Report Microinsurance Conference 2006 A1 Report Microinsurance Conference 2006 Making insurance work for Africa

Cape Town, South Africa Edited by 21– 23 November 2006 Dirk Reinhard and Zahid Qureshi Contents Acknowledgements

1 Opening address This report is a summary of the There were a lot of people working Microinsurance Conference 2006 behind the scenes. Prior to and 2 Introduction by the organisers held in Cape Town, South Africa, during the event, the conference 4 Launch of the new book jointly hosted by the CAGP team Angelika Boos, Petra Hinter- Working Group on Microinsurance amskogler, Ursula Forstner and 5 Agenda: Day 1/1 and the Munich Re Foundation Markus Heigl provided significant 6 Panel 1 with the support of FinMark Trust. organisational support and What is insurance for The conference would not have worked with a lot of passion to the low-income market? been possible without the con- make this a successful event. Last tributions, time and efforts of the but not least, we would like to 8 Panel 2 38 speakers. Thanks to their input, thank the team of rapporteurs led Institutional options we had a broad range and variety by Zahid Qureshi – Marco Ger- 11 Agenda: Day 1/2 of experience and important les- hardt, Ailsa Holloway, Leigh Sonn, sons to share. Their feedback on Koko Warner and Gina Ziervogel – 12 Parallel sessions the conference report after the for helping us gather and docu- Case studies event was also very much appre- ment all the important lessons 21 Panel 3 ciated. learned from the various sessions, Challenges and strategies to extend which can be found in this report. This event was aimed at discussing health insurance to the poor in Africa current practices as well as future 23 Agenda: Day 2/1 concepts for microinsurance. It Craig Churchill provided a platform enabling the 24 Panel 4 Dirk Reinhard exchange of ideas and solutions Commercialising insurance for for the many problems to be the low-income market: Role of solved. Without the input from regulators, policy makers and the participants, however, it insurance/reinsurance companies would have remained an empty 26 Parallel sessions space. We would therefore like Thematic working groups to acknowledge the over 150 par- ticipating experts representing 29 Agenda: Day 2/2 80 organisations from 30 different 30 Parallel sessions countries around the world. Thematic working groups On behalf of the organisers, we 34 Panel 5 would like to thank the people Beyond life and health: actively involved in shaping the Microinsurance innovations conference, identifying suitable speakers, and structuring the 36 Participating organisations workshops: Véronique Faber, 37 Acronyms Brigitte Klein, Jeremy Leach, Thomas Loster, Michael McCord and Gaby Ramm. We would also like to thank Andreas Kleiner and George Allen from Munich Re of Africa for their guidance on key players in the market, and for helping us find such a great con- ference venue. Report Microinsurance Conference 2006 1

Opening address Access to financial services clearly To address the transaction costs of matters. Whether the providers are dealing with low-income households, formal or informal, poor households transactional banking services are are active users of financial services essential so that premiums can be and yet their choices are often sub- collected and claims paid. However, optimal, costly and high-risk. Further, ATM densities in Africa are extremely research has shown that access to low. For example, Tanzania has one financial services is a social and polit- ATM per 600,000 people compared ical priority – in that exclusion can with over 100 for the same number of create social instability – and an people in Brazil. On the other hand, economic priority, with greater finan- technology could play a unique role, cial sector development stimulating given that the use of mobile tele- Jeremy Leach increased economic growth. phones is high. In Botswana for ex- FinMark Trust, ample, 43% have access to a mobile However, research also shows South Africa phone, including 36% of the un- that the financial sector in Africa is banked. In the wake of what may the smallest in the world, which is be a new mobile phone banking a problem in terms of economies of wave, townships have many airtime scale, infrastructure and efficiency. vendors, and airtime is becoming Further, the roll-out of the FinScope accepted as a currency, pointing Africa surveys demonstrates that to the potential of using technology the lower-income market has little to increase access. access to formal financial services for the management of risks, restricting The new technology, which holds them to informal mechanisms. the key to cutting transaction costs, finally appears to have reached a Nevertheless, it is not all bad. Global critical mass, being user-friendly and studies show that life and non-life accessible, but it requires micro- insurance are growing at a good rate insurers to change the supply land- in emerging economies, including scape and address customer-adop- Africa. With surveys such as tion issues. A majority of consumers FinScope and Financial Diaries are prepared to use technology (65%) demonstrating the high propensity but still prefer to deal with someone for poor households to actively face to face (56%). manage their finances, the challenge will now be to ensure that the Coupled with technology and the role coverage reaches deep into the low- of branchless banking – along the income market and meets the real lines of the Brazilian model – is a Among the poor in Africa, use of risks. For example, the Financial notable supervisory and regulatory mobile phones is high, and airtime Diaries project in South Africa showed issue. While policy makers become is being accepted as currency. how poor households manage risks. more activist, interventions often The question is whether insurers 55% of one poor household’s income have unintended consequences, could use it to collect premiums. was placed into formal and informal restraining access. More appropriate Regulation lacks enforcement. savings and insurance products. tools to improve the enabling envir- Policy makers need to harmonise This example, one of many, certainly onment are necessary. Further, regu- approaches and facilitate the points to the potential size of the lators will need to consider a regional growth of regional players. market and how poor households approach, with cross-border assess- already manage risk. ment of interventions and harmoni- sation to facilitate the growth of In understanding the market, it is regional players. crucial to understand whether the real risks are being covered. FinScope Whilst improving access is chal- surveys again show that many of lenging, a greater use of technology, the real riIsks that people face are proactive supervisory involvement, insurable events, but go uncovered. and greater information on the risks While insurance companies tend and needs of consumers are starting to believe that the access frontiers to create the right conditions to in- are the unbanked and non-payroll crease access. customers, FinScope showed that in addition to the current 6% of South Africans who have household contents insurance, there are 29% within fairly easy reach. Beyond that, the challenges are trickier. Report Microinsurance Conference 2006 2 Introduction by the organisers

