Selling insurance to poor in India demands imaginative solutions
It is difficult to sell insurance to the poor in India. The challenges are not insurmountable but demand imaginative solutionscolumns Updated: Jun 04, 2015 01:49 IST
May has been an interesting month for those interested in anti-poverty policy in India. With the recent announcements of two insurance schemes and a pension scheme, we begin to see the lineaments of how Prime Minister Narendra Modi and his team seek to redesign this entire space.
Government-sponsored pensions and insurance schemes have of course been there for many years. What is striking is the fact that this government has decided to make them the centrepiece of its anti-poverty efforts, rather than something that gets announced during a budget speech as a sop to a particular constituency (“for the elderly we have…”) and then largely forgotten. This time around they seem to be meant to be taken seriously — they were the centrepiece of the PM’s recent speech in Kolkata.
The assumption behind this shift, it seems to me, is that people can find ways to sustain themselves as long as they are able-bodied and of working age, but the government needs to help them deal with the stuff that are beyond their control, like old age, disability and death. Families need disability insurance and life insurance because losing the main earning member is one of the easiest ways to fall into desperate poverty; they need pensions because as fertility shrinks and mobility goes up — both good things mind you — we will have an increasing number of the elderly who, for one reason or another, cannot rely on their children for old-age support.
There is something to these arguments, but it is worth keeping in mind that these are not the easiest ideas to put into practice. With insurance and pensions, one of the problems has always been trust — from the point of view of a rag-picker or a farmer, the government has always said one thing and done another — so why will they trust some government agency with their money now against some promise of payments in the future? After all, this credibility gap is what all the recent fuss about provident funds is about (at least some workers seem to think of the PF deductions as a pure tax).
There are several issues here. One is the fear that by the time they get the payback inflation would have eaten through it. Another is the not unreasonable suspicion that when it comes to paying out, the person in charge will be incredibly slow and/or demand a bribe. A third is that while death should be easy to establish, disability is not, unless it leaves out everything but the loss of a limb or a sensory organ. Crippling back pain as a result of a workplace injury, for example, is hard to prove, which means whether or not it gets counted will depend on someone’s discretion.
The evidence from the many recent attempts to sell various kinds of insurance to the poor in India and other less developed countries confirms that these are major concerns for the buyers. They are not insurmountable but demand imaginative solutions. For example, the pensions ought to be indexed — after all, the poor, quite justifiably, do not want to bear the inflation risk, and indeed why would we want them to be the victims of the government’s caprice. But how do you explain indexing to the man on the street? One possible solution may be to link these pensions to the pensions paid to senior government servants. Would that convince people?
Even more importantly, the government must not lose sight of the fact that not everyone in India is in a position to make a living. Go to a village and ask who the poor are and people who are themselves very poor (compared, say, to most readers of this column) will point to certain households that they help and worry about: Households that live off handouts, households of women and young children quite often, where the man is either disabled, a drunk, dead or just gone. To offer them insurance now or to ask them to contribute to a pension would be a cruel joke.
But that does not mean that there is nothing that the State can do to help these ultra-poor. Last week’s issue of the journal Science features an article (for full disclosure, I was one of the authors of the study) that reports on the results of a very specific programme that was simultaneously tested in seven countries across the globe (Bangladesh, Ethiopia, Ghana, Honduras, India, Pakistan and Peru). Households identified to be ultra-poor by their fellow villagers were given an asset of their choosing — which, in most cases, turned out to be some kind of livestock. They were also given some training on how to make the most of the asset (what is the right kind of injections for the cow, for example), a small stipend until the income from the asset started coming in, and a certain amount of handholding and advice. Taken together, the whole package in India cost less than `13,000 per family, of which 60% was spent on the asset and the stipends.
Looking at the impact of the programme three years (or even longer) after the assets were given and about two and a half years after the last stipends were paid, we see the households in almost every country are significantly less poor and happier. In India, per capita consumption is up by 11%, and food consumption and incomes by more than that. These households are obviously still very poor — indeed unacceptably so — but they are able to join the ranks of the “normal” poor, who are mostly economically self-sustaining. And the fact that the effect is persistent means that the economic return on such investments can be substantial — in India the benefit/cost ratio is projected to be more than 4 to 1.
The idea of this package comes from BRAC, the enormous and creative Bangladeshi non-government organisation. They have long believed that their own programme works, and the data from Bangladesh bears them out. In India, it was implemented by the NGO arm of the massive microfinance institution Bandhan, which has expanded the programme since, using its own money and corporate donations. Nevertheless, as of now, the total number of families who have benefitted from the programme in India must be less than 50,000, whereas my guess would be that there are at least a crore that could do with it. `15,000 crore, which is roughly what it will cost, is not really a lot of money in India today. We routinely gift that amount (and more) to individual corporates when we write off the debt they owe the public sector banks. It could transform the lives of many people.
Abhijit Banerjee is Ford Foundation International Professor of Economics and Director, Abdul Latif Jameel Poverty Action Lab, MIT
The views expressed are personal