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The advantage
of the provider
model is that
there is a close
synergy
between health
insurance,
health care and
health
education. It is
only in the
context of
availability of
the last two
that micro
health insurance
is likely to be
viable
Apart from the
fact that
competition
greatly
strengthened
the negotiating
position of MFIs
vis-à-vis
insurers, MFIs
became
increasingly
aware of the
risks and
disadvantages
of running inhouse
schemes.
Insurance is a
risky business,
especially in
the case of
products with
large
"covariate" risk
affecting whole
regions
simultaneously
(eg crop failure,
cattle
epidemics)
mostly used the alternative, in-house, model rather than the partner-agent model. 21 A special
case of the in-house model is the so called provider model, which is particularly common in
health insurance such as when a health care provider or a hospital run by an NGO or trade
union develops a microinsurance scheme. The advantage of the provider model is that there is
a close synergy between health insurance, health care and health education. 22 It is only in the
context of availability of the last two that micro health insurance is likely to be viable (see
Box 5.2 for the example of VimoSEWA) and in most cases not even then. As will be seen from
Table 5.1 non-MFI provider organizations including NGOs, trade unions, and hospital trusts
such as Students Health Home, Yeshashvini Trust, Family Plan Health Limited, Voluntary Health
Services and RAHA account for the bulk of micro health insurance policies.
However, it is to be noted that the tie up with health care and health education can be
achieved by MFIs too, through arrangements entered into with third party hospitals,
government, private or charitable, as SEWA and DHAN Foundation have others have done in
their in-house schemes. 23
The main advantage of an in-house scheme in the pre-2002 situation of limited choice of
insurers and mostly inappropriate products, even for non-health products, was that it allowed
for much greater flexibility in putting together the most appropriate insurance package for
poor clients, and by-passed the procedural difficulties and paper-work that stood in the way
of speedy settlement of claims, which were an important factor in low renewal rates. Often,
MFIs would try out a product offered by an insurer but then revert back to an in-house scheme
based on experience gained. However as the microinsurance market suddenly changed from
being a sellers' to a buyers' market the MFI would then end up trying out an improved product
offered by the same or another public sector insurer. Thus ASA, an FWWB affiliated partner,
experimented with 7 packages with both in-house and agency components before settling on
its present package, which is now exclusively under the partner-agent model 24 . SEWA went
through a similar process. 25
Apart from the fact that competition greatly strengthened the negotiating position of MFIs
vis-à-vis insurers, MFIs became increasingly aware of the risks and disadvantages of running
in-house schemes. Insurance is a risky business, especially in the case of products with large
"covariate" risk affecting whole regions simultaneously (eg crop failure, cattle epidemics) as
against products in which risks are more "idiosyncratic", affecting individuals at random (e.g.
natural death, accidents). SEWA was affected by drought, communal riots and floods in three
successive years, which affected its asset insurance claims rate in particular. 26 For a small local
MFI, a widespread human epidemic could affect the claims ratio also for natural death. The
scale on which insurance has to be provided both in terms of number of beneficiaries and
diversity of areas covered is therefore greater than is the case with other financial services. 27
Most MFIs are themselves taking advantage of the "buyers market" that exists in the
microinsurance segment of the insurance industry. The experience of the Dhan Foundation is
instructive. As of June 2004, 1.09 lakh Kalanjium (SHG) members (including 0.24 lakh spouses)
had volunteered to be covered by insurance out of a total of 2.16 lakh members distributed
over 61 federations. While 8 out of these had originally offered life insurance through self-run
programmes, only one, the Kadamalai federation, continued to do so. The higher benefits and
support for the education of children under LIC's subsidized JSBY (Jan Shree Bima Yogana-see
below) was the main reason for the shifting to LIC. Health insurance with hospitalisation
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