India
About the country
India has one of the most dynamic insurance markets worldwide. Liberalization of the economy and the insurance sector has created new opportunities to reach a majority of the poor. The insurance penetration in India is however still low at 2.9 percent. Life insurance dominates the market, although many innovations are happening in the health, livestock and crop and weather insurance space. Microinsurance growth rates in recent years have also been strong.
Our engagement
The ILO’s Impact Insurance Facility has actively participated in the development of the insurance market in India. Since 2008, the Facility has been involved in several projects for insurance companies. The Facility assisted India’s national health insurance programme through analysis of its long term viability and enhancing client value by adding complementary covers. Ongoing projects are taking place with insurance cooperatives and technology-enabled banking agent distribution networks. More recently, the Facility has started a partnership with the Ford Foundation to improve the understanding and implementation of insurance services and appropriate outreach mechanisms for farmers and farm workers to access government insurance programs.
Our initiatives: Research and innovation
In India, the Facility has been involved in a wide range of innovation projects, each consisting of learning questions and subsequent action plans. It has partnered with a number of leading practitioners to design innovative strategies. Some of these completed projects are listed below:
With IFFCO-Tokio, the Facility worked on a cattle insurance project targeting more than 25,000 poor farmers and their families in a number of Indian states. The project aimed to test a model to reduce fraud by using an identification device placed under the hide of the animal. The extent to which the implementation helped reduce fraudulent claims, to which farmers accepted the technology and to which costs, efficiency and profitability improved, were all part of the learning agenda.
Rashtriya Swasthya Bima Yojana (RSBY) is India’s national health insurance programme for below the poverty line (BPL) families, most of whom are informal workers. In collaboration with ICICI Foundation and ICICI Lombard, the Facility assisted the RSBY health insurance scheme in analysing its long term economic viability and enhancing client value. An extensive case study was later published, covering introduction of outpatient healthcare on the RSBY Card.
Meanwhile, our work with the FINO Fintech Foundation was focused on technological solutions to sustainably extend microinsurance services to low-income households in rural India.
The Facility assisted the Indian trade union Self Employed Women’s Association (SEWA) in their supporting of women in times of crises, by providing comprehensive insurance coverage through linkage with insurance companies. This included insurance awareness, direct selling and door to door premium collection, claims servicing at the client’s doorstep and training.
DHAN Foundation collaborated with the Facility for a project that targeted small farmers who did not have access to insurance mechanisms for adapting to climate change. The learning agenda of the project included ways to determine the loss associated with individual risks, the factors that determine the efficiency and effectiveness of crop insurance programmes, and ways to optimize the placement and number of automatic rain gauges.
Our work with Tata AIG General Insurance Company targeted small and marginal cattle-owners who are dependent on cattle as primary or secondary source of income. These beneficiaries enrolled their cattle in cattle insurance schemes supported by the Government of India through the district-level Livestock Development Boards.
Besides these innovation projects, the Facility supported research on a range of topics. For example, research exploring the integration of savings and insurance suggested that the introduction of a mixed product is unlikely to be successful and mixed savings and insurance products require further investigation.
The Facility supported a study that evaluated health-seeking behavior, utilization of care, and health risk. It evaluated the causal effect of an insurance offer, and the contract itself, on changes in health seeking behavior, specifically access to, and utilization of, health care facilities.
Research on financial literacy for weather insurance was conducted through a field experiment in which rainfall insurance was offered to farmers in India. The study provided some of the first evidence that financial education can influence financial behaviour.
Another research project aimed to determine the effects of bundling health insurance with microcredit, on both demand and supply sides. The research was done within the context of a broader randomized controlled trial in Hyderabad, India.
The Facility supported research into understanding commissions based advice. The study aimed to understand the quality of advice provided by commission motivated agents and how consumers respond to this advice.
Lessons
Bundling
Access to agricultural insurance leads to significantly larger agricultural investment and riskier, yet more rewarding, production choices in agriculture. Insurance as a standalone product may not be sufficient to overcome the binding constraints of farmers. Hence, bundling provides more value for all the players in the value chain.
Health
Dial-a-Doctor services can complement health insurance products. By providing regular, tangible benefits to many more clients, value-added services like Dial-a-Doctor can enhance demand for health insurance schemes.
