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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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In the community-based/mutual model, clients or members play the central role. As illustrated in Figure 30, they are responsible for all aspects of product manufacturing, sales and servicing, as well as for the maintenance of long-term stability. Members are both the insured and the insurers, as the group underwrites the risk collectively. As owners of these societies, members are actively involved in management and decision-making. They have a direct influence on determining the scope of coverage and the size of contributions. This first-hand knowledge of needs and preferences gives mutual schemes a special advantage in designing the products. The involvement of the members ensures a high degree of satisfaction with the product; but this is conditional on true and representative inclusion in the design process, as well as on fair and transparent management of the scheme. At the Union des Mutuelles de Santé de Guinée Forestière (UMSGF), the general assembly of the members decides on the benefits covered. However, to design and operate an insurance system, specialist knowledge is necessary and this is the Achilles’ heel of many mutual schemes. Sometimes apex bodies, e.g. in the form of a secondary cooperative, are set up to provide technical assistance (see Boxes 75, 76 and 77 in Chapter 4.3).

As member-run organizations, mutual benefit societies are based on the principles of self-help, self-administration and self-responsibility. According to the latter principle, the members bear the actuarial risk and are liable for potential losses. By the same token, profits remain in the system to the advantage of all members. This loss- and profit-sharing model suggests that the interest of the individual remains aligned with that of the group, strengthening social cohesion in the group. This model, especially when operated in small communities, usually lowers the costs stemming from 5 Mutuals, derived from the French concept of mutuelles, are known by many names: friendly societies in Anglo-Saxon countries (and their former colonies), fraternal societies in the United States, Versicherungsvereine auf Gegenseitigkeit in Germany, sociedades de socorro mutuo in Spain (and its former colonies), and so on.

414 Institutional options fraud, moral hazard and adverse selection. This is due to high levels of social cohesion, which is usually more prominent in small groups, where social interactions tend to be both more important and easier to trace (Sobel, 2002), and translate (in the health microinsurance context) into an informal and frequent flow of information. However, this flow of information can create a privacy issue as well, since people might be afraid of social exclusion in case of certain illnesses – for example, in the case of HIV/AIDS and mental illnesses – and thus prefer not to rely on the benefits of the scheme.

The community-based/mutual model Figure 30

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In a member-owned institution, the responsibility for stability rests with the member-run management, which is sometimes delegated to professional managers. According to the ownership principle, all members should ideally feel committed to the stability of the system. The notion of ownership in terms of identification with the system and a sense of personal responsibility may represent a major advantage of community-based schemes. To strengthen the personal responsibility and prevent losses due to over-utilization, UMSGF has developed a “loss ratio trend tool”, bringing together statistical information to inform members and strengthen their feeling of ownership.

However, personal responsibility can easily get lost when mutual organizations grow and become more professional. In this process, the member-run administration of community-based schemes is replaced by professional managers who might develop their own set of aims rather than focus on the members’ objectives.6 Managers have an incentive to expand the scheme, as this might enhance their remuneration, reputation and power. Although this is good in terms of stabilizing the financial viability of the scheme, the voice of the individual insured can no longer be heard. It becomes increasingly difficult for insured members to monitor their own scheme due to information asymmetry and asymmetry in skills between the professional management and themselves. The scheme is no longer member-ruled but taken over by managers. This can result in members losing their sense of ownership, and thus in the loss of many advantages of the mutual scheme, except that profits still remain with the group of insureds.

2 Value, interests and conflicts in the insurance business process Besides these four main types, a number of further possible subtypes exist, all with their own combinations of strengths and weaknesses. However, an analysis of these main models illustrates the key conflicts of interest that emerge in the provision of health microinsurance. In microinsurance, efficiency might be even more important than in conventional insurance, and therefore one must pay special attention to the conflicts of interest in the business process. If these conflicts remain unresolved, they add costs to the insurance arrangement. Using the framework presented in Chapter 2.1, this section considers the conflicts of interest and efficiencies in the business process of the different delivery models.

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2.1 Product design: Offering value for money and responding to client wishes Health microinsurance clients generally prefer broad coverage that includes low-cost, high-probability events (e.g. outpatient coverage, pharmaceuticals), while insurers like to cover rare events. This conflict of interest is most apparent in the partner-agent model, where the main aim of the insurer is usually profit, and where less frequent claims help profit margins by keeping administrative costs low. For example, the plans offered by VimoSEWA/ ICICI Lombard and Shepherd/UIIC only cover hospitalization. The health microinsurance products offered by commercial insurers typically focus on this kind of benefit.

