The government and the Insurance Regulatory Development Authority on Monday mooted a 'micro-insurance' scheme and asked insurers to collaborate with non-governmental organisations to cover the risks of illness, accident and death of rural poor as part of poverty eradication programme.

"Insurance to the poor is a difficult task but the micro-finance institutions can collaborate with insurers for delivery and servicing mechanism to come up with such schemes," IRDA chairman C S Rao said at a seminar organised by leading NGO 'Sewa' here.

He said the entry barriers -- minimum capital requirement of Rs 100 crore, reserves with a solvency margin of 150 per cent and investment norms, are keeping away micro-finance institutions to float a separate company for offering specific products for rural poor.

Irda asked MFIs to work out a way of offering such facility to the rural population without distorting the market while protecting the policyholders' interest.

"If insurance is desirable for the rich, it is essential for the poor. Despite the efforts of LIC and others, the insurance cover for rural population is still inadequate. We need a micro-insurance scheme," banking secretary N S Sisodia said.

Most insurance products are not suited for the poor, he said, adding insurers need to innovate as per the requirements of the poor and come up with products which would cover illness, accident and death.

Sisodia said there should be payment mode for these type of schemes, which offers flexibility of premium payment on a weekly, monthly or after the harvest period, as the income generation of rural population is not regular.

He favoured change in legal framework to ensure that insurance penetration increases in the rural sector.

The banking secretary also asked insurers to lower the cost of covering risk, saying: "If its not viable, it will become unsustainable."

The micro-insurance scheme needs to be a part of the poverty reduction scheme, he added.

Mirai Chatterjee of Self-Employed Women's Association, having over 5,30,000 members, has started three fixed deposit-linked insurance scheme at a cost of Rs 85-400 annually.

These schemes cover death, accidents, death of husband, hospitalisation, house and property losses.