One objective of the project is the creation of context-specific knowledge with special focus on the rural poor using methods of literature review and data collection in the field. The knowledge to be generated can be grouped around the following areas of demand and supply and is intended to give hints to the answer of the questions listed:
• Demand for health care and for insurance: We place the potential customer at the center of our research interest. We hope to generate insight into the questions like what are the indirect (transactional) costs of seeking medical care? Which institutional arrangement would the clients prefer? What redistributional justice is acceptable to the rural poor? What kind of care do customers prefer (ayurvedic, unani, allopathic, homeopathic, other traditional), and why? Perception of how individuals can manage risks?
• Supply of healthcare: Nobody is likely to buy health insurance unless they can expect to get care locally. We shall therefore look at available healthcare supply at each location. We shall also distinguish suppliers by the type of care they provide (ayurvedic, unani, allopathic, homeopathic, other traditional), and assess the fit to priorities of the customers. Additionally, we shall look at sustainable product distribution (e.g. drugs, perishables), pricing and product development.
• Supply of insurance: Extending coverage of insurance, increasing the number of people insured, contributing to efficiency and stability of micro health insurance units in India is the overall goal of our work. To achieve this, questions like How well do the poor understand insurance principles? What is their willingness and ability to pay for health insurance? have to be answered. We shall also look at the extent of transaction costs connected to a specific design of the community scheme, as well as the advantages and disadvantages of formalization of institutions and their links to other players in the health system, as well as external 2nd tier institutions.
Formulate recommendations for the schemes based on the findings on the following aspects:
• Willingness and ability to pay
A successful microinsurance product offers the benefits which are most valued by potential customers, it is being understood that the poor are best placed to determine the cost-benefit ratio that they consider acceptable for specific products/services. Policy options to enlarge the list of “attractive cost/benefit ratio” will be considered, based on the results of field work.
• Transaction costs in a scheme
Transaction costs are generated by marketing, processing and administration (e.g. membership information, claim settling, distribution, accounting and audit, customer care etc) and are distinct from cost of direct delivery of care. What are options to reduce these costs and enhance efficiency of the microinsurance product in terms of affordability? What impact does trust have in the scheme on the level of transaction costs?
• Indirect costs of seeking medical care
Some information is available on health-seeking behavior in India in general, and on levels of direct expenditures; but there is very little data about indirect costs in seeking health care. Indirect costs include transportation, wage loss, cost of an accompanying care-giver and so on. Can one envision institutional arrangements to reduce these costs? The microinsurance product must be accessible with low- or no transactional costs.
• Institutional arrangements: Customers’ preferences, trust and confidence
Apart from objective reasons qualifying institutional arrangements for offering healthcare, there may be issues that inspire more or less trust and confidence among the rural poor towards such institutions or arrangements. The MIU needs to be aware of these attitudes of customers, because they directly influence customers’ perception of the value of the microinsurance product.
• Perceptions of effects of insurance on redistributive justice
The extent of redistribution considered appropriate by the members of an insurance scheme can influence the cohesion in a risk pool. We assume that the smaller the pool, and the closer the relationship between the insured, the better the cohesion within the group. Can this compensate for the inherent risk of small risk pools to collapse due to higher statistical fluctuations of claims, or higher transactional costs? The socio-cultural context (like “traditional insurance arrangements”) is likely to have an impact on the perception of justice and expectations from the insurance in this regard.
• Awareness and understanding of insurance principles among the poor
A limiting factor in extending microinsurance is customers’ understanding of how insurance works in their favor. Micro insurers will have more difficulties trying to induct people who have neither experience with, nor understanding of insurance. High acquisition costs (a kind of transaction cost) increase the insurance premium. Insurance is not a “one-off sell”, as the insurer must encourage customers to comply with periodic payments and to renew the insurance every year. The cost of acquiring and retaining customers could be reduced if the benefits provided are understandable and especially important to the clients.
• Advantages and disadvantages of formalization of institutions
When communities set up their own small scheme they neither register with authorities nor create a set of defined rules and statutes. Whether an institution is more formal or less formal is likely to have impact on the distribution of the benefits among the members as well as on membership in general. While formal institutions might be able to channel targeted transfers they might at the same time prevent people from joining because of certain requirements needed.
Policy makers need to be aware of these effects in detail and have to base their decision on formal requirements on these findings.
• Impact on MIUs of different package designs
Demand for health insurance is contingent on adequate benefit package design, which should include the kind of services and the type of providers that the customers prefer. How will the MIUs deal with the question of inclusion of reimbursement of costs for traditional healers? This will be explored and solutions sought through dialogue with the target group
• Product design and product development
Microinsurance units regularly face the problem of developing products and pricing them correctly so as to ensure sustainability of the scheme. The process of development and pricing will be investigated in detail and a balance proposed between the desires of the MIUs’ management and members, and the limits imposed by concerns of sustainability.
• Need for stabilization through Social-Reinsurance
Many microinsurance schemes represent unbalanced risk-pools, due to small membership, insufficient capital, weak capacity to assess the underwritten risks, and lacking administrative skills and systems. The exact size of this cluster of problems may differ from one MIU to another, and solutions need to be customized accordingly. We shall collect data and, based on empirical findings we shall perform assessments of capital and other needs.
The institutional solution to this cluster of problems of MIUs has been conceptualized under the Social Reinsurance project. We shall explore in this ECCP project several aspects of implementing a Social Re solution in the context of Indian MIUs: for one, we shall pilot test the use of the “Social Re Data template” (capturing the data requirements for product pricing, membership entitlements, claims processing and accounting functions). Furthermore, we shall identify the support services that a reinsurance facility can usefully provide to MIUs. Finally, we shall prospect among existing reinsurers their interest in providing reinsurance and underwriting support to MIUs. Success in this activity will be one of the main long-term achievements of this project.
• Subscription units: individual or group contracts?
Insurance providers, especially big and established insurance companies, have a hard time selling individual health insurance contracts to the poor. The response of insurers has been to offer group policies to organizations of the civil society which serve as “super contract holder” for a group of poor persons. We shall explore the potential in improving insurance penetration through better modulation of subscription units (group, household and individual contracts) to the reality of rural poor in India.