Digital Transformation for Micro Insurance

Abstract:

Micro Insurance - as it name denotes, which fits precisely on the covered extent of insured over the country - that has positioned proudly to beat china by 2025 through its population. However, it doesn’t mean that the industry haven’t taken adequate efforts to infiltrate in to market, for almost a decade everyone associated with the industry are pumping out their whole vigor to drive this to growth phase. Being the regulator, IRDA has defined the regulation for micro-insurance at 2005. Followed by that, all public & private insurers are given with the target to promote and cover the economically vulnerable sections of the society. Having such huge market in terms of populations and economically susceptible groups spread over the states to get covered, still we can’t oppose or argue to the fact that we have been tapping predominantly on the word “Micro-insurance” alone and not the untapped market.  Nevertheless, the anticipated development can be accomplished by linking the multiple components which currently functioning in Silo’s includes people expectation and cognizance, demand for the innovative products, focus on distribution channels, strategic operational and technological enhancements, depth of promotion, seriousness of insurance companies, regulator’s  deliberate measures. All the interested parties have to focus only on one common objective “Coverage for one and all” which will substantially improve the insurance penetration of the country and will pave the way to become a leader in global market place.  The modern instrument which can connect all the stakeholders efficiently to boost up the micro insurance market is by none other than – “Technology”. Apparently, during our initial days, this terms has been coined noticeably by the people who are really techies, but the trend has been changed now drastically, it became a layman terminology – which is the most welcoming note to the micro insurance industry to reach its new heights.  

 Micro-Insurance - At the moment in practice:

From its origin, the concept of insurance remains same - distribution or transfer of risk. Then shall we define micro-insurance as “if minimum number of people covered or distributed to minimal population is called micro-insurance” – will this sound senseless? But in terms of awareness, distribution and penetration, unfortunately the above definition stands to the fact. Thus far, our definition towards micro-insurance states “Micro insurance is the protection of low-income people against specific perils in exchange for regular premiums equivalent to the probability and cost of the risk involved”.   In general standpoint, other than the people who are connected with the insurance industry, any insured individual has given an attempt to understand their own policy certificate, its terms & conditions. If so, then their eyebrows will raise in a while when reading through the insurance specific jargons. However, it has been appreciated that our regulations has taken many steps towards this to make it more transparent.  In the meantime, how a group of organized business can expect the vulnerable or un-organized community to abide by its languages and environments. The targeted communities for the micro-insurance take account of people who lives in remote rural places, illiterate, unfamiliar with the word insurance, high-risk individuals and groups, possess little exposure with formal process. The foremost threat for any investor involved in operating this arena are

• Designing innovative product

• To meet the customer needs

• Complying to regulatory terms

• Target audience awareness

• Marketing Strategies

• Promoting intangible  product

• Distribution channel

• Pricing

• Data Collection

• Flexibility

• Considering people affordability

• High risk

Prevailing business model & dependencies:

Though we have an existing business framework in place with an active collaboration among multiple stakeholders, still there is no reluctance to confess the fact that the micro insurance industry suffers from numerous other concerns. The administration of industry has been involved in its promotion in a diverse methods. However, this exertion needs additional direction and trend from regulators. We have debated “n” number of times on problems, issues and challenges faced by micro insurance segment, but the need for the hour is how to mitigate the risk with modernization, creativity, operational framework, innovative business model, collaboration approach, distribution strategy, technology drivers, stakeholders involvement, expanding the industry, creating the awareness for susceptible society and so on. Is it so hard to make the people to understand the necessity of being covered to safeguard themselves and their family from the uncertainty?  If so, then let’s wonder the way how mobile phones, television, movies, IPL got influenced the minds of illiterate and rural people other than being tangible & entertainment specific explanations. At this juncture, micro insurance lacks ultimately from the initial phase itself – the way of promotion & marketing. Followed by that the nation-wide agreed challenges such as

• Insurance companies is not concerned to attend the poor due to high costs and profitability

• Limiting access

• Low transparency

• Lack of cognizance

• Strangeness and faith on the service providers

• Hindrances in understanding technology introduced to do business

• Delivery systems are poor when growing demand for micro insurance

• Uneven cash flows of households where they are unable to pay the regular premiums

• Dependencies on intermediaries - non-government organizations, self-help groups and micro-finance institutions (MFIs),

• Tortoise pace of growth with existing regulated distribution channels includes partnership, agency, and micro-agent models.