Craig Churchill According to recent research from the The conference was the second spon- ILO, Switzerland MicroInsurance Centre, fewer than sored by the Munich Re Foundation Chair, CGAP Working Group 3% of poor people in the poorest 100 in cooperation with the CGAP (Con- on Microinsurance countries have formal insurance of sultative Group to Assist the Poor) some sort. Poor households are es- Dirk Reinhard Working Group on Microinsurance. Vice-Chairman, pecially vulnerable to risk, both in the It was held with the support of the Munich Re Foundation form of natural disasters as well as South Africa-based FinMark Trust, and more regular occurrences, such as enabled microinsurance experts from illness and accidents. Recently pub- Europe, North America, Asia and lished reports on climate change show Latin America to share their views. that the situation is getting worse. The first conference, held in Munich Microinsurance is an important in October 2005, brought together tool to reduce risks for people with a hundred specialists from around the low incomes, but there are great world to look closely at some 20 challenges as well as opportunities. “good and bad practice” case studies Can we – governments, donors and conducted by the Working Group as regulators, as well as insurers, rein- well as technical and operational surers, and finance and development issues in microinsurance. organisations – together find the will The second conference featured and means to effectively serve this the launch of the book “Protecting sizeable market? the poor – A microinsurance That was the focus as 150 experts compendium.” This 650-page book and practitioners from 30 countries synthesises lessons drawn from the representing 80 entities gathered in case studies and experiences of Cape Town on 21–23 November for microinsurance pioneers around the the Microinsurance Conference 2006: world – analysed by 38 authors, Making insurance work for Africa. including academics and insurance and development professionals. The findings reveal that “microinsur- ance is indeed viable, and even prof- itable under some circumstances, but a number of difficulties must be over- come for it to succeed.” This report summarises the main points made in the 21 sessions. An in-depth and practical look at these challenges, needs and opportu- nities – particularly in Africa – that drove the agenda of the Cape Town conference. In five panels and 16 parallel sessions, 57 presenters inter- acted with the participants to explore ways of enhancing and increasing the outreach of microinsurance.

All conference presentations can be downloaded at www.microinsuranceconference2006.org Report Microinsurance Conference 2006 3

Introduction by the organisers

Worldwide per capita distribution Property insurance premiums of insurance premiums (non-life including health) per person and per year The world is made up of the insured and the uninsured. There is a thriving Uninsured market for microcredits and micro- US$1–25 insurance in the developing world. Basically insured US$26 –50 Well insured US$51–100 US$101–500 US$501–1,000 > US$1,000 No data Source Munich Re, 2006 Report Microinsurance Conference 2006 4 Launch of the Protecting the poor – new book A microinsurance compendium

The conference began by launching Contents of the book a new book published by the Inter- Part 1 Part 4 national Labour Organization and Principles and practices Institutional options Munich Re Foundation, Protecting the poor – A microinsurance compen- — What is microinsurance? — Cooperatives and insurance: dium, edited by Craig Churchill from — The demand for microinsurance The mutual advantage the ILO’s Social Finance Programme. — The social protection perspective — The partner-agent model: on microinsurance Challenges and opportunities Based on an in-depth analysis of — The community-based model: 40 microinsurance schemes around Part 2 Mutual health organisations the world conducted for the CGAP Microinsurance products in Africa Working Group on Microinsurance, and services — Institutional options for delivering this authoritative book, written by — Challenges and strategies health microinsurance 38 microinsurance experts, brings to extend health insurance — Beyond MFIs and community- together the latest thinking of leading to the poor based models: Institutional academics and insurance and devel- — Long-term savings and insurance alternatives opment professionals in the microin- — Savings- and credit-linked — Retailers as microinsurance surance field. The result is a practical, insurance distribution agents wide-ranging resource which pro- — Meeting the special needs of — Microinsurance: Opportunities vides the most thorough overview women and children and pitfalls for MFIs of the subject to date. Part 3 Part 5 The book defines microinsurance as Microinsurance operations The role of other stakeholders the protection of low-income people against specific perils in exchange for — Product design and insurance — Role of donors regular premium payments propor- risk management — An enabling regulatory tionate to the likelihood and cost of — Marketing microinsurance environment for microinsurance the risk involved. This definition is — Premium collection: Minimising — The promotional role of essentially the same as one might use transaction costs and maximising governments for regular insurance except for the customer service — The role of insurers and reinsur- clearly prescribed target market: low- — Claims processing ers in supporting insurance for income people. However, as demon- — Pricing microinsurance products the poor strated throughout the book, those — Risk and financial management — The provision of technical three words make a big difference. — Organisation development in assistance microinsurance “This book brings together the per- Part 6 — Governance spectives and experiences of many Conclusions organisations and experts all in one — Strategies for sustainability place,” said Churchill. “The CGAP — The future of microinsurance Working Group can be proud of pro- ducing such a comprehensive volume, but we cannot rest on our laurels. The next step is to disseminate the The book can be downloaded at book and the lessons that it contains, www.microinsurancecompendium.org and to stimulate further innovation The book can be ordered via the ILO: to cover more poor people with better www.ilo.org/public/english/support/ insurance products.” publ/intro/ Report Microinsurance Conference 2006 5 Agenda Day 1/1 22 November 2006

08.30–09.00 Opening day 1 Opening address Jeremy Leach FinMark Trust, South Africa

09.00–10.30 Panel 1 Craig Churchill What is insurance for ILO, Switzerland the low-income market? Monique Cohen Microfinance Opportunities, USA Dominic Liber Quindiem Consulting, South Africa Jeremy Rowse Consultant, South Africa Facilitator Dirk Reinhard Munich Re Foundation, Germany

10.30–11.00 Coffee break 11.00–12.30 Panel 2 Grzegorz Buczkowski (cooperatives) Institutional options TUW SKOK, Poland Doubell Chamberlain (retailers) Genesis Analytics, South Africa Bénédicte Fonteneau (community-based) University of Leuven, Belgium Facilitator Gaby Ramm Senior Adviser to GTZ, Germany

12.30–14.00 Lunch break

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3 Report Microinsurance Conference 2006 6 Panel 1 What is insurance for the low-income market?

Craig Churchill Microinsurance helps achieve two Life for the poor is one long risk. ILO, Switzerland objectives that are part of the ILO’s A formal insurance product to help mission: social justice, and inclusive Monique Cohen them cope must have five attributes: Microfinance Opportunities, financial markets. It represents not USA only a new market for the private 1 Coverage (of real perils) sector, but also social security for 2 Accessibility Dominic Liber workers in the informal economy and Quindiem Consulting, others classed as poor – a vast 3 Timeliness South Africa majority of whom do not have the 4 Affordability Jeremy Rowse public safety net which governments Consultant, South Africa in developed countries are able to 5 Value for money provide. As a tool against poverty, Facilitator microinsurance is a significant factor In South Africa, the emerging market Dirk Reinhard benefiting economic growth and was recognised in the early ’80s, Munich Re Foundation, human development. particularly by four smaller insurers Germany which saw the low-income market’s Microinsurance, whether provided historical disadvantage in requiring through the private sector or a public low-cost administration creating scheme, has a core element: products a strategic advantage for those able and services must conform to the to keep such costs low in meeting the generally accepted insurance prin- needs of this emerging, rapidly ciples. This is also a core requirement growing market. They realised that in adopted by the International Associa- the market of lower but regularly tion of Insurance Supervisors (IAIS). paid workers, sales growth further Challenges to entry into the low- lowered unit costs which in turn income market include gender, improved the value proposition to income level, location and lack of the customer. Such product innova- understanding of insurance. Insur- tions as ance education to link the product — wider family cover, to the customer involves teaching the knowledge, skills and attitudes — premium collection by salary required to adopt good money- deduction, management and risk-management — and online real-time claims practices. Those who need this edu- approval and transfer of payments cation include MFI staff and agents as well as policyholders. resulted in substantial penetration in South Africa. Although insurance is regarded as an intangible, it takes on a material dimension when a claim is made. The swift and efficient payment of a claim not only meets the needs of the customer, it also counters the inherent sceptism around insurance products and reinforces the promise on delivery. Serving the low-income 1 market, microinsurers should keep Left to right: Dominic Liber, in mind a South African insurer’s Jeremy Leach, Quindiem motto: “Today’s claim payment FinMark Trust, Consulting, South Africa; South Africa; secures tomorrow’s new business.” Craig Churchill, Jeremy Rowse, ILO, Switzerland; Consultant, Monique Cohen, South Africa Microfinance Opportunities, USA;

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Panel 1 In the 100 poorest countries microinsurance What is insurance for the low-income market? covers 78 million, but this is not even 3% of the poor.

