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«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»

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4.3 Macroeconomic conditions and the development of financial markets Weak economies with periodic bouts of hyperinflation and currency devaluation create strong deterrents to long-term investment and thus undermine the life insurance business. Weak banking infrastructures make it difficult to manage financial assets efficiently. Effective and diverse microinsurance depends on strong economies with efficient financial markets and infrastructures. Well-conceived efforts in this area by governments will have a positive impact on the expansion of insurance products.

One aspect of microinsurance that is often overlooked is the potential for microinsurers to accumulate large amounts of capital and reserves. The accumulation of any investment capital is highly desirable in the developing world. However, unlike other industries, insurers tend to build long-term capital, which fosters the growth of long-term investment markets, creating The future of microinsurance 599 an ideal situation for the development of physical infrastructure. Most insurance companies have investment strategies based on an asset-liability matching model and since the liabilities can fall due in 15 or 30 years, the appropriate investment opportunities are usually found in government bonds, transportation projects and housing construction. It is not a total coincidence that countries where the insurance and pension sectors are fully developed also have vibrant long-term investment markets and a substantial physical infrastructure.

4.4 Catastrophic risks The catastrophic risks of climate change, HIV/AIDS, avian influenza and others still to come will have an important and dramatic impact on the provision of all insurance, and especially on microinsurance. Low-income people are typically the front-line losers in catastrophic events. Since their incomes are low, they live in high-risk areas where others will not live. They must take risks that make them more susceptible to diseases, and have less ability to cope when catastrophes do occur. Insurers and reinsurers need to recognize the effect of catastrophic risks on the low-income market and work to develop efficient mechanisms to help the poor prepare for these risks and recover after they occur.

Due to a lack of care for the environment across the globe, weather is becoming more unpredictable. The resulting natural disasters hit agricultural communities the hardest. Governments and the insurance industry are hardpressed to protect against these losses; notwithstanding that, only 20 per cent of worldwide agricultural production – crop and livestock – is insured today (Kasten, 2004). An innovative approach to extending financial protection to small farmers, herders and producers is index-based insurance. Simply put, it moves away from individual farm insurance towards coverage for a farming area. This would make collective care for the environment in the insured community relevant and essential to help mitigate losses.

The health issues of HIV/AIDS, new mutated flu strains, malnutrition and other diseases will be exacerbated in the future. Although microinsurance cannot solve these issues single-handedly, it can be a valuable tool in the battle against these scourges if microinsurance prepares and adapts. For example, the role of insurers in building appropriate infrastructure such as preventive healthcare will become more prominent as appropriate risk-management products are offered in these markets.

600 Conclusions

5 Embracing the future If the future were known with absolute certainty, futurists would be redundant. They consider historical and current developments and expectations of the future to identify emerging trends. Actuaries are the futurists of insurance – they look at past experience and forecast the future using mathematical and statistical models of mortality and morbidity. Among the authors and readers of this book’s chapters are consulting actuaries who have been advising microinsurance practitioners. What future do they see for microinsurance as they gaze into their crystal ball?

– Expanded technology where even low-income people have easy access to insurance products through computers, cell phones and smartcards. For insurers this will dramatically improve access to the market.

– Improved awareness of the benefits of insurance within the low-income market. People will appreciate the usefulness of insurance and their greater expectations will make for a more discerning market.

– A better distinction between what government social protection systems will do and what other insurance mechanisms will cover. This will help to clarify which risk-management solutions will be appropriate for which sections of the population.

– The spectre of global climate change, emerging diseases and other potential catastrophic events will hang over all long-term plans.

In the short run, in some countries, microinsurance, though desperately needed, will not spread massively; nor will it offer the variety of products and services that could help low-income people. These countries are simply not moving towards an environment which would allow successful microinsurance markets. Where conditions are improving – with stable economies, the development of financial markets, improving healthcare quality, insurance supervisors with a market development agenda, etc. – microinsurance will flourish. Such a change is likely to take time without a concerted push by policymakers, donors and the international community. Indeed, improved risk protection for the poor is not just a local issue, as epidemics and disasters can have ripple effects across the globe, justifying a greater role for international agencies and multinational corporations.

To insure the poor, customers, regulators, policymakers, insurers and

social organizations must work together with a common purpose and unrelenting spirit:

The future of microinsurance 601 – Insurers must strive to understand the customer’s changing needs and adapt their products and services accordingly, continually improving the cost-benefit ratio for clients.

– Regulators must promote a development agenda for inclusive insurance markets, finding the right balance between protecting consumers and expanding access.

