«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
2 Target audience The primary audience for this book are insurance professionals and practitioners working in the field who are currently offering insurance to lowincome persons or thinking about doing so. This book was written in hopes that they would be able to learn from the experiences of those who came before, both those who have succeeded and those who have failed.
4 The case studies are available on:
4 IntroductionThis book is also intended for persons who assist practitioners, such as technical assistance providers and donors. By having a better understanding of the challenges and potential solutions associated with the provision of insurance to the poor, it is hoped that these individuals and organizations can use their financial and human resources more effectively to expand access to insurance.
Policymakers and regulators represent a third category of readers. As a new field of activity, microinsurance often operates in an environment that was not designed for it, and which can even be characterized as hostile. By acquiring an appreciation for the key differences between insurance and microinsurance, and recognizing where microinsurance potentially fits into a broader social protection framework, regulators and policymakers can begin to craft an enabling environment to nurture and support the growth and development of microinsurance and to promote more inclusive insurance markets.
3 Structure of the book This book is organized into six parts. The first part, Principles and Practices, defines microinsurance, provides insights into the risk-management needs of low-income households and explains the critical social protection function of microinsurance.
Part 2 summarizes lessons about specific types of products, namely health insurance, long-term life insurance and short-term insurance linked to savings and credit products. This part also explores the adaptation of insurance products to address the characteristics of women and children.
The third part of the book explores microinsurance operations in detail. It includes chapters on product design, marketing, premium collection, claims, pricing, financial and risk management, governance, organizational development and loss control. It concludes with a chapter on benchmarking that examines performance ratios of the microinsurance schemes.
Microinsurance can be delivered through a variety of institutional arrangements. Part 4 examines these arrangements to analyse the conditions in which one might be preferable to the others. These chapters consider the partner-agent model, the community-based approach, insurance companies owned by networks of savings and credit cooperatives, retailers as distribution channels, and microfinance institutions. One chapter analyses the advantages, disadvantages and conflicts of interests of various organizational arrangements for delivering health insurance.
Accidental death and disability Private-sector insurance company providing a microAD&D) integrated with credit life insurance product through partnerships with 26 MFIs
Malawi Union of Savings and Credit Malawi 56,000 (2003) Cooperatives (MUSCCO) – 1980 Opportunity International (OI) – 2002 Global 2.7 million (2005)
L’Union des Mutuelles de Santé de Guinea 14,000 (2005) Guinée Forestière (UMSGF) – 1999 L’Union Technique de la Mutualité Mali 40,000 (2005) Malienne (UTM) – 1998
Credit life, spousal death and MFI offering insurance in-house (self-insurance) limited asset loss Credit life with hospitalization MFI offering insurance in-house (self-insurance) benefit
The author wishes to thank the following persons for their useful feedback and suggestions:
Bernd Balkenhol (ILO), Felipe Botero (Metropolitan Life), Alexia Latortue and Aude de Montesquiou (CGAP), and Gaby Ramm (consultant).
1 Defining microinsurance Low-income persons live in risky environments, vulnerable to numerous perils, including illness, accidental death and disability, loss of property due to theft or fire, agricultural losses, and disasters of both the natural and manmade varieties. The poor are more vulnerable to many of these risks than the rest of the population, and they are the least able to cope when a crisis does occur.
Poverty and vulnerability reinforce each other in an escalating downward spiral. Not only does exposure to these risks result in substantial financial losses, but vulnerable households also suffer from the ongoing uncertainty about whether and when a loss might occur. Because of this perpetual apprehension, the poor are less likely to take advantage of income-generating opportunities that might reduce poverty.
Although poor households often have informal means to manage risks, informal coping strategies generally provide insufficient protection. Many risk-management strategies, such as spreading financial and human resources across several income-generating activities, result in low returns. Informal strategies for coping with risk tend to cover only a small portion of the loss, so the poor have to patch together support from a variety of sources. Even then, informal risk protection does not stand up well against a series of perils, which unfortunately is a situation often experienced by the poor. Before the household has a chance to fully recover from one crisis, they are struck by another.
Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. This definition is essentially the same as one might use for regular insurance except for the clearly prescribed target market: low-income people. However, as is demonstrated in this chapter and throughout this book, those three words make a big difference.