The size of the funeral insurance A lapse is not a lapse when people are Microinsurers are optimistic but market is estimated to be in excess on irregular incomes. If they cannot face barriers, especially consumer of ZAR18bn (US$2.4bn). And 28 pay premium, the microinsurer should ignorance. formal insurers now operate under accumulate cover until they can pay – A variety of approaches have been funeral assistance licence, with net and consider payment in kind. tried, but few have reached any premiums of just over ZAR3.8bn Success will depend on customer significant scale. (US$373m). Of these, four are only education and changes in regulation. registered for funeral business – In South Africa, for example, the Case studies, e.g. from India and including two which are in the pro- government could dramatically im- Zambia, show that there is a high cess of winding down. 50 friendly prove the accessibility of burial bene- dropout rate among the poor. societies submitting financial state- fits today by providing life companies The 78 million now microinsured ments to the FSB reported premium with electronic access to the govern- may not be quite so numerous income of ZAR69m (US$9.2m) per ment’s death register. tomorrow – unless steps are taken year. Of these 50 societies only five to preserve their business and to are reported to provide contractually Policies are “turned on” and “turned focus on innovations such as “the guaranteed benefits to their members off” as ongoing affordability dictates. non-lapsable policy”. and are, therefore, considered to be Microinsurers should recognise this offering insurance. The remainder aspect of the market and link cover to are offering non-guaranteed benefits premium payment, irrespective of mostly in the form of traditional regularity. burial societies. Preliminary findings of a landscaping Some of these insurers started to study on the world’s 100 poorest export their formula to other African countries show that microinsurance countries in the ’90s as they recog- schemes cover a total of 78 million nised the potential in other low- people. However, this number in- income markets. cludes some 20 million from China and eight million from India – making Future changes expected in meeting the outreach across other countries the needs of this market include: less extensive than the total might Process improvements indicate. Overall, the total accounts for less than 3% of the poor. — Mobile phone and call centre administration Ignorance and lack of awareness of insurance have a narrow, nuts-and- — New distribution and premium- bolts implication (not knowing what collection options via retailers and a policy covers), but also result in affinity groups a broad-scale absence of insurance Product innovations from the culture and from social awareness. — Pricing in line with customer risk requirements — Value-added benefits such as event arrangement for funerals — Loss-of-income illness benefits — A non-lapsable policy

Report Microinsurance Conference 2006 8 Panel 2 Institutional options

Panellists* The case of TUW SKOK – a mutual A strong brand presence and trust are insurance company of cooperative Grzegorz Buczkowski key, and retailers often have these savings and credit unions in Poland (cooperatives) characteristics, whether retailer inter- TUW SKOK, Poland providing credit unions with cor- mediation is stand-alone, account- porate covers and their members for based or bundled/embedded. Doubell Chamberlain individual covers (except motor Some challenges that these models (retailers) insurance) – shows that the coop- face are Genesis Analytics, South Africa erative/mutual form is an organisa- Bénédicte Fonteneau tional solution suitable for an MFI- — how to extend success beyond (community-based) related market. compulsory covers and funeral insurance to other lines; and University of Leuven, Belgium Built around an outsourcing model, Facilitator with functions retained as the need — how to compensate for lack of Gaby Ramm and economy dictate, TUW SKOK advice where disclosures accom- Senior Adviser to GTZ, Germany developed from a brokerage firm to panying tick-box selling may be a full-service insurance organisation. disregarded or not understood. This model may serve other affinity The community-based model has groups too, placing their insurance many forms and approaches. In the company at various points along “ideal” type – mutual health organi- the development axis in response to sations (mutuelles de santé), in their needs and capacity. francophone Africa – members are Genesis Analytics (South Africa) also owners/policyholders/decision- demonstrates how retailers can be makers. These entities involve par- used as effective intermediaries for ticipation in the design of the health- microinsurance. risk products, and in financial and organisational control mechanisms, Intermediation may involve a large risk sharing and resource pooling. number of functions – not only sales, premium collection and claims Membership is voluntary and there payment, but also policy administra- is a community bond, based on an tion and serving key third parties. organisation or village. Accessibility Retailers are being found that are is emphasised, as are functions playing some or all of these roles. beyond insurance: health education, and representation of the healthcare demand side. The model calls for an enabling environment (commit- ment of health authorities and hospital management), coordination with external support organisations, long-term access to training and actuarial services, and in many cases external financing, at least initially.

* For a description of the various institutional options, see also the report on the Microinsurance Conference 2005 www.microinsuranceconference2006.org Report Microinsurance Conference 2006 9

Panel 2 The poor may not know the concept of Institutional options insurance well enough (insurance illiteracy), but they have an eye for value.

The partner-agent model, which Microinsurance can be delivered As a microinsurer grows and be- enables the two organisations to through a variety of institutional comes established in what may be maximise synergies while focusing forms, including cooperative/mutual, a developed market, it will see on their core business and expertise, retailer intermediation, community- compliance requirements increasing has a number of advantages. For an based and partner-agent models. exponentially – a function that can- NGO or MFI, it makes scaling-up of not be outsourced. Whichever option suits local condi- products possible through a regis- tions, value for money must underpin There is also an increasing need tered insurance provider, and the link the two core functions of insurance: to stay in tune with the changing to formal insurance business officially sales and claims. customer base. Feedback on recognises microinsurance as an performance is important for instrument of social protection. In South Africa, the mobile phone, long-term survival. rather than the internet, is used for The main challenge is that both many financial transactions – and Insurance is complex and mis-selling parties are dependent on the quality that may be true of other markets as it is easy – and not always intentional. of the other. This model, therefore, they develop. calls for an investment in institution- From an operational viewpoint, the building: regular interaction between Among the poor, the plight of women two faces of insurance are sales and the insurance provider and the part- needs special attention. In micro claims, and from the customer’s ner, and ongoing dialogue with the insurance product development, the perspective, value for money should regulator on issues such as outreach, gender perspective should be a underpin the two. The poor may not commission levels and consumer priority. know insurance well, but they are protection. Experience also points to not stupid and have an eye for value. In institution-building, it is important the need to consider the gender to battle-test a model in the market. perspective in product development. Conducive political conditions help strengthen the partner-agent as well as other institutional models. Insur- ance providers should be enabled to develop customised products and procedures, and civil society should have government commitment to social protection for the informal economy.

