«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
Donors should prioritize working with existing formal insurers to serve the poor whenever possible. They can also help build the capacity of grassroots organizations such as cooperatives. Donors should generally not push or encourage new microinsurance providers. In some areas, however, existing providers may not be interested in serving the poor and/or face legal and regulatory limitations in expanding their services. Effective donor responses can then range from helping to build a viable business case for formal insurers to working to improve the legal framework or cautiously exploring support for new providers.
Given the close association of microinsurance with microfinance, donors should be particularly careful not to encourage MFIs to bear the risk of providing insurance. Insurance is a specialized activity that requires specific competencies few MFIs have or can profitably develop. Instead, donors can help MFIs negotiate with formal insurers. Even through partnership models, some MFIs may not be solid enough to venture into insurance.
Capacity-building is needed in almost all cases, no matter what model or approach is chosen, including the partner-agent model. While formal insurance companies already possess insurance skills, they often need guidance to improve their marketing, distribution and claims systems to effectively serve low-income households.
Perhaps the most important donor contribution is to make technical assistance – and to a lesser degree, financial assistance – available to the retail providers at the micro level. Figure 36 outlines the areas in which technical assistance is needed to strengthen institutions. It also suggests the types of technical service providers available (since donors tend to fund technical assistance, not provide it directly) and the various mechanisms used to transfer knowledge and skills. The issue of technical assistance is explored in more detail in Chapter 5.5.
Role of donors 483 The what, who and how of microinsurance technical assistance Figure 36
Building the capacity of providers starts with defining the skills needed, then designing the best package of services (for example, see GoodwinGroen et al., 2005). Selecting the right technical service provider and delivery mechanism is crucial. Donors should focus on the technical service providers’ track record and their staff with some basic knowledge of microinsurance. Especially if not using the partner-agent model, donors may need specific insurance skills in-house.
Capacity-building requires patience and time. Donors should make a long-term commitment, using performance-based contracts. Both parties should respect their engagements: for donors that means timely service and disbursements. If results are poor, donors should withdraw support.
Unfortunately, there do not appear to be sufficient, quality technical assistance providers and training institutes with microinsurance skills, which poses a real challenge for strengthening retail providers and building up donors’ microinsurance portfolios quickly.
Donors can also provide financial assistance. The range of financial assistance, from purchasing fixed assets to providing guarantees and covering operating losses was described in the discussion on instruments. In general, 484 The role of other stakeholders donors should not capitalize new insurance entities, nor is it generally recommended that they subsidize premiums (see Box 89).
Lessons learnt the hard way: Illustrations from India Box 89 Yeshasvini Trust. The Government of Karnataka partially subsidized the premiums of Yeshasvini Trust. However, when the subsidies stopped, the premiums had to be doubled from Rs. 60 (US$1.35) to Rs. 120 (US$2.70) per adult, and the number of policyholders plummeted from 2.2 million to 1.45 million.
Karuna Trust. Initially, UNDP fully subsidized the premium for members below the poverty line and other disadvantaged groups. Many members were not aware they were insured. When the premium subsidy was removed two years later, about 70 per cent of the members wanted to drop out – they did not want to start paying for services that had previously been free and felt that the premium was too high. After a major client education and information campaign, half the clients ultimately renewed and paid for policies.
3.3 Meso level: Market infrastructure and public goods Poor information on the target clientele, the limited number of specialized technical service providers, the lack of ready-made information systems, and the scarcity of reinsurance can all seriously constrain the expansion of insurance to poor clients.
Retail providers require a host of services and information to perform effectively, assess risks appropriately, reduce costs and become more transparent. As seen above, donors can contribute significantly to funding, brokering and even providing some of these services. Long-term access to these services, however, will require local and regional solutions that are usually private-sector led. Supporting the emergence of local or regional market infrastructure and public information goods is a fairly new area for donors.
The range of areas that require donor subsidy at the meso level is quite varied and includes supporting market infrastructure like networks and training providers, promoting transparency and fostering knowledge management.
– Information clearinghouses. Typically, formal insurers have little if any information on the low-income market segment. Clearinghouses with information on the most important risks facing this market segment are sorely needed. Data on the cause and frequency of specific risks is essential to price products correctly and identify appropriate loss prevention programmes.
Donors should work together to promote and fund the development of such clearinghouses at the national and regional level. Donors can also support clearinghouses with information on qualified technical assistance providers.
– Training/technical assistance service providers. Fostering the supply of private sector technical assistance and training providers is very challenging and best done by joint donor programmes. Donors can help build the capacity of local/regional providers through training of trainers (TOTs) programmes, materials development and business planning.
