A first-of-its-kind report on mutual and cooperative microinsurance in India has made key recommendations including creating broad models of self-regulatory organisations with robust governance systems, allowing Mutual, Cooperative and other Community-based Organisations (MCCOs) to take reinsurance capacity where required from commercial insurers and providing significant support for them to scale up and be sustainable.
The report, entitled “The Missing Chapter of Microinsurance in India: a Diagnostic of Mutuals”, is published by the International Cooperative and Mutual Insurance Federation (ICMIF) and Insurance Institute of India (III). This country diagnostic study was conducted as part of the ICMIF’s 5-5-5 Mutual Microinsurance Strategy. The 5-5-5 Strategy aims to provide mutual microinsurance solutions to five million low-income households, in five emerging markets (India, Philippines, Kenya, Colombia and Sri Lanka) over the next five years.
The study found that there are 15 mutuals and cooperatives, operating across 13 states in India, which are providing insurance-like services to approximately one million low-income people using risk retention or risk sharing models. The mutual model can be found all over India except for the North Eastern states; most have their presence in rural India while a handful of them also have a presence in some urban slums. Over 90% of the policyholders are women, which makes these schemes very similar if not on a par with other financial inclusion products.
Thus, a distinct Alternative Risk Management (ARM) model exists whereby mutuals and cooperatives provide solutions (with the provision of services including health education, negotiated services in affordable hospitals, funeral support etc.), which transcend the typical realm of commercial microinsurance.
MCCOs invest about 20% of their resources in insurance education and awareness and also have robust grievance redressal systems. These MCCOs may not have the desired scale but have been able to show clear impact in protecting the lives and livelihoods of the poor by bringing insurance services to those who previously didn’t have access to them.
With about 600,000 cooperatives in the country with a collective membership of over 250 million people, the potential for developing mutual and cooperative insurance for the poor in India is enormous.
The report identifies three broad action points at the macro, meso and micro level to help develop MCCOs in India.
Macro level: Advocacy for MCCOs
The report advocates specific enabling legislation leading to recognition (if not regulation) of MCCOs as a viable ARM mechanism for achieving inclusive growth.
However, appreciating the practical difficulties faced in regulating multiple small organisations, the study recommends creating broad models of self-regulatory organisations with robust governance systems, accountability to the communities that they represent, and responsibility to the society and the government at large.
The presence of robust internal governance mechanisms would assist the advocates in taking up the case more effectively with the governmental/regulatory agencies. International organisations like ICMIF can bring internationally accepted best practices into the country.
Dr George E Thomas, Professor at the College of Insurance of III, said: “We are hoping for a change in the regulatory environment to enable the expansion of those programmes focusing on the low-income segment.”
Meso level: Organising MCCOs
MCCOs require assistance to organise themselves as an association or guild to enable collective and concerted action. The report suggests organising MCCOs under international forums, such as ICMIF. As policymakers may not be aware of the model and the parties involved may not have the capacity to secure their rights, there is a strong case for external support by way of advocacy and providing proof of concept.
Micro level: Creating evidence on the ground
The report calls for support for existing MCCOs with scaling up through financial and technical help, and help to establish new MCCOs to demonstrate proof of concept.
Most MCCOs need financial support in the form of capital infusion by way of soft loans, corporate social responsibility funds, reinsurance or access to capital markets. Support, in the form of knowledge and skills, in the areas of fund management, actuarial science, risk evaluation, risk management, underwriting and claim settlement could also empower MCCOs. The use of actuarial science and long-term probability studies, information technology support and data management systems are vital ingredients of modern day governance and risk management systems.
The report says that MCCOs should be allowed to take reinsurance capacity where required from commercial insurers. Such support may be treated as compliance to the Rural and Social Obligations of the insurer. As coinsurance does not follow the philosophy of risk retention and the community focus, core to the MCCO model, the same is not recommended. This would also provide for indirect operational supervision by making reinsurance mandatory above specific thresholds of risk exposure, in terms of numbers and/or amounts. Another solution would be creating a specific company (or a pool/wing under the national reinsurer) which would provide insurance cover to MCCOs and all the rural and microinsurance programmes in the country, covering life, credit, cattle, crop, poultry, agricultural pumps, beehives, bicycles, agricultural implements etc
The country diagnostic study is the first of three stages to implement ICMIF's 5-5-5 Strategy, the other two stages being the creation of an evidence-based country strategy based on the country diagnostic, and lastly the implementation of the country strategy through an intervention programme.