can’t be ignored.
A World Bank study estimated that one hospitalisation accounts for 58 per cent of per capita annual expenditure, pushing 2.2 per cent of the population below the poverty line (BPL). Even more disconcerting is the fact that 40 per cent of those hospitalised had to borrow money or sell assets. According to a survey by the Society for Elimination of Rural Poverty in Andhra Pradesh, financial loss incurred from death is often in excess of annual income.
And in India, 80 per cent of the farmers continue to depend on annual monsoon, prompting insurance companies to implement index-based weather and crop cover schemes.
There is no doubt that insurance companies have made significant progress in evolving models that are scalable and have innovated in product design, technology, claims processing and public-private collaboration to deliver solutions to the target population.
Consider the development of specific low-cost health products covering surgeries, critical illness, hospitalisation and personal accident insurance. Customisation has also played a huge role. For instance, ICICI Lombard, India’s largest private general insurance company, offered a critical illness policy to the borrowers of KAS Foundation of Orissa. Under the normal policy, only nine diseases are covered. However, in this part of the country, cerebral malaria was found to be a prevalent life-threatening disease. So the company customised its micro-insurance health product for customers of the state by including the disease in its critical illness cover. This led to better acceptance of the product.
Others like microfinance institutions haven’t been far behind. For example, the Arogya Raksha Yojana, a health insurance scheme for the borrowers of Grameen Koota. With a premium of Rs 180, Grameen Koota offers an emergency loan for health insurance, which is recovered in 12 weekly instalments, relieving the borrowers of the burden of a lump sum premium payment.
The claims ratios in the mass health insurance schemes indicate the success achieved by some of these schemes. For example, the Aarogyasri Community Health Scheme in Andhra Pradesh has provided health care to 18 million BPL families. The overall claims ratio of about 90 per cent indicates that most of the benefit is being passed to the beneficiaries.
But a shining example of how the government can help insurance touch lives in the poorest of the poor segment is the Rashtriya Swasthya Bima Yojana (RSBY). Arguably one of the largest mass health insurance programmes in the world, RSBY provides health insurance to five members of every BPL family. This is done through smart cards, which, with a unique fingerprint identification system, make these cards practically foolproof.
Each smart card is pre-loaded with Rs 30,000, and contains digitised signatures of the head of the family and the officer issuing the card. It also has details like addresses, names and photographs of the dependents. The card is issued to the head of the family, who then selects three other members from his family, other than his spouse, to be included in the scheme.
Most importantly, it’s “portable” — meaning a migratory worker can access health facilities even outside his own state, and his family can receive the benefits of the scheme at the same time. The premium is paid by the Centre (which foots 75 per cent of the premium) and state governments for each household enrolled for RSBY, motivating the insurers to enroll as many households as possible.
Also, the claims process for RSBY is convenient for the participating health care providers since it is a paperless scheme. They can send online claims and get paid electronically. An elaborate back-end data management system is being put in place to track any transaction across India and provide periodic analytical reports.
Is the system foolproof? Obviously, it isn’t — there are many complaints about the eligibility criteria, quality of care, availability of hospitals in backward states and the Indian brilliance when it comes to cheating. Undercutting by insurance companies to bag the mandate is also a huge problem. But the fact is the scheme is broadly working well and has seen the enrolment of over 18 million BPL families.
Though it has not been making headlines as much as banks do, the insurance sector deserves credit for doing a lot more for financial inclusion. Over 100 million BPL individuals would vouch for that.
