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