Post on 25-Dec-2015
Introduction to Microinsurance
Craig ChurchillInternational Labour Organization
Overview of Presentation
1. Introduction to inclusive insurance2. Key differences between insurance and
microinsurance 3. Overview of the Microinsurance Innovation
Facility4. Examples of microinsurance innovations
1) Introduction to inclusive insurance: Microinsurance
ILO’s interest in microinsurance
The ILO is concerned about the promotion of decent work: more and better jobs• The availability of social protection for workers
and their families• The impact of financial polices on social justice,
i.e. toward more inclusive financial markets This reflects the two most common perspectives
on microinsurance…
The microinsurance continuum
Social Protection• Benefits are a human right (e.g. health, pension)
• Contains a redistributive element
New Market• 4 billion persons living on less than $2/day
• Product and distribution innovations can make the poor a viable market for insurers
Microinsurance is…
“…a mechanism to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved”
Microinsurance is not…• Small insurance companies
• Just another product offered by MFIs
• Regular insurance products with smaller sums insured and premiums
• Savings, credit, risk prevention
Informal insurance
Insurable, without access
Uninsurable through market mechanisms
Formal insurance industry
WE
AL
TH
POPULATION
Who is insured by whom?
What risks are the poor concerned about?What risks are the poor concerned about?Country Priority risk
Uganda Illness, death, disability, property loss, risk of loan
Malawi Death, food insecurity, illness, education
Philippines Death, old age, illness
Viet Nam Illness, natural disaster, accidents, livestock disease
Indonesia Illness, children’s education, poor harvest
Lao P.D.R. Illness, livestock disease, death
Georgia Illness, business losses, theft, death, retirement income
Ukraine Illness, disability, theft
Bolivia Illness, death, property loss (including crop loss in rural areas)
Adapted from Cohen and Sebstad (2006)
Most common types of microinsurance products
• Credit life• Term life/Personal accident • Savings life• Property insurance• Endowment life• Health insurance• Agriculture
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2. Main differences between insurance and microinsurance
Characteristics of the insurable poor
• Vulnerable to risks• Often work in the informal economy• Irregular cash flows• Manage risks through myriad of informal
means, including social networks• Limited education, literacy• Limited familiarity with formal insurance• May not trust insurance companies
Illustrative differences between micro and conventional insurance
Continued…
Conventional Insurance Microinsurance
Premium collected mostly from deductions in bank account
Premium often collected in cash or associated with another financial transaction
Regular premium payments Premiums should be designed to accommodate customers’ irregular cash flows
Agents and brokers are primarily responsible for sales
Distribution channel may manage the entire customer relationship, perhaps including premium collection and claims payment
Market is largely familiar with insurance
Market is largely unfamiliar with insurance
Conventional Insurance Microinsurance
Screening requirements may include a medical examination
If there are any screening requirements, they would be limited to a declaration of good health
Limited eligibility with standard exclusions
Broadly inclusive, with few if any exclusions
Sold by licensed intermediaries Often sold by unlicensed intermediaries; maybe underwritten by unregulated risk carrier
Large sums insured Small sums insured
Priced based on age/specific risk Community or group pricing
Complex policy document Simple, easy to understand policy document
Illustrative differences between micro and conventional insurance (cont.)
