Providing Insurance to Low- Income Households Part I: A ... Providing Insurance to Low-Income...

download Providing Insurance to Low- Income Households Part I: A ... Providing Insurance to Low-Income Households

If you can't read please download the document

  • date post

    12-Jun-2020
  • Category

    Documents

  • view

    0
  • download

    0

Embed Size (px)

Transcript of Providing Insurance to Low- Income Households Part I: A ... Providing Insurance to Low-Income...

  • Providing Insurance to Low- Income Households

    Part I: A Primer on Insurance Principles and Products

  • Providing Insurance to Low-Income Households

    Part I: Primer on Insurance Principles and Products

    by

    Warren Brown Craig Churchill

    CALMEADOW

    November 1999

    This work was supported by the U.S. Agency for International Development, Bureau for Global Programs, Center for Economic Growth and Agricultural Development, Office of Microenterprise Development, through funding to the Microenterprise Best Practices (MBP) Project, contract number PCE-0406-C-00-6004-00.

  • Craig F. Churchill is the Director of Calmeadow’s Research and Policy Unit. Based in Washington, DC, he oversees Calmeadow’s various research initiatives as well as its renowned Resource Center. Prior to joining Calmeadow, Mr. Churchill was the Coordinator of the MicroFinance Network, a global association of leading microfinance practitioners. His microfinance experience also includes working for Get Ahead Financial Services in South Africa and ACCION International. He has authored several publications, including Client-Focused Lending: The Art of Individual Microlending (Calmeadow, 1999), Managing Growth: The Organizational Architecture of Microfinance Institutions (Microenterprise Best Practices, 1997), and Regulation and Supervision of Microfinance Institutions with Shari Berenbach (MicroFinance Network, 1997).

    Warren Brown has worked with the Research and Policy Unit at Calmeadow since May 1999. During his time at Calmeadow, Mr. Brown has been responsible for managing and conducting research for the Ford Foundation and USAID's MBP Research Facility on the current state of the practice in micro-insurance. Prior to Calmeadow, he worked as a consultant for Monitor Company, an international strategy consultancy. While at Monitor, Mr. Brown worked with Canadian financial services clients in areas such as new market assessment, customer research and product development.

  • i

    ACKNOWLEDGMENTS

    Insurance is a relatively new topic in the field of microfinance, and much of the experience in offering insurance to low-income households has yet to be published or formally documented. As a result, we benefited greatly from the willingness of many people to share their experiences and expertise in interviews and draft versions of upcoming publications.

    Neil Haynes, the Vice President of Mergers and Acquisitions for Clarica Life Insurance in Waterloo, Canada, generously volunteered his time to serve as the insurance expert for this study. As such, he has patiently waded through several drafts of this report, answered numerous questions, and guided our learning process.

    Ted Weihe, from AAC/MIS, has also been extremely valuable source of information and ideas, and suggested significant improvements to drafts of the document. Other important providers of information include Natalie Gons (WOCCU), Dory Christensen (CUNA Mutual), Zahid Qureshi (ICMIF), Graham Wright (MicroSave Africa), David Dror, Kees Van der ree, and Wouter van Ginneken from the ILO, Frank Grozell and Zoraa Amijee from UNCTAD, Imran Matin (CGAP), Manfred Zeller (IFAD), and Peggy Roark (Freedom from Hunger). This paper benefited from extensive interaction with staff at the Ford Foundation, in part through their financing of complementary research.

    Also deserving of thanks are Nanci Lee and Devina Bahadoorsingh at Calmeadow for their assistance in locating and acquiring many of the sources used in this report.

    Lastly, we would like to extend special appreciation to the official readers for this study: Michael McCord (FINCA), Stuart Rutherford (SafeSave), Jonathan Morduch (Princeton University), Smita Srinivas, Joan Parker (DAI), and Monique Cohen (USAID) for their ideas and suggestions. This study was funded by USAID’s Microenterprise Best Practices Project.

  • Microenterprise Best Practices Development Alternatives, Inc.

    ii

  • iii

    TABLE OF CONTENT

    EXECUTIVE SUMMARY vii

    INTRODUCTION 1

    CHAPTER ONE RISKS FACED BY LOW-INCOME HOUSEHOLDS 5 LIFE CYCLE NEEDS ...............................................................................................................7 DEATH RISKS ........................................................................................................................7 PROPERTY RISKS...................................................................................................................7 HEALTH RISKS ......................................................................................................................8 DISABILITY RISKS .................................................................................................................8 MASS, COVARIANT RISKS.....................................................................................................8 CONCLUSION.........................................................................................................................9

    CHAPTER TWO POTENTIAL RISK MANAGEMENT STRATEGIES 11 RISK REDUCING STRATEGIES ..............................................................................................12 RISK COPING STRATEGIES—INFORMAL..............................................................................12

    Individual Risk Coping Strategies..........................................................................12 Group-Based, Risk-Coping Strategies ...................................................................14

    RISK COPING STRATEGIES—FORMAL FINANCIAL SERVICES ..............................................17 Risk Managing Credit and Savings Products.........................................................18 Insurance Products .................................................................................................19

    CONCLUSION.......................................................................................................................20

    CHAPTER THREE INSURANCE: THE PROVIDER’S PERSPECTIVE 21 UNIVERSAL PRINCIPLES FOR PROVIDING INSURANCE .........................................................21 MATCHING SUPPLY AND DEMAND......................................................................................24 TYPES OF INSURANCE PRODUCTS........................................................................................25

    Life Insurance.........................................................................................................26 Property Insurance..................................................................................................27 Health Insurance.....................................................................................................28 Disability Insurance................................................................................................28

    CONCLUSION.......................................................................................................................29

  • iv

    CHAPTER FOUR LEARNING FROM ESTABLISHED INSURANCE PROVIDERS 31 PRODUCT DESIGN................................................................................................................31

    Group vs. Individual Insurance ..............................................................................31 Setting Prices..........................................................................................................33 Protecting Against Moral Hazard...........................................................................36 Protecting Against Adverse Selection....................................................................38 Reaching Minimum Required Pool Size ................................................................39 Valuing Losses .......................................................................................................40

    DISTRIBUTION CHANNELS ...................................................................................................42 Agency Distribution...............................................................................................42 Integrated Distribution...........................................................................................43

    FINANCIAL MANAGEMENT OF INSURANCE..........................................................................45 Financial Structures................................................................................................45 Tracking and Measuring Financial Performance ...................................................45 Investment Management ........................................................................................48 Reinsurance ............................................................................................................49

    INSURANCE REGULATION....................................................................................................51 Member Benefits....................................................................................................52 Banks as Insurers....................................................................................................53

    CHAPTER FIVE CONCLUSION 55

    FURTHER READING/RESOURCES 57

    REFERENCES 61

    ANNEX A: PERFORMANCE TRACKING AND MEASUREMENT A-1

    ANNEX B: PERFORMANCE MEASUREMENT—RATIOS AND INDICATORS B-1

    ANNEX C: GLOSSARY OF COMMON INSURANCE TERMS C-1

  • v

    LIST OF TABLES AND DIAGRAMS

    Table

    1 Risk Reducing and Coping Strategies....................................................................11