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wring their hands. Even normally efficient people may become panic-stricken and find themselves unable to make the right decisions. A 24-hour telephone help-line service would:
– Creating own infrastructure. A group of insurers together can create a support-services infrastructure for education, counselling, tie-ups with hospitals and related medical units and mobile trauma care.
While one cannot prevent a natural disaster from happening, it is possible to minimize its effect on the insured population through disaster preparedness. Japanese insurers have taken the lead in developing techniques to raise awareness among the general population about disasters and disaster preparedness (see Box 63).
Coping with disaster: The Japanese experienceBox 63
In Japan, the 1995 Kobe earthquake gave rise to civic-mindedness, with quick action by families at the heart of the collective response to the crisis.
Perhaps this should not be so remarkable since a distinctive feature of Japanese society is the strength of cooperatives, including cooperative insurers.
Zenrosai, the National Federation of Workers and Consumers Insurance Cooperatives, helped victims with money, counselling, and psychological services; the Japanese Consumers’ Cooperative Union (JCCU) led trade and business groups in lobbying for a national security system for disaster relief.
Meanwhile, disaster mitigation activities remained focused on the family.
The General Insurance Association of Japan designed a programme targeted at elementary school children to raise their awareness of disasters and to increase their ability to cope with them. The interactive pedagogical tool is not only informative, but is also fun for the children. They are first briefed on the basic idea behind the activity and then are divided into small groups and taken around their town. The children go to facilities that play an important role when disaster occurs, such as police stations and hospitals, and talk to the people who work there. Upon returning to the classroom, the children draw a map of their town’s disaster-related facilities, and decorate the map with photographs and leaflets gathered during their trip.
Loss control 317 The Kobe earthquake also led to an uptake in natural catastrophe coverage. Zenrosai and another cooperative insurer Zenkyoren (National Mutual Insurance Federation of Agricultural Cooperatives), one of the world’s largest insurers by assets, now have more than 15 million policies with addon natural catastrophe insurance. The policies offered by these cooperatives are “multiple-step policies”, where insurance payouts are tiered or stepped up as a function of the damage ratio.
Source: Adapted from the General Insurance Association of Japan and Zenrosai and Zenkyoren websites.
6 Evaluating the return on investment in prevention How should a microinsurer go about determining what prevention measure is needed, whether it would be worthwhile, and how its value might compare with other measures that could possibly be taken? In general, this exercise
boils down to a four-step process:
1. Identify claims trends: The first step is just basic insurance management:
monitoring claims to see if there are any patterns or trends in causes of deaths, types of illness or other risks and perils.
2. Develop prevention strategies: If there are claims trends, which ones could be controlled by what kind of prevention programme? Are the proposed measures within the insurer’s capacity to implement? What is the cost of the measures and what is the expected return in terms of lower claims?
3. Implement prevention activities: If particular measures appear to be cost-effective, the human and financial resources required need to be identified and the activities implemented.
4. Monitoring the results: To justify investments in prevention, the insurer needs to see the corresponding reductions in claims. Has the programme resulted in any reduction in losses? This is more or less what Microcare did in Uganda, as described in Box 64. In assessing the effectiveness of a prevention measure, the microinsurer might want to consider the intangible marketing or promotion value of the activity, besides the tangible benefit of lower claims costs.
ning urban and rural locations. Microcare’s objective is to provide “affordable access to quality healthcare”.
Malaria is endemic throughout Uganda and the commonest diagnosis for Microcare’s health insurance clients, particularly in rural areas. Cumulatively, the claims cost paid by Microcare for malaria is more than that of any other diagnosis. To make matters worse, the cost of treating malaria in Uganda is set to increase as its resistance to chloroquine becomes widespread. Chloroquine has been the cheapest treatment commonly used for malaria, costing less than US$1 for a full course. Drug resistance has forced the Uganda Ministry of Health to change the recommended first-line treatment protocol to regimens based on Artemether compounds accompanied by one other drug (to discourage rapid emergence of Artemether resistance as well). These Artemether-based combinations cost about US$7 for a course of treatment.
In Uganda, the prevalent form of malaria is falciparum, the most dangerous type, which can cause cerebral malaria and death, particularly in the nonimmune (e.g. children). Falciparum malaria frequently leads to hospitalization if not treated quickly in the early stages. The epidemiology of the disease is complicated further by the continuing emergence of new strains to which local people are not immune. The insect vector for the disease, the female anopheles mosquito, thrives in Uganda, particularly during the rainy season.
This factor, combined with the emergence of new strains, leads to severe intermittent seasonal epidemics of this already pandemic disease.
