Health Cover & Care – Predominent Parameter of Micro-insurance

Introduction:

Low-income households are vulnerable to risks and economic shocks. One way for the poor to protect their health is through insurance. By helping low-income households to manage their health risks, micro-insurance can assist them to maintain a sense of financial confidence even in the face of significant vulnerability.

If governments, donors, development agencies and others working for the welfare of the poorer community are serious about combating their health related insurance has to be one of the weapons in their arsenal.

 

Among low-income populations, risk pooling and informal insurance covering health risk are in existence. Informal risk-sharing schemes have been around for generations, even in some of the most inaccessible places. However, these schemes are usually limited in their out reach and the benefits typically cover only a small portion of the loss. A key aspect of the interest in micro-health insurance is to explore ways of significantly increasing the number of poor health risks that have access to insurance while enhancing the benefits.

In global parlance – to learn how to extend health insurance to low-income households, the CGAP Working Group on micro-insurance launched a research project in 2003 to document the experiences of micro-insurance operations around the world and identify good and bad practices. This project conducted a series of case studies of insurance companies, micro-finance institutions and community-based insurance schemes from around the world to learn about the provision of health insurance to the poor. While other types of insurance are also relevant for the low-income market, including property and agricultural/livestock insurance, this initiative focused mainly on two risks – death and illness- that are most frequently identified in demand research.

The research focused on the organizations that had at least three years of experience and covered at least 3,000 lives in order to assess their results rather than their plans. The project primarily looked at experiences in Africa, Asia and Latin America, and sought micro-insurers that employed a variety of different models and delivery structures, such as:

 Partnerships between insurers and distribution agents such as cooperatives & MFIs;

 Regulated insurance companies that serve the low-income market directly;

 Healthcare providers offering a financing package and absorbing the insurance risk;

 Community-based programme that pool funds, carry risk and manage a relationship with the health-care provider;

 Government-sponsored or subsidized insurance schemes for covering;

 Self-insuring MFIs that assume the risk of offering insurance to their clients.

The potential sample of micro-insurance health schemes that met these criteria is not extensive. Many micro-insurance health schemes are newly introduced or the products were yet to become popular by practice. They have found that worldwide most micro-insurers have focused on the simplest insurance products to manage, especially to cover credit life & health.

After that, the volume of available micro-insurance reduces as product management complexity increases. To some extent, the products most in demand in this under-served market, such as health insurance, are precisely those that are the least available for the poor. Some of the drawbacks for the spread of micro-insurance are identified as:

 Low enthusiasm of commercial insurers for the low income group;

 Limitation of benefits of composite products;

 Lack of promotion of informal or regulated insurance schemes;

 Exclusions imposed like- for pre-existing conditions;- And many more.

But their findings on research revealed that micro-health insurance is indeed viable, even profitable under certain circumstances, but a number of difficulties must be overcome for it to succeed. It is very difficult to make these poor people understand the importance of having in place a mechanism that protects them from various calamities. Firstly the steps need to be taken to inculcate in them the habit of buying health insurance as a matter of protection and not to treat buying life insurance only as an investment.

Keeping in mind the constraints associated with the task and to provide a fillip to the cause, the micro-insurance regulations have been issued by the regulator, IRDA vide their extraordinary gazette notification no.147 dated 10/11/2005 with relaxations in the norms; and thus a modest beginning has been made. The IRDA has also put out the concept paper on micro-insurance that is a formalization of the social sector coverage that the regulator would like to enable and ensure.

Being one of the key expectations of the society out of liberalization of the insurance market, developing micro-health insurance and along healthy lines too is our regulator IRDA’s concern. It is now for the insurance players to take it upon themselves to put their best foot forward in furthering this noble cause of implementing micro-health insurance penetration in rural India in the immediate future. It should not be merely taken as a business opportunity but as a part of their social responsibility as well and efforts should be made to achieve the standards in the true spirit and not merely as a target to be fulfilled.

