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Title: Pr sentation PowerPoint Author: Frederic Bescond Last modified by: ILO Created Date: 11/13/2008 11:28:21 AM Document presentation format: On-screen Show – PowerPoint PPT presentation

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Title: Pr

Introduction to Microinsurance Craig
Churchill International Labour Organization
Overview of Presentation
  • Introduction to inclusive insurance
  • Key differences between insurance and
  • Overview of the Microinsurance Innovation
  • Examples of microinsurance innovations

1) Introduction to inclusive insurance
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
  • This reflects the two most common perspectives
    on microinsurance

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,
  • Contains a redistributive element

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

Who is insured by whom?
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)
Most common types of microinsurance products
  • Credit life
  • Term life/Personal accident
  • Savings life
  • Property insurance
  • Endowment life
  • Health insurance
  • Agriculture

2. Main differences between insurance and
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
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
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
Challenges for microinsurance
  • Developing sustainable products that meet the
    needs of the market
  • Reducing transactions costs (enhancing
  • 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

Delivery Channels
Credit unions
Self-help groups
Low-Income People
Smart cards
Computer kiosks
Service providers
Link to existing transactions for efficiency
3) 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 peoples 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)
  • 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
  • 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
  • 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 dor, based on a contractual
    savings scheme that includes life and disability
  • 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. LUnion 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
  • 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

Agriculture insurance
  • No evidence yet of sustainable agriculture
    insurance (for the poor), all heavily government
  • 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

Conclusion Key product issues
  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
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