2 Left to right: Gaby Ramm, Senior Bénédicte Adviser to GTZ, Fonteneau, Germany; University of Doubell Chamber- Leuven, Belgium; lain, Genesis Grzegorz Analytics, South Buczkowski, TUW Africa SKOK, Poland;

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Mainstream insurers are active in the low-income market, particularly when pushed with regulation.

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5 6 3 6 Left to right: The important Mosleh Ahmed, back-office: Consultant UK; Petra Hinterams- Denis Garand, kogler, Markus Consultant, Heigl, Angelika Canada Boos (right to left) 4 Left to right: 7 Kjell Wirén, Panel 1 opens Folksam, Sweden; the discussion Zahid Qureshi, on insurance for Consultant the low-income Canada market 5 Douglas Barnert, Barnert Global Ltd., USA

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Report Microinsurance Conference 2006 11 Agenda Day 1/2 22 November 2006

14.00–15.00 Parallel sessions Case studies/Working groups

CS 1 Agnes Chakonta AIG, Uganda/Madison Insurance, Zambia Madison Insurance, Zambia (Partner-agent model; credit-linked life Robert Gordon and disability) AIG, South Africa CS 2 Denis Garand VimoSEWA, India Consultant, Canada (Partner-agent; voluntary life, health and asset)

CS 3 Aly Cisse West African health mutuals ILO, Senegal (Community-based; health) Bénédicte Fonteneau University of Leuven, Belgium CS 4 Doubell Chamberlain Insurers and retailers, South Africa Genesis Analytics, South Africa (Regulated-insurance companies; various risks) Jeremy Leach FinMark Trust, South Africa 15.00–15.30 Coffee break 15.30–16.30 Parallel sessions Case studies/Working groups

CS 5 Grzegorz Buczkowski Yeshasvini Trust, India/TUW SKOK, Poland/ TUW SKOK, Poland MUSCCO, Malawi David Dror Erasmus University Rotterdam, (Cooperative model; various risks) the Netherlands Kjell Wirén Folksam, Sweden CS 6 Dominic Liber Microcare, Uganda Quindiem Consulting, South Africa (Regulated-insurance company; health) Gerry Noble Microcare, Uganda CS 7 Vijay Athreye TATA-AIG, India/Delta Life, Bangladesh TATA-AIG, India (Regulated-insurance company; endowment) Craig Churchill ILO, Switzerland CS 8 Samuel Leshabane Great North Burial Society, South Africa Great North Burial Society, South Africa (Community-based; life) Daniel Masemola Great North Burial Society, South Africa Richard Walker Genesis Analytics, South Africa

16.30–17.00 Coffee break 17.00–18.30 Panel 3 Dominic Liber Challenges and strategies to extend health Quindiem Consulting, South Africa insurance to the poor in Africa Gerry Noble Microcare, Uganda Marius Olivier University of Johannesburg, South Africa Facilitator David Dror Erasmus University Rotterdam, the Netherlands

20.00–23.00 Reception Report Microinsurance Conference 2006 12

Parallel sessions AIG Uganda Madison Insurance, Zambia * Case studies Institutional model: Institutional model: Partner-agent Partner-agent People insured: People insured: 1,600,000 31,700 Benefit: Benefit: Group accident, credit life Loans and funeral insurance Premium range: Premium range: 0.5% of loan amount 0.9–2.75% of loan amount Speakers AIG Uganda is part of one of the Madison Insurance started offering Agnes Chakonta world’s largest insurance groups. It microinsurance products in Zambia Madison Insurance, Zambia launched its first microinsurance in 2000 in partnership with MFIs. product in Uganda in 1997 in partner- There are over 31,000 subscribers Doubell Chamberlain ship with one MFI, and has since to its group credit life and group Genesis Analytics, expanded its operations to 26 MFIs, funeral insurance products. The pur- South Africa including one in Tanzania and one in chase of credit life insurance policies Aly Cisse Malawi. It offers a group personal is mandatory for people who borrow ILO, Senegal accident product with disability, acci- money from the partner financial dental death and credit life insurance institutions. Bénédicte Fonteneau to some 1.6 million people alto- If credit life were made optional, a University of Leuven, gether: borrowers of the MFIs and majority of clients would not take up Belgium their family members. All but one cover – leaving the MFIs exposed. of the MFI partners make insurance Denis Garand Funeral insurance, however, can be mandatory for their borrowers. Consultant, Canada voluntary, especially if it is expected Robert Gordon AIG Uganda developed products, to cover other family members. distribution and service specifics AIG, South Africa The insurance cover removes the complementing the MFIs’ infrastruc- need for the poor to provide collat- Jeremy Leach tures, in most cases using a licensed eral security for a loan. This leads to FinMark Trust, tied insurance agent to act as an more people using loans to improve South Africa intermediary. their living standards. The MFI market in Uganda is focused Most clients have a shallow under- on small enterprise development standing of insurance features and loans made for very short periods, benefits. There also is a dearth of mainly to groups of women involved insurance knowledge among MFI in kerbside trading or traders in re- managers. Though acting as an agent AIG Uganda has 26 partner MFIs, cognised open markets. Loan periods for an insurance company is the including one in Tanzania and one are generally three to six months and easiest way for an MFI to provide in Malawi. The parent, AIG, has are rolled over. In some cases, a microinsurance, it still requires some a global network of programmes in number of women are jointly respon- work and expertise. Neglect of insur- some 130 countries and jurisdictions sible for repayment of the loan. ance services causes its own product that continually share elements and AIG Uganda is keeping an eye on dissatisfaction among clients – lessons from local operations. developments in other markets in which also contributes to delinquen- Africa, too. In Nigeria, for example, cies and dropouts. * The case studies consolidation of banks and the insur- 8 examined include ance industry is creating an opportu- Robert Gordon, two companies – nity for bancassurance. There are AIG, South Africa TATA-AIG and Delta 9 Life – that were not many MFIs there, but credit is Agnes Chakonta, also featured in starting to become available. Madison Insur- the 2005 Confer- ance, Zambia ence, and others Lessons learnt such as TUW SKOK 10 and Madison Insur- Products, distribution and service Denis Garand, ance that were should complement the partner MFIs’ Consultant, discussed in various Canada, ex- thematic and infrastructure. plaining financial operations groups details of a year earlier. Use licensed tied agents as inter- the VimoSEWA They made the 2006 mediaries. scheme agenda, too, to help ensure that Expand operations to use economies the largely of scale. different audience did not miss the cases’ key lessons. Report Microinsurance Conference 2006 13

