Introduction to
Microinsurance
Craig Churchill
International Labour
Organization
Overview of Presentation
1. Introduction to inclusive insurance
2. Key differences between insurance and
microinsurance
3. Overview of the Microinsurance Innovation
Facility
4. Examples of microinsurance innovations
1) Introduction to inclusive
insurance: Microinsurance
ILO’s interest in microinsurance
The ILO is concerned about the promotion of
decent work: more and better jobs
• The availability of social protection for
workers and their families
• The impact of financial polices on social
justice, i.e. toward more inclusive financial
markets
This reflects the two most common perspectives
on microinsurance…
The microinsurance continuum
Social Protection
• Benefits are a human right
(e.g. health, pension)
• Contains a redistributive
element
New Market
• 4 billion persons living on
less than $2/day
• Product and distribution
innovations can make the
poor a viable market for
insurers
Microinsurance is…
“…a mechanism to protect low-income people
against specific perils in exchange for regular
premium payments proportionate to the likelihood
and cost of the risk involved”
Microinsurance is not…
• Small insurance companies
• Just another product offered by MFIs
• Regular insurance products with smaller sums
insured and premiums
• Savings, credit, risk prevention
Who is insured by whom?
Formal insurance industry
Informal insurance
WEALTH
Insurable, without access
Uninsurable through market mechanisms
POPULATION
concerned
Country What risks are the poor
Priority
risk about?
Uganda
Illness, death, disability, property loss, risk of loan
Malawi
Death, food insecurity, illness, education
Philippines
Death, old age, illness
Viet Nam
Illness, natural disaster, accidents, livestock disease
Indonesia
Illness, children’s education, poor harvest
Lao P.D.R.
Illness, livestock disease, death
Georgia
Illness, business losses, theft, death, retirement income
Ukraine
Illness, disability, theft
Bolivia
Illness, death, property loss (including crop loss in rural areas)
Adapted from Cohen and Sebstad (2006)
•
•
•
•
•
•
•
Credit life
Term life/Personal accident
Savings life
Property insurance
Endowment life
Health insurance
Agriculture
Degree of Success
Degree of Difficulty
Most common types of
microinsurance products
2. Main differences between
insurance and microinsurance
Characteristics of the insurable poor
•
•
•
•
Vulnerable to risks
Often work in the informal economy
Irregular cash flows
Manage risks through myriad of informal
means, including social networks
• Limited education, literacy
• Limited familiarity with formal insurance
• May not trust insurance companies
Illustrative differences between micro and
conventional insurance
Conventional Insurance
Microinsurance
Premium collected mostly from
deductions in bank account
Premium often collected in cash or
associated with another financial
transaction
Regular premium payments
Premiums should be designed to
accommodate customers’ irregular cash
flows
Agents and brokers are primarily
responsible for sales
Distribution channel may manage the
entire customer relationship, perhaps
including premium collection and claims
payment
Market is largely familiar with
insurance
Market is largely unfamiliar with
insurance
Continued…
Illustrative differences between micro and
conventional insurance (cont.)
Conventional Insurance
Microinsurance
Screening requirements may
include a medical examination
If there are any screening
requirements, they would be limited to
a declaration of good health
Limited eligibility with standard
exclusions
Broadly inclusive, with few if any
exclusions
Sold by licensed intermediaries
Often sold by unlicensed
intermediaries; maybe underwritten by
unregulated risk carrier
Large sums insured
Small sums insured
Priced based on age/specific risk
Community or group pricing
Complex policy document
Simple, easy to understand policy
document
Challenges for microinsurance
• Developing sustainable products that meet the needs
of the market
• Reducing transactions costs (enhancing affordability)
• Creating an enabling regulatory environment
• Overcoming the market’s natural resistance and
educational barriers
• Building microinsurance infrastructure (e.g.