Pouring new thoughts on the old engine

Overnight, we can’t anticipate all poor & illiterate people will turn into rich and pay their regular premium, though our government is in urge of getting the black money out from foreign nations. To achieve a new surge in the business, phase-wise improvisation is crucial across the industry. Besides, we are not supposed to cultivate from the scratch, just setting the things right and putting it in place with innovations. Already we are equipped with all the elements to do efficacious business which just need the tweaking of order and addressing few challenges and augmenting with innovative approach will allow us to overcome the issues we face day-in and day-out in micro insurance industry. Overall, the list of essentials which entails instantaneous consideration by the corresponding stakeholders includes

• Educating the market in their local languages through media, information centers, social meetings etc.

• If media can do it for IPL, if public meetings can do it for election campaigning – why can’t for insurance – We just need a little push to do it – may be private insurance company’s interest towards selling micro-insurance can do the fairy-tale

• Data collection

• Understand the existing business framework, analyze the current trend & affordability, claim ratio, customer demand, statistics of coverage, mortality, awareness, population – all these can be established by just accumulating the data, which can be made integral when conducting the drive for election, voter ID, Aadhar ID etc.

• Increasing the partnerships between MFIs, Government, and other societies to reach the under covered market.

• Well known critical constrain in micro insurance is distribution channel, key measures has been taken to bridge the gap by regulators, insurance companies in this area but still considered as the un-addressed and  pain area which hinder the penetration of the market. Instead of having the typical business model similar to urban insurance, considering the replica of small distribution system for micro insurance will suffice the need for the moment, and can be improvised post strengthening of the segment. Likewise the distribution channel can be stretched to

• Primary Health Centre (PHCs)

• Health Insurance can be targeted by local PHCs, where the government staffs can acts as a single point of contact (SPOC), they can explain the needs of insurance to the in / out patients. However, anti-selection & moral hazard has to be controlled or avoided during this process. Over this approach, based on the significance, private insurers can also leverage the customer base.

• Dispensaries / Drug Stores / Auxiliary Nurse can also be considered and this responsibility can be linked with their Key Performance Indicator (KPI).

• Primary School

• Life Insurance can be focused through primary school. Educating the need for the insurance from the primary school will definitely fast track the awareness spread in the society.  Gradually, the interested, service oriented and responsible person from the primary school can be nominated and appointed as SPOC, he/she can govern the policy issuance & servicing (notifications to the insurance companies in terms of amendments & claim intimation).

• Co-operative banks

• Credit Insurance can be promoted by co-operative banks located over the rural areas. Identifying the specific individual and training them to spread the insurance to the rural population will yield the expected outcome.

• Pesticides Distributors

• Crop Insurance – In present scenario, every single farmer rushing to the pesticide shop to harvest more and in short time. The identified distributor can be nominated as the SPOC for the crop insurance, he will be in regular touch with the insurance companies and rural populations especially farmer community. He/she can very well explain and demonstrate the rigorous need of crop insurance to the agriculturalists most appropriately rather than the agents of insurance companies with ironed shirt & tie.

• Petrol Stations

• Motor Insurance / Accidental death benefit – Even in rural populations or in villages, majority of the population has started using the motor vehicles, tractors in view of their personal or occupational purpose. Apparently, they have to rush to the nearest petrol pumps once in a week (agreeing to their usage). However, it’s more than the individual rushes against the insurance companies. By utilizing this opportunity, broking firm has to gear up and have the patronage with petrol pumps, to target the audience on insurance. For example, unlike the usual accidental death benefit (ADB) offered, micro insurance has to be designed innovatively in the way to cover them for shorter period (one Month – coverage of 10,000) with minimal one-time payment of say Rs. 25 or 50, until they get back to the petrol station for re-fueling. SPOC has to be appointed to interact with the insurance companies in case of any alterations or claim intimation.

• Gasoline/LPG Connections

• Fire & Property Insurance – Indian government has already started the campaign of linking Aadhar card with LPG. If that has become successful, then adding the integral component of house hold fire & property insurance will smoothen the approach, where the government can retain the insurance premium while reimbursing the subsidized amount to the LPG consumer. 

• Regulator & Government contributions

• Supporting micro insurance innovation

• Curtailing the documentations

• Developing efficient, transparent claims processing systems.

• Consumer protection – Easy to reach out

• Encourage micro insurance regulation

• Intensifying the industry to reach nook & corner

• Government subsidized arrangements

• Municipal based programs that pools funds

• Involvement of Insurance companies

• Micro insurance awareness

• Product design

• Diversifying distribution channels

• Marketing micro insurance

• Product should be affordable to the poor.

• Flexibility in premium

• Working with community-based insurance models

• Risk prevention strategies.

