Tata – Aig Microinsurance Project

The State of the Insurance Industry India’s insurance industry, private and public, has its roots in the 19th century. The British government set up state-run social protection schemes for its colonial officials, many of which evolved into today’s schemes. The first private insurance company was the Oriental

Life Insurance Company, which started in Calcutta in 1818. Under British rule, many insurers Good and Bad Practices in Microinsurance TATA-AIG, India people. ” The government combined 154 insurance providers and formed the Life Insurance Corporation (LIC) of India. General insurance remained in private hands until 1973 when it too was nationalized. Prior to nationalization, 68 Indian and 45 non-Indian entities sold insurance. All of these were absorbed into one giant corporation, the General Insurance Corporation (GIC) with its four subsidiaries: Oriental Insurance Company Limited, New India Assurance Company Limited,

National Insurance Company Limited, United India Insurance Company Limited. Despite Nehru’s desires, in the decades following nationalization, insurance products were designed primarily for those with regular income streams, i. e. , those in formal employment. These were overwhelmingly men in urban areas. The poor, working mostly in agriculture, were largely overlooked by these new companies. When the ideological winds of change blew in the early the early 1990s, the Indian government set about liberalizing its insurance markets. It set up a commission of enquiry under the chairmanship of R N Malhotra.

The central outcome of the commission was the establishment of the Insurance Regulatory and Development Authority (IRDA) that in turn laid the framework for the entry of private (including foreign) insurance companies. At the beginning of 2005, there were 14 life and 14 non-life insurers operating in India.

India’s insurance penetration (premiums as a percent of gross domestic product) in 2003 is low at 2. 9 percent, and ranks 54th in the world. In premium collection, the record is better, at 19th position collecting US$17 billion in 2003. The 2003 ratio of premiums collected per capita (insurance density) is 16. . Compared with a world average of 469. 6, India’s insurance industry is still at a very nascent stage. Of the US$16. 4 per capita expenditure on insurance, a mere US$3. 5 is spent on general insurance. This is primarily because in India, non-life insurance is not considered important and people perceive it as an unnecessary expenditure. 4 Table 1. 2 summarises basic information about the Indian insurance industry.

These schemes are often run by cooperatives, NGOs, and other community organizations that pool their members’ premiums to create an insurance fund against a specific peril, for example funeral costs. In many countries, there is specific legislation to regulate these chemes, but in India no such law exists; any individual or institution conducting insurance has to comply with the stipulations of, among other regulations, the 1938 Indian Insurance Act as amended. Compliance with this Act requires, among other conditions, over $21 million of capital to get an insurance licence. Schemes that do not comply with the Act—such in-house insurance offered by MFIs, NGOs and trade unions—operate in a legal vacuum. At present, the IRDA has not taken action against these schemes. However, regulated insurers have expressed their unhappiness to the IRDA about needing to compete against non-regulated insurers.

The situation may thus change if regulated insurers place sufficient pressure on the regulator to act. Two possible scenarios may occur: either the development of particular legislation to cater for microinsurers or active closure of non-regulated insurers. The authors recommend that the IRDA takes the former approach i. e. , the development of particular legislation to cater for and support currently unregulated microinsurers.

Many unregulated insurance schemes are run by well-intentioned staff and confer positive social benefits. Indeed much of innovation in microinsurance has emerged from unregulated icroinsurers. Moreover, informal insurers often sell insurance to clients that regulated insurers ignore. Unregulated microinsurers may hold significant funds on behalf of low- income clients. The risk of working with these unregulated organisations is that there is no legal framework that ensures that they meet minimum prudential standards and other Good and Bad Practices in Microinsurance TATA-AIG, India but have to ensure that the amount of business done with the specified sectors was not “less than what has been recorded by them for the accounting year ended 31st March, 2002. ”

Rural areas are all locations outside of officially classified urban areas. Life insurers must sell 7% of total policies by number (not value) in the first year, with increasing amounts of up to 16% in Year 5. With general insurance, 2% of gross premium income must come from rural areas in the first year, 3% in Year 2, and 5% thereafter. The regulations for the rural sector do not specify the income levels of clients directly. They specify that the clients must come from rural areas. With the great majority of poverty in India located in rural areas, the effect of such a stipulation is to ensure that poor clients are old policies.

