«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
As discussed in the previous chapter, building the capacity of management remains a significant challenge. The requirements for managers of informal schemes that may one day become formal, however, are quite different from those for managers in regulated insurance companies considering the low-income market opportunity. The latter need a crash course in underThe future of microinsurance 589 standing the needs of the poor, recognizing that microinsurance has some unique characteristics that require more than just smaller premiums and sums insured. The experiences of AIG Uganda and Madison Insurance illustrate that corporate insurers have been reactive, responding to requests from their distribution channels. Tata-AIG’s approach of proactively designing specific measures for the low-income market could be a more appropriate tactic for corporate insurers.
In contrast to formal insurers, the managers of informal schemes have a much greater appreciation of the needs of the target market and are more receptive to adopting unconventional approaches since they are not rooted in mainstream insurance practices. However, they tend to have limited education and experience and therefore require more assistance with basic management and insurance skills. To assist these managers, and to support the dramatic expansion of microinsurance products, there is a great need for basic management tools, suitable information systems and software for business planning and modelling. Investors and donors must be careful, though, in their attempts to assist management of informal schemes. Insurance is a business of numbers and any “insurer” should be aiming for a large and diverse client base. It is important that investments be made in organizations that can achieve scale.
As illustrated in Box 107, some of these tools are under development or already in use and the challenge will be to make them more widely available.
Management tools for microinsuranceBox 107
A key strategy to strengthen the capacity of microinsurance managers is to ensure that they have access to, and know how to use, appropriate management tools. A number of recent tools have been developed that might enhance future performance, or inspire the development of future tools.
The HMI health insurance software, developed by the ILO-STEP, was designed to help the managers to record, verify and monitor enrolments, premium payments and claims. Through HMI, AssEF monitors 11 key indicators including enrolments, premium recovery, entitlement to benefits, frequency of utilization and average cost of services, as well as average expenses (claims and operating costs) per beneficiary. It also includes an accounting module to calculate annual technical results. The software allows managers to react quickly to anomalies.
The ILO-STEP programme has also developed a feasibility study guide for setting up health microinsurance schemes. It provides practical information for managers on everything from premium calculation to contracts with providers.
590 ConclusionsFor its affiliated MFIs that work in partnership with insurance companies, Opportunity International has developed AIMS, insurance software that can be merged with OI’s preferred banking software to eliminate duplicate record-keeping.
ICMIF has a business-simulation tool, Morotania, which explores the key issues in setting up and running a new insurance company. The simulation creates an enjoyable but challenging learning environment, which allows managers to sharpen decision-making and managements skills and learn firsthand about the reinsurance risks.
RIMANSI has developed an actuarial modelling and business planning tool for life, health and savings products which produces prospective income statements and balance sheets complete with actuarial reserves and expected claims. Managers use this tool to adjust the product pricing and benefits on an iterative basis until they can project a solvency ratio of 80 per cent by Year 4 and a targeted IRR of around 8 per cent.
Besides tools for managers, it is also necessary to strengthen support organizations and technical assistance providers, such as networks or federations of microinsurance schemes. If local TA providers and networks have the right tools and expertise, they can have a powerful multiplier effect.
Investment in developing actuarial expertise is also necessary. Miscalculations of risks and premiums can have drastic effects on microinsurance programmes as demonstrated by CARD’s initial experience. Actuarial expertise can be secured either by employing in-house experts or, perhaps more realistically, outsourcing needs to consulting actuaries. Yet few actuaries understand the micro aspect of microinsurance. To achieve significant expansion and innovation, a new breed of actuary is needed which can use its spreadsheets to meet the needs of the poor in a sustainable manner.
2.2 Enhancing efficiency One of the great imperatives for the expansion of microinsurance is to significantly reduce operating expenses relative to premiums. More efficient operations should result in lower premiums and/or additional benefits for policyholders – both would be welcome outcomes. More efficient operations might also mean that microinsurers could pay their employees better, resulting in improved staff retention and better customer service. Great expectations are placed on the potential of technology to enhance efficiency.
Nothing can make up for badly-managed companies. However, technology is a fundamental driver and has become a great equalizer. Throughout history, those that possessed more advanced technology dominated – politically, The future of microinsurance 591 militarily and economically. That was true during the industrial revolution and has not changed in the information age. What has changed is technological development’s pace and accessibility. The microprocessor has enabled the masses to reap the fruits of automation. The birth of the Internet has provided connectivity to every corner of the globe, making information available to all.
Insurance is an information-processing business. The raw materials are customer data, product information, transaction details, investment records and so on. Even before the birth of the computer, large insurance companies drove the development of sorting, tabulating and calculating machines to improve efficiency. Today these capabilities are available to small insurers as well. Microinsurers big and small must take advantage of ways of improving efficiency if they are to be honest stewards of microinsurance premiums.
