Through the budget for the fiscal year 2011/12, then finance minister Bharat Mohan Adhikari had announced implementation of microinsurance program within this year so that the low-income group could cover health and sources of livelihood such as crops, livestock and even rickshaws and tea shops.[break]
Following the budget speech, the government had formed a committee comprising of two officials of the Insurance Board and one official each from six life and non-life insurance companies. So far, the committee has held four rounds of meetings and prepared a rough sketch of the kind of insurance products that could be launched.
Some of the products include: life, health, accident, crop and livestock insurances. The government is also persuading insurance companies to cover micro projects like water mills and wells, huts and other sources of livelihood like furniture and grill industries, tea shop, rickshaws and carts.
“So far, the response from private insurance companies has not been encouraging,” Shekhar Kumar Aryal, spokesperson of the Insurance Board, told Republica. “They fear losing money as a thorough risk analysis has not been conducted.”
Aryal called this tendency “natural”, as “private companies are profit oriented”. “But we´ve tried to push the issue, asking them to consider it a part of their corporate social responsibility.”
Though it is still not sure whether the private companies will buy this logic, the IB has told the companies that losing around 5 percent of the profit for four to five years until the business takes off won´t leave them high and dry.
In fact, even when microfinance program was launched in the country, many banks and financial institutions had expressed similar doubts. Now after knowing even the low-income group is bankable, many have started providing funds to these institutions.
Aryal, who has been working for the Insurance Board for the last 18 years, has very good experience of pressure companies try to mount upon the government while trying to break the status quo. So, he personally is pretty sanguine about implementation of the project. “Yet the problem of data shortage could prove to be detrimental,” Aryal confided.
For instance, the country still has not conducted a livestock census, meaning the government does not have authentic data on breeds of livestock available, their life expectancy rate, amount of milk and meat they give, kinds of diseases they suffer from, and treatment available to cure these diseases.
On top of that, insurance companies are yet to design a distribution channel so that people won´t have to travel far to purchase policies and deposit premium. It is almost sure that many insurance companies won´t be setting up offices in rural areas as business volume in these areas will be too small to cover administrative costs.
“The other option is hiring agents on commission basis as done in the cities,” Aryal said. “But people who are used to getting thousands of rupees in commission won´t be interested in selling policies of Rs 2,000 to Rs 4,000.”
The Insurance Board is now mulling over using the microfinance groups already set up in rural areas to collect premium amount. If the microfinance groups are mobilized, people could deposit premium every day or every week, unlike in the cities where it is collected once a year.
“But the problem with relying on the people of a community is that they might collude to file fake claims,” Aryal said. “We have to look into this matter as well.”
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