Sompo Japan’s Indian subsidiary, Universal Sompo General Insurance Co., Ltd. (USGI), has introduced microinsurance products to facilitate the use of microfinance provided by banks in impoverished rural communities. This initiative is based on the concept of “community development with insurance,” which uses insurance to mitigate social problems in developing countries.
Despite India’s rapid economic growth, 34% of the population still lives on less than one U.S. dollar per day. Most of these impoverished people live in rural communities. In February 2008, USGI, our Indian subsidiary responded to this situation by introducing microinsurance services, primarily in rural areas of northern India.
USGI was established in January 2007 by Sompo Japan and a group of Indian banks, including two state- owned banks, and is the first non-life insurance company in which Indian state-owned banks have been involved. The three banks that participated as joint venture partners have networks of approximately 4,800 branches covering all of India, including rural areas.
Since USGI’s founding, the Indian government has expressed hope that the company would contribute to Indian society by making insurance available not only to the wealthy, but also to rural communities with large impoverished populations. This wish reflects key characteristics of USGI, such as its creation through a partnership between public and private sector organizations, and that one of the partners is the Allahabad Bank, a state-owned bank based mainly in rural northeast India.
USGI’s decision to become involved in microinsurance was prompted in part by a regulation introduced by the Indian government, requiring non-life insurance companies to earn a specific percentage of their total premium income from the rural and social sectors*.
Over 70% of India’s population works in agriculture. Because many individuals lack economic means, groups of people form self-help groups to purchase equipment and draft cattle needed for farming, using microfinance loans provided by banks under a system introduced in the early 1990s. The self-help groups are jointly liable for the repayment of the loans.
The most effective way to popularize microinsurance as a good way to provide basic social security to low income people with limited capacity to service debts or provide for healthcare needs, is to combine microinsurance and microfinance in easy-to-understand packages that can be supplied through banks.
Microinsurance has also made it easier for farmers to obtain finance, since loans are backed by the insurance. Microinsurance contributes to the sustained alleviation of poverty by driving a virtuous circle, whereby the purchaseoof agricultural equipment and other items leads to improved production efficiency and crop yields.
In February 2008, USGI developed Aapat Suraksha Bima, a health insurance product that provides cover against five major diseases. By March 2010, USGI had sold over 100 of this policy based on its business model of combining insurance with microfinance.
USGI has taken the evolution of this product a step further by designing microinsurance products with an expanded range of cover. Saral Suraksha Bima is a microinsurance product providing sickness and injury cover, while Sampoorna Suraksha Bima is a microinsurance package with a wide range of cover, including illness and injury cover and home and contents insurance. An application for official approval of these products was filed in early 2010 and is currently pending.
The cost of USGI’s microinsurance products varies according to the product. Premiums range from 10 rupees (about U.S.$0.2) for injury and fire insurance, up to 500-750 rupees (about U.S.$10-15) for family health insurance cover. Some microinsurance products were designed to include partial subsidies from state governments and other sources.
An important future challenge for USGI will be to expand its microinsurance concept throughout India’s vast territory. Plans to extend access to the system include the establishment of regional sales networks based on the branch networks of state-owned banks, and collaboration with regional NGOs as well as microfinance institutions (MFIs) in which its partner banks have invested.
By establishing microinsurance as a sustainable business model in India with USGI as the core provider, the Sompo Japan Group aims to make an earnest contribution to local communities through its core activities.