All the other stakeholders have a crucial role to play in ensuring that the task is absolutely accomplished. The author is incorrigibly optimistic that all the stakeholders will invariably think about the micro-health insurance initiative forward along with the other needs like life, agricultural, livestock and property coverage. Considering the huge importance that is associated with this task we need to avail the contributions from the experts of various fields that have been working in the domain, noting their experiences and suggesting ways to take the initiative forward.

There is a dire need now to understand first the pulse of the masses and accordingly go about the task of inculcating in them the habit of purchasing insurance. Efficient and cost effective delivery of micro-health insurance requires specialized skills and institutional capacity in the grassroots-level organizations such as Micro Finance Institutions (MFIs), Non-Government Organizations (NGOs) and healthcare providers; and the main task is to look at the challenges faced by the healthcare sector in India, particularly the underprivileged sections; and suggests ways to rise up to the challenge.

In spite of the rapid strides of development that India has made more recently in several domains, a large percentage of people are still dependent on the primary sector. We must find out the ways to take micro-health insurance through proper publicity policy to the huge and definitely interested population overcoming the disadvantages of a heterogeneous healthcare industry with its price disparities, geographical inequities in availability and price opaqueness. This is definitely the customer lead product and insurance companies must be thinking of ways to manage the downside and exploit the market – their strong initiative is the dire need of the situation.

Despite the entire economic boom that the country has been witnessing and the ever-increasing growth rate, there is no doubt that the incident of health related problems in poor population is still very high. Percentages may indicate differently but considering the huge population, even a smaller percentage would necessarily mean that the numbers are still very huge. Poverty alleviation programs have always been a priority for the policy makers of the nation.

To this end, several initiatives have been taken and subsequently these poverty alleviation programmes have been duly supplemented by empowerment programme for the economically downtrodden sections of the society in order to bring them into the main stream. One should admit that several of these initiatives have yielded results and one gets to see a better standard of living, which is more visible in the countryside after we know that a sound mind in a sound body should be the motto of every human being – whether he belongs to be below the poverty limit or not.

Micro-finance institutions have been doing a great job towards strengthening the cause of poverty alleviation. Apart from active lending, some of the micro-finance organizations also provide other services that help in productivity enhancement and business development.

All this has helped the economically downtrodden sections, especially in the rural areas, to work in a given direction and raise themselves economically. The success of the Self Help Groups (SHGs), especially in some pockets of India, has proved that given a proper direction, even the bottom-most layers of the society can respond positively to the needs of time. It would not be an exaggeration to mention that several of these SHGs have brought in a silent revolution in the field of rural economics.

Insurance has remained low in the priorities of the economically downtrodden sections of the society, historically. But how ironical that it is these sections that are hopelessly dependent on whatever little assets that they have created over a period of time and are really in need of protecting them, apart from their own lives and health!

However, it is beyond their comprehension to understand the importance of insurance; and understandably so. This emphasizes the need for making these masses understand the importance of insuring their health, even lives & assets, etc. and inculcate in them the habit. This is a task that demands conviction and commitment – of several stakeholders.

Micro-finance is the most important socio-economic development of our times. Due to the economic circumstances the poor had no bank facilities for the long time. But with the concept of micro-credit coming in picture it has been proved that the poor can become credit worthy if they form small groups. Micro-credit in India started in big way in the 90’s. In the late 90s, numerous agencies involved in micro-credit operations in India started adding other financial services, including micro-insurance to its micro-credit operations.

The importance of micro-finance can be seen from the fact that in spite of the fact there are many banks in the country but still poor people specially in the rural areas bypassed the formal banking procedure and formed there own groups for the micro-finance activities.

MICRO-INSURANCE refers to the insurance of the low-income people. It is very different from the other types of the insurance available in the urban areas and is a low value product. It requires different design different distribution strategies and it also requires active involvement of an intermediate agency, health providers, and third party administrators representing the target community.