At present, the rural quotas are relatively low, so it is possible for many insurers to meet their rural sector targets by selling high value policies to wealthier residents of rural areas, but the quota rises each year. The targets for life insurance are likely to be easier to hit than for general insurance. Consider, for example, how many insurance policies covering huts need to be sold to equal 5% of the premium of a $100,000 house in Bangalore. This regulation has generated massive pressure on insurers to sell microinsurance. Without selling microinsurance, they cannot sell their more profitable products.

To date the IRDA has fined a number of insurers for failing to meet their targets. Continued non-compliance to the rural and social obligations could result in suspension of license to operate. The social sector includes low-income groups consisting of unorganised workers and economically vulnerable or backward classes in urban and rural areas, for example Dalits or untouchables. Insurers must cover a specified number of new lives each year from these groups, from 5000 policies in Year 1, up to 20,000 policies in Year 5. It is difficult to assess the costs and benefits of the regulation without further research.

On the one hand, the regulation has created a frenzy of interest by regulated insurers to enter into microinsurance. The regulation has also been the motor for important innovation. To date, much of the innovation in other countries has derived from donors, academics or MFIs working on the issue. In India, in their drive to meet their rural and social sector targets, regulated insurers are developing innovative new products and delivery channels. They bring their considerable resources to this task. Good and Bad Practices in Microinsurance TATA-AIG, India Concept Paper for Microinsurance Regulation

The next central regulatory document, published by the IRDA in August of 2004, is entitled “Concept Paper on Need for Regulations on Micro-Insurance in India. ” While not regulation, it nonetheless reflects the intentions of the regulator. Overall, the Concept Paper is commendable, but there are two significant concerns:

• the implicit restriction of microinsurance to the partner-agent model;
• the lack of product flexibility.

There are various models for selling and servicing microinsurance, for example co-operative insurance and NGOs or other institutions providing insurance on their own. These models all have trengths and weaknesses, but overall, with appropriate regulation, they expand the frontier microinsurance provision. By restricting microinsurance provision to the partner-agent model, the IRDA restricts the development of microinsurance.

The concept paper also prescribes many of the products features, which may leave insurers with undesirable products that may not be bought by their clients. Profile of Microinsurance in India Prior to the passage of the Obligations of Insurers to the Rural and Social Sector, and its resultant partnerships between insurers and MFIs and NGOs, for the most part Indian icroinsurance schemes were either some variant of a community-based model or managed by MFIs in-house. An exception is the Self-employed Women’s Association based in Ahmedabad, one of the world’s microinsurance pioneers.

In 1991, SEWA developed a relationship with LIC to act as an agent selling life insurance. In 1992, SEWA developed a health insurance scheme in partnership with the United India Insurance Company. Over the years, it has moved between partner-agent and in-house insurance, although now it only partners with insurance companies and provides integrated life, health and asset coverage for more than 90,000 adults.

In the community-based model, a group of people get together and essentially develop their own insurance scheme in which they pool their own funds, develop their own rules, and run their own scheme. The Swayamkrushi / Youth Charitable Organization (YCO) is an example of a community-based model that still operates. Based in Andhra Pradesh, it is primarily a savings and credit association with an added insurance feature.