The use of insecticide treated nets (ITNs) is a widespread and well-documented malaria prevention measure. Commonly, these nets are treated with permethrin-based compounds (a derivative of the pyrethrum plant). Bed nets can be treated by incorporating long-acting forms of the insecticide into the mesh during the manufacturing of the fabric which are released slowly over the two-to-three-year lifespan of the net, or by regular immersion of the bed net in a solution of insecticide after washing.
By acting as a physical barrier, the net prevents mosquitoes from making contact with and biting the sleeping person. The net is treated with an insecticide, so when mosquitoes are attracted to the potential human victim, they land on the outside surface of the net. While resting on the net, the mosquitoes absorb a dose of the insecticide adequate to either kill or debilitate them.
Since anopheles mosquitoes do not usually bite people during the day, treated bed nets make a substantial contribution to malaria containment. However, people are still vulnerable in the evenings before going to bed and when getting up early in the morning – an unavoidable limitation of the effectiveness of mosquito nets for malaria prevention. In Uganda, a treated doublebed mosquito net costs around US$6.
Loss control 319 Microcare has already started to provide subsidized (half price) insecticide-treated nets to rural clients and has experienced a good uptake. The logic of subsidizing nets, as opposed to making them free, is that people value something more if they have paid for it, and are more likely to use it properly if they value it.
Since clients frequently suffer more than one attack of malaria per year and more than one person will sleep under a double-bed net, the economics make a compelling argument. A US$3 subsidy to prevent two or more people getting a frequently occurring disease that would, with the new drug regimens, cost US$7 to treat. The nets should last for several years and have become a popular marketing tool for Microcare.
At this point (six months since the start of the subsidized net programme) assessment of its impact cannot be done accurately because it is necessary to complete a full year of the intervention to allow for seasonal variations in epidemiology. However, the “buy-in” of the client community for preventive measures has already been seen. Prevention helps neutralize the argument “I paid my premium, but I didn’t get sick,” because the insurer can reply: “The reason you didn’t get sick is our prevention programme!” So Microcare is now turning its attention to preparing programmes targeting other diseases amenable to prevention and education. Sexually transmitted infections (including HIV/AIDS), sanitation-related water-borne diseases and the emerging “Western diseases” such as obesity and the resultant adult onset of (Type II) diabetes are all under active training material development by the Microcare Preventive Health Department.
A basic programme like Microcare’s, and those highlighted in Boxes 60 and 61, show that a range of simple and effective loss-control programmes can be implemented by microinsurers under various local conditions, possibly in partnership with other organizations and government agencies.
In mainstream insurance, putting a value on a loss-control measure in the physical damage line is relatively simple. If a non-life insurer expects a million motor claims in a certain year for windscreen replacement, and if a preferred body shop quotes a three-dollar discount on each, the insurer would save US$3 million minus the cost of a communication programme to ensure that all branch offices require claimants to go to the chosen body shop.
However, how can an insurer determine the value of a prevention measure designed to lower the cost of claims for personal sickness or injury? The Microcare programme in Uganda, using comparative figures for claims experience before and after the programme’s implementation, points the way for microinsurers. However, when it comes to evaluating the cost-effectiveness 320 Microinsurance operations of a number of programmes more precisely for the purpose of choosing the most suitable one, the calculation becomes complicated, and experts such as statisticians and actuaries need to be involved.
The main points and recommendations from this chapter are:
– Loss control has two key elements: loss prevention and loss minimization.
– Loss prevention has evolved into a professional discipline in non-life insurance, and has resulted in improved risks and safety standards as well as savings in claims costs for insurers and in premiums for the insureds.
– Life and health insurers can also achieve these benefits as the world faces new threats of viral pandemics and environmental hazards.
– Microinsurers can adapt the industry’s loss-prevention and loss-minimization measures and benefit from helping policyholders become less prone to diseases and better prepared to deal effectively with setbacks in health. These measures help reduce costs for the insureds (lower premiums) as well as the insurer (fewer claims).
– A wide range of simple and effective loss control programmes can be implemented by microinsurers under various local conditions, possibly in partnership with other organizations and government agencies.
– To calculate the value and cost-effectiveness of prevention measures, microinsurers could diligently analyse comparative figures for claims experience before and after a prevention programme’s implementation.
– Loss prevention can demonstrate that insurance is not only about collecting money and paying for a loss. It is a comprehensive package which both protects and cares for people.
3.10 Performance indicators and benchmarking Denis Garand and John Wipf1 The authors appreciate the editing and suggestions on this chapter provided by Alexia Latortue and Aude de Montesquiou (CGAP), and Ellis Wohlner (consultant to SIDA).
Microinsurance has the potential to provide much-needed protection for the poor. Since microinsurance is relatively new, it presents an opportunity for the insurance industry to learn new and superior skills, such as developing low-cost delivery mechanisms to grow this market effectively. A realistic set of benchmarks in the form of operational standards and performance indicators can be an excellent guide for microinsurance managers aiming at continuous improvement and excellence.