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5 Conclusion Insurers and reinsurers have a vital role to play in the success of microinsurance schemes. They can make a concrete contribution to implementing business processes that reduce the long-term cost of underwriting risk for lowincome persons. Partnerships inspired by this motive can be of interest for both sides, as the commercial partners are best placed to adapt tried-and-tested methods of reinsurance and other modes of risk transfer, and microinsurers can expand the financial capacity of their schemes and underwrite more and larger risks. Successful partnerships would bring more business for both sides.
Reinsurance offers microinsurers an untapped alternative way of enlarging their capacity to become the leading underwriters of sustainable insurance services for the poor. Microinsurance schemes are in most cases operated by people who do not have much expertise or experience in insurance.
The leaders of microinsurance schemes are not necessarily aware of the services of reinsurance, including assistance in underwriting mathematics and statistics, or the use of tools for product design, administration systems or efficient marketing. In short, the leaders of microinsurance schemes are often unaware of the benefits of reinsurance.
The case studies have identified several noteworthy examples of cooperation. However, only very few are modelled as reinsurance partnerships.
Thus, the challenge is to develop a reinsurance model for microinsurance that is commercially viable and replicable. The potential of the market, especially The role of insurers and reinsurers 543 in emerging economies with large uninsured low-income populations, justifies efforts to develop such a model.
Besides the cooperation between corporate and not-for-profit institutions, there is ample room for public-private partnerships, which could provide the platform for cooperation between public institutions or development agencies and industry-wide corporate bodies. However, whatever forms the partnerships take, the commercial partners should utilize their expertise in insurance mathematics, risk diversification and product design, and microinsurers must retain the lead in adapting the business to the reality of the clientele at community level.
Commercial insurers and reinsurers tend to underestimate the peculiarities of the microinsurance market. It is important to recall that microinsurance developed mainly because of the short supply of adequate products from commercial insurers. Therefore, cooperation could proceed when the commercial partners show more willingness to review their products and administrative processes. One must bear in mind that the business of microinsurance can be an extension of the market; even poor people will agree to pay for insurance if it responds to their perceived priorities.
Microinsurance schemes must learn to apply industry standards for risk management. The main issues revolve around a better link between premiums and the expected cost of benefits, and assimilating the mantra that “good bookkeeping is good business”. Commercial insurers must accept an active role in professionalizing microinsurance schemes. Both partners should share the effort to find ways of structuring a legal relationship, rather than hide behind the microinsurer’s lack of a corporate structure as an excuse to refrain from forming partnerships. The industry’s concerns about high administration costs and a lack of insurance infrastructure are matters that can be largely remedied by the insurance industry itself.
The insurance industry is reluctant to become involved with microinsurers due to the limited prospects of profit. There is no denying that the reward for risk, investment and effort should be profit, and the insurance industry should be entitled to make profits on services rendered. However, the degree of investment and the exposure of the industry to risk have so far been low.
In today’s economy, profit-taking follows prior investment in creating the infrastructure. There is no reason why the insurance industry would be an exception – why should it look to earn profits but expect others to invest in building the industrial infrastructure that enables such profits to be made?
By holding back on its involvement in microinsurance, the insurance and reinsurance industry weakens its claim to draw profits.
544 The role of other stakeholders What investments should the industry make? This chapter has flagged two key possibilities. Firstly, it can support the development of a capacitybuilding institution, a “Microinsurance Academy”, to create insurance competence at the community level. Considering the need to have more and better information on the market, and the parallel need to keep the cost of gathering information low, it seems sensible to disseminate domain-knowledge and insurance skills among the people who are active in the microinsurance industry. This is as much in the interest of the commercial insurance industry as it is a matter for public concern.
Secondly, it can enable microinsurance schemes to access reinsurance.
Lack of this option is due mainly to the unavailability of supply. As long as reinsurers are reticent to take the lead in offering reinsurance services to microinsurance schemes, it may be opportune to spread this risk over many reinsurers. The practical proposal is to create an institution established jointly by many reinsurers and, possibly, with the participation of public institutions, tasked with offering reinsurance and with developing and implementing a standardized data-transfer protocol that enables microinsurers to buy reinsurance. At present, no natural institutional leader has shown the will to take the lead in creating this facility. However, the initiative of CGAP Working Group and others to accelerate the learning curve of effective microinsurance operations could be extended to include the development of such an institution, because it is an indispensable missing link in enabling microinsurance schemes to make insurance work for the poor.
5.5 The provision of technical assistance Richard Leftley and Richard Lacasse The authors appreciate the insights and suggestions provided by Frank Bakx (Rabobank Foundation), Zahid Qureshi (consultant), Karen Schwartz (AAC/MIS), Sabine Trommershäuser (GTZ) and John Wipf (CCA).