Challenges for microinsurance
• Developing sustainable products that meet the needs of the market
• Reducing transactions costs (enhancing affordability)
• Creating an enabling regulatory environment
• Overcoming the market’s natural resistance and educational barriers
• Building microinsurance infrastructure (e.g. actuaries, TA providers, data management systems)
• Developing a microinsurance approach to claims• Distribution: getting products to market
Labour unionsSelf-help groups
Low-Income People
Cooperatives
On-line & ATM
Employers
BanksCredit unions
Smart cards Computer kiosks
Insurance companies
Service providers
MFIs NGOs
Cell phones
Retailers
Link to existing transactions for efficiency
Utility companies
Delivery ChannelsDelivery Channels
3) Microinsurance Innovation Facility
Innovation Grants
Technical assistance
Research Dissemin-ation
Microinsurance Innovation Facility
Four Pillars of Activities
Innovation Grants
• Grants: $20,000 to $600,000 for 2-3 years• Frequency: 5-10 issued every 6 months• Purpose: To test new products, models or approaches
to consumer education• Organizations eligible include insurance companies,
semi-formal microinsurers, employers’ associations, labour unions, cooperatives and other people’s organizations, and other distribution channels
Africa Latin America/Caribbean
Asia
Institutional models
SCC/CIC/NHIF (Kenya)
La Positiva (Peru)AMUCCS (Mexico)Seguros Argos (Mexico)
Health FINCA/Microcare (Uganda)UMSGF (Guinea)
Calcutta Kids (India)VimoSEWA (India)
Property / Agriculture
Hollard (South Africa)Planet Guarantee (Mali)
People Mutuals (India)DID/SICL (Sri Lanka)
Life /Accident UAB (Burkina Faso) AIC (Haiti) PICC (China)ICICI Prudential (India)Max New York Life (India)
Other Guy Carpenter (Latin America)
CIRM (India)
Research
• Key themes:– Demand– Supply– Client value and impact
• Methodologies:– Action research with innovation grantees– Small research grants– Thematic studies– Impact studies
4) Examples of innovations: - delivery channels - products
Partnerships between insurers and distribution agents like cooperatives and MFIs
• AIG and Ugandan MFIs
• Zurich Venezuela and BanGente
• Equidad and MFIs/Coops (Colombia)
Partnerships with utility companies or service providers• La Positiva (Peru) and
water associations• MAPFRE Seguros and
CODENSA, Colombia• Philam Life, and cell
phones (Philippines)
Cooperative Insurance Company, Kenya
• Developing Bima ya Jamii: “Basket” product covering life, disability and the National Health Insurance Fund (NHIF) coverage
• Selling through MFIs, SACCOs and other cooperatives
• Emphasizing training and consumer education for distribution channels and their members
• Collaborating with Swedish Cooperative Centre, NHIF, and Folksam Insurance (Sweden)
Hollard, South Africa
• Providing homeowners and content coverage for low-income households
• Selling through non-traditional distributors: retail shops, mobile phone air time vendors
• Testing inexpensive claims assessment strategies
• Providing replacement materials instead of cash payouts
• Learning about the demand for voluntary asset cover (most microinsurance is mandatory)
Insurance companies that target the low-income market through retailers
• Colseguros and Carrefour, Colombia
• Max New York Life, India
Union des Assurances du
Burkina Vie (UAB)
• Targeting informal sector entrepreneurs (e.g. market vendors)
• Distributing Cauri d’or, based on a contractual savings scheme that includes life and disability coverage
• Collecting clients’ contributions daily (as low as 150 francs CFA or 0.35 USD per day)
• Testing smart cards and collectors with hand-held terminals to improve efficiency and reduce fraud
Community-based schemes that pool funds, carry risk and manage a relationship with a healthcare provider (e.g. L’Union Technique de la Mutualité Malienne, Mali)
Health insurance
• Product for which there is the greatest demand
• Often coverage limited to hospitalization, or even a daily payment not linked to health care costs
• Straddles the gray area between social protection and commercial insurance
• Difficult to offer because:– Additional player involved
(health care provider)– Prone to moral hazard,
fraud, adverse selection and over-usage problems
– Skewed incentives – On a commercial basis,
can only be made affordable to the poor by severely limiting benefits
Products
• No evidence yet of sustainable agriculture insurance (for the poor), all heavily government subsidized
• Prone to moral hazard problems: farmers were less likely to pursue sound practices
• Recent innovations such as rain-fall index insurance show some potential to make agriculture insurance measurable, objective and viable...although most experiences are only in the pilot stage
Agriculture insurance
Products
Conclusion: Key product issues
1. Piggyback or standalone2. Mandatory or voluntary3. Group or individual4. Long or short term5. Inclusive vs. cherry picking risks6. Premium collection timing and mechanism7. Fast claims payments8. KISS
Products