«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
– In 2004, the global campaign on social security and coverage for all was launched in Senegal. The trade union of transport operators included social protection issues in its platform. In addition, a law was adopted to design and implement a social protection scheme for rural workers (Loi d’Orientation Agro-Sylvo Pastorale).
These events have been integrated in the logical framework of the national strategy for the extension of social protection and risk management (SNPS/GR) formulated in 2005 with the active participation of a large number of players. This strategy aims at extending social protection from 20 to 50 per cent of the population by 2015 through new schemes designed to respond better to the priority needs of informal-economy workers.
These events and the national strategy formulation led in 2006 to feasibility studies to design and establish two nationwide social protection schemes, one for transport operators and their families (target population of 400,000 people) and the other for rural workers and their families (target population of 5 million people).
in Figure 5:
The social protection perspective on microinsurance 63 – Bottom-up initiatives: To stimulate the grassroots development of microinsurance, it is necessary to sensitize the general public, policymakers, donors and development agencies, as well as social partners and other social protection actors, about how microinsurance works and its potential contribution to social protection.
– The development of linkages with government interventions, other microinsurance schemes, healthcare and other service providers, social security institutions, social assistance programmes, etc. can strengthen the sustainability of the schemes as well as enhance their effectiveness.
– Top-down efforts: To fulfil its social protection potential, microinsurance must be seen by policymakers and other stakeholders within the broader context of coherent national social protection systems or strategies.
A dynamic approach to extending social protection through microinsurance Figure 5
ance schemes for assets, livestock or housing, for example. The social protection schemes have to be inclusive of high-risk or destitute members, and ideally access public subsidies to compensate for the higher claims or lower contributions. If they access public subsidies, they also have to be accountable for them, ensuring that those funds are used efficiently and for the intended purposes.
The decision to implement or support microinsurance schemes is not only driven by a risk analysis, but also by political considerations: priority contingencies to cover, populations to be targeted, the relevance of this mechanism as compared to others, and the possibility to link it to other mechanisms and other social protection components. The objective is to improve efficiency, increase coverage and progressively create more coherent and equitable systems of social protection.
2 Microinsurance products and services 2.1 Challenges and strategies to extend health insurance to the poor Ralf Radermacher, Iddo Dror and Gerry Noble1 The authors appreciate the excellent suggestions provided by Shahnaz Ahmed (consultant), David Dror (Erasmus University Rotterdam), Klaus Fischer (Laval University), Jens Holst (consultant) and Priyanka Saskena (consultant).
Health insurance has several peculiarities that distinguish it from other types of coverage, such as life and property. This chapter reviews the specific characteristics of health microinsurance, paying special attention to the different points of view of insurance providers and the insured.
Talking about health microinsurance requires, firstly, agreement on the definition. This chapter defines health insurance as a risk-transfer mechanism under which the insurer assumes a certain risk on behalf of the insured in exchange for a premium. The premiums are paid in advance in return for compensation paid retrospectively if an insured event occurs. Health insurance defines the insurable risks in terms of cost-generating health events.
Health microinsurance implies that the premium charged is appropriate for low-income clients; this in turn results in severe rationing of benefits to maintain viability. When the benefits of a product are rationed, they need to be tailored to the needs of different market segments.
The tailoring issue is important as exposure to risk differs, for example, between miners, farmers, fishermen and market vendors, to name but a few occupations. Those working in the fields often walk barefoot and their exposure to snake bites or leptospirosis is much greater than that of miners, while miners suffer more from respiratory illnesses than fishermen, and so on. Similarly, differences occur based on gender, age, region and other characteristics. Consequently, the priority given to different benefits will vary between groups.
To offer sustainable health microinsurance products, one needs to consider the four aspects summarized in Figure 6: product manufacturing, product sales, product servicing and the maintenance of long-term stability. This chapter analyses each of these components of health microinsurance.
1 Some examples in this chapter come not from the case studies, but from the authors’ own experiences, including references to Microcare and Panworld in Uganda, and BAIF and Uplift Health in India.
Challenges and strategies to extend health insurance to the poor 67
1 Product manufacturing All considerations start with product manufacturing. In its simplest form, this process involves decisions on the design and pricing of the benefits package. However, the parameters chosen affect the processes of sales and servicing, and the maintenance of stability.
