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GOING BEYOND MICROCREDIT

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Title: GOING BEYOND MICROCREDIT


1
GOING BEYOND MICROCREDIT
  • MICROINSURANCE
  • by MOSLEH UDDIN AHMED FCA

BUILDING SUSTAINABLE MICROFINANCE IN
RBEC Community of Practice Workshop ALMATY,
KAZAKHSTAN
2
OVERVIEW
  • What microinsurance is not
  • What is microinsurance
  • Microinsurance basics
  • Need cycle of the poor
  • Risk-managing financial services
  • Microinsurance difficulties
  • Microinsurance complexities
  • Microinsurance risks
  • Microinsurance activities
  • Delivery channels

3
OVERVIEW
  • What microinsurance is not
  • What is microinsurance
  • Microinsurance basics
  • Need cycle of the poor
  • Risk-managing services
  • Microinsurance difficulties
  • Microinsurance complexities
  • Microinsurance risks
  • Microinsurance activities
  • Delivery channels
  • Delivery models
  • Donors role
  • Donors role flow-chart
  • Guidance for donors
  • Dos donts for donors
  • Different products
  • Case studies
  • Summary

4
MICROINSURANCE IS NOT
  • Charity
  • Savings Credit risk prevention
  • A small insurance company
  • Just another product offered by MFIs
  • A MAGIC BULLET and a cure for all problems of
    the poor people

5
MICROINSURANCE IS
  • the protection of the poor people against
  • specific perils in their lifecycles in exchange
  • for regular premium payments proportionate
  • to the likelihood and cost of the risk
  • involved
  • Draft Donor Guidelines

6
MICROINSURANCE IS
  • Risk pooling
  • One of the several risk-management tools
    available to the poor household
  • A new market for the private sector
  • Social security to workers in the informal economy

7
  • TO UNDERSTAND MICROINSURANCE ONE NEEDS TO
    UNDERSTAND THE
  • NEED CYCLE OF THE POOR AND THE INTERVENTIONS
    REQUIRED

8
Need Cycle of the Poor
Marriage (C, S, Sc)
Working Capital (C)
Death (C,I, Sc)
Fixed Asset Acquisition (C)
Health (C,S,I)
Old Age (H, I, S, Sc)
Asset Protection (I)
Investments (S)
Birth (C, H, I, S)
Religious Ceremony (C,S, Sc)
Training Education (E, Sc)
C Credit E Education H Healthcare I
Insurance S Savings Sc Social
9
How do the poor protect themselves?
Prevention and Avoidance
  • Careful sanitation
  • Identifying business opportunities

Preparation
  • Saving
  • Accumulating assets
  • Buying insurance
  • Educating children
  • Taking emergency loans
  • Depleting savings
  • Selling productive assets
  • Defaulting on loans
  • Reducing spending

Coping
Several slides adopted from CGAP presentation
10
The Demand for Risk-managing Financial Services
The demand for Liquid savings Emergency
loans Microinsurance depends on
11
Different Financial Services For Different Risks
Highly Uncertain
Degree of Uncertainty
Certain
Flexible Savings and Credit
Life Cycle Events
Small
Property
Health
Death
Insurance
Relative Loss / Cost
Disability
Mass, Co-variant
Flexible Savings Partial protection
Very Large
12
Some of the Difficulties in Providing
Microinsurance to Poor People
  • Technical Specialization
  • Requires specialized actuarial capacity, which is
    complicated by the lack of reliable data
    characteristic of low-income, informal markets

Most poor people do not understand insurance or
may be biased against it
Marketing and Sales
Requires a distribution system that can handle
small financial transactions efficiently in
convenient locations, and engender trust
Distribution Channels
13
Relative Complexity of Microinsurance Products
HIGHLY COMPLEX
  • Crop insurance
  • Health and disability insurance
  • Annuities and endowment
  • Property insurance
  • Term life insurance