Implementing technology is a risky proposition and thus there is a natural reluctance by cost-conscious microinsurance practitioners to go down this route. The low start-up costs of manual processes are attractive; however, this approach does not establish a sustainable and scalable foundation for the massive expansion of microinsurance as it does not provide the ability to optimize processes and build economies of scale. An insurer unable to reach large numbers places itself in a precarious position.
In the developed world, major insurance companies invest on average 3 to 6 per cent of annual gross revenue in technology. The new technology architectures based on the Internet and wireless communications will prove to be a good growth catalyst for microinsurance. Similarly, using open-source software would be an inexpensive way for microinsurers and grassroots organizations to benefit from technology.
The key to success in this area is to align the technology solutions with business problems. Management information systems should be designed to support the business strategy, not the other way around. This link between technology and strategy is illustrated by the fact that several insurance companies, including TUW SKOK and La Equidad, have provided their delivery channels with software to help them sell and service microinsurance, and help the insurer manage its relationship with its distribution channels.
Technology applications are a critical success factor in enhancing the efficiency of the insurance business. Automation has been introduced in almost every operational area. As illustrated in Table 53, automation could play a significant part in improving the efficiency of microinsurance, not to mention enhancing customer service, strengthening management and training staff.
592 ConclusionsProcess automation transforms insurance operations Table 53
Some microinsurers have already begun to automate. For example, Microcare (Uganda) and Opportunity Bank (Malawi) both issue smartcards to their policyholders. This enables them to easily verify that the premium is up to date and determine the level of coverage that the client has. In the absence of national identification systems, smartcards also confirm that the person trying to access benefits is actually covered under the policy.
VimoSEWA in India is testing a barcode system to manage client information. When clients subscribe, they receive barcode stickers. When they want to file a claim, illiterate clients stick a barcode onto a pre-addressed envelope and send it to the microinsurer. VimoSEWA’s barcode scanner indicates which client needs assistance and the appropriate fieldworker is dispatched. Also in India, Tata-AIG is training its micro-agents to use an Internet portal to retrieve and submit customer account information, such as premiums due and collected.
Technology is not just the realm of the insurers; today, customers too want to benefit from its use in product delivery. Even the low-income market has increasing access to technology, such as cell phones and the Internet, which could be used to streamline operations. According to Prahalad (2003), “the proliferation of wireless devices among the poor is universal, from The future of microinsurance 593 Grameen Phone in Bangladesh to Telefonica in Brazil. Further, the availability of PCs in kiosks at a very low price per hour and the opportunity to videoconference using PCs are adding to the intensity of connectivity among those at the BOP (bottom of the pyramid).” Indeed, banking services are actively using technology to extend outreach to the poor (see Box 108).
Insurance is likely to follow suit as long as the market education measures can be expanded to include the use of technology.
Technological advances in banking services for the poorBox 108
Microfinance institutions have adopted a variety of technologies to supply services to the poor. Some of the most promising technologies might also be relevant for the expansion of microinsurance, including personal digital assistants (PDAs), smart cards and mobile-phone banking.
The use of PDAs by field staff provide advantages in the areas of transaction efficiency, error reduction and fraud prevention. In Bangladesh, the use of PDAs by SafeSave’s door-to-door collectors has eliminated three to four hours per day of data processing, and reduced the number of mistakes in recording transactions by 90 per cent compared to paper-based systems. The technology also made it possible to cut loan processing time in half (from two days to one), and increased adherence to product rules by preventing policy-violating transactions.
Similarly, smart card technology, such as at that used by Prodem FFP in Bolivia, is expected to reduce the operating costs of serving rural areas. The cards have client identification information, including three fingerprint templates and financial data from Prodem’s MIS. With smart card and fingerprint readers at its 54 branches, Prodem FFP offers clients a quick means of conducting financial transactions. Prodem FFP has realized a number of benefits from implementing smart cards. Waiting lines for tellers have dropped dramatically since many cardholders who wanted to check their balances may now do so without assistance. The adoption of technology has given the MFI a competitive advantage and attracted depositors who appreciate the system’s speed and convenience.
Mobile-phone banking is another innovative product with great potential. To capitalize on this potential, Vodafone, with its local Kenyan affiliate, collaborated with a bank to provide services to clients of Faulu, a Kenyan MFI. This multilingual mobile-phone banking service allowed clients to transfer money, withdraw and deposit cash at registered local outlets and make loan repayments, all from their phones.
Source: Adapted from Churchill and Frankiewicz, 2006.