Insurance is emerging as the necessity for the low-income people also. Recent developments in India, as elsewhere, have shown that not only can the poor make small periodic contributions that can go towards insuring them against their health risks but also that the risks they face (such as those of illness, accident and injury, life etc.) are eminently insurable as these risks are mostly independent or idiosyncratic. Thus, insurance is fast emerging as a prepaid financing option for the various risks facing the poor.

Government of India and certain NGOs started the micro-health insurance scheme in India. But the success of these schemes has started now and one of the reasons for which is Micro-finance and other is the reform, which has made the new, and the private sector companies come and work for the benefit of the poor. Although the reach of these insurance schemes is very limited only to the 2 million individuals but there is a huge potential seen in the near future. The overall market is estimated to reach Rs. 250 billion by 2008 (ILO 2004).

IRDA had given relaxations in the regulations pertaining to micro-health insurance products; and thus the process has been initiated. The insurers would do well to extend their hand in the fulfillment of this noble cause; and work in the spirit of accomplishing the task and not merely go through the motions mandatory. The distributors should take it upon themselves the task of explaining to the masses the need for insurance in a manner that they can comprehend. In the end, it should be a combined effort of all the stakeholders to ensure that insurance is understood as a vital tool for the betterment of the living standards of the downtrodden masses.

The past decade has seen the growth of micro-insurance involving health cover in many different countries. In India, too, several people’s organizations and NGOs have been experimenting with various micro-insurance products involving health coverage. While the long-term viability of these efforts is yet to be established, what is increasingly clear is that the healths of poor are insurable. Considering the huge importance that is associated with the task, we are utilizing various contributions from experts who have been working in the domain narrating their experiences and suggesting ways to take the micro-insurance initiative forward.

Just as thirty years ago, in the early years of the micro-finance movement, the poor, and especially women, had to prove that they are creditworthy and ‘bankable’, they have had to show that they are not to be dismissed as ‘bad risk’.

Another difficult area for effective implementation of micro-insurance is adequate experience of the technical assistance health providers and donors. By having a better understanding of the challenges and potential solutions associated with the provision of health insurance to the poor, it is hoped that these individuals and organizations can use their financial and human resources more effectively to expand access to health insurance in rural market.

As a new field of activity, micro-health insurance often operates in an environment that was not designed for it, and which can even be characterized as hostile. By acquiring an appreciation for the key differences between health insurance and micro-health insurance, and recognizing where micro-health insurance potentially fits into a broader social protection framework, regulators, and policymakers should begin to craft an enabling environment to nurture and support the growth and development of micro-health insurance and to promote more inclusive insurance markets.

But one encouraging fact is that these finding of various & vivid researches made on this field revealed that micro-health insurance is indeed viable in our society, and even profitable under certain circumstances, but a number of difficulties must be overcome for it to succeed. The author believes that we would be able to learn from our experiences of those who came before, both those who have succeeded and those who have failed.

Status of Micro-Insurance in India at present:

Micro-insurance schemes in demand in India (list has been prepared by ILO-2004): The inventory lists 51 schemes that are operational in India:

 Most schemes are still young, having started their operations during the last few years. Of the 39 schemes for which this information is available, around 24 schemes came up during the last 4 years, and about 7 schemes have operated for more than a decade.

 As regards the beneficiaries, the 49 schemes for which the information is available cover 7.2 million people.

 Most insurance schemes (66%) are linked with micro finance services provided by specialized institutions (19 schemes) or non-specialized organizations (17 schemes). Twenty two percent of the schemes are implemented by community-based organizations and 12% by health care providers.

 Life and health are the two most popular risks for which insurance is demanded: 59% of schemes provide life insurance and 57% of them provide health insurance.

 In SEWA’s experience health-cover tops the list of risks for which the poor need insurance.

 Twenty-five out of 37 schemes received some external funds to initiate their schemes.

Twenty out of 32 schemes received external technical assistance in the form of advisory services, technical services, training, or even referral services for their schemes.

 In the majority of the schemes special staff had been recruited to manage the insurance activities. The other schemes kept relying on their regular staff while recognizing them the additional responsibilities linked to the management of the scheme.

