MR Microinsurance_2012_03_29.indd - International Labour ...

378 Insurers and microinsurance
– more accurate monitoring of expenses for Bima ya Jamii led to a decline in profitability
levels.
ICICI Lombard
ICICI Lombard restructured its operations in 2008. Since then, there has been
no separate business unit for microinsurance or rural and social sector business.
Both of the business units where the two microinsurance products are housed are
also responsible for products sold to other market segments.
Actual administration costs and non-commission acquisition costs relating to
microinsurance were not available from ICICI Lombard. In addition, researchers
were provided with budgeted, rather than the actual expense amounts. However,
given ICICI Lombard’s policy of strict adherence to expense budgets, there is
little scope for variance between the budgeted and actual costs. The expense allocation
method assumes that the cost of writing the business is proportional to
the premium income.
There is no reserving for the index-based weather product due to the structure
of the product. Premiums earned and claims incurred are equivalent to written
premiums and paid and reported claims. The financial analysis for the indexbased
weather insurance is based on results gross of reinsurance premium. ICICI
Lombard did not disclose the figures net of reinsurance premium or claims information
for the weather insurance product, as this would constitute commercially
sensitive information. For consistency, the figures show the results gross of reinsurance
for both products.
It has proved difficult to achieve profitability in either of these microinsurance
initiatives. The weather insurance product appears to be just breaking even
before reinsurance is taken into account. The MAS health insurance product has
been consistently generating negative returns due to high claims ratios. ICICI
Lombard has introduced measures to improve the claims experience of the health
insurance business, but the effect of this action has yet to be seen in the profit
ratios. The following keys to the profitability of the ICICI Lombard microinsurance
products were identified:
– partnerships with a large number of credit institutions for the weather insurance
product and the healthcare provider network for the MAS product;
– compulsory nature of weather insurance for all members of the group;
– using the longstanding relationship of the healthcare provider with the community,
as well as the insurer’s staff, to encourage enrolment;
– claims risk poses a challenge for both products, protected by reinsurance for weather
insurance, which is a key reason why ICICI Lombard can provide this cover;
– mutually beneficial relationship with the distribution channel facilitates lower
fees for services and access to infrastructure;