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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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As described in Box 71, ASA is finally firmly committed to the partner-agent model now that it is better able to manage the relationship with insurers and can influence the design of the products.

ASA’s on-again off-again on-again relationship with the partner-agent Box 71 model ASA has flip-flopped between the partner-agent and full service models several times over the years, sometimes even combining the two (e.g. carrying the risk of natural death in-house, but outsourcing accidental death cover to an insurer). However, it now appears firmly committed to collaborating with The partner-agent model: Challenges and opportunities 371 insurance companies. Part of this commitment is due to its experience; it recognizes the risks of in-house insurance without reinsurance. Another factor is that ASA has had sufficient experience with insurance partners for it to know now what to ask for and how to manage the relationship – and with 45,000 borrowers, it has the volumes to be demanding. As a result, ASA has designed its own product to meet its needs and generate a little income, while someone else takes the risk.

Source: Adapted from Roth et al., 2005.

Insurers working with MFI agents have experienced mixed success with this model. Penetration has been relatively low with voluntary products,

although some agents are more successful in distributing insurance than others. Some of the factors correlated with sales success include:

– The size of agent’s client base – Agents with more clients tend to experience better penetration rates than smaller ones.

– Management attitudes – Agents that are more successful appreciate the strategic nature of insurance in their product offering and demonstrate appropriate management disciplines such as setting sales targets.

– Employee attitudes – The attitude of the field staff to insurance is a critical factor in achieving positive sales results. If they are not enthusiastic about the product, it is difficult to achieve sales success.

Although insurers typically want to “offer” compulsory insurance, this only makes sense when there is a direct relationship between the product and its compulsory nature. For example, an MFI can link credit life cover to a working capital loan or home insurance to a housing loan. When insurers offer products that reach beyond the direct link, they must be voluntary, and therefore must be actively sold by the intermediary. This has proved difficult.

As it is currently conceived, this model is limited to the depositors or more probably the borrowers of an MFI. Yet there are few places where microfinance institutions work with even 10 per cent of the potential market.

In a country like India, where insurance regulations require insurers to serve the low-income market, Tata-AIG found the partner-agent model too restrictive. Too many microfinance institutions already had relationships with other insurers, and the penetration of MFIs in India was low compared to the potential market. Thus, Tata-AIG developed its own model using NGOs to identify local people to become “micro-agents” (see Chapter 4.6).

The saturation of MFIs willing and able to work with insurers in India coupled with the relatively limited outreach of MFIs is an important consideraInstitutional options tion for the partner-agent model, and will continue to push insurers into identifying and working with non-MFI delivery channels.

Delta Life experienced similar challenges when it tried to offer insurance through a microfinance NGO in Bangladesh. Part of the problem lies with the type of product that Delta and Tata-AIG offer. Microfinance institutions are not particularly effective distributors of endowment policies for two reasons. MFIs typically tie their policies to loan products. Endowments require long-term, consistent transactions. MFI credit is usually short-term with occasional non-borrowing gaps. There is limited compatibility between these two approaches. Also, for MFIs that accept savings, endowment products compete for the limited resources of the low-income client.

Chapter 1.2 describes the demand for microinsurance from the lowincome market and shows that in most countries the greatest need for riskmanagement assistance, and indeed the greatest need for insurance, is in the area of health cover.

Initially, it was thought by some that health insurance would come as part of an evolutionary process. If insurers could be enticed into entering the market for life and other basic products, they could be gradually encouraged to move to more complicated ones, including health.

Except for a few notable cases – such as VimoSEWA and Shepherd, both in India – this evolution has not taken place. The reason for this is both a general reluctance by the insurers and a lack of pressure for evolution by the MFI agents, who are also supposed to represent their clients. Since health insurance cannot be provided as a mandatory product in most places and the products do not relate directly to repayment of loans, this has hindered development of health cover through this model.

4 Advantages and disadvantages In the partner-agent model, there are three key actors – insurers, MFIs or similar agents, and the low-income people ultimately covered by these policies. Although billed as a win-win-win approach, in practice the model has shown advantages and disadvantages for each of these groups.

4.1 The agents For MFIs, it is easier to offer insurance in partnership with a formal insurer than to start their own insurance company or to insure on their own (as shown in Table 41). The ability to offer insurance without the requirements of knowledge, funds or regulations makes this an easy option.

The partner-agent model: Challenges and opportunities 373 The disadvantages generally relate to relationship issues. MFIs and insurers enter into negotiations with vastly different knowledge bases. The insurer knows insurance while the MFI knows the market. What makes this an ideal relationship – the merger of two skill sets – also creates the potential for abuse. Although both insurance knowledge and market access are key inputs, too frequently MFIs defer to the insurer’s expertise while failing to convey their market knowledge to the insurer. This is a mistake. Where MFIs are able to influence product design, or where there is insurer competition, there are clearly better products for clients at better terms.

