The emergence of microinsurance Craig Churchill Microinsurance Innovation Facility International...

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The emergence of microinsura nce Craig Churchill Microinsurance Innovation Facility International Labour Organization

Transcript of The emergence of microinsurance Craig Churchill Microinsurance Innovation Facility International...

Page 1: The emergence of microinsurance Craig Churchill Microinsurance Innovation Facility International Labour Organization.

The emergence of

microinsurance

Craig Churchill Microinsurance Innovation Facility

International Labour Organization

Page 2: The emergence of microinsurance Craig Churchill Microinsurance Innovation Facility International Labour Organization.

Overview of Presentation

1. Microinsurance characteristics and trends

2. Examples of innovation

3. Concluding thoughts

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Would you insure these houses?

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Would you insure these farmers?

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Would you insure these assets?

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Or these?

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Would you insure these lives?

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Microinsurance trends

• Some insurance companies are interested in reaching new markets, including low-income households

• Microinsurance is emerging out of the shadow of microfinance

• Greater variety of distribution channels are being used

• Experimentation with consumer education tools and methodologies is beginning

• Policymakers, regulators are showing a greater interest

• Product innovations are taking place to provide better coverage to more low-income people

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Survey results

Microinsurance in AfricaOwn survey, data as of end 2008

0

1'000'000

2'000'000

3'000'000

4'000'000

5'000'000

6'000'000

7'000'000

8'000'000

9'000'000

10'000'000

Credit l ife Other l ife, funeral, PA Health Agriculture Other property0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%outreach (lives covered)

penetration (%)

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Informal insurance

Insurable, without access

Uninsurable through market mechanisms

Formal insurance industry

WE

AL

TH

POPULATION

Who is insured by whom?

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Characteristics of the insurable poor

• Often work in the informal economy• Irregular cash flows• Often “un-banked”• Manage risks through myriad of informal means,

including social networks• Possibly illiterate• Limited familiarity with formal insurance• May not trust insurance companies• Vulnerable to risks

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Key characteristics of Key characteristics of microinsurancemicroinsurance

1. Accessible: physically, intellectually, financially

2. Simple, easy to understand policy document

3. Make the intangible tangible

4. Broadly inclusive, with few if any exclusions

5. Premiums accommodate irregular cash flows

6. Small sums insured, often for short terms

7. Pre-underwritten, community or group pricing

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Key characteristics of Key characteristics of microinsurance (cont.)microinsurance (cont.)

8. Distributed through alternative channels: aggregators

9. “Agent” aggregators may manage the entire customer relationship, premium collection, claims payment

10.Often integrated with another financial transaction

11.Designed to minimize claims rejections

12.Bottom of the pyramid business model: small margins, large volumes

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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.

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Overview of Presentation

1. Microinsurance trends and characteristics

2. Examples of innovation

3. Concluding thoughts

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DISSEMINATIONRESEARCHTECHNICALASSISTANCE

INNOVATIONGRANTS

MICROINSURANCE INNOVATION FACILITY

Large number of lowincome people making informed choices

to manage risk

The Microinsurance Innovation Facility

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Innovation Grants• Grants: ranging from $25,000 to $600,000 for projects

between 1 to 3 years • Purpose: Action research on product design, institutional

models, and consumer education

• Eligible organizations: Insurance companies, semi-formal insurers, labour unions, cooperatives, NGOs & other

distribution channels, insurance associations • Results after 3 rounds: > 400 applications from over

40 countries; 35 grantees have been selected

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Overview of the Facility’s Grantees (11/09)

see Grantee Community on www.ilo.org/microinsurance for details

Africa Latin America/ Caribbean

Asia Other

Institutional models

SCC/CIC/NHIF (Kenya) Old Mutual (South

Africa)

La Positiva (Peru) AMUCCS (Mexico) Seguros Argos (Mexico) Protecta (Peru) Zurich Brazil

PWDS (India) Pioneer Life

(Philippines) Radol (Bangladesh)

Health CIDR/UMSGF (Guinea) Calcutta Kids (India) VimoSEWA (India) Care Foundation (India) SSP (India)

Microfund for Women (Jordan)

Property / Agriculture

Hollard (South Africa) Planet Guarantee (Mali)

People Mutuals (India) DID/SICL (Sri Lanka) IFFCO-Tokio (India) WRMS (India)

Life /Accident UAB (Burkina Faso) AIC (Haiti) Seguros Futuro (El

Salvador)

PICC (China) ICICI Prudential (India) Max New York Life

(India) Prime General

Insurance (Mongolia)

Consumer education

Microfinance Opportunities (Kenya)

CNSEG (Brazil) Fundaseg (Colombia)

Freedom from Hunger

Other CIRM (India) Guy Carpenter

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Distribution Channels

Collaborating with national consumers’ association for rural water rights to develop life, health, personal accident and funeral insurance products for farming families, with premium payments collected with water bills

Launching a property insurance product sold through retailers and suppliers of cell phone airtime

Distributing life insurance and savings through “mom and pop” retail stores with handheld terminals Distributing life insurance and savings

product for the families of migrant workers through churches and schools

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ICICI Prudential Ins. Co, India• Project: Term life insurance & savings for tea workers in Assam• Innovation:

– Partnership with tea estates– Software to reduce transaction costs and increase customer

services– Product simplification & transparency– Education via NGO partner

• Learning: – Outreach potential– Ability to create savings & insurance culture– Build trust

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Cooperative Insurance Company, Kenya

• Collaborating with Swedish Cooperative Centre, NHIF, and Folksam Insurance (Sweden)

• Developing Bima ya Jamii: “Basket” product covering life, disability and the National Health Insurance Fund (NHIF) coverage

• Family (up to 7 members) coverage: In-patient health, AD&D, loss of income due to accident, funeral expenses

• No age limits, no exclusions, covers pre-existing conditions

• Selling through MFIs, SACCOs and other cooperatives

• Emphasizing training and consumer education for distribution channels and their members

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Product Innovations:Agriculture

PlaNetGuarantee

MALI

Crop insurance programme based on a weather or area-yield index to protect farmers, their assets and their crops

DHANFoundation

INDIA

SanasaSRI LANKA

Livestock insurance experimenting with RFIDs to reduce fraud

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Overview of Presentation

1. Microinsurance trends and characteristics

2. Examples of innovation

3. Concluding thoughts

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Challenges

1. Developing sustainable products that meet the needs of the market

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

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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

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Back to the future

When the early Victorian insurance companies were first approached with suggestions that they should offer (insurance) to the poor, the short answer generally given was, in effect, that security was a luxury for which the poor could not afford to pay.

The suggestions, however, were pressed. It was observed that for many centuries the poor had somehow contrived, by their own co-operative thrift, to provide some sort of financial security for themselves; and with some misgivings experiments were launched to see whether such security could be sold to them on commercial terms which would both give them at least as good a return as they were deriving through their spontaneous organizations, and enable the sellers to live on the proceeds of the trade. This is the origin of industrial assurance, which is simply life assurance adapted to the needs of weekly wage-earners.

Industrial assurance began timidly and on a small scale; but it met a felt need, and consequently developed at a pace for which its founders were unprepared. While it was most rapidly expanding it was already being extensively reconstructed, as the mistakes of the experimental stage were discovered and retrieved.

Dermot Morrah, A History of Industrial Life Assurance, Routledge (1955)

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Thank you!

Craig Churchill

[email protected]

Tel +41 22 799 6242

www.ilo.org/microinsurance