MR Microinsurance_2012_03_29.indd - International Labour ...

Insights from India’s microinsurance success
20.3.3 MFI distribution
Unlike NGOs and mutuals that often provide microcredit as one of many interventions
in the community, Indian MFIs are focused primarily on providing
financial services. Their close links to their clients reduce transaction costs, adverse
selection and fraud for the insurer. In addition, credit-linked insurance decreases
the MFI’s repayment risk, and therefore incentives for the delivery channel are
well aligned with the interests of the insurer. With the exception of the 2010
Andhra Pradesh crisis, the success of microfinance in India raised hopes that
these institutions with strong data and cash handling systems could serve as an
effective channel for the provision of insurance and other risk management solutions.
MFIs are spreading rapidly in India, thus representing a scalable delivery
channel. According to the industry association Sa-Dhan, MFIs served more than
26 million customers in 2009–10, an 18 per cent growth in clients and a 56 per
cent growth in the loan portfolio from the previous year (Srinivasan, 2010).
Compulsory credit-linked products have already demonstrated how MFIs can
help insurers reach their rural targets. There have been problems with more
ambitious products, however, which can be partly attributed to the insurers’ lack
of capacity to cope with clients and healthcare providers in rural areas, as well as
the misalignment of incentives where MFIs are only compensated for originating
polices, not for servicing them.
In 2007–08, CIRM surveyed 47 MFIs to understand their involvement in
microinsurance and found that the vast majority of the products were mandatory
and credit-linked on behalf of insurance companies. Figure 20.5 shows the type
of products offered.
The few voluntary products primarily covered health and accidental death.
While there is a demand for health risk solutions, available products generally
cover rare catastrophic events and therefore do not respond to households’ needs
to cover moderate and more frequent risks. MFIs have found it difficult to offer
affordable voluntary cover because of two major factors: a) staff are ill equipped
to advise households on risk management solutions; and b) it consumes considerable
staff time. Investing in client education and insurance origination is difficult
for Indian MFIs known for their streamlined processes aligned to offer a
basic loan product. Few MFIs have modified processes to accommodate product
diversification.
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