With entire villages being washed out, it is clear that there is damage in every aspect of the lives of the people visiting and inhabiting Uttarakhand. The full extent of the damage caused by the recent floods in Uttarakhand will perhaps never be known. The Himalayan Tsunami, as the disaster has been labeled, killed up to 10,000 people (by various reports), 1,000 to 8,000 people are still missing, 3,978 villages were affected by flash floods, and 1,636 roads were damaged (per Times of India). There are still no reports on the number of livestock lost, including the number of mules that are used for transportation in this hilly terrain, nor is there mention of the magnitude of the crop loss or lost agricultural land. With entire villages being washed out, it is clear that there is damage in every aspect of the lives of the people visiting and inhabiting Uttarakhand.
In the midst of all this damage, the government has offered aid in the shape of money and rations. Some Life Insurance companies relaxed their rules related to claims submissions. But it is not clear how many people had life insurance or other policies. Importantly, it is not known whether the people. who are year-round residents of Uttarakhand, particularly in rural Uttarakhand, had any insurance. I suspect this number would be low to nil.
As people and the government start the long and laborious task of rebuilding Uttarakhand, it is an opportune time to talk about the role of insurance, particularly microinsurance.
Micro insurance is insurance for excluded populations, mostly in the informal sector. In remote villages of Uttarakhand and other parts of India, there is not only low supply of insurance, but also low demand, even though these populations are very vulnerable to risks affecting their lives and livelihoods, including health, agriculture, livestock, and natural catastrophes. Most are not aware of the concepts of risk-pooling and risk- mitigation, and may even believe that they are too poor to pay. Commercial insurers have been slow to respond to the risks and priorities of the informal sector and to create microinsurance products that address the contextual needs of these populations. However, there are companies, like the Micro Insurance Academy (MIA), www.microinsuranceacademy.org, that are building innovative microinsurance solutions to address risks to health, life, agriculture, and livestock.
MIA is one of the largest micro insurance resource centers globally, and provides technical assistance and capacity building to insurers, governments, development agencies and academia. It has numerous micro insurance implementations all across India (U.P., Bihar, Orissa, Chattisgarh), Asia (Nepal, Cambodia, Vietnam), and Africa (Tanzania). So far, it does not have a micro insurance implementation in Uttarakhand.
As the re-building work in Uttarakhand begins, how should the government and insurers think about offering micro insurance solutions? About creating demand in a market where currently there is none? And do it in a way that remains financially viable for them, and affordable for the primarily low-income population?
1. Increase insurance literacy: People don’t understand the concept of insurance, and how risk pooling leads to risk mitigation. Through games and videos, explain the concepts of insurance. This doesn’t have to be complicated. You don’t want to create underwriters or actuaries. Simply help them grasp how insurance works. Once they do, you will generate demand.
2. Ensure that the micro insurance product is relevant. Context is important. What may be relevant in Uttarakhand, may not be relevant in Kerala. And what may be relevant in Kedarnath, may not be relevant in Badrinath. So a benefit package must be created to meet the particular needs of the target population. This requires upfront work of data collection about local risks, local incidents, and local costs. Only then can relevant microinsurance product be designed and sold.
3. Ensure that the microinsurance product is affordable. Affordability is relative not absolute, and has to do with the local context. The population must decide, and give its consent to, what it thinks is “affordable”. And insurers must create benefit packages that fit this particular price point. Else, nobody will buy.
4. Build trust. When we travel to a foreign country or a new location, we seek out people from our country, our city, our village, or our church. We tend to trust them more than “outsiders”. Similarly, villagers tend to trust their own community more than they do “outsiders”, including private insurers, who they perceive as simply being motivated to profit from their hardships. In the experience of MIA, mentioned above, one of the best ways to build trust is to have the target population operate the microinsurance scheme. This means elected community members will do the enrollment, claims to process, even awareness building. Community owned and operated schemes have high affiliation rates and even higher renewal rates. They also have less fraud, as one is more likely to cheat an “outsider” than “one of us”. Local governance also makes it easier to detect and reduce fraud.
5. Give choices. One size does not fit all, and insurers run the risk of alienating large subsets of the targeted population if they do not provide packages with choices. Of course, some level of standardization is required to achieve scale, but packages must be tailored to create a better fit.
6. Let the beneficiaries decide. Don’t impose choices on the target population. They are well able to decide which products they want to purchase and at what cost. Giving them a role in the benefit-package design will enable increased affiliation and renewal. It will also increase transparency and an understanding of costs, which will increase the willingness to pay and purchase insurance.
7. Build capacity. By empowering communities in villages to manage and run their own insurance schemes, you will be building the understanding of insurance business. This will create demand, and increase affiliation.
As we re-build in Uttarakhand, let us secure the health, the lives, the crop, the livestock and the livelihood of the people of Uttarakhand. Let us make them more resilient to the risks that they face by giving them the mechanism to manage those risks, Microinsurance.
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