«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
The future success of microinsurance depends on achieving prudent, profitable and continuous growth and development. What will be the development lifecycle for microinsurance? How long will it be? Some say that microinsurance is still at the conceptual stage and a good case can be made for this perspective. However, for the men and women out in the field today, whose efforts have been the raw material for this book, microinsurance is quite re al, even if it is still early days. Their hopes for the short-to-mediumterm future are the focus of this chapter.
The goal of microinsurance is to make appropriate, affordable risk-management products available to the poor, to help support their economic development and to enable them to achieve financial freedom for themselves and future generations. Microinsurance complements and enhances the effectiveness of informal coping mechanisms, and supplements statutory social protection schemes where they are available.
Chapter 1.1 summarizes the many challenges that inhibit the development and expansion of microinsurance; the subsequent pages are filled with numerous examples of how schemes are overcoming them.
However, a number of further obstacles must be faced if insurance markets are to become significantly more inclusive. To massively increase the outreach of insurance services to low-income households, and to deepen penetration to reach those who are even more vulnerable, it is necessary to tackle these challenges (highlighted in Table 52). This chapter summarizes some of the solutions that need to be considered to expand the availability and enhance the quality of microinsurance.
Continuing challenges that limit the expansion of microinsurance Table 52
1 Microinsurance customers of the future Microcredit has had an important impact on the ability of poor people to rise above the poverty line. Although the development of microinsurance is more recent, preliminary and anecdotal evidence suggests that it can be an important factor in enabling people to remain above the poverty line. By providing protection against certain perils, microinsurance serves as a natural complement to other financial and social services for the poor. For it to fulfil its potential, it is necessary to develop an insurance culture among the lowincome market, as well as to introduce products that meet their primary needs, particularly for those who are most vulnerable.
1.1 Education and culture Yet the demand for microinsurance requires some coaxing. The case studies noted that greater efforts need to be invested in market education so that potential policyholders understand and appreciate the value of insurance. In fact, successful insurers in developed markets continue to provide their clients and the general population with education on certain topics, leading to improved underwriting experience and customer loyalty. There is certainly a need to develop better pedagogical tools to convey the usefulness of insurance to an illiterate or uneducated market. To make a significant impact, however, client education is insufficient. Rather, stakeholders in the development of microinsurance – including providers, policymakers and donors – need to cultivate an insurance culture among the poor.
An insurance culture is a prerequisite for the success of microinsurance.
In many developed countries, it took generations before people commonly turned to insurance to address their risk-management needs. Microinsurance providers will help build the culture of insurance when they serve their
clients’ needs in a fair and equitable way. The product is the starting-point:
clients need to know that they have cover and they need to witness the regular provision of benefits.
Paying a claim – delivering on a promise – is arguably the single most important opportunity to reinforce the value of insurance, and therefore claims need to be handled efficiently and appropriately. Too often, benefits are not delivered as promised and this leads to an anti-insurance culture.
Many microinsurance programmes operate in these anti-insurance cultures and struggle to counter the prevailing sentiments.
The evolution of attitudes to insurance will be affected by the ability of providers to continuously improve processes, services, benefits and costs for clients. Governments and civil society can contribute to the development of
586 Conclusionssuch a culture through educational programmes. This culture is reinforced when associations and employers begin offering insurance as membership or employment benefits. In developed countries, the growth of an insurance culture has been further supported by the prevalence of obligatory, government-mandated cover such as third-party liability cover for vehicles. Many people’s experiences with these products have helped them to understand insurance, and in some cases encouraged them to seek out voluntary products as well.
For low-income persons in developing countries, the relevant parallel experience could come from credit life insurance provided through microfinance institutions. If MFIs can ensure that their clients have a positive experience, the poor may be more interested and willing to voluntarily purchase other insurance products. Consequently, there should be significant cause for concern when credit life is not taken seriously by MFIs (or their risk carriers) and when efforts are not made to ensure the poor have a positive experience with insurance. Every late payment or summarily rejected claim and every instance of opaque pricing or misinformation about the scope of cover, will add to the time it takes to foster an insurance culture.
