Bajaj-Allianz and CARE India have teamed up to provide microinsurance for the world’s second biggest population. RN Mohanty, COO of CARE India Microinsurance, talks about the challenges and the opportunities.
 | RN Mohanty, Chief Operating Officer, CARE India"The biggest challenge was educating people that risk protection is an important part of their lives." (Photo: CARE India) |
Why would a charity team up with a commercial company to provide microinsurance?
We want to establish a safety net for the poorest of the poor. Microinsurance gives a lot of social protection and helps the communities cope with disasters. It plays a key role in our strategy. For us, microinsurance is complementing our work on disaster reduction and livelihood protection.
We work with Bajaj Allianz because we want to use their knowledge. Allianz is one of the few companies that can offer both life and non-life products.
We realized that we would need products that suit the requirements of the poorest. Allianz was open to this idea and agreed to design products for the poor. Now we have one of the largest NGOs and one of the largest insurance companies in the world joining hands in one of the best development partnerships in the private sector.
What is the biggest challenge when offering microinsurance in India?
The biggest challenge was definitely educating people that risk protection is an important part of their lives. We do this because we want to inculcate a culture of savings with the community, not just insuring for the time being. The general mindset in rural India is that unless you get something out of it immediately it is not worth investing. If you look at our client list, close to 90 percent are first-time insurers.
The second challenge is that insurance claims settlement has not been very encouraging in some places. Trust in the system is something we have to work on.
Furthermore, many microinsurances are still off-the-shelf. So if I have property worth 2000 rupees, why should I pay a premium that covers 15,000 rupees? I need an insurance company that can give me a product that only manages 2000 rupees.This need has also come out strongly in our demand and risk assessmentstudy, which helped us and Bajaj Allianz make our products more relevant and affordable to the community.
 | Women listening to a microinsurance meeting held by CARE and Bajaj-Allianz in a village in Tamil Nadu, India (Photo: Allianz) |
Do you think that microinsurance will be economically viable in the face of climate change and natural disasters?
This is a tough one. What we have to do is balance risks. If we only insure people in coastal areas where every year you will have a cyclone, it won’t be very viable from an insurance company point of view.
Right now the focus is on coastal areas, because this is where our post-tsunami work started. Now we need to diversify our geography, and find a balance between the social impact and the business opportunities for Bajaj-Allianz. A more appropriate product mix could also help make the operation more sustainable and meaningful to the communities.
You recently started a project for health microinsurance. What makes health insurance so important?
It is important and unique because it is kind of a co-insurance. When we did our risk assessments and made a study of the local demands, health came top of the list. So we tried to figure out something to address the health needs of the communities we work for. But when we looked at conventional health insurance, we found that the premiums were way beyond the paying capacities of the people. So that is why we came up with the idea for mutual health insurance and co-participation in premium and risk management.
How does this mutual insurance work?
The community manages the insurance and divides the premium through risk pooling. The community mutual keeps 67 percent of the premium and passes the rest on to Bajaj Allianz. Most claims are then paid by the mutual, only those few cases that go beyond the financial capacity of the community are paid by Bajaj Allianz in proportion to the premium received.
We have also identified doctors who refer patients to specified hospitals nearby. Lack of medical infrastructure in rural areas is one of the key challenges we face, but fortunately Tamil Nadu, where our project started, is a state where the medical infrastructure is manageable.
After one year, we have seen that 80 to 90 percent of cases can be dealt with at the community level. It works very well and now we are trying to expand this model to other districts as well.
Another problem is fraud. How do you avoid it?
We create awareness in the community itself. The second key point is the doctor; he is like a gatekeeper.
We have also teamed up with pharmaceutical companies and outlets so we get medicines at a very low price. By minimizing the cost of medicines for illnesses that can be managed without being hospitalized, we have further cut costs and the incentive to ensure that moral hazard is put at bay. And we are trying to get the communities to monitor hospital bills.
So most of our work is actually training and educating people. In my opinion, all the microinsurance we have done is founded on education.
editor: Thilo Kunzemann
publishing date: January 30, 2009
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Excellent report
It is very interesting to see such innovative approach by NGOs in India. I am sure the NGOs will do the wonder and full fill the needs of missing market of micro insurance D.Dharma Rao...