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Micro Insurance – Covering the Urban And Rural Poor

Mohan is a marginal farmer in the rural district of Rajasthan. His sustenance majorly depends on the crop quality year on year. Like many other farmers in this district, he is covered under the crop insurance policy for Rs.30000.

This year his crop failed but he didn’t end up in debt of the moneylender, for his expenses incurred on the crop. He got his sum assured from the insurer and can now look at alternate means of seasonal employment.

IRDA and Micro Insurance

It was with this socio economic target population, IRDA in the year 2005 mandated every insurance company to do a mandatory 25 per cent of new business in life insurance in rural areas and 7 per cent of total business in general insurance.

The products had to be specifically for the low income, uninsured, economically weaker section of the society, persons ignored by mainstream commercial and social insurance schemes, as well as persons who have not previously had access to appropriate insurance products.

Thus it came up with Micro Insurance Regulations (2005). Micro insurance is a tool to protect productive assets like crop and property and provide cover for health, life, accidental death and disability of the rural and urban poor.

Why do poor women specifically need micro insurance.

The role of micro insurance is to help low-income people manage risk and reduce their vulnerability, to financial shocks which can lead them into permanent debt and social hardships.

Especially for poor women, the coverage can be even more critical. This cover helps them in overcoming the sudden shocks of losing the bread earner and the accompanying medical costs and living costs, till they recover and start working . As per some reports women comprise 70 per cent of the world’s poor.

Distribution of Micro Insurance

IRDA ensured, that the same set of entities which distribute micro credit take up the distribution of micro insurance. These include NGOs, self help groups and micro finance companies. Even insurance companies can set up their dedicated agent channels to sell micro insurance.

Besides profits, there are several other benefits for commercial insurers providing micro insurance. Accessibility to a larger and diversified risk pool, benefits to reputation, and market intelligence and innovation that can be applied to other business activities.

End of the day, micro insurance can be a Win – Win situation for the Insurance companies, the distribution agencies and the beneficiary.

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