Rural Indemnity

The China Insurance Regulatory Commission (CIRC) has started providing microinsurance for life and health risks for low-income residents in rural areas.

Rural residents, mainly farmers, need to pay premiums of 10 yuan-50 yuan ($1.44-$7.18), for policies that offer 10,000 yuan-50,000 yuan ($1,429-$7,143) in the event of disease, natural disasters and injuries or deaths caused by accidents. The policies can cover periods of one to five years, and their low premiums mean most farmers can afford them. High-end commercial insurance premiums typically cost 1,000 yuan ($143) annually.

The CIRC started offering the policies as part of a pilot project in early July in nine provinces (municipality and autonomous region), including Shanxi, Heilongjiang, Jiangxi, Henan, Hubei, Guangxi, Sichuan, Gansu and Qinghai, which have a large population of low-income farmers. The commission will offer the policies to farmers in the rest of the country once it evaluates the results of the trial run, said Chen Wenhui, assistant to chairman of the CIRC, at a news conference in Beijing on June 23.

Anti-poverty measure

The CIRC initiated the program because rural families with low incomes have no financial guarantees should their breadwinners suffer an injury or accidental death, Chen said, adding that the project would be an effective anti-poverty measure.

Insurance has not yet become popular in most rural areas where general financial services lag behind those offered in urban areas. CIRC figures show that in 2001, rural households spent an average of only 3 yuan ($0.43) on insurance premiums annually. This was only 2.3 percent of the country's average per-capita premium expenditure of 127.7 yuan ($18.35).

The CIRC set up a rural insurance project group in May 2007 to determine how to structure the program. The group examined existing commercial life insurance businesses in rural areas, as well as the practices of other developing countries similar to China.

Besides setting prices that make insurance affordable for low-income farmers, the commission has ensured that policy clauses are stated in simple language and exclusions are kept to a minimum. It also has made underwriting procedures and claim settlements simple and convenient.

The CIRC plans to sell the policies through small financial institutions and farm produce retailers that do business with low-income farmers on a daily basis. By linking the sales of the insurance policies to related transactions, the CIRC will be able to reduce management costs to some extent.

To design the insurance program, the CIRC worked for one year, surveying nearly 10,000 rural households in 432 villages in eight provinces and autonomous regions in central and west China, whose family members did not include government workers or employees of financial institutions.

Costly, but in demand

The survey results indicated that 78.9 percent of these families knew about insurance, but only 29.8 percent had purchased it in the past. It also found that those at the bottom end of the low-income scale were less inclined or not at all inclined to purchase insurance coverage. Among those surveyed, 55.2 percent said the premiums were too high; 12.4 percent said insurance products suitable for them did not exist; and nearly 12 percent said insurance services were poor.

But the survey also indicated that there was strong demand for injury and accidental death insurance policies in rural areas of central and west China, Chen said. About 45 percent of those who participated in the survey said their main concern was that their family members could suffer from accidents. This was followed by concerns about their children's education and family medicare.

Before the program was launched, some insurance companies had been targeting at rural areas. Except for China Life Insurance (Group) Co., other life insurance companies such as Ping An Insurance (Group) Co. of China (China Ping An) and Taikang Life Insurance Co. Ltd. have been offering policies in rural areas. Yet, they have not done enough in rural markets and by and large have neglected low-income farmers. They have merely transferred the same products and sales methods targeted at urban consumers to rural areas, where only wealthier farmers can afford to buy the policies. And they have ignored the farmers with low incomes and unstable cash flows, who need the insurance the most, Chen said. This group tends to face risks that never happen to urban insurance buyers and, with limited savings, they cannot withstand great financial risks.

"The survey carried out by the CIRC, together with a series of natural disasters that have occurred this year, makes us more deeply understand that the development of rural microinsurance for health is necessary and urgent," Chen said, referring to the heavy snowstorms that buried most of the southern part of the country earlier this year and the deadly earthquake in Sichuan Province in May. After the severe snowstorms in
particular, many families in the affected areas were reduced to poverty because they had no insurance and were left to rely on the government and society at large to help them, Chen said.

Limited interest

While farmers have welcomed the CIRC's insurance program, major insurance providers have not yet made a decision about whether they will participate. Representatives from China Ping An, China Life Insurance (Group) Co. and American International Assurance Co. Ltd. told Beijing Review that they are still conducting research on insurance for rural residents and are not ready to provide such products at present. At the same time, they also emphasized that the rural insurance market has always been a target market for development.

"Of course, the long-term sustainable development of microinsurance for health needs to mobilize the enthusiasm of insurance companies, sales personnel and low-income farmers," Chen said.

But not all the insurance companies that want to offer rural microinsurance services can get the CIRC's support. According to a commission circular issued on June 23, the institutions have to meet several requirements to participate in the pilot program. First, the headquarters of the insurance companies should attach great importance to developing such insurance and have a clear strategy and financial arrangement for it. Second, the insurance companies should have establishments that can provide sales and services in areas at and under the county level in the nine pilot provinces. Third, they should keep separate accounts for rural microinsurance clients. Fourth, company branches in selected areas should provide organizational, personnel and financial guarantees during the program's trial run.