Micro Insurance

What is Micro Insurance?

Micro Insurance means, an insurance that provides affordable insurance products tailored for low-income individuals, helping them manage and recover from financial losses. This is crucial as underprivileged groups face higher risks and often lack the means to cope with unexpected events.

India is a pioneer in micro insurance regulation, offering opportunities to support the poor, especially those in the informal sector. Despite government initiatives and liberalization, micro insurance penetration remains low and largely supply-driven. Success depends on better product design, simple underwriting, effective distribution, awareness, easy premium payments, smooth claims processing, and leveraging new technologies.

Importance of Micro insurance Policies

1. These policies protect economically vulnerable groups from unexpected risks such as accidents, illnesses, and crop failures.
2. Their low premiums make them affordable for low-income families, allowing them to benefit from insurance coverage.
3. Since vulnerable communities often lack savings to cope with emergencies, these policies help them manage crises without depleting their limited funds.
4. With the financial protection these plans offer, individuals can take calculated risks to build assets without fearing losses from unforeseen events.
5. By making healthcare accessible and affordable, low-income families can receive timely medical treatment, resulting in better health, increased productivity, and improved quality of life.

Micro Insurance Distribution:

Distribution is vital, as many customers are semi-literate or illiterate with limited resources, making access challenging. Voluntary micro insurance requires strong outreach, but it also presents a significant business and social opportunity.

Efforts like the 2005 introduction of ‘micro insurance agents’ aimed to improve distribution by involving grassroots organizations such as cooperatives and self-help groups. While this increased intermediary numbers, premium volumes and coverage remain modest.

As per the IRDAI Annual report FY 23-24, there were more than 1Lakh Micro Insurance Agents. The number would have gone up heavily during FY24-25.

Few notable Micro insurance products in India :

1. Pradhan Mantri Jeevan Jyoti Bima Yojana (govt micro insurance scheme)
2. LIC Micro Bachat
3. SBI Life - Group Micro Shield

The major challenges of distributing micro insurance in india are: -

• Small ticket size coupled with high transaction and service delivery costs.
• Absence of a business model that can attract good intermediaries.
• Capacity building of intermediaries.
• Lack of basic awareness and knowledge on how insurance works

What is the ceiling of annual premium in a Micro Variable Insurance Product?

As per the Regulations, the Annual Premium shall not exceed Rs 6000 p.a. in a Micro Variable Insurance product under Non Linked Non-Par platform.

Summary : 

Micro Insurance is an essential financial tool aimed at extending insurance protection to low-income populations by offering affordable, accessible, and relevant insurance products that address their specific risks and vulnerabilities.

Thanks,

Honvest Team.