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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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The heavy involvement of the Department of Cooperatives on Yeshasvini’s board has made it possible for a significant amount of grant funding to find its way to the microinsurer. The government of Karnataka supplemented the Rs. 60 (US$1.36) premium paid by policyholders in the first year with an additional Rs. 30 (US$0.68) per person. Although the per capita subsidy was stopped in the second year, the government did provide additional funding. Altogether, the government provided Rs. 45,000,000 (US$1,022,727) in the first year and Rs. 35,000,000 (US$795,454) in the second year.

The other main advantage that the Department of Cooperatives brought to the table was the ability to encourage cooperatives to enrol their members.

In the first year alone, 1.6 million low-income persons subscribed to the scheme, in part because the Department of Cooperatives issued membership targets to its district offices, which issued a target to each cooperative society, which in turn used its own method of signing up members. Some discussed the scheme with members and encouraged them to join; some signed up all in the society, using their dues; others automatically enrolled everybody with outstanding society loans.

The combination of subsidized premiums and marketing pressure from the government resulted in a membership increase to 2.2 million in the second year. In Year 3, however, when the premiums had to be doubled to replace the subsidy, membership dropped to 1.45 million, which means that 750,000 people were not sufficiently satisfied with the product or price to reenrol! Given this error of judgement, the case study wonders whether the

composition of the board needs to be reconsidered:

Although the Department of Cooperatives facilitates the contact with the cooperative sector, it has to be borne in mind that the cooperative societies have the main burden. It might therefore be advisable to replace trustees from the government by elected representatives of the cooperatives to better reflect their important contribution. As India is currently de-linking the cooperative sector from the government structure, it might be adequate to reflect this in the board of trustees as well (Radermacher et al., 2005b).

The cooperative movement, internationally, has long taken umbrage at government intervention, and the use and misuse of cooperatives in developing countries as a tool for development. In India, where the central government is responding to cooperative societies’ calls for democratic reform in their regulation, supervision and functioning, the movement will undoubtedly strengthen as state intervention decreases. India is not a typical case of arbitrary government interference in activities of cooperatives subject to diktats from politicians and civil servants.

Governance 305 In Yeshasvini Trust’s success story, the government deserves significant credit. Government involvement in getting Yeshasvini Trust up and running may have compromised the cooperative societies’ autonomy, but has not undermined it. The cooperatives appear to have paid a small price for gaining a necessary and well-provided service for members.

There is also comfort for the case from the thoughts of the cooperative

movement’s ideologue and futurist, Dr Alex Laidlaw. In a “classic” presentation, he said:

Cooperatives tend to take their ideological colour from the economic environment in which they exist. In countries dominated by capitalist ideology, they tend to be judged, and to judge themselves, by the norms of profit-making business. In countries dominated by communist ideology, they are assigned a certain place and role in the economy by State planners and serve as instruments of government policy. In developing countries, they often seem to have the worst of two worlds: they must be competitive with entrenched private business, including multinational corporations, and at the same time follow the dictates of close government control (Laidlaw, 1974).

He added that no business in a national economic system is completely independent and self-sufficient but operates in conditions of dependence and interdependence. Both capitalist business and cooperatives depend to some extent on the state and services provided by the state. Similarly the state and public enterprise depend greatly on private enterprise and cooperatives.

Yeshasvini Trust seems set to go down in history as an example of this dependence and interdependence.

5 Conclusions Corporate governance ensures the integrity of corporations, financial institutions and markets, building public and investor confidence. To alleviate poverty through microfinance and microinsurance, good governance is essential.

Good governance starts with knowing what it is to manage and what it is to govern. To govern a microinsurer effectively, one must devote time to understand insurance for the poor and take the director’s responsibilities and obligations seriously. Some things are better left to management to decide and follow through.

306 Microinsurance operations The board of directors is ultimately accountable for the company’s success. And success means producing results for sponsors, shareholders and customers so that the insurer is not left short of the capital and surplus required to maintain its financial strength.

The chair and the chief executive should jointly ensure that officials nominated to the board have expertise and skills that make for a proper mix,





including a well-balanced composition in representation of various stakeholders. In microinsurance, some key questions should be considered, such as:

– Is there a microinsurance champion to advocate the special needs of the low-income market?

– What is the proper balance between the social/development and commercial/financial orientations?

– What strategic direction makes the most sense to achieve both social and commercial objectives?

3.9 Loss control Zahid Qureshi and Gerry Noble1 The authors would like to thank Thomas Loster (Munich Re Foundation) for his valuable comments

on this chapter.

