Explained: Micro Insurance in India

The IRDA (Micro-insurance) Regulations 2005 is designed for insurance policies intended for the protection of economically weaker sections of society, with affordable insurance products to help them cope with and recover from financial losses.

All micro-insurance policies are reckoned for fulfillment of social obligations and where a micro-insurance policy is issued in a rural area and falls under the definition of the social sector, such policy may be reckoned for both rural and social obligations separately. Insurance companies are now offering already approved general insurance products as micro-insurance products with the approval of the Authority if the sum assured for the product is within the range prescribed for micro-insurance.

As per the Regulations, Micro Insurance Product includes a general micro-insurance product life insurance product, or health insurance product. A pension-related component can also be built into the life policy. This brings in the savings element in the cover. Further, it is possible to buy coverage against disability due to accidents under the Microinsurance category.

Maximum sum assured:

As per the Regulations, the sum assured under an Insurance product offering Life pension or Health benefits shall not exceed an amount of Rs 200000/-.

For other insurance products, the maximum sum assured is as under.

It is important that the underprivileged section cannot be avoided as this section of society is more prone to many risks which ultimately lead to incapacity to face such uncertain situations. This will not be possible in case the sum assured is on the higher side. The higher sum assured would lead to a higher premium, which defeats the purpose of the plan. As per the Regulations, the Annual Premium shall not exceed Rs. 6000 p.a. in a Micro Variable Insurance product with Non Linked Non-Par platform. Insurers are allowing a maturity age of up to 60 years, capping premium payment up to 45/ 50/ 55 years under different modes of premium payment, including monthly payment with the maximum term being 10/ 15 years. However, maximum Premium limits under Crop Insurance be reckoned on per season/per crop basis. Some Insurers may exclude the risk coverage for the first 45 days. Suicide during the first year is covered to protect the third party interest/ refund of premiums, except in the case of some insurers.

Life Insurers and General Insurers, offering Micro Insurance products may be permitted to tie up as per the procedure laid down under the Regulations. However, Insurers are not permitted to offer micro-insurance products under unit linked platform.

In terms of IRDA Regulations, the remuneration including commission shall not exceed the limits as stated below:

For Life Insurance Business:

Single Premium policies – Ten per cent of the single premium

Non-single premium policies – Twenty per cent of the premium for all the years of the premium paying term

For General Insurance Business: Fifteen per cent of the premium.

For group insurance products, the insurer may decide the commission subject to the overall limits prescribed in the Regulation

IRDA guidelines permit entities or individuals to be appointed as Micro Insurance Agents.

1. a Non-Government Organisation (NGO);
2. a Self-Help Group (SHG);
3. a Micro-Finance Institution (MFI)
4. NBFC – MFIs regulated by RBI
5. District Cooperative Banks licensed by the Reserve Bank of India if eligible as per extant norms of the Reserve Bank of India.
6. Regional Rural Banks established under Section (3) of the Regional Rural Banks Act, 1976 subject to being eligible as per extant norms of the Reserve Bank of India.
7. Urban cooperative banks licensed by the Reserve Bank of India are subject to being eligible as per extant norms of the Reserve Bank of India.
8. Primary Agricultural Cooperative Societies.
9. Other Cooperative Societies registered under any of the Cooperative Societies Acts.
10. Business correspondents appointed by the extant RBI Guidelines with any of the Scheduled Commercial Banks

PROVIDED those micro insurance agents who are appointed to distribute General Insurance policies to the MSME Sector in accordance to the Regulations shall undergo an additional 25 hours of training at the expense of the insurer.

The major challenge in microinsurance are absence of a business model that can attract good capacity-building intermediaries. Distribution is the most critical link in the insurance value chain, especially for micro insurance where the customer is semi-literate or even illiterate, has limited financial resources, and is largely inaccessible. Small ticket size coupled with high transaction and service delivery costs involves a ‘hard-selling’ element.

The major difference between Microinsurance Policies in India as compared to Microinsurance Policies in foreign countries:

In India, Microinsurance is directed towards the economically vulnerable section of society. In other countries, this direction can be towards other sections of the society based on their economic, geographic, and societal challenges. For example, some countries have Microinsurance Policies for disaster relief.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. The article should not be construed as solicitation material. It is based on industry experience and several secondary sources on the internet; and is subject to changes. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a purchase.

Reference: IRDA media reports, internet sources