SCDL MBA PROJECT - A DISSERTATION REPORT ON “Micro-insurance: Need of the hour”

 A DISSERTATION REPORT

ON

“Micro-insurance: Need of the hour”

PREFACE

This report is prepared in respect of dissertation programme to be undertaken in the fourth semester of Master of Risk and Insurance Management. Because of increase in literacy & increasing life risks people are more aware towards life insurance. People have willingness to secure their life against risks like accident, premature death, disease, etc. As there are more people in India below the poverty line, my topic is emphasized on them.       

So, Micro-Insurance came as the insurance for the low-income people. Today, the promise of providing Social Security to all is not being fulfilled in India. Only 20% of the world population enjoys adequate social protection. Ironically the poor, who are the most in need of social protection, are the excluded ones. Rural Population has to face many risks and hardships. The simple existence of risks inhibits their development initiatives.

Thus, my report focuses on different aspects of Micro- Insurance in six different chapters which will help to understand all the pros and cons of it.

ABOUT INSURANCE

The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefits from it. It is a benefit because it meets some of his needs. The benefit may be an income or in some other form. In the case of a factory or a cow, the product generated by it is sold and income is generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. Both are assets and provide benefits.

Every asset is expected to last for a certain period of time during which it will provide the benefits. After that, the benefit may not be available. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus, he makes sure that the benefit is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it incapable of giving the benefits. An epidemic may kill the cow suddenly. In that case, the owner and those enjoying the benefits there from would be deprived of the benefits. The planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effects of such adverse situations. It                                                                                                                                                                                                                                                                                                                               promises to pay to the owner or beneficiary of the asset, a certain sum if the loss occurs.                                                                                         

BRIEF HISTORY OF INSURANCE

 

Insurance has been known to exist in some form or other since then 3000 BC. The Chinese traders, traveling treacherous river rapids would distribute their goods among several vessels, so that the loss from any one vessel being lost would be partial and shared, and not total. The Babylonians traders would agree to pay additional sums to lenders, as the price for writing off the loans, in case of the shipment being stolen.

The Greeks had started benevolent societies in the late 7^th century AD, to take care of the funeral and families of members who died. The friendly societies of England were similarly constituted. The Great Fire of London in 1666, in which more than 13000 houses were lost, gave a boost to insurance and the first fire insurance company, called the Fire Office, was started in 1680.

The origins of insurance business as in vogue at present, is traced to the Lloyds’ coffee house in London. Traders, who used to gather in the Lloyd’s coffee house in London, agreed to share the losses to their goods while being carried by ships