The co-operative’s 8,100 members pay an annual insurance premium of Rs 100 ($2. 20) and receive insurance cover for life and assets. Their life cover is Rs 15,000 ($333) in the event of a natural death and double hat in the event of an accidental death. The fund’s premium pool is held and operated by Good and Bad Practices in Microinsurance TATA-AIG, India officers. SPANDANA has used the profits from the scheme to provide bursaries for the children of its clients. 6 Although these informal schemes do, on the face it, provide a beneficial social service to low- income people, they are strictly speaking unregulated. These schemes often circumvent regulations by giving their insurance policies names that do not use the word insurance. Whatever the name of the schemes, their practices contravene the Insurance Act of 1938 as

Amended. 1. 3 The Role of the State in Social Protection The primary social protection schemes available in India are listed in Appendix 1. When reading through the list, it is worth noting that, although many schemes exist, their coverage of the Indian population is on the whole miniscule. The risk of ill-health, for example, one of the most significant risks faced by poor and rich alike, is in theory covered by the Government of India’s free universal health care. In practice, however, the health care offered by the state is so limited and often of such poor quality that, greater than 80 percent of total xpenditure on health in India is private, and the poorest quintile of Indians is 2. 6 times more likely than the richest to forgo medical treatment when ill (Peters, Yazbeck et al 2002).

Tata-AIG Life Insurance Company is a joint venture between the Tata Group (74% equity stake) and American International Group Inc. (AIG) (26% equity stake). The company offers a broad range of life insurance products to individuals and groups. The products offered to individuals are variations of term life with or without a savings element, e. . , endowment policies and money back policies. Tata-AIG Life has been in operation since April 2001 (incorporated on Aug 23, 2000). While the company itself is relatively new, the Tata group is widely known in Indian households.

The Tata Group is one of the oldest and largest industrial conglomerates in India. Established in 1868, it has interests in engineering, consumer products, chemicals, financial services, hotels, information technology and telecommunications. With over 80 companies, and with revenues close to 1. 8% of the country’s GDP, the Tata brand is very well respected across the ocioeconomic classes. Most importantly, it manufactures a large variety of goods that are highly visible to low-income households, like consumer goods, trucks and automobiles that bear the Tata logo. Having been around for over a century, the name Tata introduces immediate credibility in its microinsurance operations.

Agents selling microinsurance products are able to assure potential clients that such a large conglomerate would have little interest in stealing their miniscule (in relative terms) premiums. AIG is the one of the world’s largest insurers. Aside from its massive pool of in-house echnical capacity, it has experience working on microinsurance in Uganda.  Although Tata is the largest shareholder in Tata-AIG, AIG manages the company with strategic guidance from AIG’s Hong Kong office.

Tata-AIG was among the few private sector insurance players to have a well-known, reputable local brand, but it did not have a strategic banking alliance with domestic banks or branch presence in smaller towns that could enable it to promote microinsurance sales. As a result, its microinsurance strategy had to be developed around other partner organizations to enable the insurer to penetrate rural areas.

Rural India comprises of over 650 000 villages with over half of them having a population of less than 500. Even the state relies on NGOs to provide services to remote and poorly connected locations. Good and Bad Practices in Microinsurance TATA-AIG, India Although AIG was forced to find a local partner to get a license to do business in India, the choice of Tata, with its excellent reputation in the development community, made it an invaluable partnership. This was especially significant in India where many multinational corporations have faced significant difficulties in entering the India market.

The CEO had the foresight to recognise that microinsurance was not simply a matter of selling existing policies cheaply, but required new products and distribution mechanisms. Crucially the CEO approved of the distribution of resources towards microinsurance and the hiring of a specialised microinsurance team. He gave it space to think creatively about how he sustainable promotion and servicing of microinsurance products might work.

The CEO has been supportive of the microinsurance programme for a variety of reasons. Most obviously, the insurer is compelled to meet the rural and social sector obligations. That said, many insurers have simply seen the obligations as a cost of doing business in India. They have responded to the obligations by essentially selling only the required quantity of policies, and there are reports that those have been poorly serviced. Tata-AIG could have responded in this way, but instead saw microinsurance as a marketing opportunity.