VimoSEWA, India

Institutional model: Partner-agent People insured: 110,000 Benefit: Voluntary life, health and asset Premium range: US$2.38–5.05 MFIs should be viewed not so much The Self-Employed Women’s Asso- For health cover, VimoSEWA is plan- as agents but as policyholders and ciation (SEWA) is a trades union ning a cashless benefit – which administrators of microinsurance. founded in 1972 in the Indian state of would result in better monitoring of Gujarat. It set up a special department hospital treatment and more efficient While three of the MFI partners of for insurance in 1992, VimoSEWA, quality care. Also in place is a Madison receive a 10% commission which acts as an insurance broker. process for dealing with claims from from it, one has negotiated a profit- VimoSEWA offers a voluntary product natural disasters. sharing arrangement. with life, health and asset benefits Benefiting from assistance from Lessons learnt covering more than 110,000 persons. seven donors over the years, The insurance product, which is There are no exclusions in the pol- VimoSEWA is now mostly operating undergoing many changes, is now icies offered by Madison. Before on its own and focused on achieving offered in partnership with two introducing insurance, MFIs used viability within seven years. It has private-sector insurance companies, to screen out potential borrowers learned that self-insurance can be AVIVA and ICICI Lombard. For some suspected of being HIV-positive. a big risk, that an insurance organisa- years, VimoSEWA was the risk-bearer tion should have a good MIS from With insurance, members are no too, but went back to the partner- the start, and that it should continu- longer responsible for the out- agent model following an earthquake ously look at process improvement standing loan in the event of death claim after the Gujarat earthquake in to drive down expenses. or prolonged illness, and MFIs do 2001. It now manages product design, not exclude members who might be distribution, data, claims payment Lessons in marketing are to target HIV-positive as long as they appear and all service aspects. family coverage, high renewal rates, physically healthy. and whole communities in a concen- Distributing the product mainly via trated geographic area – finding A notable fact is that in Africa malaria its aagewans (sales promoters), methods to enrol groups, and using is a bigger problem than HIV/AIDS: VimoSEWA promotes whole family threshold incentives for renewals and more people die from it. coverage and greater community for deepening outreach. participation. Its management infor- mation system (MIS) captures all From 2001 to 2006, the number of premium and demographic informa- VimoSEWA’s insureds increased tion as well as claims data, enabling dramatically from 30,000 to 170,000. management to understand and Now, during an annual campaign, improve operations. almost every policyholder is visited once. As a result, the renewal rate has improved from 20% to 70%. Lessons learnt Focus on whole-family coverage and community participation. Look into cashless benefit for health cover. Rely on a good MIS for improving processes to drive down expenses. Keep an eye on viability, and review goals periodically. 8 10

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Parallel sessions West African health mutuals Case studies (Community-based insurance)

The ILO/STEP programme, initiated When extending social security in 1998, is being implemented in through isolated microinsurance West Africa to extend social protec- schemes, the positive aspects (that tion to excluded groups, particularly might include participation and with regard to health care, through proximity) should be acknowledged an integrated approach. as well as the fact that this process takes time. STEP has developed a number of tools: Options should be researched, including voluntary versus automatic — Improved information (inventories inclusion and different methods of and case-study guides) payment, such as indirect payment. — Introduction to health mutuals In order to succeed, strong political will is critical, accompanied by — Technical, methodological and the involvement of social partners didactic tools and technical input from market — Networking/lobbying opportuni- participants who are willing to work ties together. External partners, such as federations of like-minded people- Importantly, a diverse set of institu- oriented organisations, help extend tions and links have emerged that social protection to excluded groups, have been key to the growth and suc- in particular with regard to health cess of microinsurance. In particular, care. These partners may include linkages between different scales and groups sharing common characteris- types of insurances have facilitated tics – agricultural producers, trade shared management systems and unionists, villagers, etc. – which can harmonisation of practices. improve access to healthcare through Microinsurance has provided a posi- solidarity mechanisms. tive contribution in the context of Lessons learnt states with weak financial and institu- tional capacity by enabling civil- In mutuelles de santé society participation in the design Limited membership reduces risk and management of the schemes, pools. reduced transaction costs and improved conditions of access to Weak management skills/systems healthcare. hamper negotiation with healthcare providers. However, challenges have included limited membership which reduces Technical management should risk pools, as well as poor manage- be outsourced and new financing ment skills, weak information mechanisms developed. systems and capacity to negotiate Strong political will, an enabling with health-care providers. legal framework and support of At a national level, there has been social partners are critical. a lack of coherence and institutional support. Options for addressing the 11 challenges include the outsourcing 11 13 of technical management and use of Bénédicte Doubell Chamber- computerised MIS, new financing Fonteneau, lain, Genesis University of Analytics, South mechanisms and the development of Leuven, Belgium Africa a modified legal framework. 12 14 Aly Cisse, ILO, Jeremy Leach, Senegal FinMark Trust, South Africa

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Insurers and retailers, South Africa (Regulated-insurance companies; various risks)

In South Africa, 4.2 million people The government also has a role in Lessons learnt have banking but no insurance, and consumer education. It is in the Funeral insurance is bought, not 3.3 million have a mobile phone interest of insurance companies for sold; other products are sold, not (most are sophisticated users, linked clients to be better educated. Insur- bought. The result is that these may to retail distribution and with store ance and other financial services successfully be distributed through card accounts able to access credit). companies and governments should retailer models based on passive work together to define what finan- Some 2.2 million belong to a burial sales. It must be noted, however, cial literacy is and provide a platform society (which serves as a client- that, due to the absence of advice or for literacy drives, with the govern- concentration point). Microinsurance even verbal disclosure, the passive ment taking on a facilitative and coor- is still largely limited to funeral insur- sales model may risk mis-selling. dinating role. ance and any compulsory covers Government and financial services (funeral insurance is bought, not Microinsurance can best serve the companies should work together to sold; other products such as credit risk-management needs of its clients define and promote financial literacy. insurance are sold, not bought). by being based on solid, competitive business models. While there is a Microinsurance enhances financial substantial social benefit from planning for poor households and improving the risk management tools the overall ability to find ways out of available to poor households, it is poverty. In South Africa, microinsur- critical that these tools be provided in ance clients have proven themselves a way that meets the specific needs to be sophisticated and capable of of clients. Experience in South Africa applying complex risk management indicates that if client needs are met techniques. Retail experience in through tailored products, poor clients South Africa points to challenges in are willing to pay the premiums. terms of education and marketing at the point of sale. Also evident are For voluntary sales, the low-income some of the advantages of utilising retailer distribution models in South technologies like mobile phones Africa are based on passive sales for uptake and renewal, as well as models. Given the fact that most in- for premium payments. surance products are “sold not bought”, the passive sales models Regulators in South Africa are wary have not yet proven themselves to of turning airtime into currency, and be successful. Funeral insurance may companies are interested in finding be successfully distributed through legal ways to make airtime a form of such passive models, as it has shown payment for financial services such itself to be the exception by being as premiums. However, a range of bought rather than sold. The absence options are available to facilitate micro- of advice or even verbal disclosure of insurance provision, such as mobile information on the product in these phones linked to bank accounts. passive models may, however, unin- Studies and more data are needed tentionally lead to mis-selling. about the relationship between These passive models rely on having microinsurance participation and room in the current regulations to poverty reduction efforts. What is conduct “tick-box” selling without clear is that microinsurance does not advice in order to avoid the regula- exonerate the government from a 13 tory burden placed on advice-based social welfare role. selling. These models have not been officially sanctioned by the regulator and risk being closed down due to fear of consumer abuse.

