Microinsurance Needs Technology Push
Din Dayal owns two bighas of land in the suburbs of Mandla in Madhya Pradesh. Like others of his ilk, he waits for the monsoons every summer, prays that it will rain on time, neither too much nor too little. His livelihood — and hence, life — centres on the fickle weather. With a hand-to-mouth existence, Din and his family hover dangerously close to the poverty line. An illness, disability, death of cattle, floods or earthquake can send the whole family down th e poverty spiral. For millions of farmers like Din, ensuring their families a safe and happy future remains a distant dream.
It is thus ironical that this same low-income population in most developing countries has a global annual purchasing power of $5 trillion. The question is: how does the world, which is in the throes of a financial meltdown, capitalise on this enormous opportunity?
The requirement for sustainable financial structures at the bottom of the pyramid has spawned hundreds of cooperatives, microfinance institutes and NGOs. But amongst the many facets of microfinance, microinsurance remains significantly under-penetrated; its growth restricted by challenges of reach and sustainability in India’s colossal hinterland. However, there’s a solution in sight; technology can turn the game around, transforming rural India into one of the most lucrative markets for microinsurance.
Viability and Relevance
In the context of designing and marketing products, rural India is a different world altogether. First, companies need to design products that suit the lifestyle and needs of the target population. For instance, illness, weather insurance, livestock insurance and insurance against natural disasters will be more relevant than, say, insuring a house.
Second, companies need to solve the challenges of reach and sustainability. Rural India is one huge collection of villages, each a hub for a small population, but lacking proper connectivity with other villages or cities. Reaching people in such locations is a challenge as the cost of travel might itself exceed the transaction amount.
Even if companies can reach the rural interiors, the claims processing procedure would also need innovation. The claimant might not understand the policy conditions or the claim process, and might not have a bank account to receive the claim cheque. How can an insurance company overcome these unique challenges and, in turn, enable the marginalised millions to benefit from insurance?
Solution is in innovation
For any insurance company to be successful in this space, it must target large rural populations, design simple and flexible products and enable efficient administration. Technology can be a great enabler in this regard.
By negating factors such as distance and reach, and by bringing in transparency and accountability in all transactions, technology can open up hitherto unexplored markets and transform the financial picture at the bottom of the pyramid. A number of innovations that have already made headway into rural India are:
Web-based solutions: Web-based point-of-sale application enables instant policy issuance and receipt generation even in remote areas. This helps in not only enhancing customer satisfaction but also reducing the use of cover notes, which has always been riddled with large scale mis-use/frauds.
Alternatively, there is off-line point-of-sale application which allows policy generation with the help of a program residing in the point-of-sale computer instantly. As soon as connectivity is regained, the policy details are synchronised with the base server.
PDAs and Mobiles: Currently there is a considerable time lag between the actual collection of premium and the deposit made at the insurer’s office. This becomes an issue when there is a claim in the interim period. Technology could be an aid here in the form of PDAs and mobiles.
A PDA can be used to issue a receipt as and where the claimant makes a payment, while the SIM card could be used to transfer the details of the transaction immediately to the insurer’s server. Even the possibility of fraud decreases as the time and date are mentioned in all transactions.
Bio-metric cards: A bio-metric card is like a debit card that contains the insured’s name, age, identification number and thumb-print. Already made compulsory by the government under the Rashtriya Swasthya Bima Yojna (RSBY), such cards minimise the possibility of fraud and speed up the processing of claims.
In the event of a claim, all the insured needs to do is to swipe the card in the card-reader installed in the hospital and match the thumb print with the data base.
Upon discharge, the claim amount is debited from the claimant’s account and the balance is utilised in the next hospitalisation. Under the RSBY, about 5 lakh cards have been issued in 16 States and over 1,500 people have benefited from the scheme.
RFID tags for cattle: Currently cattle insurance is tracked using tagging on the ears of cattle. Since this is not a fraud-proof method, insurance companies have incurred huge losses. RFID (Radio Frequency Identification device) tags negate the possibility of fraud by implanting a microchip that has a unique identification number, near the ears of animals.
At the time of claim, the unique ID number in the chip is matched with the number in the records, negating the possibility of frauds.
Weather insurance: Modern automated weather stations calculate relative humidity and temperature apart from rain, and are better equipped to predict weather changes. However ‘basis risk’ – the risk of experienced loss being different from calculated loss is a matter of concern for underwriters.
To reduce this risk, Normalised Difference Vegetation Index (NDVI) is seen to be an improved way to design weather products. This is a hybrid weather-cum satellite imagery-based weather index, where claims settlement is done on the basis of satellite image of foliage, type of soil and moisture data from satellite image along with temperature and rainfall data from weather station.
Blue Ocean Strategy
There are two facts to be considered. First, urban insurance markets are already saturated. Second, microinsurance in rural India hasn’t really taken off. Put together, it simply means that if companies want to grow, they need to harness technology to leverage the under-explored rural market.
Insurers must remember that, if assisted, the low-income policy holder of today can grow into the middle-class of tomorrow, and hence create a bigger market for the future. Therefore, the need to look beyond short-term gains, to leverage technology smartly, and reap profits patiently in the long run.
Doing well while doing good is indeed very possible. The time to implement a blue ocean strategy is now. All one needs is innovation, drive and an all-inclusive vision to grow together.
N. K. Kedia (Director- Marketing, IFFCO-TOKIO General Insurance)
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