Although microinsurance would not make much profit (if any) initially, it helps get Tata-AIG’s brand Good and Bad Practices in Microinsurance TATA-AIG, India Table 2. 2 Predicted Changes in Wealth, 1998 to 2006 Guide to the figure: The left hand column depicts income quintiles (L – poorest quintile of the Indian population, H – wealthiest quintile of the Indian Population) / Numbers within the chart represent the proportion of the Indian population within each income quintile in a particular year) From AIG’s perspective, because of its microinsurance successes in Uganda, it was interested o see whether microinsurance would work elsewhere. If it could work in India, perhaps it could also be exported to other fast growing Asian economies like Indonesia. In addition, the microinsurance programme has helped Tata-AIG partially fulfil its own corporate social responsibility obligations.

The separation of these functions meant significant lags in processing customer feedback. Tata-AIG took a different approach by having a department focused solely on microinsurance, so a single team managed the entire process. The rural and social team of Tata-AIG is headed by Vijay Athreye (the co-author of this study). Athreye was hired by the CEO in 2001 to help Tata-AIG meet its Rural and Social Sector Obligations.

The team therefore is primarily concerned with sales, servicing and training of agents (e. . MFIs) and micro-agents. Insurance experience was not a prerequisite for securing a place on the rural and social team. This is partly because in India those with insurance experience tend to come from the state-owned companies and have a “civil service mentality” of being rigid and rule-bound. The criteria for staff selection included: youth (because of the innovative, dynamic nature of the products and distribution channels), a university degree, commitment to the social sector work, and an ability to communicate with low-income people. For the first two years, Athreye ran Tata-AIG’s rural and social team by himself.

In the first year (Dec 01- Nov 02), he was responsible 7 742 social policies. These were marketed with the help of The Bridge Foundation (TBF), a microfinance wholesaler, which became a corporate agent for Tata-AIG and promoted these policies through its network of microfinance institutions. Some of these policies were pilots and many lapsed. In the second year (Dec 02 – Nov 03), Tata-AIG had an additional 2 941 social policies again through TBF network. During this year, Athreye secured a grant from DfID’s Financially Deepening Challenge Fund (FDCF) and began to develop the micro-agent model as an additional istribution channel. Good and Bad Practices in Microinsurance TATA-AIG, India After this initial experience, the rural and social team grew rapidly.

In the third year (Dec 03 to Nov 04), the team launched the micro-agent model in four states and received resources to hire two additional staff members, for a total of 5 employees (in all including the staff outsourced to NGO partners on the DfID project). In the first half of 2005, the microinsurance programme received resources to hire 7 additional staff members. 2. 3 Resources Besides company funds, the microinsurance team has been able to harness external funds.

In September 2002, DfID put out the bidding process for its Financial Deepening Challenge Fund, a matching grant for which the private sector could bid based on innovative ideas to reach the poor. Tata-AIG bid for an assistance of ? 89 500 ($168 620) and committed matching funds to the tune of ? 104 000 ($195 520). The FDCF grant is being used for product development, capacity building, and physical and communication infrastructure like vans and the Internet portal.

Lobbying Much of the development activity in India is influenced by the opinions of donors and other development agencies. Lobbying such agencies thus has created good PR for the programme and has opened doors by creating favourable disposition of potential partners towards Tata- AIG. With respect to parastatal development agencies, Tata-AIG has lobbied the Small Industries Development Bank of India (SIDBI), which funds several MFIs. Lobbying with SIDBI helped open doors with several potential partners in Andhra Pradesh.

There were multiple reasons for obtaining additional funding aside from the obvious one of reducing the need for in-house funding. The DfID grant acted as a catalyst in the development of the micro-agent distributional model. The prestige associated with a grant from an international development agency improved the status of the microinsurance project within Tata-AIG. In addition, many NGOs reacted favourably to collaborating with Tata-AIG Good and Bad Practices in Microinsurance TATA-AIG, India Selection and Training of Agents The NGO partner is enlisted on the basis of recommendations from donor agencies and others n the Indian development community. Once the NGO partner is selected, Tata-AIG asks the NGO to draw a list of appropriate persons based on a Tata-AIG’s profile of ideal micro- agents. For example, the criteria for the selection of a CRIG leader include:

• Must be a resident of the community in which she will sell and service policies.
• Preferably having passed the 12 th school year or at least the 10 th —this is to ensure that she is eligible to be licensed (an IRDA requirement).
• Married: Since MI is long-term commitment to policyholders, an unmarried CRIG leader may migrate to her (future) husband’s village, leaving the CRIG and the olicyholders in the lurch.
• Ability to write English: Since the underwriting at the head office is in English, it is imperative that the proposal forms are filled in English.
• Good track record of integrity: Money handling is integral part of her duty as a leader.
• Effective leadership qualities: She has to manage a group of 4 other women.
• Public speaking ability: She will be required to address large gatherings to promote Tata-AIG’s products.
• Training skills: Since she is the only one trained on insurance, she has to train the other four.

Must have a positive influence among the target market. Each leader, in her area, should preferably be a woman who is admired for her integrity, forward looking, and progressive nature, and must be able to use this influence to enable her CRIG members to achieve their targets.

Preferably, she should have some previous work experience in the social sector. This profile is constantly updated to reflect new learning from operations across the country. On reflection, the skills required to become a CRIG leader are considerable and may restrict the replication of the model in states with a scarcity of such skills among the rural poor, especially women.

Once Tata-AIG has a list of candidates, they take a written test to assess whether they have the comprehension and analytical skills required for the job. This examination is mandated by the regulator and it’s conducted by an external examiner. The successful candidates then go through three days of microinsurance product training where they learn about administrative processes. Good and Bad Practices in Microinsurance TATA-AIG, India Tata-AIG has recently started outsourcing the delivery of some of soft skills training sessions, such as team building and communication, to the NGO partners.

The NGOs learn how to ffer the training by attending an existing micro-agent training course and then receiving the training material and support from Tata-AIG. When the NGO holds the course for the first time, a trainer from Tata-AIG is present as a mentor. This is cost effective for Tata-AIG; it provides a revenue stream to the NGO and enhances its endorsement of the insurer’s programme. It is too early to judge its success. Lending Credibility to Sales Operations Tata-AIG collaborates with NGOs in part to build sales credibility. For example, when there are claims payouts, the NGO is invited to a public claim distribution ceremony.

Tata-AIG has also developed general literature on the nature of insurance, which is distributed by the NGO. There is no mention of Tata-AIG or its products in this literature. By promoting the literature, the NGO is establishing the legitimacy of insurance, which has the knock-on effect of building the creditability of Tata-AIG. Partnerships with NGOs have played a central role in the success of Tata-AIG microinsurance. They have helped select agents; they have been hired to provide a range of cheap front-end services including policy servicing and training of agents.

Approximately 74% of households in India are in rural areas. Close to 80% of these have an annual household income of less than US$1800 (Rs 81 000). The characteristics of this market are:

• Potential microinsurance clients live in households of 5 or more sharing income and access to financial services. This has important implications for access to microinsurance. A policy can be bought by one member who has access to the insurer on behalf of another household member.
• Agricultural labour is the main source of income. The implications of this are that Good and Bad Practices in Microinsurance TATA-AIG, India Low levels of literacy imply that marketing needs to be done without written media, for example film, radio, street theatre and word-of-mouth.
• The rural poor often live in areas with poor road and telecommunications infrastructure, which increases the costs of selling and servicing policies.

There is a often no definitive socio-economic data for this target group, such as mortality rates, which makes rate making difficult. In general, private insurance companies are using the data from LIC as a basis for their own assessment. Although this is the most comprehensive database, it does not cover detailed nformation specific to the situation of poor and low-income groups. Tata-AIG has had to obtain its mortality figures in part through its own experience. Its products have been sold mostly in the rural areas of Southern India to clients aged between 18 and 45 years (55 years with a lower sum assured for one term product). In the last three years, the insurer estimates a mortality rate of just less then 3 per thousand.

The poor by definition own few assets. In contrast to the urban poor, many of the rural poor own their dwelling and the land that it is constructed on.