 Most schemes (74%) operate in 4 southern states of India: Andhra Pradesh (27%), Tamil Nadu (23%), Karnataka (17%) and Kerala (8%), and the two western states Maharashtra (12%) and Gujarat (6%)) account for 18% of the schemes.

 56% of schemes deal with one single risk.

 Most schemes require single yearly premium at the time of subscription. Of the 43 schemes, 6 use a monthly payment for their contribution, while 2 others have linked the contributions to some other activities developed with their members (disbursement of loan etc.).

 Most of the schemes (27) rely on voluntary contribution, while 10 schemes imposed compulsory contributions, and 7 adopted a mix of voluntary and compulsory contributions (based on the type of service provided).

These are the list of the insurance products offered to the poorer section of the society by the private as well as the public sector companies. (source – ILO -2004 report):

 Out of 80 listed insurance products, 45 (55%) cover only a single risk. The other products covering of risks as a package mostly focus on 2 (20%) or 3 (18%) risks coverage.

 The available products cover a wide range of risks. However, the broad majority of the insurance products cover life (40 products or 52%) or accident-related risks. The health coverage remains very limited (12 products).

 Out of the 12 currently available health insurance products, 7 have been designed and are restricted to groups.

 Out of the total 12 health products, 7 products propose the reimbursement of hospitalization expenses while the other 5 have chosen to narrow down the coverage to some specific critical illnesses.

 Most of the health insurance products specifically exclude deliveries and other pregnancy-related illnesses. Most of these products also mention amongst their exclusion clauses, HIV/AIDS.

 Most products whether life or non-life require a single payment of premium (i.e., a one-time payment) upon subscription.

 Private insurance companies have three times more products than the public companies but their initiative for health coverage is relatively poor.

As per the IRDA statistics, the public insurance companies still play a predominant role in the present health coverage of the rural and social sectors. This is only to be expected since the incumbent public insurers have been in the market for a number of years now.

If we carefully observe above than we can take the conclusion that for the health and life the insurance is demanded by the poor and the supply is mostly of the life insurance products and only 7 products provide health insurance to the poor. The schemes offered to the rural poor are not as rigid as those provided to the urban there is much of the flexibility provided to them in terms of payments made in the form of the premium by them.

Main challenges in Marketing of Micro-health Insurance in the present scenario may be perceived as:

1. Poor comprehension of micro-health insurance in terms of the key benefit and the process.

2. Lack of promotion, education, and information in our rural sector for the need of health insurance.

3. Weak distribution channels, inaccessibility of the agent, cost of reaching individual client may be relatively high compared to the existing commission structure.

4. Cumbersome Processes.

5. Stoic belief in fate coupled with apathetic attitude and language barriers.

From the position hitherto discussed, it does become evident that many micro-health insurance schemes have not only achieved good enrolment levels amongst their target populations, indicating the existence of demand, but from a policymaker’s perspective, these schemes have also improved access to insurance for health services for the poor. In a scenario where ill health, natural catastrophe, etc. have been a major cause for impoverishment, the value of such financial health protection doesn’t need to be reemphasized.

Also, many schemes have indeed grown larger and have continued to be in existence for many years, indicating that sustainability of micro-health insurance schemes can be ensured through good design and management. A benefit package which meets the need for financial protection (which, indeed, is the key function of insurance) as also addresses the ‘felt needs’ of the community needs to be carefully balanced with affordability, as the costs do go up as the scope of coverage is expanded.

It is also visible that community driven cost-control mechanisms (like social audits of claims, pre-determined collection periods, co-payments), as also measures to minimize transaction/administrative costs (for example, through collective payment of premium or deduction at source) or to keep third party providers’ charges under control can be devised and are highly effective in keeping costs (and hence, premiums) at manageable levels.

By Mr. Anabil Bhattacharya, B.M.E. (Hons.), F.I.I.I., Published in The Insurance Times, February, 2010