«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
Donors can also selectively deploy loans and guarantees to support microinsurance. Loans to governments from multilateral development agencies are often used in social protection programmes. Guarantees are mostly appropriate to help link reinsurers to microinsurers (see Box 87). Partial guarantee funds where the reinsurer takes a significant amount of the risk, but has some coverage from the donor funds, can help introduce reinsurers to this new market. The key to successful guarantees is setting the incentives in such a way that insurers manage as if their own money were at risk, and ensuring diminishing benefits over time. Donors should obtain expert assistance to structure the guarantee funds appropriately and should monitor their impact and cost-effectiveness.
Providing support through donor guaranteesBox 87
A DFID guarantee was critical during the start-up phase of the Nsambya Health Insurance Plan (NHHP), now known as Microcare. The NHHP had no reserves, nor could it access reinsurance (normally the next line of defence for insurers after reserves) because it was not yet a regulated insurer. DFID’s subsidies enabled NHHP to test methodologies for serving the poor, such as delivering health insurance to low-income communities by tapping into the clientele of a microfinance institution. To limit its own risk, DFID reserved the right to monitor the pricing and achievements of the objectives of NHHP’s business plan.
Source: Adapted from Dror and Preker, 2002.
Certain costs, such as claims costs, should rarely be covered by donors.
Clients should face the true costs of well-managed insurance from the beginning. An exception might be social protection schemes that have access to significant sources of stable funding (from governments, for example) and can subsidize premiums for very poor or high-risk persons over the longterm. Even then, the risk of drop-outs and/or financial collapse is high when the subsidy is withdrawn.
For now, the bulk of donor support is appropriately targeted at the retail level. Over time, investments at the market infrastructure and policy levels will become more important as donors seek to help foster a coherent overall system for increasing poor people’s access to insurance services. Typically, instruments best suited for work at the market infrastructure and policy levels include grants, technical assistance and policy support.
478 The role of other stakeholders
2.4 Accountability for results Is there transparency in the donor agency for all projects that include microinsurance? Does the donor monitor performance of microinsurance programmes, and take action based on results?
Improving the accountability of public subsidy is of paramount importance.
Doing so requires more than ex-post evaluations. Incentives for accountability should be introduced at all stages of the project cycle.
Since microinsurance often emanates from multiple departments within the same agency, it is important to have up-front clarity about the most desired outcomes. What is good microinsurance? Is it achieving financial sustainability and attaining social objectives, e.g. meeting clients’ priority needs, improving healthcare quality or advocating better labour codes? Donors should reach agreement on the common expectations of performance, whichever face of Janus they are pursuing.
Agencies also have to decide whether they wish to have a single quality assurance focal point to review all projects with microinsurance components.
Ensuring that adequate due diligence is carried out (whether by the donor, outsourced experts or the implementing partner) is also part of improving accountability up front.
Exit strategies should be discussed at an early stage as well. Exit is only possible when sustainable market capacities are built. If this does not happen, donors will find it extremely difficult to withdraw support without jeopardizing poor people’s access to insurance. For example, the Rabobank Group and its reinsurance company, Interpolis N.V., are having difficulty exiting from Yasiru in Sri Lanka, a microinsurance scheme they have been supporting since 2000. If Rabobank exits, Yasiru will either have to dramatically reduce its costs or increase its annual premiums by about 60 per cent to fully compensate for the reduced financial support.
To ensure the best possible implementation, donors should select outsourced expertise carefully and conduct an appraisal of potential partners.
Contracts with both technical service providers (for example, if a consultant is hired to help manage the project) and the microinsurance provider should be performance-based to tie continued support to the achievement of key milestones. For example, disbursements could depend on meeting minimum performance thresholds such as the number of people insured and a benchmark expense ratio, complemented by a satisfactory review by an actuary.
A mix of on- and off-site monitoring of microinsurance projects is vital to identify problems early on, ensure proper utilization of funds and document lessons learned. Donors should request quarterly reports from their microinRole of donors 479 surance projects. Besides key performance indicators, the quarterly reports should include qualitative information from management with progress updates on the business plan, budgets, achievements, problems encountered, trends and any management issue such as major human resource changes.5 Monitoring by an actuary at least annually is also highly advisable. The actuarial review should include a comprehensive appraisal of performance, including the adequacy of premium rates and claim reserves.
As with savings, the important responsibility of protecting poor people’s money cannot be taken lightly. The challenge for donors is to balance their role as risk takers (i.e. funding innovations that may or may not succeed) with that of being responsible funders. Failed microinsurance programmes can have negative long-term consequences for clients, actual and future providers, donors and governments.