actuaries, TA providers, data management systems)
• Developing a microinsurance approach to claims
• Distribution: getting products to market
Delivery Channels
Insurance
companies
Credit
unions
Banks
On-line & ATM
Labour unions
Self-help
groups
Retailers
MFIs
NGOs
Cooperatives
Utility
companies
LowIncome
People
Smart cards
Cell phones
Employers
Computer
kiosks
Service
providers
Link to existing transactions for efficiency
3) Microinsurance Innovation
Facility
Four Pillars of Activities
Microinsurance Innovation Facility
Innovation
Grants
Technical
assistance
Research
Dissemination
Innovation Grants
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•
•
•
Grants: $20,000 to $600,000 for 2-3 years
Frequency: 5-10 issued every 6 months
Purpose: To test new products, models or
approaches to consumer education
Organizations eligible include insurance companies,
semi-formal microinsurers, employers’ associations,
labour unions, cooperatives and other people’s
organizations, and other distribution channels
Africa
Latin America/
Caribbean
Asia
Institutional
models
SCC/CIC/NHIF
(Kenya)
Health
FINCA/Microcare
(Uganda)
UMSGF (Guinea)
Calcutta Kids (India)
VimoSEWA (India)
Property /
Agriculture
Hollard (South
Africa)
Planet Guarantee
(Mali)
People Mutuals (India)
DID/SICL (Sri Lanka)
Life /Accident
UAB (Burkina Faso)
Other
La Positiva (Peru)
AMUCCS (Mexico)
Seguros Argos (Mexico)
AIC (Haiti)
PICC (China)
ICICI Prudential
(India)
Max New York Life
(India)
Guy Carpenter (Latin
America)
CIRM (India)
Research
•
•
Key themes:
– Demand
– Supply
– Client value and impact
Methodologies:
– Action research with innovation grantees
– Small research grants
– Thematic studies
– Impact studies
4) Examples of innovations:
- delivery channels
- products
Partnerships between
insurers and distribution
agents like cooperatives
and MFIs
• AIG and Ugandan MFIs
• Zurich Venezuela and
BanGente
• Equidad and
MFIs/Coops (Colombia)
Partnerships with utility
companies or service
providers
• La Positiva (Peru) and
water associations
• MAPFRE Seguros and
CODENSA, Colombia
• Philam Life, and cell
phones (Philippines)
Cooperative Insurance
Company, Kenya
• Developing Bima ya Jamii: “Basket” product covering
life, disability and the National Health Insurance Fund
(NHIF) coverage
• Selling through MFIs, SACCOs and other cooperatives
• Emphasizing training and consumer education for
distribution channels and their members
• Collaborating with Swedish Cooperative Centre, NHIF,
and Folksam Insurance (Sweden)
Hollard, South Africa
• Providing homeowners and content coverage for lowincome households
• Selling through non-traditional distributors: retail shops,
mobile phone air time vendors
• Testing inexpensive claims assessment strategies
• Providing replacement materials instead of cash payouts
• Learning about the demand for voluntary asset cover
(most microinsurance is mandatory)
Insurance companies that
target the low-income
market through retailers
• Colseguros and Carrefour,
Colombia
• Max New York Life, India
Union des Assurances
du Burkina Vie (UAB)
• Targeting informal sector entrepreneurs (e.g. market
vendors)
• Distributing Cauri d’or, based on a contractual savings
scheme that includes life and disability coverage
• Collecting clients’ contributions daily (as low as 150
francs CFA or 0.35 USD per day)
• Testing smart cards and collectors with hand-held
terminals to improve efficiency and reduce fraud
Community-based
schemes that pool funds,
carry risk and manage a
relationship with a
healthcare provider (e.g.
L’Union Technique de la
Mutualité Malienne, Mali)
Products
Health insurance
• Product for which there is
the greatest demand
• Often coverage limited to
hospitalization, or even a
daily payment not linked
to health care costs
• Straddles the gray area
between social protection
and commercial
insurance
• Difficult to offer because:
– Additional player involved
(health care provider)
– Prone to moral hazard,
fraud, adverse selection
and over-usage problems
– Skewed incentives
– On a commercial basis,
can only be made
affordable to the poor by
severely limiting benefits
Products
Agriculture insurance
• No evidence yet of sustainable agriculture insurance
(for the poor), all heavily government subsidized
• Prone to moral hazard problems: farmers were less
likely to pursue sound practices
• Recent innovations such as rain-fall index
insurance show some potential to make agriculture
insurance measurable, objective and
viable...although most experiences are only in the
pilot stage
Products
Conclusion: Key product issues
1.
2.
3.
4.
5.
6.
7.
8.
Piggyback or standalone
Mandatory or voluntary
Group or individual
Long or short term
Inclusive vs. cherry picking risks
Premium collection timing and mechanism
Fast claims payments
KISS