Project Dhan India
DHAN stands for Development Humane ActioN (www.dhan.org). DHAN began in 1997 in Tamil Nadu, India and is now active in 12 of India’s federal states. They work together with over 30.000 so-called Self Help Groups and thereby reach over 800.000 families. DHAN now has over 600.000 micro insurance policies in effect, on which one or more family-members may be insured. DHAN is active in the fields of health care, education, micro finance (savings, credits and insurance), water management and agriculture. The project has taught MIAN not to look at micro insurance without looking at the context and surrounding circumstances. It is not a goal in itself, but rather a means to an end, which has to fit in with the other programmes.
One of the lessons learned was that you do not need to do the entire project with the same group of people. An IT-specialist was mainly important in the start-up phase. How will we handle the administration of the policies and how will we gather management information? As the project went along, a need for the expertise of a treasurer surfaced. We needed to ensure that internal audits, the administrative organization and the accountants’ audits were handled both well and efficiently.
The orientation phase consists mostly of taking inventory. In this phase, it is especially important to keep asking questions. An example: people say there is a need for health insurance. There is, however, no use for health insurance where there is no health infrastructure and where the distance to the nearest physician or hospital is too great. Moreover, in many cases education about hygiene, food and food preparation are more useful. There are a comparatively large number of cases of anaemia and eye injuries. In these cases other means are often more effective than micro health insurance!
In this orientation phase one also needs to address the question if there is any actual foundation on which to build micro insurance. How are people organised? Do they work with memberships? Is there any kind of democratic control? What is the legal and financial structure of the organization, in this case DHAN? Is there any relevant legislation in Tamil Nadu and in the rest of India concerning insurance? What possibilities are there for cooperation with Indian insurers and insurance brokers?
The development phase was an intense one. Everything has to come together at once. What software do we use? How do we educate the people that have to handle the advice and the administration about insurance? What products are we going to develop and how extensive should we make the policy conditions? Do we start with a pilot? Is it even possible to have a pilot for types of insurance that last for several years, such as for the risk of dying before the age of retirement? For some, that could be 40 years or longer! How do you manage the expectations of people? We chose for a method of working solitarily and jointly at the same time. On many days, Michiel went to work with the IT-people, Annette with the leaders within DHAN responsible for micro insurance and I gave courses on insurance theory. In the evenings, we would evaluate the day with each other and exchange our experiences, so we could use those again the next day.
The lesson that I have learned is, that in a culture that has never used insurance before, the illiteracy around insurance is far greater than it is in the Netherlands. Most Dutch like to say they know nothing about insurance. However, that is just not true. Everyone knows there is fine print, that you need to pay a premium and that there is only a right to receive a payment if something unexpected has happened. The people in the Self Help Groups have never even heard of the word insurance. By explaining them that one needs to pay a premium and what one can expect in return when there is a claim, they start to compare it with a loan or a savings product from a bank. It takes a while for them to realize that you could well pay a premium for 30 years without every receiving any reimbursement in return, because there have been no damages or unforeseen events. There is a serious temptation then just to add a savings element to the insurance. In my opinion, that would be a mistake. Means and purpose need to be distinguished from each other. People already have so few means, so do not make the premium any higher by adding any improper elements. It is a special kind of challenge to explain the core concepts of what insurance really is.
DHAN already had some experience with life insurance. It was being offered by Indian insurance companies. As subsidized products. Insurance companies in India are required to generate a few percent of their revenues by catering to people below the poverty line. The problem with that is that the insurance products have not been developed or managed because the insurer wants to do so, but because they have to. Once such a product has been distributed in a certain area, and after two or three years the insurer finds out the casualty rate is actually a little higher than initially expected, the insurer tends to just as easily move its product to another region. The local population is duped and does not understand why it had to pay a premium for three years. A second problem is the fact that in India, life insurance policies are callable yearly. One can pay premium for ten years while in good health, and then fall ill in the 11th year and not be accepted for a policy.
These insurance products have however been cheap, partly due to their subsidized nature. We therefore changed our policy. We have let people establish their own mutual life insurance companies. Those will cover the risks for years or even for life and those mutuals in turn cover their own risks, partly by using the subsidized products and partly by their self-established reinsurance company. This reinsurer pools the risks of those smaller mutuals and accommodates part of those risks in the European market. The reinsurer also functions as a knowledge base for local mutuals.
Going concern phase
New questions kept arising as we were moving along. The life and accident insurances were doing quite well. Premiums were adjusted here and there. In the meanwhile, the demand for other products, such as harvest insurance and health insurance, was becoming stronger. The problem with harvest insurance is that many of the claims are a result of catastrophes. If a drought or a flooding affects one farmer, all the other farmers in the region will be affected too. This is the reason we began experimenting with products that were already in use by the larger insurance companies. These are basically fixed-sum insurances, based on a rain-index. A claimant will receive payment for each insured m² if, in a certain period, there has been more or less rain than a critical limit. As you go along, you find out rain can fall very locally and that rain gauges in official stations are located too far away from the farmers. Another problem is that people may receive payment when there has been no damage and vice versa. After all, that is inherent to a fix-sum policy based on a weather-index. Therefore, we decided to try out a few test-runs with farmers that began managing a weather station, based on mutuality. One could also think of letting the farmers adjust the insurance claims themselves. When this is done on a mutual basis, there will be sufficient social control.
For medical expenses, the availability and accessibility of care plays a major part. A health insurance is a means that will only work when combined with other matters. DHAN has therefore built their own hospitals and have attracted physicians and specialists to work for very moderate wages. Every insured person receives a care-pass, complete with photographic ID and a policy number. The care-pass is basically a laminated policy. This system works because there is a very high degree of participation in these villages: 90% or more of the people affiliated with DHAN are participating. That also prevents the anti-selection risk from happening. The population feels proud to have achieved this together.
In the meanwhile, Wim de Jager had been working on controllability, audits, internal control and the administrative organisation. When you are dealing with 600.000 policies, you cannot really speak of micro any longer. The insured amounts may be micro, but there are plenty of demands to be made from an administration that can cope with all of that.
Recent years have proven that people have been very capable of managing the life insurances themselves. We have withdrawn increasingly to the background and were used more to bounce ideas off of and for brainstorming. Amongst other things about e-learning and reinsurance. New questions arose about pensions. Then you face the question whether you want to work with assessment insurance or capital insurance. In the meanwhile, the credit crunch has taught us how fragile pension-systems really are. What to do in a country with a high rate of inflation and possibly a rapidly ageing population? And I mean ageing in a relative sense. There are not many people aged 60 or over in our target population. But that might well change suddenly when poverty declines a little and health increases a little. We have launched a few ideas on the matter. Meanwhile, DHAN is receiving advice on this from the Pension & Development Network.
Simon Kadijk, December 2010.