In insurance literature, loss prevention, loss minimization and loss control are used almost interchangeably. Reflect on each of these terms a moment

and, at the risk of mathematical oversimplification, they boil down to a simple equation:

Loss control = loss prevention + loss minimization Loss prevention is initiatives to avoid the occurrence of risks, especially insured events, whereas loss minimization strives to reduce the impact of risks when they do occur. Together, these two activities amount to loss control.

Although not all microinsurers pay attention to loss control, it is a key element of success. Carefully conceived investment in loss prevention can easily pay for itself through reduced claims. Indeed, incentives in insurance are structured in such a way as to encourage private-sector risk carriers to undertake development initiatives – such as promoting safe drinking-water and appropriate sanitation – not to fulfil a social responsibility, but because it makes financial sense.

The purpose of this chapter is to encourage more microinsurance providers, both risk takers and delivery channels, to approach loss control in a systematic and targeted manner. The focus is more on loss prevention than minimization since the former is likely to have a greater impact on reducing the claims costs of microinsurers.

–  –  –

erties, including office buildings and factories. This is true to this day. Loss prevention specialists work closely with underwriters in shaping premium levels.

The job of the underwriter is to analyse, assess and price the risk exposure for a specified coverage. The loss prevention specialist evaluates the risk management practices and procedures the business has in place, advises the client on any improvements needed, and shares the information with the underwriter for use in understanding and pricing the account. Underwriting research and analysis are done internally; loss prevention, handled in the field, has been underwriting’s “eyes and ears”.

Over the years, insurers have pursued loss prevention for personal lines too – but most have not called it that. The responsibility is usually built into the marketing and corporate communications function. Off and on, safe driving is promoted to help reduce motor claims, smoke alarms and security measures are recommended to home insurance policyholders, and the benefits of not smoking and a healthy diet and lifestyle pointed out to those who have their lives insured.

The safer the policyholders’ driving, the more fire-proof and theft-proof their homes; and the healthier their lifestyles, the fewer claims the insurer will have to pay out and the better able it will be to keep the cost of insurance down. Who could argue with that! It is loss prevention, pure and simple – and no less important than ensuring that a factory is up to code or an office building is maintained properly, in helping keep premiums down.

“All this is good to know,” a microinsurance practitioner is likely to say, “but how is it relevant to what we do?” 2 Converging interests Microinsurance largely involves a variety of products in the life and health insurance lines. Indeed, long life and good health are not a matter simply of staying away from harmful substances, but of warding off hazards hidden in the air, water and food, and maintaining a healthy lifestyle. While many diseases are a global phenomenon, prevention remains largely a priority that local communities are often better placed to pursue. In this fashion, microinsurers – small as well as not so small – can be significant “corporate” players in the communities they serve, and can lead a sustained effort to promote hygiene and other “better health” conditions among customers.

Poverty need not necessarily be characterized by a lack of good health.

Loss prevention and good health promotion could become key elements of customer education, which is a prime objective in a microinsurer’s marketing strategy. Besides promoting healthy lifestyles to prevent non-communicable Loss control 309 diseases, microinsurance providers could take a cue from the fight against HIV/AIDS and try to increase customer awareness of how pandemics take root, how they could be prevented and how they could be nipped in the bud.

According to a consultant who has worked with a number of microinsurance schemes:

Besides poor hygiene and a poor diet, the greatest health risk for the poor is not seeking appropriate care. A microinsurer’s support of public health measures can go a long way in reducing this risk for the poor. For example, SEWA Health in India has worked to improve the training of midwives. This has resulted in lower maternal and infant mortality rates, which in turn have reduced claims costs in the insurance programme. For health insurance, primary care together with health promotion strategies can reduce claims costs and improve the health and productivity of the clients. I have not seen any micro health programme succeed without a health promotion element.

A desirable side effect of such preventative programmes is that it could help grassroots organizations cement working relationships with established insurers that may already be inclined to extend their CSR outreach beyond their existing clientele. Furthermore, microinsurers need to recognize that they are not the only ones with an interest in loss prevention. In an overall win-win approach, partnerships with specialized NGOs working on health issues or with government vaccination programmes can go a long way toward achieving mutual objectives (see Box 60).

Taking the societal perspectiveBox 60

Neglecting prevention invariably results in illness and injury to some, but the financial burden is borne one way or another by virtually everyone. Medical expenses affect the income not just of victims and families, but also of their employers and insurers. Care and recovery involve costs to community and public institutions, which governments pass on to taxpayers.

Promoting and practising prevention should also call for a societal perspective and collective action. Microinsurers can be an integral part of partnerships including various organizations and government agencies already engaged in campaigns such as HIV/AIDS awareness, using mosquito nets to prevent malaria and digging wells for safe and clean water. Often a good



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