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Introduction to Microinsurance Craig
Churchill International Labour Organization
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Overview of Presentation

• Introduction to inclusive insurance
• Key differences between insurance and
  microinsurance
• Overview of the Microinsurance Innovation
  Facility
• Examples of microinsurance innovations

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1) Introduction to inclusive insurance
Microinsurance
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ILOs 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

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The microinsurance continuum

• New Market
• 4 billion persons living on less than 2/day
• Product and distribution innovations can make
  the poor a viable market for insurers

• Social Protection
• Benefits are a human right (e.g. health,
  pension)
• Contains a redistributive element

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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

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Who is insured by whom?
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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, childrens 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)
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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
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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

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Illustrative differences between micro and
conventional insurance
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
Continued
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Illustrative differences between micro and
conventional insurance (cont.)
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
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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 markets 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

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Delivery Channels
Banks
Credit unions
Self-help groups
MFIs NGOs
Retailers
Low-Income People
Smart cards
Computer kiosks
Service providers
Link to existing transactions for efficiency
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3) Microinsurance Innovation Facility
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Four Pillars of Activities
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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 peoples organizations, and other
  distribution channels

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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)
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Research

• Key themes
• Demand
• Supply
• Client value and impact
• Methodologies
• Action research with innovation grantees
• Small research grants
• Thematic studies
• Impact studies

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4) Examples of innovations - delivery
channels - products
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• Partnerships between insurers and
  distribution agents like cooperatives and MFIs
• AIG and Ugandan MFIs
• Zurich Venezuela and BanGente
• Equidad and MFIs/Coops (Colombia)

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• Partnerships with utility companies or
  service providers
• La Positiva (Peru) and water associations
• MAPFRE Seguros and CODENSA, Colombia
• Philam Life, and cell phones (Philippines)

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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)

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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)

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• Insurance companies that target the
  low-income market through retailers
• Colseguros and Carrefour, Colombia
• Max New York Life, India

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Union des Assurances du Burkina Vie (UAB)

• Targeting informal sector entrepreneurs (e.g.
  market vendors)
• Distributing Cauri dor, 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

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Community-based schemes that pool funds, carry
risk and manage a relationship with a healthcare
provider (e.g. LUnion Technique de la Mutualité
Malienne, Mali)
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Health insurance
Products

• 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

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Agriculture insurance
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

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Conclusion Key product issues
Products

1. Piggyback or standalone
2. Mandatory or voluntary
3. Group or individual
4. Long or short term
5. Inclusive vs. cherry picking risks
6. Premium collection timing and mechanism
7. Fast claims payments
8. KISS