SIMPLER
14
Degree of Risk in Providing Microinsurance
Health Insurance
Property Insurance
Life Insurance
Moral Hazard
Fraud
Adverse Selection
Over Usage
Limited Risk
Moderate Risk
Substantial Risk
15
Activities Involved in Offering Microinsurance
Product Sales Marketing, education, signature of
policies
Product Manufacturing Design issues such as
pricing, claims procedures, level of coverage
Policy Holders
Product Servicing Premium collection, payment of
claims
16
Microinsurance Delivery Channels
Self-help Groups
Poor Households
Adopted from a presentation made by Dr. B Helms,
CGAP
17
Some Microinsurance Delivery Models
  • Partnerships between MFIs and insurers
  • Full service provision where regulated insurers
    provide specific products to the low-income
    market
  • Health care service providers offer a health care
    financing package and absorb the insurance risk
  • MFI-based insurance where MFIs take on the risk
    offering insurance to their clients
  • Community-based programs where communities pool
    funds and manage a relationship with a health
    care provider

18
Examples of Microinsurance Delivery Models
  • Partner-Agent Model
  • Insurers utilize MFIs delivery mechanism to
    provide sales and basic services to clients
  • There is no risk and limited administrative
    burden for MFIs
  • Example FINCA Uganda partners with American
    International Group (AIG)
  • Full-Service Model
  • The provider is responsible for all aspects of
    product manufacturing, sales, servicing, and
    claims assessment
  • The insurers are responsible for all
    insurance-related costs and losses and they
    retain all profits
  • Example SEWA in India
  • Community-Based Model
  • The policyholders own and manage the insurance
    program, and negotiate with external health care
    providers
  • Example UMASIDA in Tanzania
  • Provider Model
  • The service provider and the insurer are the
    same, i.e., hospitals or doctors offer policies
    to individuals or groups
  • Example Gonoshatsasthya Kendra in Bangladesh

19
AIG and FINCA Uganda Model
Partner
Agent
Product Sales
Policy Holders
Product Manufacturing
Product Servicing
AIG
FINCA Uganda
20
WHAT IS DONORS ROLE IN MICROINSURANCE?
DONORS HAVE A MAJOR ROLE TO PLAY IN STIMULATING
THE MICROINSURANCE INDUSTRY
21
Donors Role Flow-chart
  • Potential Market
  • Are clients interested in insurance protection?
  • Is this the most effective risk management
    solution?
  • Donor Skills
  • and Knowledge
  • Does donor have experience develop-ing markets
    for low income people?
  • Does donor have basic insurance technical
    expertise?
  • Does donor have access to local market knowledge?

Linkage identified?
Broker partnership, monitor performance
22
Preliminary Guidance for Donors
  • Consider client demand

1
  • Move cautiously and facilitate linkages

2
Work with strong institutions
3
  • Invest in technical expertise

4
Monitor performance
5
23
1. Consider client demand
The demand for risk protection should come from
clients, not donors
  • DO
  • Consider client demand to understand what
    risk-managing financial service is most
    appropriate
  • Invest in educating poor people on the benefits
    of insurance
  • DO NOT
  • Push institutions to offer microinsurance

24
2. Move cautiously and facilitate linkages
Coordinate microinsurance efforts with other
donors, insurers, governments
  • DO NOT
  • Try to influence government policies before
    there is more experience with microinsurance
  • DO
  • Encourage commercial insurers to serve the poor
    by brokering relationships with MFIs

25
3. Work with strong institutions
Work with strong institutions and conduct a
careful analysis of their capacity to manage
microinsurance products
  • DO NOT
  • Fund new microinsurance providers without
    sufficient technical capacity
  • DO
  • Take a patient approach, but define a clear,
    time-bound exit strategy