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Parallel sessions Yeshasvini Trust, India Case studies Institutional model: Cooperative model People insured: 1,500,000 Benefit: Surgeries, outpatient care Premium range: US$2.72 (half for a child) Speakers Yeshasvini Cooperative Farmers Yeshasvini has a target group of 20 Vijay Athreye Health Care Trust is a charitable trust million available as well as govern- TATA-AIG, India in Karnataka. Its microinsurance ment involvement and support. Its activities were initiated in 2002 in experience points to a main chal- Grzegorz Buczkowski collaboration with state authorities lenge for similar initiatives: how to TUW SKOK, Poland and the cooperative movement. subsidise healthcare without damp- Craig Churchill The trust offers health insurance and ening the clients’ willingness to pay. covers some 1.5 million people. ILO, Switzerland Lessons learnt The product is distributed through Aly Cisse Affiliate whole households to local cooperatives. The trust out- ILO, Senegal reduce adverse selection and prevent sources certain activities to third-party exclusion. David Dror administrators, but manages the risk Erasmus University Rotterdam, in-house. The benefits, which are Adjust the product to the amount the Netherlands provided cashless to the clients, can clients are willing to pay; do not rely Samuel Leshabane only be accessed at certified partner on subsidies which will not last long. hospitals. Benefits are primarily Great North Burial Society, Adjust the product to the clients’ limited to surgery, but also include South Africa needs, not the suppliers’ interests. some outpatient care and tests. Daniel Masemola Listen to what clients prioritise; Major surgeries covered are cardiac, Great North Burial Society, cover expensive events rather than vascular, gastroenterology, ortho- South Africa only rare catastrophic events. paedic and neurosurgery. Kjell Wirén Folksam, Sweden There is medical emergencies cover- age for stabilisation after injuries Richard Walker caused by snakebites, bull goring, Genesis Analytics, electric shocks, drowning, agricul- South Africa tural equipment and dog bites. Acute infections are the most prevalent, but their expenses are not covered by Yeshasvini health insurance. Premium is INR120 (US$2.72) for an adult, and INR60 for a child. Clients are not among the poorest, and have more income and edu- cation than the poor generally. How- ever, dependants are not often insured and the oldest are excluded (there is an age limit of 75). Out- patient drugs are also not covered.

15 16 Left to right: Participants of Grzegorz Working Group 5, Buczkowski, TUW eager to learn SKOK, Poland; more about the David Dror, cooperative Erasmus Univer- model sity Rotterdam, the Netherlands; Kjell Wirén, Folksam, Sweden

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TUW SKOK MUSCCO, Malawi

Institutional model: Institutional model: Cooperative model Cooperative model People insured: People insured: 1,500,000 56,000 Benefit: Benefit: Property, savings, AD&D Loan and savings insurance Premium range: Premium range: US$26.00–58.00 US$0.04 per 1,000 sum TUW SKOK is the foremost insurance At its peak in 2000, Malawi Union of Though credit-union pay products provider for credit unions in Poland. Savings and Credit Cooperatives like these overcome one of the most Strictly speaking, its products may (MUSCCO) served 111 cooperatives significant challenges of micro- not be deemed micro in scope, but, with 66,000 members. insurance – collecting premium from based on the cooperative model, low-income people – MUSCCO has It was founded in 1980 with the help they in essence yield lessons worth found that, in practice, collecting of the Catholic Church and the keeping in mind for the development from even 57 corporate customers government, and its credit life and of microinsurance. TUW SKOK can be difficult. life savings microinsurance products started operations with two corpor- were backed by CUNA Mutual (USA) Only a third of the credit unions ate products in 1998 (a predecessor until 1997 when that organization can be described as disciplined cus- was created in 1993), and now has withdrew from the market. tomers; considerable effort has to 16 products for corporate and indi- be made chasing the others for vidual needs. Of Malawi’s ten million people, an payment. However, the insurance The company offers a property prod- estimated 20–25% have HIV/AIDS. contract does provide for benefit uct, a savings completion product payments to be withheld until the and three accidental death and dis- Since then, MUSCCO has been run- premium is paid. ability products that can be consid- ning the loans and savings insurance MUSCCO, for all intents and pur- ered microinsurance. All TUW SKOK’s programme on its own without re- poses, is unregulated. The Reserve microinsurance products are sold as insurance, managed by two staff in Bank of Malawi, which supervises group insurance. its head office. A relatively sizeable the insurance sector, claims no juris- reserve enables MUSCCO to manage Before introducing new products, diction over MUSCCO as it is regis- the risk in-house. TUW SKOK used pilot tests to “kill po- tered as a cooperative, and the Regis- tentially bad products”. TUW SKOK’s MUSCCO’s credit unions target low- trar of Cooperatives lacks the defined niche market comprises income groups, small farmers and resources and interest to supervise 72 credit unions, 1,600 branches and government employees. Its products its insurance activities. 1.5 million members (including some are exclusively (and compulsory) Lessons learnt 95,000 low-income policyholders). for its cooperative partners’ mem- It interacts constantly with credit bers, now totalling about 55,000 in MUSCCO needs unions, and works hard with them to 57 credit unions. reinsurance for its loans and savings implement loss prevention measures. Both of MUSCCO’s products are insurance products, to help sustain Products for credit unions them- credit-union pay covers, with its hard-earned reserves; selves include deposit insurance. premium for all eligible loans and a higher proportion of its credit union Operating in a fully developed savings balances submitted to it policyholders to live up to their legal environment, TUW SKOK re- quarterly in advance. commitment to submit premiums; quires professional capacity at all levels of operation. It outsources support and supervision from many activities such as sales, which government. are made through credit unions, and actuarial services. Lessons learnt Grow with demand, in response to customers’ needs and capacity. Battle-test products in the market. Group insurance fits the micro scale. Focus on loss prevention.