Income for the landless poor is largely a function of daily agricultural labour rates and the number of days such work is available. The insurable perils are:

• Loss of life. Most household members contribute to household income, except those too old, young or infirm to work.
• Critical illness. This has the dual impact of loss earnings/household labour as well as treatment expenses.
• Sickness. Reduces the working days, and thus productivity, and also generates expenses, though at a smaller level then critical illness.
• Old age. There are few income options for the elderly. In addition, there is some vidence of emerging social trends in which the obligation of the young to take care of the old is weakening.

Risk of lowered agricultural productivity or returns e. g. , through low levels of rainfall or natural catastrophes.

There are two broad classes of client vis-a-vis familiarity with insurance that create challenges for Tata-AIG:

• those with no or little knowledge or exposure to insurance,
• those with some negative exposure to insurance.

Rural India has had a tradition of households that share income, which reduced the impact hat the death of a family member would have on the household’s economic condition. Religious and social institutions also have a history of providing some benefits to the very poor and marginalised. These circumstances, coupled with the generally limited education of many poor people in rural areas, have tempered the demand for insurance. The slightly higher income groups, the so-called “rich-poor,” are somewhat aware of insurance because the public insurers, in particular the LIC, have had activities in their geographical regions for many years.

However, the LIC agents have focused on selling ndowment products with annual premiums of Rs 2,000 ($44) and more. Many in the lower and middle-income groups have had bad experiences with such products, as they could not afford to pay their premiums when their incomes were not sufficient, and received small surrender values, often after many years of contributions. Pure protection policies (e. g. , term life) for individuals were never offered in rural areas prior to the entry of private players. The prevalence of endowment policies has created difficulties for selling term-life because of the expectation that insurance may involve some return of premium.

Overall, while the public insurers have raised awareness about insurance, they have also polluted the market. There are also past instances of defunct insurance schemes in areas where Tata-AIG is selling its policies. Sahara and Peerless had bundled savings with insurance benefits (mostly accidental death and disability) by purchasing such coverage from state-owned general insurance companies. So did some local chit funds—a type of informal savings scheme (rotating savings and credit organizations). Marketed through a multilevel/network marketing system, some of the schemes turned delinquent, thus depriving many investors of their long- erm savings.

Consequently, large segments of the target market have had access to products they could not afford, or had some bitter experience with insurance in the past, which resulted in them being wary of approaches by Tata-AIG’s sales representatives. The Products Because of the Rural and Social Sector Obligations, Tata-AIG has characterised its products as targeted to meeting either the rural or social sector. Note that only social sector obligations correlate very strongly to poverty. The rural sector obligations can be met by in theory by elling to high-income clients that live in rural areas, e. g. , tractor insurance that is sold to wealthier clients when they buy new tractors. Within Tata-AIG, microinsurance policies are termed social policies, while rural policies are high value policies sold in rural areas.

The broad strategy of Tata-AIG in designing its microinsurance products was to limit underwriting as this was seen costly and to focus rather on claims verification. While reducing costs, the problem with such a strategy is that is if the products are mis-sold by agents—for example, products are sold to people who do not qualify for them—they may ubsequently be rejected during claims verification. This does not create a good impression of the products and Tata-AIG.

There are essentially two types of micro-agent models. One is that of groups of micro-agents called CRIGs and the other of individual micro-agent. Both are supervised by NGOs (termed business associates) who perform a range of tasks including the recruitment of agents, front- Good and Bad Practices in Microinsurance TATA-AIG, India embers are usually women. While not the only target market, the SHGs represent an easy way to reach large numbers of potential policyholders because the members are already accessing financial services and making regular payments.

The CRIG, which is essentially a firm of insurance agents, is supervised by a nearby rural organisation, like an NGO. The CRIG’s members are involved in promotion, sales and collection of premiums, and maintaining records. The CRIG leader documents all fortnightly meetings with the NGO and all weekly CRIG meetings. At the weekly CRIG meetings, the eader records the microinsurance activities of CRIG members related to premium collection. Aside from this, the CRIG members discuss the operations of their firm. The fortnightly meetings are used by the NGOs to collect proposal forms, premiums and renewal notices.