– Policymakers need to create an enabling environment that includes the necessary infrastructure for providing microinsurance.

– Social organizations, including employers’ and workers’ organizations, cooperatives, NGOs and other associations can play a critical role in organizing workers in the informal economy who lack access to social protection or other types of microinsurance.

– Lastly, the billions of poor people who do not have a formal way of coping with risk must respond positively to the efforts of providers and regulators in accepting a culture of insurance and its capability to provide financial freedom, security and well-being.

By itself, microinsurance will not put a major dent in poverty. However, if risk protection is effectively coupled with efforts to enhance productivity, together they can make great strides towards alleviating poverty and achieving the MDGs. Microinsurance will have succeeded when it is no longer needed. As the former Chair of Delta Life, Monzurur Rahman, said, “We want to see the day when there is no more microinsurance, just insurance.” Description of microinsurance providers Appendix 1 Description of microinsurance providers Activists for Social Alternatives (ASA) Microinsurance and microfinance institutions: Evidence from India James Roth, Craig Churchill, Gabriele Ramm and Namerta, September 2005, Case Study No. 15 Founded in 1986, ASA operates in the Indian state of Tamil Nadu, providing microcredit and a variety of non-financial services to its clients. Purchase of insurance is closely linked to borrowing from the organization, which disbursed around 55,000 loans in 2004. Although it has experimented with selfinsurance, ASA now works with private insurance companies that bear all the risk of its life insurance product. It is also licensed to act as an agent of an insurance company to sell different products, but has maintained its focus on servicing the needs of low-income groups. Seven employees are involved in its insurance operations full-time.

AIG Uganda AIG Uganda: A member of the American International Group of companies Michael J. McCord, Felipe Botero and Janet S. McCord, April 2005, Case Study No. 9 AIG Uganda, a private for-profit insurance company, is part of one of the largest insurance groups in the world. It launched its first microinsurance product in 1997 in Uganda after being approached by FINCA Uganda, an MFI. It has since expanded its microinsurance operations to 26 MFIs, including one in Tanzania and one in Malawi. It offers a group personal accident product with disability, accidental death and credit life benefits. In 2003, AIG Uganda covered 1.6 million persons – borrowers of the MFIs and their family members. The company uses a partner-agent model for its microinsurance operations and all but one of the MFIs make insurance mandatory for their borrowers.

Description of microinsurance providers 605 All Lanka Mutual Insurance Organization (ALMAO) ALMAO and YASIRU, Sri Lanka Sven Enarsson and Kjell Wirén, October 2005, Case Study No. 22 All Lanka Mutual Insurance Organization (ALMAO) was licensed as a life insurance company in 2002. In 2005, ALMAO was also given a licence to provide general insurance products. The company currently offers longterm, life, accident and loan protection microinsurance products. The company is linked to the Sanasa movement, a network of credit and savings associations across Sri Lanka. ALMAO’s predecessor was set up in 1991 to provide poor people with coverage for a range of risks. Since its registration as an insurance company, ALMAO’s product portfolio has changed significantly and its older products are in the process of being phased out. These older products also included disability, hospitalization, death and life savings insurance covering 47,000 persons. Its new endowment products have not yet been very successful.

Association d’Entraide des Femmes (AssEF) AssEF, Benin Olivier Louis dit Guérin, December 2005, Case Study No. 20 The Association d’Entraide des Femmes (AssEF), a microfinance cooperative, was created in 1999 to serve low-income women in the deprived areas of the capital and its surrounding areas. AssEF consists of some 130 savings and credit associations and funds. Its health insurance product had 2,300 beneficiaries at the end of 2004. Most of AssEF’s clients are active in produce sales, catering, trading of staple items, sales of fabric and jewellery, and handicrafts.

Its voluntary health microinsurance product is only for members and has both inpatient and outpatient benefits. The services can be accessed at contracted healthcare providers and there is a co-payment for all services. The insurance is provided in-house with technical support from the ILO-STEP programme.

Bangladesh Rural Advancement Committee (BRAC) Health microinsurance: A comparative study of three examples in Bangladesh Mosleh U Ahmed, Syed Khairul Islam, Md. Abul Quashem and Nabil Ahmed, September 2005, Case Study No. 13

–  –  –

ship of over 12,000 families in 2004. It offers three insurance products: an annual general package, a package targeted at pregnant women and a product targeted at school children. Healthcare is primarily provided through the parent NGO’s network of community health workers, health paramedics and clinical facilities, but there are referrals to other providers when cases are beyond the capacity of the network. Policyholders must make co-payments, but the “ultra-poor” are exempt from paying the premium for the general package.

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