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Parallel sessions Microcare, Uganda Case studies Institutional model: Regulated-insurance People insured: 18,000 Benefit: Accident and health Premium range: US$15.00–60.00 Microcare has transformed from a Microcare Ltd, starting in 2000 as not-for-profit background to become a research organisation, led to the a fully fledged insurance company formation of Microcare Health Ltd, in Uganda specialising in health insur- a commercial health manager, in ance. It focuses on the low-income 2004 and a year later to a licensed market, drawing from the formal and insurer named Microcare Insurance informal sectors and spanning urban Ltd. In 2006, Microcare pursued a and rural locations. Microcare’s rapid expansion of micro health busi- objective is to provide “affordable ness in Uganda to achieve commer- access to quality healthcare”. cial viability. The goal in 2007 is inter- national expansion and replication Malaria is the most common diag- through strategic partnerships. nosis for Microcare’s health insur- ance clients, particularly in rural Lessons learnt areas. Focusing on loss prevention, Microinsurance is more effective if Microcare has been providing sub- you work with a group of people and sidised (half-price) insecticide-treated not with individuals. Building trust nets to rural clients and has experi- with the group is very important. enced a good uptake. It is now pre- This usually takes one to two years. paring to target other diseases amenable to prevention and educa- It is better to work with a relatively tion: sexually transmitted infections stable community or group. There (including HIV/AIDS), sanitation- are also certain preconditions for related water-borne diseases, and providing microinsurance for health emerging “Western diseases” such care, such as a functioning hospital as obesity and the resultant adult system. onset of (Type II) diabetes. Added value of loss prevention — Control is very important. This Prevention, particularly in health insur- In its business plans for expansion, helps in cutting out fraud. ance, helps neutralise the argument: Microcare follows a basic principle — Adapt the technology to fit the “I paid my premium, but I didn’t of sustainability and profitability: situation. make a claim,” because the insurer that achieving recovery of all costs can reply: “The reason you did not requires 25%+ higher premiums. — There has to be an effective get sick and did not make a claim is distribution system. our prevention programme.” — Do not cover everything as some options are too expensive for microinsurance to cover. — A fast turnaround time on payments is essential.

17, 18 Gerry Noble, Microcare, Uganda, explaining the lessons learned from the Microcare case in Uganda

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TATA-AIG, India Delta Life, Bangladesh

Institutional model: Institutional model: Regulated-insurance Regulated-insurance People insured: People insured: 200,000 1,000,000 Benefit: Benefit: Endowment and group term Endowment insurance Premium range: Premium range: US$0.10–6.7 US$0.90–1.63 TATA-AIG Life Insurance Company in Delta Life in Bangladesh, founded in The two companies’ experience India is a joint venture of a large con- 1986, launched a voluntary micro- shows that there is a need in the low- glomerate TATA and the American insurance product targeted at workers income market to offer long-term International Group. The 90 TATA com- in the informal economy in 1988. It savings/insurance vehicles, but that panies employ 260,000 people and now offers a range of endowment innovations are required to bring account for 1.9% of the country’s GDP. products to some one million low- down the costs of delivering and AIG employs 97,000 staff worldwide income people, mostly in rural areas. servicing these products and to and has a turnover of US$108bn. develop new products that accom- Clients and staff perceive the prod- modate the clients’ unpredictable TATA-AIG started microinsurance ucts more as long-term savings than cash flow. operations in 2001 to comply with insurance. Certain occupational India’s insurance regulations, and groups are excluded from purchasing Lessons learnt from the two cases now offers three voluntary life and some specific products. (TATA-AIG and Delta Life) point savings products through 50 partner to the pros and cons of endowment Delta Life relies on the direct sales NGOs and micro-agents – covering insurance. model with door-to-door collection of some 200,000 low-income people. Its premiums. It grew dramatically in Advantages of endowment products micro-agents in various communities the mid-90s when it provided loans are recommended by the NGOs, Give low-income people savings to policyholders. A flaw in lending which assist them with training and discipline and liquidity, and help methodology brought huge losses, administration. them accumulate assets over time. and it outgrew its capacity. In 2002 it TATA-AIG’s individual endowment got back on its feet, and has since Combine savings, insurance and policies are growing at a rate of over been undergoing a re-engineering of credit to enhance risk management. 100% per year, and its group term administrative systems, MIS and Overcome key complaint about insurance covers 140,000 low-income internal controls. term insurance: no claim, no benefit. women. There are two endowment In addition to a with-profits endow- plans: sampoorna bima yojana Disadvantages of endowment ment plan with ten- and 15-year (limited pay term with return of products terms, Delta offers a biennial plan to premium) and ayushman yojana pay out 20% of the sum assured Are difficult to deliver through MFIs. (single premium assured return). every two years (of a ten-year policy). Require good investment opportuni- It also introduced a daughter’s ties for the insurer. marriage endowment to mature when she turns 18 years old. Overall, Have high expense ratios (more the product design involves shorter than 40% of premium goes to pay terms, less frequent premium for administrative expenses). payments and more frequent access Involve lapses and small surrender to savings. values. Both TATA-AIG and Delta Life intro- duced endowments to cater to policy- holders who want more than pure risk covers, and both have voluntary, individual products with various pre- mium payment options. Key differ- ences are that Delta uses community pricing, and TATA-AIG offers non- 19 participating products and strives to minimise lapses. 19 20 Craig Churchill Vijay Athreye, (left) and Vijay TATA-AIG, India Athreye, TATA- AIG, India explaining the advantages and disadvantages of endowment products