To maintain a culture of insurance, providers should strive to serve customers throughout their lives rather than getting them on board and then neglecting their changing needs and circumstances. Lack of attention from the provider is a key cause of high lapse rates and gaps in coverage associated with many microinsurers. Efforts to minimize lapses and non-renewals should include using appropriate premium payment and financing mechanisms, as well as market education and marketing approaches that avoid misdirected and self-serving sales incentives. When microinsurance markets reach a stage where people really understand and appreciate what they are buying, lapses and non-renewals will become less frequent.
1.2 Product evolution Insurance for the poor needs to develop as the demand for those services evolves. Health cover is the next priority, especially in countries where the governments cannot adequately address the healthcare needs of their citizens.
Soon, there may be growing demand for long-term, retirement insurance or old-age pensions, as well as for disaster, housing, and in some areas, livestock and agricultural insurance. These are risks that cannot be managed by savings and credit alone. If microinsurance providers cannot keep up with these demands, they may stifle the development of an insurance culture as lowincome persons lose confidence in risk-pooling mechanisms.
The future of microinsurance 587 Insurance products sold through organizations that potential policyholders trust could also help develop positive attitudes. An insurance culture will emerge only when it is supported through word-of-mouth communication that promotes and spreads awareness of insurance. The combination of a trusted intermediary and word-of-mouth communication may be why many credit unions have been effective in generating an insurance culture among their members.
Microinsurance products that respond appropriately to potential policyholder needs and demands will help to generate an insurance culture. The key strategy to achieve this goal is to involve policyholders (or prospective clients) in the process of making hard choices between benefits and price.
Tools that enable clients to see the trade-offs and voice their preferences will go a long way towards appropriate product design.
A long-term, multi-generational outcome is an enticing reason for insurers to enter this market, even though it is incompatible with the short-term perspective of most companies. In developing countries, millions of today’s poor households will be tomorrow’s middle class. Historically, the measure of success most revered among large multi-line insurance companies is the ability to build lifetime relationships with their clients, even multi-generational ones, providing products and services to cover changing needs throughout the policyholder’s life. This is common knowledge to insurance sales agents who rely on referrals for their business and is evident in the multi-line companies that monitor the number of products per customer or household.
The overriding objective of microinsurance is to enable low-income people to protect wealth and achieve some level of economic security. Helping customers to achieve these goals also creates an ideal market for patient insurers; the long-term market potential is huge. Furthermore, brand loyalty is high in this market segment, which makes this argument that much more compelling.
In the long term, microinsurance policyholders will become more knowledgeable about insurance. They will recognize the potential for insurance to address some of their risk-management needs, and they will seek out such cover. They will understand the different risks and capabilities of insurance providers and will be able to make appropriate choices and decisions. Lowincome consumers will push the insurance providers to offer the products they want. Microinsurers today have an obligation to help their clients become more knowledgeable, while preparing themselves to serve a more sophisticated market.
The more the target market understands insurance, the more aware they will be of the limitations of market-based solutions. This recognition will
588 Conclusionsalso help empower low-income communities to demand publicly-provided social protection services – after all, social security is a human right. Plus, there will always be a market segment that contributory insurance schemes cannot reach – the chronic or hard-core poor – which must be covered by government programmes. The ongoing challenge in the development of microinsurance is to determine where that frontier lies. How far can the envelope be pushed? What segments of the market could ultimately be reached through continued improvement in delivery mechanisms and efficiency? Similarly, how can microinsurance distribution mechanisms enhance access to government-provided social protection schemes?
2 Microinsurance providers of the future The second set of challenges that need to be addressed involves the providers themselves. These issues fall into three categories: 1) building the capacity of management and staff, 2) enhancing efficiency, including the use of technology and 3) finding a business model that works for all stakeholders and balances short-term viability with long-term growth.
2.1 Building capacity Since microinsurance is a relatively new endeavour, it is not surprising that there is a need to build up the capacity of providers. While the case studies indicate that some effort should be channelled to improve existing providers, to fill the enormous access chasm, investments also need to be made in new delivery channels and perhaps in creating new insurers.
The capacity challenges exist on two levels: field staff and management. In general, the field staff associated with the distribution channel – the agents selling and servicing the policies, or the managers of mutual schemes – require additional expertise in sales skills, insurance basics, adult education techniques and customer service. Just as important as the skills, however, is creating a work environment that allows schemes to retain qualified personnel. Currently, many microinsurers and their distribution channels experience high turnover of frontline personnel. Consequently, there is a great need to consider the compensation, incentives and career development of those who have the expertise of selling and servicing insurance for the poor.