Manipulating smart sequential arrangement

Its globally proven fact that, the successful process or system which contribute to the operation must collaborate well with all the phases of business framework. It has to connect or link all the independent elements to have the seamless transactions. Each and every phases are interlinked and based on the outcome of earlier phase, another phase effectiveness will be defined.  To reiterate in terms of micro insurance, the well-integrated and inter-linked process must to be followed to penetrate in to the market. The holistic glimpse of sequential arrangement against the current isolated phases can enhance the efficient operations.

• Analyze the historic data
• Data Mining
• Data Analytics
• With the basis of evaluated data, ascertain the necessity of the buyer
• Regular or periodic
• Short term or long term
• Fixed or floater
• Based on the need identified, strategic an innovative micro insurance product
• Individual or Group
• Health insurance
• Crop insurance / Cattle insurance
• General Insurance
• Individual insurance
• Price the innovative product specific to targeted market
• Affordable
• Flexible
• Single premium or regular
• Target the need based audience with the innovated product
• Poultry firm – Cattle insurance
• Farmers – Crops insurance
• Channelize the distribution segment to target the need based audience with innovated product
• Primary Health Centers (PHCs) – Health & Life insurance
• Co-operative bank – Credit & Mortgage insurance
• Market the innovated product through the distribution channel to the targeted need based audience
• Essence the awareness
• Need & importance for insurance
• Communicate effectively on the benefit of coverage offered and ensure the need fulfillment criteria.
• Transparency
• Accessible
• Service to the best to get familiarity, trust, advertisement through referral
• Building rapport
• Co-ordination
• Monitor the segment
• Reports & MIS
• Adhering to terms & conditions instructed by regulators

The role of technology is essential in micro insurance

In general, the vivacious intention for celebrating the word “technology” is - it simplifies the process without requiring much labor or effort, though it consumes slightly the expenditure part of organizations, still preferred by most of them because of its capability in delivering the quality outcomes and supports the time to market initiatives. Thrashing to the point, in micro insurance segment, the need for double cautiousness is mandatory, because our target audience are struggling to understand the term “insurance”. So for them, introducing the complex process and technology will make them to stand out of the insurance covered population and they remain part of our census system alone. The micro insurance population requires simplified method of operation to ensure the growth phase of the segment. Illustrated the high level workflow between the rural population, few strategic distribution layers and their communication with the insurance companies.

Single point of contact
o   The primary demand in the micro insurance segment is distribution channels expansion, highlighting the point that those distribution channels, Single point of contact (SPOC) should be able to create the rapport with the illiterate & rural people and build the familiarity and trust. Opting someone in the existing culture and training them will make sense, because they must have already have created a rapport amongst the people, electing professionals like government doctors, teachers, advocates, village administrator (VAO) will be more beneficial since they hold a respectful position in their community and people use to obey their words. 

Harmoniously viable system
o   For micro insurance operations, simple and interactive system has to be designed by utilizing the day to day improving technology. Even, technology has proved many times to the people who knows how to handle it, but for micro insurance, it’s a challenge for the technology to help the group of people who are not aware about it.  Few operational challenges has to be improvised in terms of micro insurance includes documentation, huge list of requirements, etc. User-friendly systems with minimal data entry with instant disposal of premium collection receipt ingrained with policy coverage & terms and conditions will sophisticate the business. Similar to the credit card mechanisms, equipment available in retail outlets etc.

Integration with the Insurance companies
o   Based on the located zone, single point of contacts data must be transferred to the insurance companies database by online (Real-time) or offline (Batch) process. The compatible core system integrated with the “Micro insurance system (MIS)” will enable the smooth transactions. However, the MIS should capable to request for endorsement and assist the SPOC in intimating the claim. Post achieving the decent outcome & attaining the desired insurance awareness, the existing system for urban insurance can go in production with the micro insurance industry.

Conclusion

Since we call it as simply “micro insurance” doesn’t mean that it has the little significance in the industry. Though it’s well-known for low margin, high volume segment, we have major portion to cover and penetrate in to industry. Overall, we need a little push to crack the sweet spot with deliberate moves includes developing the insurer’s inspiration, regulators innovative strategy, government subsidiary, distribution channel’s effort, technologies kindness and people collaboration. The other side, through this micro insurance spread across the nation will enable voluminous rural people to get employed and presumably which will eradicate the unemployment. The current trend is the right time to surprise with the macro drive in the field of micro insurance. Nevertheless to say, “Micro insurance, macro opportunities”, certainly we understand that “challenges” by way of opportunities.