«Protecting the poor A microinsurance compendium Edited by Craig Churchill Protecting the poor A microinsurance compendium Protecting the poor A ...»
The TA recipient may have little say in who provides the services or whether the cost of those services is an effective use of resources. To overcome this problem, some networks such as Opportunity International have required their MFI partners to contribute to the cost of the TA from their own income. In some cases, donor grants have been provided directly to the MFIs, which are then free to choose whether to use an internal TA provider (i.e. within the network) or to access the expertise elsewhere. This type of financing mechanism puts the TA recipient in charge of the process and increases the likelihood that the TA provider will be held accountable.
One strategy for reducing the cost of microinsurance technical assistance is evident in the trend toward south-to-south services. Often AAC/MIS serves as a facilitator of technical assistance, linking up the skills of one member with the needs of another. Similarly, the emergence of RIMANSI in the Philippines is an important achievement. Not only is a local TA provider more affordable than international consultants, but it is also more familiar with the context. In West Africa, Développement international Desjardins 560 The role of other stakeholders
Technical assistance partnerships: DID and CIF Box 106 The Centre d’Innovations Financières (CIF) is a technical assistance provider that works with six networks of savings and credit cooperatives in West Africa (FECECAM in Benin, FCPB in Burkina Faso, Kafo Jiginew and Nyèsigiso in Mali, PAMECAS in Senegal and FUCEC in Togo), which include 500 cooperatives and 1.2 million members. CIF has a particular interest in designing new products to meet customer needs.
Développement International Desjardins specializes in providing technical support and investment for the community finance sector in developing countries. It is a component of the Desjardins Group, the largest financial cooperative in Canada.
CIF and DID are technical and strategic, as well as financial partners. By capitalizing on and combining their international and local expertise, CIF and DID have created a formidable symbiosis. Through CIF’s knowledge of local conditions, it can understand the unmet needs of cooperative members.
In many places, such as Togo, CIF has identified the need for microinsurance products. It is here that the cooperatives and CIF can benefit from DID’s insurance expertise. Besides having its own microinsurance experts, DID has also learned a lot about the insurance business from its parent company.
Together, these partners have developed locally responsive, yet financially viable products to be piloted in Togo. By learning from and building on the experience of the pilot, the products will then be mainstreamed across all member cooperatives. Indeed, the costs and risks associated with developing products in this fashion are much lower because other CIF networks and stakeholders can benefit from the experimentation done in a single network.
In addition, by providing technical assistance to a local TA provider, DID is able to create a multiplier effect. With CIF subsequently leading the development of microinsurance in the other networks, the costs are much lower than if DID had provided technical assistance to each network separately.
able result of this collaboration was to develop common management tools, set performance standards and jointly seek reinsurance for the TA recipients.
The use of common indicators has also allowed for an easier exchange of information and experience between the microinsurers themselves. Many organizations receive technical and financial assistance from multiple donors, encountering problems of consistency of message and recommendations – not to mention duplication of effort. Donor coordination and collaboration, as achieved by AAC/MIS and SOCODEVI, benefit the recipients as well as providers of technical assistance.
A common theme among many of the microinsurance TA providers is the combination of technical assistance and money. Grants and investments often accompany the technical assistance for greater impact. Where an investment is made, such as by CUNA Mutual or ICMIF’s Allnations, there is a strong probability that the accompanying technical assistance will be of high quality since the TA provider has a vested interest.
Another important link is between TA and reinsurance. There have been instances where the local insurance providers have been unable to provide a product or coverage because of their own reinsurance restrictions. If an insurance company has a restriction on its own reinsurance programme, it will limit the coverage it is willing to offer for fear of incurring a net retained loss. A TA provider can provide the connections necessary to negotiate effectively with a reinsurance company to achieve better coverage. For example, when Opportunity International Bank Malawi wanted to offer livestock insurance, it could not find a local insurance company willing to participate as the insurers’ reinsurance treaties excluded livestock. OI was able to negotiate with reinsurers in South Africa to allow NICO, a Malawian insurance company, to front the coverage with the risk being carried by the reinsurer in South Africa.
TA providers also have a role to play when the local insurance industry is unwilling to provide coverage because of a lack of technical knowledge.
When OI was developing a crop derivative for The World Bank in Malawi, the local insurance companies were initially unwilling to underwrite it as they had no prior experience in pricing similar products. After some discussions with OI’s experts, the local insurers formed a pool to underwrite the risk on the basis of OI’s actuarial input, product design TA and on-going underwriting support.
A final strategy for maximizing the effectiveness of microinsurance technical assistance is to focus on the brokering role of a TA provider. By bringing together an insurer and a civil society organization, the TA provider essentially minimizes the need for technical assistance since the two complement each other in expertise. The TA provider is primarily needed up front 562 The role of other stakeholders as an interpreter, to speak insurance-ese to the grassroots organization and development talk to the insurer. Once the two start understanding each other, the continuing need for the interpreter – the TA provider – is substantially reduced.
