The Value of Bundling Microfinance and Microinsurance Preliminary Assessment

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The Value of Bundling Microfinance and
MicroinsurancePreliminary Assessment

• Esther Duflo, Abhijit Banerjee,
• Rachel Glennerster
• A joint project between
• CMF, SKS, and J-PAL

SKS Client in Gulbarga District
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Introduction

• The poor are facing substantial un-insured risk.
• Health is one of them Catastrophic health
  episode can have devastating financial
  consequences
• There is thus a need for health insurance for the
  poor
• The challenge is to find effective ways to offer
  health insurance on a large scale.

Government Hospital in Jewargi, Gulbarga District
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Bundling microfinance and health insurance

• Several MFI are now experimenting with products
  that bundle health insurance and microfinance
• Potential
• Microfinance organizations often operate on a
  large scale large clientele
• Reduce administrative costs since they can be
  shared with the cost of providing credit
• Mitigate adverse selection problems because
  clients join the organization to get a loan, not
  to get insurance

Villager waiting for medical services in a Public
Health Clinic (PHC)
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Potential Risks

• If there is no demand for health insurance, this
  may affect the client base for the main product
• If demand for health insurance is concentrated
  amongst the sickest, the adverse selection may
  spread to the client pool (selective drop out
  select clients join)
• If microfinance clients are not aware of the
  products, they may not use it.

Child at PHC, Gulbarga District
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Evaluation of the SKS catastrophic health
insurance project

• Intervention Health insurance mandatory with
  every new loan
• Goal of the SKS program Insure MF clients and
  their households against risks of catastrophic
  health shocks
• Goal of the research program
• Evaluate microfinance as a channel for delivery
  of insurance services
• Evaluate impact of providing health insurance on
  health and financial status of rural households
  and
• In this talk, we will focus on two points
• The need for insurance
• Operational challenge does insurance lead to
  drop out and adverse selection?

SKS client in Gulbarga District
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Outline

• Description of the Health insurance product and
  research design
• The need for insurance baseline findings
• Does insurance affect SKS client base
• Renewal Rates
• Characteristics of those who renew

SKS client in Gulbarga District
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Details of the insurance product

• Offered by ICICI Lombard, nationwide insurance
  company
• Catastrophic health insurance Covers
  hospitalizations and surgeries, accidents, and
  maternity (covers maternity and pre-existing
  conditions from day 1), up to Rs 20,000
• Insurance cover available for member, spouse,
  and up to two children
• Premium varies between Rs 375 and Rs 525
  depending on the number of family members covered
• Claims processed by SKS and insurer
• Some facilities are networked, and are cashless
• In other hospitals, client is reimbursed

SKS clients in Gulbarga District
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The roll out

• SKS piloted the insurance product in 2 districts
  in Karnataka Bidar and Gulbarga
• Loan officers and the branch staff conducted
  meetings to explain product, to show videos, etc.
  
• Members paid premiums and received coverage at
  the time of signing up for a new loan
• Pre-tested product in February 07. Roll out of
  product started in May (in and outside the
  research area)
• Currently over 50,000 lives insured

SKS clients in Gulbarga District
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Area Background

• Gulbarga Bidar Districts

• Total Population 3.35 million (Gulbarga) 1.58
  million (Bidar)
• Amongst the poorest and least developed districts
  of Karnataka
• Montly consumption per capita Rs 706

Out of 27 Districts in Karnataka
SKS Client in Gulbarga District
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Research Design

• SKS selected 201 villages in Bidar and Gulbarga
  districts.
• Randomized phase in We selected
• 100 villages, at random, where insurance is
  provided in phase one,
• 101 control villages where insurance will not be
  provided until the end of the study period (it
  will be offered at that point)
• Data will be collected in treatment and control
  villages during the study period (2 years total,
  a minimum of one year for each client since they
  obtained the change to sign up for insurance)

Micro-entrepreneur in Gulbarga
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Data collection

• Baseline survey survey of 6000 households (SKS
  clients) during Jan-March 2007 in 201 villages
• Economic welfare
• Health expenditure
• Health events
• Business activities
• Administrative data on insurance roll out,
  matched with baseline
• A continuous health survey to track health events
  among households in the study villages and usage
  of insurance will be conducted
• End survey to be conducted in 2008-2009 on the
  same clients.

SKS Client in Gulbarga District
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Outline

• Description of the Health insurance product and
  research design
• The need for insurance baseline findings
• Does insurance affect SKS client base
• Renewal Rates
• Characteristics of those who renew

Government Hospital in Jewargi, Gulbarga District
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The need for insurance

• Baseline results indicate that
• 14 of household were ever offered health
  insurance Only 0.6 have health insurance
• Health shocks are frequent

Villager waiting for medical services in a Public
Health Clinic (PHC)
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SKS Client in Gulbarga District
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Preliminary Results

• Baseline results indicate that
• Health shock are expensive a single serious)
  episode costs Rs 1,900 on average (monthly per
  capita expenditure in sample Rs 708).
• Distribution of these costs is very skewed 5 of
  the households spend 87 of the money
• Household spend about 7 of their budget on
  institutional care, on average, 19 of their
  budget on health
• They are most often financed by loans (43 of the
  cases) and these loans are often taken from money
  lenders (33 of those loans)

Child at PHC, Gulbarga District
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SKS client in Gulbarga District
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SKS client in Gulbarga District
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Outline

• Description of the Health insurance product and
  research design
• The need for insurance baseline findings
• Does insurance affect SKS client base
• Renewal Rates
• Characteristics of those who renew

SKS clients in Gulbarga District
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Insurance Take up

• Health insurance is bundled with loan product
• Number of clients
• On the plus side this allows to serve a large
  number of clients quickly
• On the minus side if people do not want the
  insurance, this will negatively impact SKS
  lending business.
• Selection of clients
• On the plus side demand for credit minimizes
  adverse selection
• On the minus side demand for health insurance
  may lead to adverse selection on the client side.
  

SKS clients in Gulbarga District
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Results Impacts on the bottom line?

• Insurance is mandatory at the renewal of the
  second loan
• Fraction of clients eligible for a second loan
  and who took one up (June-August 2007)
• Treatment centers 96
• Comparison centers 95
• If we limit to those for whom we have baseline
  data, and look at the stock as of December 07
• Treatment centers 94
• Comparison centers 96
• Not significantly different from each other
• No evidence that insurance discourages renewal

Micro-entrepreneur in Gulbarga
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Results Adverse Selection?

• Is the mix of clients adversely affected in
  villages where insurance is offered?
• Illustration Renewal rate

SKS Client in Gulbarga District
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Results

• No difference for
• Economic welfare (consumption per capita)
• Education
• Basic demographics
• For health variables, no difference in
• Occurrence of major health events last year
• Total health spending last year
• Chronic illness and disability
• Self reported health status
• Conditions in the last months

Government Hospital in Jewargi, Gulbarga Districtc
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Conclusion

• There is a great need for catastrophic health
  insurance
• Bundling health insurance with microcredit
  potentially allows
• Dealing in large number
• Mitigating health insurance
• In practice, our research so far shows that
  health insurance does not lead to a drop in the
  number of clients or in adverse changes in their
  composition.
• Bundling insurance and microcredit thus appears
  extremely promising. Next step is to check that
  it is used, and that it mitigates adverse
  consequences of health events (in terms of
  health welfare business activities)

Villager waiting for medical services in a Public
Health Clinic (PHC)