Income figures can be misleading because they are not segmented by such factors as the number of years as agent, location, assistance provided by the NGO etc. Currently, Tata-AIG assumes that the income micro-agents receive for their efforts is likely to be higher than the opportunity cost of their time or they would desert the programme. For every policy sold, the NGO gets 10% in the first year. The CRIG itself receives commission income, but not the individual CRIG members. The CRIG decides how to divide up commission income.

The standard model is that the member of the CRIG who sold the olicy gets all the commission income due to them except for 5% of the commission in the first year, which they give to the CRIG leader for the extra work she does in preparing and submitting the policy. Generally, the CRIG commission per policy is 26 to 30% of the premium for the first year, and between 5. 5% and 6% for the 2 nd and 3 rd years. From the forth year onwards commissions vary between 4 and 5 percent. In addition, there are various bonuses and incentives. CRIGs that build a client base of 600 policies gets a bonus of Rs 10 000 and the NGO gets a Rs 5 000 bonus. There is no time limit for achieving these goals.

In addition, Tata-AIG will organise a conference for those rural micro-agents with the best performance. There will be seats in the convention for NGO business associates as well as NGOs in the partner-agent model. Good and Bad Practices in Microinsurance TATA-AIG, India Although initially the CRIGs are only involved in microinsurance, over time they could take on other activities to enhance their income, for example trading in agricultural inputs or becoming an agency for regular insurance products. Training CRIGs The micro-agent model will only succeed if the frontline personnel have been properly elected and are sufficiently trained in general insurance awareness, the product details and sales techniques.

This inclusive nature of the model would be difficult to achieve with an MFI since it tends to focus on a narrower target market. The CRIG methodology is not without disadvantages. It is of course more costly to train many CRIGs than to interact with a single aggregator, e. g. an MFI. In addition, the CRIG methodology suffers from the drawbacks common to direct door-to-door selling methodologies:

• Training is costly in relation to premium values.
• The transactions costs of the sales agent are cheap at first, but increase after they have sold policies to all the people they know and need to sell to strangers, especially those that ive far away from the sales agent.
• In many cases in the partner-agent model, when a claim arises, the MFI or NGO, investigates the claims themselves, pays the benefit immediately and then claims it from the insurer.

An immediate claims payment helps maintain client confidence and is not possible with a CRIG methodology. Individual Micro-agents Besides the group approach of the CRIGs, the micro-agent model could also be done on an Good and Bad Practices in Microinsurance TATA-AIG, India higher premium products, so they could earn significantly more than $15 per month if they succeed with the wealthier market.

The main advantage of a CRIG relative to an individual micro-agent is that non performing/non interested members could be replaced by changing the partnership deed. Tata-AIG gets better penetration density and fewer orphaned policies because other CRIG members could take over the servicing roles. Possibilities also exist for developing specialist competencies within a CRIG by assigning specific tasks to different members. For example, one person may be responsible for collecting premiums from existing policyholders while other CRIG members focus on stimulating new business—such a division of responsibilities s obviously not possible with the individual model. In addition, the risk of agent fraud is slightly lower in the CRIG model as the members may police each other.

Before designing the social products, the preferences of the target market were determined. During the research, it was clear that the target market desired products with a savings element, but at the same time could not afford annual premiums in excess of US$25. It also became clear that the there were slightly wealthier households who, while still poor (with a monthly household income of less than US$125), could afford slightly more expensive roducts. This finding suggested to Tata-AIG that it needed a diverse portfolio of products to meet the preferences of this heterogeneous market. Unfortunately, it was not actuarially feasible to offer very significant returns to counter inflation at such low premium levels.

The two “term return of premium products” (TROP) were designed to be sold for an annual premium of US$7 (Rs 300) and US$17 (Rs 720). These TROP products essentially return the cumulative premiums paid over 15 years plus 25 percent.