Technical assistance (TA) is the provision of expertise on a contractual basis to an organization that needs support. For microinsurance, this could mean assistance with starting a new scheme, launching or improving products, generally upgrading operations, meeting legal requirements or obtaining reinsurance. Provided on either a short- or long-term basis by a variety of individuals and institutions, technical assistance often goes beyond specific technical elements and extends to improving management and governance.
The objective of TA depends on what perspective one has. Donors and policymakers, keen to see a massive expansion of microinsurance, recognize that there is a significant need to build capacity among insurers and delivery channels. Microinsurance providers may seek out technical assistance to expand their product menu, enhance their efficiency or improve their bottom line. As for the TA providers, since this is a new field, they are often interested in developing tools that can be used in different contexts to improve the quality and efficiency of their services.
From the experiences of microinsurance technical assistance providers, this chapter seeks to draw lessons that may help to expand the availability of TA and improve its quality. Although technical assistance is certainly relevant to addressing the meso and macro levels discussed in Chapter 5.1, here the focus is on improving the performance of a microinsurance provider – including both the risk carrier and the distribution channel. The chapter begins by highlighting the importance of technical assistance and then describes the types of TA services commonly offered. The third section categorizes and describes microinsurance TA providers, while the conclusion summarizes modalities and characteristics of quality technical assistance.
546 The role of other stakeholders 1 Why is technical assistance required?
The gap between the supply of and demand for microinsurance is enormous.
There are few providers of insurance services to the poor, and even fewer that actually provide a useful service. Yet millions, perhaps billions, of lowincome households do not have access to efficient mechanisms for managing risks. To fill this gap, microinsurance technical assistance is required to help create new providers and improve the performance of existing ones.
Technical assistance is particularly relevant for microinsurance because of another gap: a competency gap. Insurance companies naturally have insurance expertise, but they typically have a limited understanding of what the poor need and want. At the other end of the spectrum, persons working for civil society organizations often have a good understanding of the lowincome market, but lack insurance skills. Technical assistance can help fill this competency gap by facilitating collaboration between the insurance industry and civil society, and enabling them to complement each other’s strengths.
When the two do join forces to enter the low-income market, the TA provider can play a key role. Without the input of an independent third party during the product design process, the insurance company’s commercial interests are often promoted above those of the distributor or indeed the clients. An experienced advisor is essential to make sure that the products will be technically and financially sustainable, and provide adequate protection to the poor. In addition, technical assistance can help microinsurers comply with regulations, for example on technical aspects of the products, actuarial projections, capital requirements and solvency.
The field of microinsurance is on a steep learning curve. Most existing microinsurers have developed their expertise through trial and error – indeed many errors. As illustrated throughout this book, where insurance companies have strived to serve the low-income market on their own, most have not provided valuable or valued services; where NGOs, MFIs and other civil society organizations have introduced insurance themselves, they have often encountered product design and compliance problems.
The amount of information and extent of experiences today are dramatically greater than just a couple of years ago. By keeping abreast of the emerging lessons, TA providers reduce the likelihood of the wheel being reinvented and errors repeated. They are key disseminators and propagators of good practice and can transfer lessons from one region to another.
The provision of technical assistance 547 2 What does a TA provider do?
Technical assistance is a broad, all-encompassing term. Indeed, TA can be used to address any need or weakness in an institution, as long as the microinsurer is aware that the weakness exists. In fact, the first step in providing technical assistance is often an assessment – a self-assessment or an external appraisal – that identifies the problems that need to be resolved or the opportunities that could be seized. In general, TA is useful 1) when starting a new organization, 2) when introducing a new product and 3) to support the organizational development of the microinsurer.
Technical assistance can play an important role when setting up a new organization. For example, TA providers might be asked to conduct a feasibility study before any formal decisions are made about launching a new scheme. When starting from scratch, it is always helpful to involve people who have experience in starting or implementing microinsurance elsewhere and who are in a position to set up systems and procedures more quickly.
For organizations that want to develop a new insurance product or improve the quality and acceptance of products already on offer, TA can be extremely useful for introducing and maintaining viable, demand-driven services with a minimum of staff resistance. Generally, technical assistance can be used throughout the product development or improvement processes,
or to assist with any of the following interventions along the way:1
1. Assess the market Assistance may be required to assess client needs and demand, quantify the operational realities, assess potential insurance supply including likely rates available from existing insurers, and conduct a regulatory review to see what options are available (e.g. requirement to become a licensed insurance company or agent).