6 Conclusions 6.1 Strategies for sustainability Craig Churchill and Denis Garand The authors are indebted to the following persons for their critical comments and suggestions on this chapter: Felipe Botero (Metropolitan Life), Bruno Galland (CIDR) Alexia Latortue and Aude de Montesquiou (CGAP) and John Wipf (CCA).
As illustrated in the preceding chapters, creating a viable microinsurance scheme is challenging. Whether the scheme covers its costs with the assistance of donors and governments, or from premium revenues and investment income, sustainability ensures permanent access to services. The sustainability dilemma boils down to a trade-off between three competing objectives (see Figure 38). How do microinsurers find a balance between 1) coverage, meeting the needs of large volumes of low-income people, 2) costs, operating costs and transaction costs for the insurer, and 3) affordability, representing the price and transaction costs for clients?
Striking a balance: The microinsurance challenge Figure 38
The chapter concludes with some observations on management, which underpins each strategy and can make the difference between a scheme’s success and failure. As a business develops and grows, and achieves a regular flow of income, it has to balance another set of three competing interests – of employees to get the best compensation, of customers to purchase the product at the best price, and of “shareholders” to receive the best return on their investment, whether in financial or social terms. Success then depends on managing effectively to keep these main stakeholders satisfied.
1 Limit benefits Starting a microinsurance programme is similar to starting a normal insurance company; however, it takes longer to reach viability. Just how long depends on the product, target market and the sustainability strategy. The first approach to achieving sustainability is to limit the benefits offered.
Though not a perfect scenario since the insurer cannot provide low-income households with the range of protection they need, insurance with limited benefits can be relatively inexpensive and in any event better than no coverage at all. Basic benefits are also an appropriate starting point. As the target market develops an appreciation for the value of insurance, and as the insurer develops expertise in providing it, benefits can be gradually increased.
1.1 Start with credit life One of the most affordable products is credit life or loan protection. Apart from providing a limited benefit, as a compulsory product tied to an existing distribution channel, its administrative cost structure should be very efficient with a reasonable spread of risk.
While it is debatable whether these advantages really help the low-income market, credit life should be thought of as a starting point. If microinsurers provide credit life cover at an appropriate rate, they can build a substantial capital base and then expand the benefit package. With appropriate technical help, they can establish a sufficient premium to pay expected claims and administrative expenses, and contribute to a surplus. The provision of credit life can also be used to establish basic insurance management skills, monitoring systems and communication strategies. Once the surplus reaches a predetermined amount and the microinsurance scheme is financially stable, the funds can be used to increase benefits for the policyholders.
For example, once Spandana had built up sufficient reserves from its credit life product, it expanded benefits to include the death of the spouse and hut insurance, while at the same time lowering premiums. MUSCCO
566 Conclusions(Malawi) and CARD MBA (Philippines) are in a similar position to enhance benefits now that they have amassed considerable capital – in the case of CARD, perhaps excessive capital. MUSCCO has built up US$198,000, while CARD MBA has generated US$830,000 in surpluses as it has a very efficient administrative structure and the premiums charged are much higher then required.
The “credit life” strategy for sustainability is predicated on using this cash cow to lay a strong foundation, which enables the microinsurer to provide customer-friendly benefits in the future. However, this strategy is only appropriate for lending institutions wishing to get involved in insurance. A major disadvantage is that early policyholders are essentially overcharged, while those who join the scheme later benefit. In addition, because coverage is mandatory, customers may not even know that they have it. Consequently, it does not help to overcome the market’s lack of understanding and its wariness of insurance. To achieve that objective, it would be more useful to start with a “credit life plus” product that provides a payout (i.e. over and above the loan amount) and covers other family members as well. It also may make sense to offer a couple of different options so that, even though it is mandatory, clients can choose between two or three levels of coverage.
Sustainability strategy 1. Start with credit life Advantages – Relatively simple to put into place.
– Provides target population with some benefit – at least it is better than doing nothing.
– Creates a clear management focus important for achieving efficiency and viability. Management can learn simple steps before proceeding to more complex insurance offerings.
Disadvantages – Only covers death risk (and sometimes disability) and provides a very limited benefit.
– Main beneficiary may be the lending institution. Is this insurance really for the MFI?
– Does not help clients understand insurance, nor does it nurture an emerging insurance culture.
– Provides insurance only to debtors, and provides no service to the wider community.
– Early policyholders may be overcharged.
Strategies for sustainability 567 – It may take time to develop the broader coverage required by the target market.
– Management may get comfortable and fail to improve insurance skills or operational efficiency.