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Tuesday, December 18, 2007

Micro-insurance in the Indian context...contd.

After my pilgrimage to Sabarimala (in Kerala), I had to board a bus from Pampa to Nilackal, a place about 25 kilometers from Pampa. All vehicles other than cars and jeeps are required to park at Nilackal; pilgrims after reaching Pampa board a state-run bus to reach Nilackal. I was amazed to see that the conductor was using a hand-held e-POS (Point-of-Sale) terminal for dispensing tickets. I guess the number of trips he had to make up and down ferrying passengers from the banks of the river to this parking lot did not give him time to tot up the tickets sold and reconcile it with the cash in his bag. However, with this handy device he knew exactly how many tickets he had sold, and for what value; handing this amount over to his cashier, he could then proceed almost immediately for his next trip (after a stop-over for a chai at his favorite tea shop, of course)!!! Synchronizing this hand-held device to some accounting system sitting in far-off Trivandrum or Kottayam was probably only a small step away!!!

From pampa, we reached Chengannur; as I sat at the railway station waiting to board the train to Chennai, a news item on Television caught my interest. The Indian Finance Minister, Mr. P Chidambaram was talking at a press conference after a meeting which he had attended; there he was exhorting insurance companies to sell insurance through post-offices and thereby extend the reach of their products and services to the rural segment. This was pretty much along the lines of my previous blog on micro-insurance; I, therefore decided to pursue that line of thought a little further.

With connectivity becoming ubiquitous, infrastructure and technology costs becoming affordable, it is now becoming increasingly possible to address some segments that were previously economically unviable. As is evident from the bus conductor's example, technology is available and affordable too! So what then are the important ingredients for a successful implementation of micro-insurance?

  1. Technology
  2. Infrastructure
  3. Trained resources as correspondents and facilitators
  4. Insurance products
  5. Insurance underwriters / micro-finance companies
  6. Information / knowledge of customers

This list is not in any particular order. However, it occurs to me that the information technology provider who has strong product and services capability is probably going to be the linchpin for a successful implementation. In conjunction with an insurance company / micro-finance institution which can provide the financial backbone to this business model, the technology company would play an important role of integrating the various components to make it a seamless offering.


From a technology and infrastructure stand-point, we are looking at a centrally deployed back-end software that can talk to these hand-held POS terminals either online, or offline. In most cases, connectivity would be offline. What would probably work is to have hand-held devices with insurance software products loaded on them. These could then be taken from doorstep to doorstep for collection of premiums (or even settling of claims). At the end of the day, we would have them synchronized with the back end system through a dial-up connection (or even GPRS). The e-POS terminal could also use biometric authentication to identify customers (especially useful in regions where literacy rates or low and as a means of identifying customers uniquely in a country where there is no SSN). A thermal printer attached to the hand-held device could be used to print out receipts (quite similar in concept to the bus ticket on that Pampa-Nilackal bus)! Assuming we have a group insurance scheme where a Self-Help Group is involved, then we can print out one policy covering all the Group members and not have to bother about printing separate schedules and policy covers for each member. In addition, given the irregular income streams of this customer profile, it may be necessary to issue installment premiums (and even probably waive the 64-vb rule). All of this will require the regulator's special approval; in turn insurance companies will need to provide auditable data to ensure compliance with regulations.


In addition to all this, we require relevant and good insurance products that are suitable for this market segment. We also need information about customers; information gap relating to customers, and this market segment is a huge barrier that insurance companies face in being able to offer the right kind of products for this market. With the help of a strong team of facilitators and correspondents, and the right KYC norms in place, it should soon be possible to bridge this information gap. In fact, this is perhaps the most significant role technology will play in this solution.


What is also becoming evident is that the back-end insurance system needs to have a very strong SOA orientation and will be deployed in the SaaS model. The ability to configure products specific to this customer segment is a key capability requirement for this product. Equally important is an open architecture that will allow interface to hand-held devices and be able to integrate with back-end accounting systems, and provide the required compliance-related information to regulators and statutory bodies. In addition, this will have a strong business intelligence module that will be the backbone of all the data analysis and reporting. Ensuring availability of infrastructure, connectivity and software reliability across so many geographically dispersed is a key challenge that needs to be surmounted.


There has been so much interest in micro-finance in the country in recent times. While this is certainly a huge opportunity, it also presents some really daunting challenges; this is not something one company can venture into alone! It will require a strong consortium of like-minded organizations backed by strong technology. And an organization that has the project management skills to get all of these players to work together as one team.



64 V B: In India premiums have to be paid before coverage can begin and the insurer can be 'at risk', a provision under section 64 V B of the Insurance Act.

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