26
4. Invest in technical expertise
  • Be careful about supporting unregulated insurance
    schemes that lack expertise, access to
    reinsurance, or consumer protection oversight
  • DO NOT
  • Provide grant funding to cover claims costs
  • DO
  • Provide access to technical assistance for
    specific technical problems

27

5. Monitor performance
Key Microinsurance Performance Indicators
  • For MFIs
  • Volumes of policyholders ( of women)
  • Premium and claim values
  • Loss ratios
  • Renewal rates
  • Average time for claim settlement, premium rate
    charged to clients
  • Administrative costs ratio
  • For Insurers
  • Annual reviews of premiums written
  • Loss and expense ratios
  • Claims reserves ratio
  • Other reserves
  • Investment returns
  • Premium rate charged to the MFI
  • Net income, capital, and surplus

28
Microinsurance Products in Different Countries
  • Georgia
  • Health
  • Albania
  • Package covering Life,
  • Building, Contents and
  • Livestock
  • Russia
  • Health

29
Microinsurance Products in Different Countries
  • India
  • Life/Endowment
  • Health
  • Property/Livestock
  • Crop and Weather
  • Integrated Package
  • Rural Insurance Schemes
  • Nepal
  • Life
  • Livestock
  • Philippines
  • Health
  • Sri Lanka
  • Life
  • Cambodia
  • Health
  • Bangladesh
  • Life/Endowment
  • Health
  • Property/Livestock

30
Microinsurance Products in Different Countries
  • Vietnam
  • Life
  • Pakistan
  • Life
  • Indonesia
  • Life
  • China
  • Health
  • Flood
  • Laos
  • Life
  • Cambodia
  • Health

31
Microinsurance Products in Different Countries
  • Mexico
  • Life
  • Health
  • Weather
  • Colombia
  • Life
  • Health
  • Nicaragua
  • Life
  • Weather
  • Guatemala
  • Life

32
Aldagi/Constanta Health Microinsurance - Georgia
  • Partnership between Aldagi Insurance and
    Constanta Foundation
  • Provides 5 levels of in-patient cover
  • Cost of transport and emergency care
  • Cost of surgery plus therapy

33
Aldagi/Constanta Health Microinsurance - Georgia
  • 24 hour telephone advisory service
  • Premium ranges between US 0.90 to US 2.40

CONSTANTA FOUNDATION HEAD OFFICE Photo by
courtesy of Conatanta Foundation
34
Group Personal Accident Policy AIG FINCA Uganda
  • Covers life, disability and loss of assets
    AIDS/HIV not excluded
  • Mandatory for borrowers of all participating MFIs
  • 1.6 million policyholders in Uganda, Tanzania
    and Malawi through 26 participating MFIs

A GPA policy holder at her store Photo by
courtesy of AIG Uganda
35
Group Personal Accident Policy AIG FINCA Uganda
  • Premium 0.5 of the amount borrowed
  • Premium income in 2004 US 800,000
  • For AIG Uganda this is a major revenue and
    profits generator
  • The country and the MFIs have benefited as well

AIG Uganda office Photo by courtesy of
Microinsurance Centre
36
Pre-paid Health Card AFYA Health Card with Photo
ID in Kenya
  • Costs US 75 per person per year
  • Joint-venture project of 4 organisations
  • AAR Health Services provide healthcare K-Rep
    Bank markets and lends cost of card
  • Covers out-patient and hospitalisation costs

A K-Rep Bank customer and potential AFYA
cardholder Photo by courtesy of K-Rep Bank
37
Summary
  • Microinsurance is one of many financial services
    that helps manage risk
  • To serve poor people, microinsurance must respond
    to their priority needs for risk protection, be
    easy to understand, and be affordable
  • Insurance is a complex matter requiring technical
    expertise that most MFIs and donors do not
    possess
  • At present, the ability of donors to facilitate
    linkages and share knowledge on microinsurance is
    more important than providing funds for specific
    programs

38
GOING BEYOND MICROCREDIT
  • THANK YOU
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