2.5 Relevant knowledge management To what extent are donor agencies learning from their own and others’ experiences, and feeding that learning back into new programme design? Are donors making use of the increasing volume of microinsurance literature to learn about a variety of models, possible linkages and partnerships?
The complexity and multi-faceted objectives of microinsurance require that donors share information and coordinate at several levels. Donors should coordinate with (i) private sector insurers, (ii) relevant government social protection agencies to synchronize governmental and microinsurance efforts and (iii) other funders to establish common strategies and avoid duplications.
The GTZ-initiated donor consortium to support VimoSEWA is a good example of a joint effort to provide donor funding in a coherent manner. The consortium includes CGAP, the Ford Foundation and the ILO (for research support). All agencies discuss continuously and co-ordinate their funding to support VimoSEWA’s business plan.
Though a lot has been written on microinsurance recently and some training courses exist for practitioners, there is little training targeted specifically at donor staff. Especially since the topic is relatively new, donor staff need various fora to exchange experiences and discuss the reasons for the failure and success of microinsurance programmes.
Donors can also identify partnerships with other donors whose “star” complements their own. For example, a development agency with strong
staff expertise could team up with a donor that has flexible grant-funding to pilot programmes. Donors with strong data management systems and insurance knowledge could help promote information clearinghouses.
The following section discusses in more detail the types of donor actions likely to deepen poor people’s access to insurance services.
3 Types of donor support for microinsurance Donors are not in the driver’s seat in developing insurance services for poor people. The donor role is to serve as a catalyst, with governments, the private sector and civil society taking the lead. Nonetheless, donors can have great influence on how quickly and well – or poorly – microinsurance reaches scale. Donors should wait for the demand from stakeholders in countries, rather than actively promoting microinsurance.
The choice of intervention should be founded on a good understanding of all levels of the market, the state of market development, and the donor’s own strengths. A range of possible donor interventions, starting with clients at the centre, is presented below. Not every donor can or should work on all these levels.
3.1 Clients Microinsurance providers are the closest to actual and potential clients, and are best suited to understand client needs and provide client education. That said, donors have a role in commissioning research and creating tools. Whenever possible, donor-funded work in these areas should be public goods that multiple providers can use.
Client education on the benefits of insurance services is key to the success of microinsurance. The costs of designing appropriate materials for client education and training staff to provide these “non-insurance” services
are not negligible. Ultimately, these costs should be factored into the marketing expenses of providers. However, donors can help by:
– including information on insurance in the growing number of financial literacy campaigns.
Too often, client demand is assumed, misunderstood or over-simplified.
Donors can help improve understanding of client demand by:
– funding the development of user-friendly tools for conducting insurance market surveys;
– funding national market surveys to better understand the needs and riskmanagement mechanisms of low-income households (the demand side) and how the needs are currently addressed by public, private and informal organizations (the supply side); the FinScope surveys are a good example of this kind of donor support (Box 88).
FinScope surveys: Getting to know the market6Box 88
The FinMark Trust, which was started with a grant from DFID, has pioneered the use of specialized household surveys of financial services usage through its FinScope surveys in South Africa.
FinScope tracks the changing patterns of access to financial services across all the main product categories – transaction banking, savings, credit and insurance – in the formal and informal sectors. For example, the 2005 South Africa FinScope survey found that 34 per cent of people had some kind of insurance. Much of this coverage came from informal or semi-formal providers such as burial societies. The survey showed that “unaffordability” was the main barrier to funeral coverage. The survey also indicated that at least one third of the 53.5 per cent of un-banked South Africans have access to a cell phone and that those people who are aware of cell phone banking believe it will make the cost of financial services diminish.
The FinScope surveys are powerful tools for public and private sector decision-makers to think about how to reduce barriers to access and how to innovate to reach new market segments, including low-income and poor people. FinScope South Africa is now fully funded by the private sector, and is being replicated in other countries.
3.2 Micro level: Retail microinsurance providers Retail providers and their distribution channels are the backbone of delivering insurance services to the poor. Building the capacity of institutions to provide appropriate, good-quality and affordable services to the low-income
market segment is one the greatest challenges in increasing poor people’s access to insurance services. However, the need for donor support should not always be assumed. For example, Delta Life in Bangladesh has never had any donor support. Though some question the quality and appropriateness of Delta’s products, it is undeniably one of the oldest and largest microinsurers.
Nonetheless, in many markets, for insurance to be widely available, donors have a role to play.