Promoting transparency – Management information systems (MIS). Homegrown information systems are expensive and time-consuming to develop. Donors can invest in building MIS to improve the quality and accuracy of information flows.
More transparent reporting allows for better management and can attract partners such as reinsurers. Systems developed with donor funding should be open-source, to facilitate duplication and adaptation.
– Performance indicators/standards. Donors should share information on the performance indicators they currently use, including definitions for each.
Those with the most technical expertise should lead a process to agree on the main menu of indicators required for the good management of insurance schemes – donor reporting should draw on those indicators, and not require long lists of indicators that are irrelevant to microinsurance managers.
– Benchmarking. Benchmarking microinsurers’ performance across peer groups can assist managers in improving performance (see Chapter 3.10). It is also useful for reinsurers and donors to better understand the performance of microinsurance. Benchmarking is only possible if donors insist on transparency and agreement is reached to share and pool data collected following the same standards.
Fostering knowledge management – Research on clients. All microinsurers should include the costs of better understanding client demand in their operating expenses. However, punctual, major national surveys can be valuable to numerous providers, especially in markets where information is scarce and hard to collect.
486 The role of other stakeholders – Tool development. As more donors and their outsourced expertise gain experience in microinsurance, they should fund the development of tools and guides that could be published on the web for the use of all. Tools that could be of great use include guides for conducting market research and feasibility studies.
– Lessons learned and good-practice guidelines. Capturing lessons learned from what works and what does not is useful for new entrants and struggling programmes. Donors should include knowledge-management components in their programmes and proactively record lessons learned.
3.4 Macro level: Supportive policy environment and advocacy As described in the next two chapters, the policy and regulatory environment in some countries can be detrimental for microinsurance. A supportive environment for microinsurance, however, allows for the emergence of different types of providers. Only donors with the right technical skills (including staff in the field), good retail-level knowledge, strong influencing capacity and the trust of governments should engage at the macro level. Donors should proceed carefully in attempting to influence government policies, especially in countries where there is not much experience at the retail level.
– Government advocacy. Donors may be well-suited to undertake a range of advocacy efforts. Advocacy could include promoting better social security, enhancing ministries’ capacity to improve healthcare, labour standards and so on, and reducing entry barriers for new players. Often, research is required to prepare strong evidence-based messages for government.
– Regulatory frameworks and supervision. While working at the retail level, donors sometimes encounter obstacles in regulatory systems. This retail experience can help them lobby more effectively for specific changes. For example, when the government of India was preparing microinsurance regulations, it posted a concept note on the Insurance Regulatory and Development Authority’s (IRDA) website and many donor agencies, including GTZ and the ILO, submitted official comments on the paper.
– Consumer protection. Donors can promote greater transparency in premiums, the exact nature of cover, and the claims settlement procedure to ensure that clients know what they are purchasing. Consumer protection is linked to client education, but can also include legally-mandated guidelines for the terms used in insurance policies, and complaint systems to collect client grievances.
Role of donors 487 4 Conclusion Helping poor people mitigate and plan for risks is an important priority.
Insurance is just one among several strategies for coping with risk. Successful microinsurance is based on a solid understanding of client demand, and often requires partnerships across a range of stakeholders from the private and public sectors. Donors can help broker such alliances, attract private sector players, support government initiatives and fill market gaps in capacity and information. Donors are most effective when they develop the appropriate internal pre-requisites and analyse markets well before acting. They should carefully balance their role as innovators and risk-takers with a keen understanding of the possible long-term negative consequences of poorly designed schemes.
5.2 An enabling regulatory environment for microinsurance Martina Wiedmaier-Pfister and Arup Chatterjee
The authors have received very useful feedback on this chapter from a number of people, including:
Klaus Fischer (Laval University), Serap Oguz Gonulal (World Bank), Brigitte Klein (GTZ), Jeremy Leach (FinMark Trust), Hunter Murdock (attorney) and Bikki Randhawa (World Bank).
The cases analysed in this book demonstrate that low-income persons are insurable. Furthermore, there is evidence that microinsurance business operations can be sustainable. However, the question that needs to be raised is whether microinsurance operations are supported by a regulatory framework that is conducive to protecting policyholders and developing insurance markets that include the low-income segments of the population.
The primary function of insurance regulators and supervisors1 is to protect consumers. This is manifested in at least three ways:
1. Protecting policyholders in general by ensuring the solvency of the insurers, which includes determining that insurance products may only be offered by licensed entities (both insurers and intermediaries) that remain financially sound and meet their obligations.