Microinsurance
Miguel Solana – Technical Officer
ILO Microinsurance Innovation FacilityLisboa, Portugal. 27 May 2010
Jornadas Portugal Seguro
2007: Gates Foundation - $55M
MI Investment Fund: Leapfrog - 2009
ILO’s MI Innovation Facility - 2008
International Assoc. of Insurance Supervisors (IAIS) Issues paper - 2007
1st Munich Re Foundation’s MI Conference - 2005
Creation of CGAP Working Group - 2001 (now Microinsurance Network)
Microinsurance Milestones
“Protecting the poor” published - 2006
5th Munich Re Foundation’s MI Conference - 2009 (Senegal)
Microinsurance is…
“…a mechanism to protect poor people against risk (accident, illness, death in the family, natural disasters, etc.) in exchange for insurance premium payments tailored to their needs, income and level of risk. It is aimed primarily at the developing world’s low-income workers, especially those in the informal economy who tend to be underserved by mainstream commercial and social insurance schemes.”~ ILO, Microinsurance Innovation Facility (2008)
“…not a specific product or product line. It is also not limited to a specific provider type. Microinsurance is the provision of cover to a specific market segment, i.e., low-income persons.”
~ IAIS Issues Paper (2007)
Microinsurance Roots
Microfinance
Extension of social protection
BOP strategy by insurers
Popular insurance by cooperatives
Micro-insurance
Characteristics of the insurable poor
• Often work in the informal economy• Irregular cash flows• Manage risks through myriad of informal means,
including social networks• Limited familiarity with formal insurance• May not trust insurance companies• Vulnerable to risks
Valuable, effective MI considers these characteristics
Would you provide insurance here?
What are their risks?
Vulnerability PovertyRisksDeathIllnessAccidentsLoss of assetsBusiness risks/unemployment
Economic stressesWeddingCeremoniesChild birthEducationPaying rent, utilities
First step to product design
Microinsurance productsMicroinsurance products
• Credit life• Term life/Personal accident • Savings life• Property insurance• Endowment life• Health insurance• Agriculture
Diff
icul
ty
Su
ccess
Products in greatest demand are least available
3. Products
Conventional Insurance Microinsurance
• Complex policy document
• Limited eligibility with standard exclusions
• Regular premium payments as banking transaction
• Usually minimum of 12 months
• Screening requirements may include a medical examination
• Small and large sums insured
• Priced based on age/specific risk
• Agents and brokers are primarily responsible for sales
• Market is largely familiar with insurance
• Simple, easy to understand policy document
• Broadly inclusive, with few if any exclusions
• Premiums accommodate irregular cash flows, paid in cash or with another financial transaction
• Period of coverage can be as short as 4 months
• Any screening requirements would be limited to a declaration of good health
• Only small sums insured
• Community or group pricing
• Distribution channel may manage the customer relationship, premium collection, claims payment
• Market is largely unfamiliar with insurance
Micro vs. Conventional InsuranceMicro vs. Conventional Insurance
Main Message: Microinsurance is not just a scaled down version of regular insurance…the product and processes need to be completely reengineered to meet the characteristics and preferences of the low-income market.
Labour unionsSelf-help groups
Low-Income People
Cooperatives
On-line & ATM
Employers
BanksCredit unions
Smart cards Computer kiosks
Insurance companies
Service providers
MFIs NGOs
Cell phones
Retailers
Link to existing transactions for efficiency
Utility companies
Delivery ChannelsDelivery Channels
A few insurers providing microinsurance
LATIN AMERICA
Alternative Insurance Co, Haiti
La Positiva Seguros, Peru
Mapfre-Compartamos, Mexico
Colseguros, Columbia
Zurich, Bolivia
Guy Carpenter & Co (regional)
To stimulate new ideas and test new approaches to provide better products
AFRICA
L’Union des Assurances (UAB), Burkina Faso
Cooperatives Insurance Company (CIC), Kenya
Kenya Orient Insurance Ltd
Hollard Insurance, South Africa
Union des Mutuelles de Santé de Guinée Forestière (UMSGF), Guinea
ASIA ICICI Prudential, India
Max NY Life, India
TATA AIG, India
SANASA, Sri Lanka
Delta Life, Bangladesh
Allianz, Indonesia
PICC, China
Challenges
1. Developing sustainable products that meet the needs of the market -- especially more comprehensive health products
2. Reducing transaction costs (enhancing affordability)
3. Overcoming the market’s natural resistance and educational barriers
4. Getting products to the market: distribution
5. Adopting a microinsurance approach to premium collections and claims payments
Challenges (cont.)
6. Creating microinsurance experts
7. Promoting an enabling environment for microinsurance
8. Having better data to price products
9. Developing a database of product and institutional performance benchmarks
10. Assessing the impact: do the poor really benefit from insurance, and if so, under what circumstances
Closing Thoughts• The ‘micro’ market represents huge opportunities and challenges for insurers• Microinsurance is not just regular insurance with smaller premiums and sums
assured • Successful products:
– Overcome the wariness of customers
– Adapt to the socio-economic situation of the poor
– Create a new insurance mindset: help people manage risks
• Pivotal time for sector development:
– Increasingly rapid expansion
– Key stakeholders joining forces with more resources
– Higher standards are expected (products, value)
• To capitalize on developments the sector must scale up, but:
– Start small: Ensure product viability first
– Build on lessons learned; apply rigorous and objective testing
– Innovate to add more value to products
Innovation will drive development
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