Commercial insurers are reluctant to deal with endless numbers of small claims, especially when an arrangement with unregulated healthcare providers would produce additional monitoring costs. However, the insurer, which maintains control over product design, also finds it hard to know what the insured want: what price are clients willing to pay and for what benefits?

Here, the agent can help resolve a part of the problem. The more the insurer is willing to involve the agent – on behalf of the client – in the design of the benefit package, the more likely the product is to respond to clients’ needs.

However, insurers may consider some low-income market segments too small to justify a costly adaptation process. Rather, the insurer will be tempted to persuade agents to sell products already developed.

The provider model would possibly be better placed to be aware of client priorities if consumption of health services were systematically registered and analysed prior to launching the insurance product, even though there is, generally speaking, little data on willingness to pay and priorities of the client. Furthermore, depending on the type of services they offer, providers might adopt a more flexible attitude to the clients’ desire to have low-cost, high-probability events (e.g. outpatient care) included in the benefit package.

This is usually true for charitable models as well, and can apply to community-based models too. However, the perspective in defining the benefit package is different: in provider-driven models, services are included in the benefit package only if they are actually offered by the healthcare provider.

Therefore, the provider, not the client, is the starting point. Charitable and community-based insurance providers might be more likely to take the clients’ needs as the starting point, as their concern is neither profit nor developing their own healthcare facility, although the charitable model might not consider it necessary to involve the community as it plans to assume the risk in any case.

Institutional options for delivering health microinsurance 417 The community-based model, which by definition involves the client in the benefit design process, has a strong advantage in knowledge of clients’ needs and willingness to pay. The insurance product in this model is likely to respond more directly to the clients’ needs and may even increase their willingness to pay. However, it has to be stressed that this strength of community-based models can only be exploited with the participation of the members, which does not always occur in practice, especially when these associations expand.

Another conflict of interest can arise in the provider-driven model when the price of services is negotiated, as the same institution represents both the purchaser and supplier of services. Although one assumes that most provider schemes use their knowledge of their own cost structure for the benefit of the client, a basic conflict of interest remains and special attention needs to be paid to it. The (partly) provider-driven Yeshasvini Trust, for example, has fixed flat rates for surgery for all 150 hospitals in the network. However, not all types of surgery are offered in each clinic, and some clinic managers claim that hospital managers participating in the administration of the trust ensure better rates for operations that are primarily carried out in their hospitals.

While this may be a case of “the neighbours’ grass is always greener”, it is an issue that large provider networks need to sort out if they wish to increase their efficiency.

The frequency of premium payment is another area where the interests of the insurer and the insured are fundamentally different: clients often prefer small, frequent payments. This, coupled with the relatively small size of the premiums, poses a challenge to insurers. Partners, care providers, charitable insurers and community-based schemes are all likely to try to circumvent this by establishing a system where collection can be done either up-front, or through a deduction at source, or seek a third-party subsidy or advance.

However, the community-based model, the charitable insurer and agent organizations, with their access to clients, are naturally equipped to resolve this mismatch between the interests of the insurer and the insured. This is achieved by relying on existing social structures in the community and the existence of community workers who can piggyback on other interactions with the community. This makes it much easier for them to respond to requests for more frequent payment than it is for healthcare providers, which do not usually have regular contacts with the target market.

418 Institutional options

2.2 Product marketing: Trust and access required An efficient sales process depends to a large extent on levels of trust and easy access to the clients as information exchange and client education make up the core activity in this process. The lack of a relationship of trust and access (both physical and psychological) to potential clients usually deters formal insurance companies from entering this market alone. This sits well with the philosophy behind the partner-agent model that the main responsibility for product manufacturing lies with the insurer, which then delegates distribution responsibilities to agents. From the clients’ point of view, agents facilitate communities’ access to insurers and providers which may otherwise be inaccessible to the clients, and provide the latter with access to a recognizable and trustworthy “brand”.

In this regard, the marketing of the provider model can thus benefit from the professionalism of well-known hospitals. Many of the private hospitals associated with Yeshasvini Trust enjoy an excellent reputation. The Narayana Hrudayalaya hospital in Bangalore, for instance, is well reputed for cardiac surgery even beyond Karnataka state. The participation of hospitals like this is positively received by many insured members who otherwise would have difficulty accessing these quality care providers.



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