Proximity and access to outpatient care may lead to fewer inpatient claims for insurers. Empirical data from several schemes in India, highlighted in a new study on value-added services which complement health microinsurance, suggest that providing access to free or discounted outpatient (OP) services leads to lower use and cost of inpatient services.
Providing affordable access to outpatient services can lower claims costs for inpatient health microinsurance schemes by promoting earlier, less intensive treatment seeking behaviour. Providing access to free or discounted outpatient services leads to lower use and cost of inpatient services, based on evidence from several schemes in India, among them ICICI Lombard and AMICUS.
Subsidies may be vital if health microinsurance schemes are to provide part of the answer to achieving universal health coverage. Although some schemes surveyed by us offered a variety of benefits and providers ranged from commercial insurers to not-for-profit organizations, all made use of subsidies to achieve sustainability.
Technology
Using technology to improve value to clients. Uplift India Association, a partner of the Facility, implemented a new customized management information system (MIS) which halved enrolment time and reduced claims turnaround time from an average of 45 to 10 days in trial locations. Furthermore, the technology allowed Uplift to make better use of community decision making.
New technology helps in improving client engagement and scaling up operations. The implementation of a new customized management information system by one of the Facility’s partners halved enrolment time, reduced claims turnaround time and allowed the organization to make better use of community decision making.
Using smartcard technology can help greatly reduce costs and increase efficiency. Results from India demonstrate how smartcards can create better value for clients, insurers and healthcare providers through efficient and cost-effective delivery.
Identification technology can reduce fraudulent claims and help make cattle insurance sustainable. The claims for livestock insurance are often high due to the prevalence of moral hazard and fraud, reducing the availability of affordable coverage. New technology helps reducing fraudulent claims and benefits farmers through faster claim settlement and lower premiums that reflect the reduced claims.
Agriculture and index insurance
Modular products that offer farmers a choice of risks covered and inception dates might stimulate demand for weather-index insurance products. Given a choice, most farmers selected insurance for a single risk that they perceived as the most relevant and they selected cover based on the season and the type of crops cultivated during that season.
Agricultural insurance subsidies need to be carefully designed to be smart. The schemes need to be cost effective in achieving its underlying purpose, minimize disincentive problems, and not become a growing financial burden on the government.
Claims
Segmenting claims data can provide insights into interventions to reduce claim costs. Segmenting claims data properly can take time and effort, but it is essential to properly understand the drivers of claims costs and to develop targeted interventions.
Distribution
Distribution models in some countries do not always work in the interest of the client. The need for a responsible insurance agenda is highlighted by the case of the floods in Chennai. Although reliable cash and credit flows here helped to reduce the impacts of the flood, insurance covered only a small percentage of losses.
Consumer education and client insights
Financial education can influence consumer behaviour. A customized financial literacy and insurance education module had a positive and significant effect on the take-up of a rainfall insurance product in a randomized field experiment conducted in three districts in Gujarat, India.
Improving client value is a continuous process that requires organisations to understand clients’ specific needs and then identify ways to increase value. The case of Uplift Mutuals, a community-owned health insurer in India, provides a useful example, as it built a network of quality health providers, instituted a 24/7 helpline and expanded its health initiatives to increase value for all members, even those with no hospitalisation claims.
Ad-hoc consumer education is a waste of money. A long-term, comprehensive approach is important to develop and deliver effective consumer education to improve risk-management capacities of low-income households.
Market development
India’s use of insurance as a tool to achieve public policy objectives related to expanding social protection and promoting financial inclusion was a significant factor in its staggering growth in microinsurance clients. Through a combination of “carrot-and-stick” policies it leveraged the experience of insurers and stimulated investment in the sector.
Competition leads insurers to improve benefits and servicing. In response to slower growth due to increased competition, insurers in India have tried to foster customer loyalty, differentiate products, improve servicing, and reduce costs rather than only compete on price by reducing premiums.
Banking correspondents can help in the further distribution of insurance through a large pool of existing clients. In India, many banks have developed extensive networks of “banking correspondents”, non-bank outlets such as small shops or hairdressers that provide financial services and products on behalf of the bank.
Combining agriculture insurance with credit and making it mandatory has helped the market to grow. Mandatory offerings work best when they are offered with a solution that farmers desire and may not have an option to go elsewhere. Making it mandatory benefits both the insurer and the government: the insurance companies do not incur any additional cost in sales, marketing and awareness creation while governments reach vast number of farmers through the programme in a mandatory regime.