Product manufacturing requires the definition of several elements: a specific target client group, the demand for insurance, the composition of the benefit package, pricing, the healthcare providers, as well as controls for moral hazard and adverse selection. The
dimension includes sustainable pricing that guarantees the stability of the scheme, as well as reliable claims management and the satisfaction of clients’ demand for security (Albrecht, 1992). The actual design of the product lays the foundation for
this abstract dimension.68 Microinsurance products and services
1.1 Moral hazard, adverse selection and fraud Moral hazard, adverse selection and fraud are commonly considered to be the main problems in health insurance, even though other factors like risk selection contribute strongly to market failures. Before delving into the other components of product design, it is helpful to define these problems, and explain why they pose a particular challenge in health insurance.
Moral hazard occurs when people with insurance use more services then they would if they did not have coverage only because they know that they are protected. Sometimes, insurance can actually provide a strong incentive to incur an insured loss. A client, for example, may have a longstanding health concern that was previously not considered sufficiently critical to treat (e.g. a hernia or uterine prolapse). However, after insurance coverage is obtained, the client might then decide to get the problem fixed under the insurance cover.
Adverse selection occurs when the risk profile of the group insured is worse than what would be expected in the general population. There are two
1. The insured group is not a true pre-existing group and sick persons have come together specifically to gain insurance benefits. An example of this occurred in a community-based health scheme in Uganda for farming cooperative members where some groups had higher-than-expected claims rates.
Investigations revealed that these groups had no proof of pre-existing membership and had probably formed specifically to benefit from the health scheme.
2. Pre-existing groups with higher-than-expected numbers of sick members join an insurance programme when other healthier groups do not. This is a particular problem if group sizes are small. For example, Microcare (Uganda) rolled out group health insurance originally piloted with FINCA (which uses the classic village banking methodology where groups comprise 30 or more families) to another MFI, Pride Uganda, where group size can be five families. Thus small groups with several members with medical problems were quick to join the scheme, while groups made up of healthy individuals were less likely to enrol.
Either way, the cost of insuring these people will be higher than expected and often the claims are higher than the total premium collected, resulting in the scheme making a substantial loss.
Challenges and strategies to extend health insurance to the poor 69 Fraud: Health insurance is particularly prone to fraud throughout the world, whatever the clients’ income levels. Even in highly sophisticated markets like the United States, health insurers dedicate substantial resources to fraud
detection and control. The insurer runs the risk of fraud abuse from:
– the client, for example, obtaining treatment for persons not covered by the insurance scheme through impersonation, – the health service provider, who might, for example, submit false claims or inflate genuine claims by claiming for more expensive drugs than those actually issued, – the scheme administrators, including the insurer’s own staff, who might, for example, process fake claims or process genuine claims twice, possibly operating in collusion with dishonest providers,
or any combination of the above.
Since schemes can easily collapse due to fraud, it is essential that fraud prevention mechanisms are in place before the scheme is launched. In the late 1990s, one of the largest general insurance companies in Uganda, Panworld, collapsed within a few months of introducing health insurance largely due to the massive level of fraud in the scheme.
Moral hazard, adverse selection and fraud exist in all types of insurance.
They are particularly problematic in health insurance due to the subjective nature of the insured events. In life insurance, for example, the insured event is objectively verifiable – a person is either dead or alive. Or take the example of weather insurance: a building may be insured against damage caused by winds of 100 km/h or more – an objective, measurable phenomenon. While the risk of moral hazard exists, few people will choose death just to be able to claim under an insurance policy (though suicide is an exception, which is why it is excluded from most life insurance contracts). Likewise, while arson is a moral hazard for property insurance, it is relatively easy to investigate and detect.
However, sickness is more subjective, with occurrence often determined by healthcare providers motivated by a desire to encourage consumption of their services. While few people will elect to undergo heart surgery just because they are insured, the same cannot be said of simple outpatient care.
In health insurance, moral hazard can be caused by both the provider and the insured, which is why moral hazard is a particularly difficult issue for health insurers.
Adverse selection is not exclusive to health insurance. Individuals who smoke or drink alcohol are more likely to suffer from diseases and face a lower life expectancy. A smoker or drinker who conceals this fact from an 70 Microinsurance products and services insurance company when enrolling in life insurance is in effect a case of adverse selection, which can negatively affect the loss probability. However, as this example demonstrates, it is somewhat easier to hide personal information about one’s health status than it is, say, about one’s property or crop.