What is insurance for the poor? 13 How poor do people have to be for their insurance protection to be considered micro? The answer varies by country, but generally microinsurance is for persons ignored by mainstream commercial and social insurance schemes, persons who have not had access to appropriate products. Of particular interest is the provision of cover to persons working in the informal economy who do not have access to commercial insurance nor social protection benefits provided by employers directly, or by the government through employers. Since it is easier to offer insurance to persons with a predictable income, even if it is a small sum, than to cover informal economy workers with irregular cash flows, the latter represent the microinsurance frontier.
Microinsurance does not refer to the size of the risk carrier, although some microinsurance providers are small and even informal. There are, however, examples of very large companies that offer microinsurance, such AIG Uganda, Delta Life in Bangladesh and all insurance companies in India.1 These large insurance providers have a product or product line that is appropriate for low-income persons.
An important aspect of microinsurance, explored in detail in Part 4, is that it can be delivered through a variety of different channels, including small community-based schemes, credit unions and other types of microfinance institutions, as well as enormous multinational insurance companies.
In fact, Allianz, one of the largest insurance companies in the world, has recently launched an initiative with the United Nations Development Programme (UNDP) and the Gesellschaft für Technische Zusammenarbeit (GTZ) to provide insurance to the poor in India and Indonesia.
Microinsurance also does not refer to the scope of the risk as perceived by the clients. The risks themselves are by no means “micro” to the households that experience them. Microinsurance could cover a variety of different risks, including illness, death and property loss – basically any risk that is insurable.2 This book, however, focuses primarily on life and health insurance as demand research across many countries repeatedly identifies illness and death risks as the primary concern of most low-income households (see Chapter 1.2).
Often people use the term insurance loosely to refer to general risk-prevention and -management techniques. For example, savings set aside for emergency purposes might be referred to as an insurance fund. This book, however, uses a narrower definition in which microinsurance, like traditional 1 As described in Chapter 5.2, Indian insurance companies are required to allocate a percentage of their insurance portfolio to persons in the “rural and social sectors”, which in practice means lowincome households. Consequently, all Indian insurers are involved in microinsurance in one way or another, so many interesting microinsurance innovations are coming from India.
2 Chapters 1.2 and 2.1 describe the characteristics of insurable risks.
14 Principles and practices insurance, involves a risk-pooling element. Those in the risk pool who do not suffer a loss during a particular period essentially pay for the losses experienced by others. Insurance reduces vulnerability as households replace the uncertain prospect of losses with the certainty of making small, regular premium payments. Yet this risk-pooling function means that insurance is a much more complicated financial service than savings or credit.
Since microinsurance is just one of several risk-management tools available to low-income households, organizations truly concerned about helping the poor to manage risks should assess whether the provision of microinsurance is the most appropriate response. For risks that result in small losses, for risks with high predictability of occurring or high frequency of occurrence, savings and emergency loans would be more appropriate risk-managing financial services. Savings and credit are also more flexible than insurance as they can be used for a variety of different risks (and opportunities). Insurance, on the other hand, provides more complete coverage for large losses than poor households could provide on their own. For these larger risks, participating in a risk pool is a more efficient means of accessing protection than if households try to protect themselves independently.
One must be careful not to overstate the developmental effect of insurance. On its own, insurance cannot eliminate poverty. Yet if it is available to poor women and men along with other risk-management tools, health and life insurance for the poor can make a valuable contribution to achieving the Millennium Development Goals (see Box 1).
Microinsurance and the MDGsBox 1
The Millennium Development Goals, established by the United Nations in 2000, provide more than 40 quantifiable indicators to assess the progress made toward global economic and social development by 2015. The MDGs serve as a development framework, helping to focus the attention of policymakers, donors and development practitioners on the most critical objectives.
Certain MDGs would be more achievable if insurance were widely available among low-income households, including the following targets:
– Reduce by three-quarters the maternal mortality ratio – Halt and begin to reverse the spread of HIV/AIDS – Halt and begin to reverse the incidence of malaria and other major diseases For example, insurance can help reduce the proportion of people who suffer from hunger and whose income is less than one dollar per day. While development experts tend to focus on efforts to promote economic development as a strategy to achieve these targets, they have to recognize that gains can quickly be lost when vulnerable households experience a loss or crisis. It is necessary to complement efforts to boost productivity with corresponding efforts to provide protection.
Perhaps even more directly, microinsurance can help address the healthrelated objectives of reducing child mortality, improving maternal health and combating HIV/AIDS, malaria and other diseases. Health microinsurance schemes typically provide immunizations, train birth attendants and make it possible for women to afford transportation and hospitalization for difficult births.