1. Microinsurance Miguel Solana Technical Officer ILO Microinsurance Innovation Facility Lisboa, Portugal. 27 May 2010 Jornadas Portugal Seguro

2. 2007: Gates Foundation - $55M MI Investment Fund: Leapfrog - 2009 ILOs MI Innovation Facility - 2008 International Assoc. of Insurance Supervisors (IAIS) Issues paper - 2007 1st Munich Re Foundations MI Conference - 2005 Creation of CGAP Working Group - 2001 (now Microinsurance Network) Microinsurance Milestones Protecting the poor published - 2006 5th Munich Re Foundations MI Conference - 2009 (Senegal) 3. 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 worldslow-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)

4. Microinsurance Roots Microfinance Extension of social protection BOP strategy by insurers Popular insurance by cooperatives Micro-insurance 5. 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 6. Would you provide insurance here? 7. What are their risks? Risks Death Illness Accidents Loss of assets Business risks/unemployment Economic stresses Wedding Ceremonies Child birth Education Paying rent, utilities First step to product design Vulnerability Poverty 8. Microinsurance products

Credit life

Term life/Personal accident

Savings life

Property insurance

Endowment life

Health insurance

Agriculture

Products in greatest demand are least available 3. Products Difficulty Success 9. Micro vs. Conventional Insurance 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

10.

Main Message:

Microinsurance is not just a scaled down version of regular insurancethe product and processes need to be completely reengineered to meet the characteristics and preferences of the low-income market.

11. Self-help groups Low-Income People Banks Credit unions Smart cards Computer kiosks Service providers MFIs NGOs Retailers Link to existing transactions for efficiency Delivery Channels Labour unions Cooperatives On-line& ATM Employers Insurance companies Cell phones Utility companies 12. 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

LUnion des Assurances (UAB), Burkina Faso

Cooperatives Insurance Company (CIC), Kenya

Kenya Orient Insurance Ltd

Hollard Insurance, South Africa

Union des Mutuelles de Sant de Guine Forestire (UMSGF), Guinea

ASIA

ICICI Prudential, India

Max NY Life, India

TATA AIG, India

SANASA, Sri Lanka

Delta Life, Bangladesh

Allianz, Indonesia

PICC, China

13. Challenges

Developing sustainable products that meet the needs of the market -- especially more comprehensive health products

Reducing transaction costs (enhancing affordability)

Overcoming the markets natural resistance and educational barriers

Getting products to the market: distribution

Adopting a microinsurance approach to premium collections and claims payments

14. Challenges (cont.)

Creating microinsurance experts

Promoting an enabling environment for microinsurance

Having better data to price products

Developing a database of product and institutional performance benchmarks

Assessing the impact: do the poor really benefit from insurance, and if so, under what circumstances

15. 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

• Createa 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