Let me begin this post on a positive note. India is currently witnessing one of the most exciting and challenging phases in its history. We are looking at a growth story which is exciting because it is
• forward looking,
• stable and
• equipped with technical & human capabilities and
But this growth story is also CHALLENGING. Can it PROPERLY REACH TO THE POOR PEOPLE?

Financial Information Network and Operations (FINO) is an organization committed to the cause of Financial Inclusion. It has already a customer base of 15 millions, which is targeted to grow to 25 millions by 2011. The customer base of FINO is primarily from bottom of pyramid and under banked segment, which it provides financial services on behalf of various financial institutions.

We at FINO riding on the philosophy of Financial Inclusion, are taking this service of Insurance to the bottom of pyramid people, These people at the bottom of the pyramid have high vulnerability. The reasons of this vulnerability being untimely death, critical accident of their earning member, illness etc
Since all of above perpetuate poverty. It is vital that access to insurance becomes an important strategy for reducing poverty among this highly vulnerable section.

The good news is that India is amongst few of the developing countries, which has clearly stated regulation and definition for “microinsurance” (i.e., insurance services geared to low-income people).It includes

1. A clear guideline for microinsurance which was formulated in the year 2005, where sum assured from Rs. 5,000 to Rs. 50,000 is considered under the microinsurance ambit, apart from other guidelines.

2. Insurance Regulatory Development Authority (IRDA) has came out with compulsory mandate for all Life and General insurance companies to cover the rural and the social sectors (which varies according to the number of years of operation of that company).

But the challenges are enormous for microinsurance. And the reasons are outlined below.
a) Many microinsurance schemes are quite small in coverage, leaving the vast majority of poor people without adequate protection.

b) Microinsurance in India is for the most part driven by compulsory credit life insurance and the growth of the microinsurance industry is therefore largely driven by the growth of microfinance.

c ) Poor risk mitigation: Only 10% of microinsurance policies are estimated to be sold on a voluntary basis – of these, up to 90% is endowment products rather than pure risk products, which is the real need of the poor for risk mitigation.

d ) Lack of awareness about microinsurance

e) The development of the microinsurance market has thus far also been inhibited by a lack of formal financial services infrastructure in rural areas, which undermines cost-effective microinsurance distribution, as well as a lack of actuarial data.

All in all only about 2% of the low-income market is estimated to be reached by microinsurance*, despite rural and social sector obligations on insurers and the creation of microinsurance agents within regulation.

The uptake of microinsurance has seen some increase but is mainly linked to the growth of the microfinance sector rather than micro-insurance per se

In my next post will talk about what we are planning to do at FINO to tackle this issue. Keep watching!!