An Introduction to Microinsurance Savings- and Credit Forum 30 - - PowerPoint PPT Presentation
An Introduction to Microinsurance Savings- and Credit Forum 30 November 2007 Craig Churchill International Labour Organization 1 Presentation Outline 1. What is microinsurance? 2. Characteristics of the insurable poor 3. Microinsurance
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Savings- and Credit Forum 30 November 2007
Craig Churchill International Labour Organization
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1. What is microinsurance? 2. Characteristics of the insurable poor 3. Microinsurance products 4. Institutional options for delivering microinsurance
5. Microinsurance and commercial insurers 6. Roles of governments and donors 7. Key trends in the industry
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and their families
i.e. toward more inclusive financial markets
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Social Protection
(e.g. health, pension)
element
New Market
less than $2/day
innovations can make the poor a viable market for insurers
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mutual protection in the 19th and early 20th century More recently…
departments or companies
mutual benefit associations)
and South Africa)
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“…the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved” Draft Donor Guidelines (2003)
and premiums
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Life Cycle Events Death Disability Health Property Mass, Co- variant Flexible Savings and Credit Insurance Savings / Relief / insurance with reinsurance
Certain Highly Uncertain
Degree of Uncertainty (if, when, how often)
Very Large Small
Relative Loss / Cost
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Financial Institutions
Credit Savings Insurance
Clients
Each product requires a different trust relationship with the customer
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Informal insurance Insurable, without access Uninsurable through market mechanisms Formal insurance industry
WEALTH POPULATION
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Illness, death, property loss (including crop loss in rural areas) Bolivia Illness, disability, theft Ukraine Illness, business losses, theft, death, retirement income Georgia Illness, livestock disease, death Lao P.D.R. Illness, children’s education, poor harvest Indonesia Illness, natural disaster, accidents, livestock disease Viet Nam Death, old age, illness Philippines Death, food insecurity, illness, education Malawi Illness, death, disability, property loss, risk of loan Uganda Priority risk Country
Adapted from Cohen and Sebstad (2006)
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Degree of Difficulty Degree of Success
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the borrower
spouse
dependents
with credit life to provide a payout if the borrower dies
spouse and dependents
term
borrowers (and definitely their beneficiaries) often do not know they have coverage
AIG in East Africa AIG in East Africa
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COLUMNA in Guatemala COLUMNA in Guatemala COLUMNA in Guatemala
Pays client’s family 1-2 times the
balance in their savings account at the time of death
Size of benefit varies based on client’s
age
Premiums paid by reducing the
interest rate on savings
Distributed for COLUMNA by local
credit unions
Pays client’s family 1-2 times the
balance in their savings account at the time of death
Size of benefit varies based on client’s
age
Premiums paid by reducing the
interest rate on savings
Distributed for COLUMNA by local
credit unions
product
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loans (leases) if asset is damaged or destroyed
floods and civil disturbances
premium, built into loan repayments
insurer through a single, group policy for all NLC clients Network Leasing Corporation in Pakistan Network Leasing Corporation in Pakistan Network Leasing Corporation in Pakistan
loan (exception: hut insurance rider)
replacement, just repayment
are for livestock
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an MFI agent)
years) with insurance if the depositor dies before the of the term
Delta Life, Bangladesh Delta Life, Bangladesh Delta Life, Bangladesh
savings and insurance with emergency loans against the savings balance
accumulate value
product, but not currently providing sufficient value to clients
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the greatest demand
hospitalization, or even a daily payment not linked to health care costs
between social protection and commercial insurance
– Additional player involved (health care provider) – Prone to moral hazard, adverse selection and over- usage problems – Skewed incentives – On a commercial basis, can
poor by severely limiting benefits
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heavily government subsidized
pursue sound practices
some potential to make agriculture insurance measurable,
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cooperatives and MFIs (e.g. Zurich Bolivia and BancoSol)
to their clients (e.g. Spandana, India)
South Africa)
Nkoranza Community Health Insurance Plan, Ghana)
Continued…
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Regulated insurance companies that serve the low-income market directly (e.g. Delta Life, Bangladesh)
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Regulated insurance companies that serve that have created microinsurance agents (e.g. Tata-AIG, India)
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Insurance companies that target the low- income market through retailers (e.g. Seguros Azteca and Electra, Mexico)
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Community-based schemes that pool funds, carry risk and manage a relationship with a healthcare provider (e.g. CIDR Benin)
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Insurance distributed through cooperatives (e.g. Yeshasvini, India)
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Mutual insurance companies created by credit union/cooperative federations (e.g. TUW SKOK, Poland; La Equidad, Colombia)
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Continued…
Market is largely unfamiliar with insurance Market is largely familiar with insurance Agents may manage the entire customer relationship, perhaps including premium collection Agents and brokers are primarily responsible for sales Premiums should be designed to accommodate customers’ irregular cash flows Regular premium payments Premium often collected in cash or associated with another financial transaction Premium collected mostly from deductions in bank account Microinsurance Conventional Insurance
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Broadly inclusive, with few if any exclusions Limited eligibility with standard exclusions Simple, easy to understand policy document Complex policy document Community or group pricing Priced based on age/specific risk Small sums insured Large sums insured Often sold by unlicensed intermediaries Sold by licensed intermediaries If there are any screening requirements, they would be limited to a declaration of good health Screening requirements may include a medical examination Microinsurance Conventional Insurance
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1. Understand the market’s needs 2. Involve the market in designing simple products 3. Educate the market 4. Earn the trust of the market 5. Maximize efficiencies 6. Leverage existing relationships 7. Reach huge numbers of people, and keep them 8. Encourage claims 9. Create institution space to form a microinsurance culture
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Financial inclusion regulation Prudential regulation Market conduct regulation Institutional regulation Other/related regulation
Source: Genesis Analytics, South Africa
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Client level
value
Institution level
downmarket
Meso level
data
Macro level
regulatory frameworks
partnerships
Adapted from Chandani (2007)
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