«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
When these groups cannot be immediately provided with coverage, insurance – where appropriate on a voluntary basis – or other measures such as social assistance could be introduced and extended and integrated into the social security system at a later stage when the value of the benefits has been demonstrated and it is economically sustainable to do so. Certain groups have different needs and some have very low contributory capacity. The successful extension of social security requires that these differences be taken into
account. The potential of microinsurance should also be rigorously explored:
even if it cannot be the basis of a comprehensive social security system, it could be a useful first step, particularly in responding to people’s urgent need for improved access to healthcare. Policies and initiatives on the extension of coverage should be taken within the context of an integrated national social security strategy (ILO, 2001).
At the suggestion of the Conference, in 2003 the ILO launched the “Global Campaign on Social Security and Coverage for All”.
When faced with the present situation where a large (and growing) number of persons are excluded from social protection, it is necessary to devise proactive strategies to extend it. These strategies aim at increasing the number of persons covered and at improving the level and the scope of existing social protection benefits. A range of mechanisms can be used to implement
these strategies, for instance:
– Social assistance programmes targeting specific vulnerable groups can also be implemented: waivers, social pensions/cash benefits, conditional cash transfers (for instance on school attendance).
– A complementary option is to encourage and support the development of microinsurance and innovative decentralized social security schemes to provide social protection through communities, social partners4 or other civil society organizations.
3 What is microinsurance?
As described in Chapter 1.1, a microinsurance scheme may be an organization, like a mutual benefit society. It could also be a set of institutions working together, such as insurers that collaborate with microfinance institutions to provide insurance to the poor. Or it could be an insurance product provided by an organization that conducts other activities, like an agricultural cooperative that also provides insurance to its members.
Microinsurance schemes are often initiated by civil society organizations.
Increasingly, these organizations cooperate with formal social protection schemes (e.g. insurance companies, social security schemes), public institutions (e.g. departments of health, labour and social affairs), service providers (e.g. healthcare providers, third party administrators (TPAs)). Sometimes even municipalities or local authorities are involved in offering microinsurance.
For a scheme to be of interest in the context of social protection, some of its beneficiaries should be excluded from formal protection schemes, in particular informal-economy and rural workers and their families. A microinsurance scheme differs from programmes that provide statutory social protection to formal workers. Membership is not compulsory (but can be automatic). The members contribute, at least partially, the necessary premiums to pay for the benefits. Since their capacity to contribute is often low, the coverage provided by these schemes is – in the absence of subsidies – usually limited, with a small number of risks covered and low levels of benefits.
As discussed in the previous chapter, workers in the informal economy and their families typically request coverage for illness and death; the demand for protection against other risks is less widespread, although it can be significant in certain markets (e.g. the demand for livestock and crop coverage in rural areas). In terms of availability, not all microinsurance products are present in all countries. Some products may be well-established in one 4 The ILO is a unique forum for governments to interact with employers’ and workers’ organizations, otherwise known as social partners. In the ILO’s tripartite governance structure, employers’ and workers’ organizations have an equal voice with governments in shaping its policies and programmes.
The social protection perspective on microinsurance 53 region, but almost non-existent in another. For example, life microinsurance is seldom found in western Africa, whereas it is relatively developed in some Asian countries.
According to inventories of microinsurance schemes conducted in 2003/2004 in 11 African countries, India, Bangladesh, Nepal and the Philippines (ILO/STEP, 2003/2004):
– health microinsurance is predominant in Africa (100 per cent of investigated schemes) and the Philippines (70 per cent of the schemes provide health insurance); it ranks second in India (56 per cent of schemes) and Nepal (52 per cent), and is less important in Bangladesh (39 per cent);
– life microinsurance is most common in Bangladesh (72 per cent of investigated schemes provide life insurance), the Philippines (66 per cent) and India (60 per cent); it is less available in Nepal (38 per cent); and – examples of crop microinsurance were found only in India (two schemes in 2004); pension schemes were only seen in India (4 per cent of investigated schemes) and the Philippines (24 per cent).
4 Potential and limitation of microinsurance as a social protection mechanism Not all microinsurance plays a role in extending social protection. Some products – such as asset, livestock and housing microinsurance and creditlinked insurance that only covers the outstanding loan balance – though certainly beneficial, do not provide social protection coverage in the strict sense.
In contrast, other products, such as health, life, old-age pensions and disability covers address the nine contingencies specified in ILO’s Social Security Convention (No. 102) and therefore play a role in the extension of social protection.