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Parallel sessions Great North Burial Society, Case studies South Africa Institutional model: Community-based People insured: 9,000 Benefit: Funeral insurance Premium range: US$3.45 The Great North Burial Society All options involve challenges. A reg- (GNBS) is an informal risk-mitigation ulatory change would be timely, but organisation that has grown large the process is lengthy and does not enough to potentially become an address the society’s immediate need insurer in its own right. The chal- to recover. lenges it has faced highlight the Lessons learnt support needed to develop micro- insurance further in South Africa. A successful partner-agent relation- ship calls for not only general The GNBS was established in 1955 compatibility between the society and registered in 1962 under the and the formal insurer, but also Friendly Societies Act. Burial so- specific streamlining of systems cieties are formed where there are and processes. common bonds; they are not-for- profit and are governed and man- In its business plans and financial aged by the people. projections, a society disregards its actuary’s advice at its peril. Following its rapid growth in the 1970s and 80s, the GNBS introduced The society should pursue an on- a “super policy” in the mid-90s going dialogue with policy makers against the advice of its actuary who and other players to ensure that A burial society’s limitations considered it not financially sustain- there is regulatory support for micro- able and was proven right. The insurers operating in a sustainable The Friendly Societies Act, under society then sought backing from an and appropriate manner. which burial societies in South Africa underwriter, New Era Life (NEL). are registered, provides for: The increased payouts from NEL — A cap on benefits which is below attracted greater membership. How- what a funeral costs today ever, premium revisions and lapses — An exclusion of investments such were treated differently by NEL and as equities the GNBS, placing strain on the GNBS, which remained liable for benefits — A non-forfeiture clause, barring and wanted to remain a caring the treatment of lapses differently society (it covers some 9,000 lives). (as a “caring” society) to a formal insurer (profit-driven) After some time, it also emerged that the Friendly Societies Act subjected members to a ZAR5,000 21 (US$710) cap on benefits – an Working Group 8 discussing the amount considered too low for a experience of funeral at today’s prices. burial societies in South Africa GNBS is no longer supported by 22 an underwriter and faces some deci- Left to right: sions on how to proceed. Samuel Lesha- bane, Great Options include: lobbying for regu- North Burial latory change that increases the cap, Society, South Africa; petitioning for the ability for rein- 21 Daniel Masemola, surers to reinsure it as a friendly Great North society, and applying for a dedicated Burial Society, South Africa; licence for assistance business (which Richard Walker, would enable both an increased Genesis Analytics, benefit and reinsurance). GNBS could South Africa also act as an intermediary that cross- sells other products.

22 Report Microinsurance Conference 2006 21 Panel 3 Challenges and strategies to extend health insurance to the poor in Africa

Panellists Some 35 million people are covered Salient features of a legal framework by micro health insurance schemes Dominic Liber are: the community health insurance around the world. There is a range Quindiem Consulting, South Africa structure, governance and financing of models and combinations bringing of micro health insurance units Gerry Noble “for-profit” and “not-for-profit” (MIUs), design and cost of the bene- Microcare, Uganda approaches together. fits package, choice of the risk carrier, enforcement and dispute resolution. Marius Olivier Whenever there is an overbearing The provision of healthcare to poor University of Johannesburg, profit motive in social services, they people on an insurance basis also South Africa tend to be exclusionary and need to involves enabling affordable pro- be regulated. At the level of serving Facilitator viders, reinsuring the risks carried, the poor, the profit motive alone David Dror and direction and supervision by may not be justifiable – but micro Erasmus University Rotterdam, the government. the Netherlands insurance units should be “for-profit” insurers; with controls and balances, In earlier years HIV/AIDS was ex- profit is a good thing. cluded as a self-inflicted injury. Covering AIDS patients is different The real issue in health insurance now that the disease can be con- may be whether the poor might tained with medicines and therapy. be excluded from cover. How do we insure those who have little or The state’s participation is important no income? Is health care a basic and it is a co-contributor. The reality human right? in Africa is that the state cannot deliver healthcare in most countries – In South Africa, the constitution pro- particularly where “the state”, ruled vides for health care for everyone. by warlords, is hard to define. Twenty years ago, people believed the state should make healthcare The provision of healthcare and available and accessible to all. There insurance is a long-term game. was the question of solidarity – the It is a tough issue for developed pooling of risks between the rich countries too. and poor. The primary issues now The strength of Africa is its commu- are control, management, quality nities. They should be empowered to assurance and competition between pool risks and resources. private healthcare providers. The health financing mechanism is secondary. 23 Left to right: To develop micro health insurance, Marius Olivier, University of consider the existing legal framework Johannesburg, and modify and qualify it, incorpor- South Africa; David Dror, ating the specific micro-health context; Erasmus Univer- sity Rotterdam, define and distinguish roles of the Netherlands members, MIUs, risk carriers and the 24 government; Left to right: Gerry Noble, ensure that client care and service 23 Microcare, delivery are adequate and affordable; Uganda; Dominic Liber, adopt an inclusive approach and Quindiem consult regularly with members; Consulting, South Africa strengthen social insurance prin- ciples, based on the government’s duty to provide for the poor (including co-contribution and supervision). 24 Report Microinsurance Conference 2006 22

Microinsurance should pinpoint the specific needs of clients and must be based on solid, competitive business models.

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27 28 25, 26 29 Networking, a key How to evaluate component of the the demand was conference the question in Working Group 10 27, 28 Panel 3 opens the discussion on challenges and strategies to extend health insurance

29 Report Microinsurance Conference 2006 23 Agenda Day 2/1 23 November 2006

09.00–10.30 Panel 4 Jonathan Dixon Commercialising insurance for the low-income National Treasury, South Africa market: Role of regulators, policy makers and Robert Gordon AIG, South Africa insurance/reinsurance companies Andreas Kleiner Head of Munich Re of Africa, South Africa Facilitator Jeremy Leach FinMark Trust, South Africa

10.30–11.00 Coffee break 11.00–12.00 Parallel sessions Thematic working groups WG 9 Monique Cohen Demand Microfinance Opportunities, USA Lemmy Manje ILO, Zambia WG 10 Warwick Bloom Managing microinsurance schemes Hollard Life, South Africa Denis Garand Consultant, Canada Gerry Noble Microcare, Uganda

WG 11 Arup Chatterjee Regulation, supervision and policy IAIS, Switzerland Martina Wiedmaier-Pfister Consultant to GTZ, Germany Brigitte Klein GTZ, Germany

WG 12 Vijay Athreye Marketing TATA-AIG, India Craig Churchill ILO, Switzerland 12.00–13.30 Lunch Report Microinsurance Conference 2006 24 Panel 4 Commercialising insurance for the low-income market: Role of regulators, policy makers and insurance/reinsurance companies

Panellists The road out of poverty necessitates There are policy trade-offs: new en- increasing incomes, building assets trants hold the potential of volatility, Jonathan Dixon but development and stability de- National Treasury, and managing risks. Risk is a vital pend on competition and access to South Africa element of a broader development strategy. financial services; access may entail Robert Gordon exposure to “risky” products, which However, emerging markets imply an AIG, South Africa makes it necessary to ensure that enormous economic potential: 86% sufficient consumer protection and Andreas Kleiner of the world’s population is in them – safety nets are in place, and that costs Head of Munich Re of Africa, including China (1.3 billion) and India are not excessive. South Africa (1.1 billion). Despite this, they account for only 23% of global GDP. In 2003, Facilitator In India, where industry outreach to they accounted for a mere 10% of Jeremy Leach the rural sector is legislated, is finan- FinMark Trust, worldwide non-life premiums and cial inclusion affordable and has it South Africa only 11% of life premiums. come at a cost to consumers? South Africa’s industry-led voluntary com- Internationally, microinsurance pliance with the Charter to improve generally tends to grow out of credit, low-income access is in contrast to but in South Africa it has grown out India’s “big stick” approach, but is it of funeral insurance. in effect “a wolf in sheep’s clothing”? Risk-management techniques in- