Introduction

• Risk is an integral part of human life; its management plays an important role in the development of Individual, Family, Community and Nation. Poor in both urban and rural areas lack the ability and understanding of effective risk management tools.



• Risk mitigation by public as well as private agencies suffers from the mismatch between the needs of the poor and the products and services offered for risk management.



• The existing insurance solution are largely supply based, are not backed by reliable database, also do not reach out to the poor and cost of delivering insurance products makes them very expensive.



• Morarka Foundation has identified and analyzed the various risks faced by the community and how do they cope with the risks. From these studies, it has been observed that the alternate costs incurred by the individual/family/community during and after any mishap are much higher as compared to the premium one would pay for structured and demand based risk management mechanism.



• Morarka Foundation has also studied the potential of risk management oriented insurance services for the community in rural areas and has evolved comprehensive risk management solutions for the poor and disadvantaged community.



• It proposes to develop customized insurance products, that take into account the ability and willingness to pay for risk management services.



• In its efforts to evolve a comprehensive development support mechanisms for poor engaged in agriculture and allied activities in rural areas, it has included risk management services as a component of an overall IT based village outreach program.

We now intend to open a dialogue for discussions and to negotiate with insurance companies for providing tailor made products in joint collaboration with us.

Demand for Risk Management Services

The structured risk management services for poor, engaged in agriculture and allied activities are broadly assessed and categorized as follows:

• Healthcare - Critical Illness: The poor are presently being covered through public healthcare services being delivered through State Agencies. Despite these services being free of cost (supposed to be so but not so much true in practice) there is a definite cash out go on the part of person falling ill, plus opportunity cost that is being incurred by the poor-ill person.
  
  The poor need healthcare services at three levels of degree of illness:
  
  At the primary level, most of the small problems suffered by them are taken care by their own indigenous / household / traditional systems. It is not because they do not want to get professional treatment or can not afford but mainly because the opportunity costs (including the transaction costs in seeking professional services) are not conducive to their own cost v/s benefit understanding.
  
  It is only at the next level of illness that they seek outside services. This is also cost intensive for them that require suitably designed healthcare insurance plans.
  
  At the third level of criticality of illness (as defined by most insurance companies in their healthcare insurance plans), in the first place they do not suffer from these so much. Even if they contract such disease they do not get diagnosed for the problems in the initial stage and if at all they come to know about it, very few of them actually seek treatment for themselves.
  
  We therefore propose as below:
  
  
  • To offer an insurance product specifically designed to meet their middle level requirements.
  • To offer an insurance product specifically designed to meet their middle level requirements.
  • Products that would enable them to keep adding/sum-up the premiums paid by them (as a kitty/corpus found) in their premium account, till they have used up/benefited from the policy.
  • High infant/child mortality risk coverage
  • High death rate during delivery/pregnancy risk coverage
  
  
  
• Life Risk: It is generally considered to be a very distant risk mostly associated either with the infants or with old age persons. During the income earning life span, the life risk is only associated with the accidents or some very-very serious illness. In the eventuality of death of an income earning person in the family, the biggest crisis is faced for a short to intermediate duration that too immediately after the death.



• It is therefore desired that time duration oriented (1-5-10 years) compensation in installment (varying from Rs. 100 - 1000 per month) is offered as a risk mitigation measure.



• Disability Risk: Mostly associated with accidents, always combined with hospitalization, loss of wages and future income due to the disability. In most cases, the person is rarely in-capacitated to loose all his income in future. Both partial and total disability is treated the same way by the poor.



• It is therefore desired that they are covered for a bulk compensation at the time of mishap and bridge funding in installments for short duration (upto 2 years maximum).



• Fire Risks: Both as a perceived risk as well as actual risk. But generally confined to Hatch Houses, Fodder and Farm produce.



• Needs to be compensated according to the value of insurance cover taken in advance.



• Burglary and Thefts: Quite prevalent (but is not considered as a big risk for household goods) for production assets like tools, equipments, motors, pumps, vehicles, livestock, etc.
  
  
  • Can be complimentary to any other insurance product.
  
  
  
• Breakdown: Most members buy machines and equipments that are not from reputed dealers or of well known brands. They suffer from frequent break downs.
  
  In most cases, the costs of repairs (recurring in nature) are much higher as compared to small incremental prices they might have paid initially for reputed well known brands.
  
  • An insurance plan that can be linked to machinery-equipment suppliers with the repair and maintenance (as being done in case of warranty-guarantee offered by makers) can be designed and offered.
  • The best is when it could also cover the loss incurred by an insurer due to machine breakdown. Even if this do not cover 100 percent loss, any assessment is good enough.



• Flood Risks: Very rare in occurrence in most of our project areas and thus not a very attractive proposition.



• To be included as and when required.



• Crop Loss: Mostly affected by natural factors. Temperature, Humidity, Rainfall, Hailstorm, Wind Speed, etc. are some of the risk parameters. Most insects and pests problems are also considered as risks associated with nature. The risk as it happens and as perceived by the insurer is very complex. Mostly it is based on historical experiences and the most recent happening.
  
  The losses are in three categories.



• Marginal losses i.e. loss of quantity outputs to the extent of 25-30 percent.
• Moderate losses i.e. loss of outputs in 30-60 percent range, generally combination of quantities and value of outputs at prevalent market prices.
• Total loss i.e. anything above 60 percent is a total loss. Happens only once in a while.



The weather risk is also categorized as - Absolutely unexpected versus some indication of its happening being perceived quite in advance.

The weather risks can also be divided into different categories in terms of risk avoidance measures.


• Rainfall - falling short of normal - Say upto 30-40 percent can be taken care of by better moisture management practices. This will also be applicable to the losses in three categories explained earlier.
• Flooding - Water logging - Suitable soil and water conservation and management structures can avoid the risks.
• Incidences of Insects and Pests - Preventive measures, better crop management practices, on site control mechanisms can reduce the risk of output.
• Temperature, Humidity, Late Rains, etc. - Can also be managed through proper selection of crops and varieties.

The quantity loss versus income loss is not always in direct proportion. In many instances when there is a quantity loss especially due to floods, and draughts, it gets compensated through incremental price gains. This is especially true in case of crops producing fodder along with some other main outputs.

Note: - Area based insurance products have been absolutely non-starters.
- Loan linked insurance products have also been absolutely non-starters.


• Livestock Risks: This is one of the high risk economic activity both in terms of actual versus perceived risk, such as:



• The animal falling risk and cost of treatment.
• The pregnancy - new born animal risks.
• Loss of output - mostly due to illness-disease.
• Accidental injuries.
• Non availability/affordability of appropriate feed and consequent loss of income outputs due to natural calamity.
• Early premature death of the animals.



• Market Price Risks: One of the most talked about risk, especially for those who take their produce to markets more frequently as compared to those who do so only seasonally.



• This can be solved through forward exchange.
• This can also be done through private risk coverage.



• Credit-Repayment Risk: Poor mostly buy things on credit. They take credit for consumption as well as for production. In most credit transaction they end up paying far more as compared to prescribed norms.



• Any policy that can assure the creditors.