4.1 Positive contribution of microinsurance in the extension of social protection Where governments have limited financial and institutional capacity, microinsurance schemes may raise supplementary resources (finance, human resources, etc.) which benefit the social protection sector as a whole. More specifically, health microinsurance schemes help to improve access to healthcare by lowering the financial barriers that delay or impede access. In some cases, the quality of care is even improved, for example when the schemes sign agreements with healthcare providers on the quality of delivery. ConPrinciples and practices tracting with healthcare providers also increases transparency in billing practices and the way the health sector is managed.
Microinsurance also has several positive effects on the participation of civil society and the empowerment of socio-occupational groups including women. For example, since many schemes are set up and operated by women’s associations, they may strengthen women’s capacity to meet their health needs including those linked with their reproductive role.
Moreover, microinsurance as a mechanism to extend social protection has
the following comparative advantages over classical social security schemes:
1. Microinsurance can reach groups excluded from statutory social insurance, such as workers in the informal economy and rural workers.
2. The transaction costs necessary to reach these populations may be reduced, since microinsurance schemes are often operated by decentralized civil society organizations, often relying on voluntary self management, that are implemented in the vicinity of the target population.
3. Microinsurance benefits are often designed in partnership with the target population. This participation is highest in mutual benefit associations where the benefit package is voted on by the general assembly. In other types of schemes, the target groups are usually consulted, for instance through household surveys. As a result, microinsurance often responds to the target population’s needs and ability to pay.
4. Community-based schemes usually experience fewer problems with fraud and abuse than centralized social protection systems since members often know each other, belong to the same community and share the same interests. However, community-based schemes can have difficulty collecting regular contributions, resulting in retention problems and sustainability challenges. Some schemes manage this issue of low renewals through group insurance contracts with organized occupational groups (such as cooperatives).
The development of microinsurance is ongoing, with a proliferation of new schemes, especially in India. For example, ILO/STEP (2004) found 60 microinsurance schemes covering 5.2 million people. The inventory is being updated; the current (early 2006) number of schemes stands at 71 covering more than 6.8 million people in India and 240 microinsurance schemes covering 25 million people in 8 countries of Asia. This suggests that these schemes respond to a real demand and that they manage to solve a certain number of issues, at least at the local level.
The social protection perspective on microinsurance 55
4.2 Current limitations of microinsurance as a mechanism of extension of social protection Despite these apparent advantages, certain characteristics of microinsurance
schemes limit their contribution to the extension of social protection:
1. Although microinsurance is becoming more common, many persons excluded from legal social protection schemes are still not covered by microinsurance either. In fact, many of these schemes (particularly in Africa) have great difficulty extending their geographic or socio-occupational outreach and increasing their membership.
2. Many microinsurance schemes have poor viability and sustainability.
These two points are linked (particularly in Africa) with poor management skills (not enough financial resources to employ professional staff) and inadequate information systems, which makes it difficult to monitor the scheme’s operations.
3. Members’ ability to pay is most often very low, which leads also to limited benefits in the absence of subsidies.
4. Most schemes do not take over the functions that are usually fulfilled by statutory social security schemes – such as redistribution between richer and poorer segments of the population – because contributions are often based on a flat rate. In addition, few schemes reach the poorest segments of the excluded groups who cannot contribute.
5. In many countries, the legislative framework and regulations are not adapted to these schemes and do not facilitate their replication and expansion.
6. Microinsurance schemes are usually self-governing organizations. They may pursue objectives that are not in line with government’s strategy of social protection and their promoters may be unwilling to participate in national systems of social protection, as this could threaten the schemes’ autonomy.
– In India, the prescribed use of the partner-agent model (see Chapter 5.2) increases the acceptance of insurance by the target groups;
– In Senegal, microinsurance schemes are mentioned in the national social protection strategy as a key mechanism to extend social protection;
– In Rwanda and Ghana, the State implements nationwide social protection schemes in health that are built on district- and community-based mutual organizations.
– In Colombia, the government provides subsidies that enable the poor to be purchasers of health insurance, which even stimulates competition to serve the low-income market by microinsurance providers and others (Box 11).
The extension of social protection through microinsurance in ColombiaBox 11
As a part of the reform of the healthcare system in Colombia in 1993, a special scheme (Régimen Subsidiado de Salud) was introduced to finance healthcare for the poor and vulnerable groups (including their families) who are unable to pay contributions to the general insurance scheme.