Table 41 Advantages and disadvantages to the agent compared to self-insuring

–  –  –

4.3 The clients Potential policyholders are at the mercy of their agents and the insurers.

Access to regulated insurance products should be beneficial, but in many cases has not only proved unhelpful, but actually detrimental, at least in terms of paying unnecessarily high premiums for unsatisfactory products.

This may have been justified initially as insurers took a conservative approach while they tried to understand the risk in this market. As significant data is now available, premiums should be falling, but they are not.

Much of the problem relates to policyholders’ reliance on two entities to represent them – the institutional agent and insurers, both motivated by profit.

Advantages and disadvantages of the partner-agent model for the lowincome market are summarized in Table 43.

Table 43 Advantages and disadvantages for low-income policyholders

–  –  –

For the partner-agent model to work for the low-income market:

– their clients’ needs and demands must be the basis for products and how they are offered;

– regulators must allow simplicity in policies and procedures while protecting the rights of this market;

– MFIs must develop ways to include clients in their product development and review procedures, and then apply the information in their negotiations.

5 Conclusions The partner-agent approach is still evolving. Over the last several years, insurers have become more interested in the low-income market; MFIs and similar agents have become more adept at structuring deals that best match their needs, and sometimes even the needs of their clients. There is still reluctance from insurers to offer health products, though this is changing. The initial reluctance to provide even life insurance has diminished to the point where insurers are seeking MFIs and other partners through which to access the low-income market. MFIs have a limited share of the low-income financial markets around the world. Now that insurers see the potential of microinsurance, they are actively searching for alternative and complementary delivery channels (see Chapter 4.6). It is clear from these cases that massive outreach will require new and efficient delivery channels.

On an institutional level, it was expected that premiums would initially be high, but that after a year or two of experience, the rates would fall and product ranges would expand. There should also have been a corresponding reduction in the net earnings of the insurers. Indeed, this has occurred with some of the insurers, though others are earning excessive returns. The controls on these profits must come from the MFIs and others that sell products to low-income clients.

There is market pressure to manage these premiums in ways that benefit the clients. AIG Uganda, which had a monopoly in this market until recently, has found itself struggling against two new competitors. This is the market in action. Competition in microinsurance will lead to better products and more appropriate premiums for low-income consumers. The forerunners of this model may not have had, and may still not have, products or premiums that truly respond to the needs and demands of this market. However, they have blazed a trail, and the newcomers will generate competition to improve insurance for the poor.

The partner-agent model: Challenges and opportunities 377

The partner-agent model currently seems to work best when:

– insurance is directly related to the products of the agent institution;

– the MFI agent has sufficient knowledge and motivation to actually represent its clients in negotiations with insurers and manage the product development process;

– the MFI agent recognizes the benefit of insurance not only in protecting the MFI’s portfolio, but more importantly for its clients;

– products are simple in all respects, from the initial entry requirements to a policy with a minimum of exclusions, and a settlement process that makes it easy to submit valid claims;

– the products are valued by the MFI’s clients, and are mandatory;

– premiums are fair for all concerned;

– the agent’s field staff are sufficiently skilled and actually take the time to explain insurance and the product clients are buying;

– for the low-income market, the insurer develops a different business model from that used for its traditional clientele.

The partner-agent model has significant potential. It is still early in its evolution, progressing slowly on the basis of lessons learned. The flaws in the model can be addressed relatively easily through training and capacity-building of both the risk carriers and delivery channels. However, insurers would be wise not to put all their eggs in the MFI basket. These case studies have shown that massive expansion of microinsurance will require a broad range of delivery channels and that working with MFIs alone will not be sufficient.

4.3 The community-based model:

Mutual health organizations in Africa Bénédicte Fonteneau and Bruno Galland The authors appreciate the significant contributions provided by ILO/STEP to this chapter, including Christine Bockstal, Valérie Schmitt-Diabate, Olivier Louis dit Guerin and others. The authors also thank the following reviewers for their insights and suggestions: Patrick Develtere (University of Leuven), Klaus Fischer (Laval University) and Ralf Radermacher (University of Cologne).

This chapter deals with a specific microinsurance model, the communitybased model, in a specific region, Africa. It also deals with a specific field – health insurance – which is certainly not the easiest type of insurance to offer (see Chapter 2.1). Considering that access to healthcare remains a major unresolved issue in Africa, health microinsurance systems are one of the ways to solve this problem, at least partially.

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