New Delhi: After targeting the wealthy and the middle class, India’s private sector life insurers are now planning to profit from selling microinsurance to the poor.
“We are not here just to satisfy regulatory obligations, but we believe that there is a stand-alone business model for enhancing penetration in the rural market,” said T.R. Ramachandran, chief executive of Aviva Life Insurance Co. India Ltd. “There is a business case to expand in the rural front, so microinsurance and rural are areas we are looking at.”
“In 2008-09, we started microinsurance business and covered around 18 lakh lives, which constituted around 25% of our business. We are planning to continue with the same and are targeting 10 million policies in 2010-11,” said Yogesh Gupta, head (business procurement) at Bajaj Allianz Life Insurance Co. Ltd. “Right now, we are developing more products in the same line.”
“Last year, we covered seven lakh lives against Irda’s (Insurance Regulatory and Development Authority) requirement of 25,000. Overall, we cover 15 lakh lives. It’s (microinsurance) a pretty large business for us,” said Ramachandran.
Life Insurance Corp. of India Ltd (LIC) has also been aggressive in the microinsurance space. “This year, we have already covered 209,432 lives through microinsurance,” said an official at the state-owned firm, who declined to be identified because he is not allowed to talk to the media. LIC currently covers around 2.8 million lives through microinsurance.
According to Irda, microinsurance products are those that provide term cover of between Rs5,000 and Rs50,000 for 5-15 years, or are endowment policies for 5-15 years that provide insurance of between Rs5,000 and Rs30,000.
Term insurance is life cover under which the benefit is paid only if the insured person dies during a specified period of time. An endowment policy is a life insurance contract designed to pay a lump sum after a specified term, often called maturity, or on earlier death.
Since the value of the insurance policies is small, the test for insurers is to evolve a business plan that can manage transactions costs.
“The challenge is in adapting the business model. The cost of processing, cost of maintenance and cost of servicing is the same, whether it is a Rs500 or Rs5 lakh product. You still have to sell policy documents and other things,” Ramachandran said.
The key, he said, is in an effective distribution system. To bring costs down, the companies are tying up with various non-governmental organizations (NGOs) and other grass roots groups, such as microfinance institutions and self-help groups to distribute their policies.
“We have tie-ups with 32 regional rural banks and cooperative banks. We (also) have tie-ups with NGOs and self-help groups,” said Ramachandran.
Reaching out: A file photo of the Sonepur fair near Patna in Bihar. Life insurance companies are looking at microinsurance as an opportunity, and not just for satisfying regulatory obligations. Indranil Bhoumik / Mint
Gupta also voiced cost concerns. “Unless and until volumes are there, it is difficult to survive in the microinsurance market,” he said.
Gaurang Shah, managing director of Kotak Mahindra Old Mutual Life Insurance Ltd, agreed. “The key issue is cost management.”
Kotak Mahindra covers 100,000 lives through microinsurance, which accounts for 10% of the total lives it covers.
“In microinsurance, the key is to reach out on pure risk products and not bundled products. Currently, products are too expensive and the only way to reach them is through group business because group insurance doesn’t cost so high,” Shah said.
Anil Mehta, senior director (new markets strategic business unit) at Max New York Life Insurance Co. Ltd, said: “There are over 100 million people in India who have very limited access to insurance savings products, while also grappling with an irregular income flow. To cater to this need gap and tap the potential offered by these under-served millions, Max New York Life introduced Max Vijay, which takes into account the unique needs of this audience.”
Max Vijay offers financial inclusion for a 10-year period, for minimum enrolment premium options of Rs1,000, Rs1,500 and Rs2,500, respectively, and does not require compulsory time-bound renewals. Customers can deposit premiums any time from as low as zero to Rs2,500 per day at their nearby retail shop or NGO. “Max Vijay has received an encouraging response from the market, having provided financial inclusion to over 55,000 households and has reached average sales of 1,000 policies per day,” Mehta said.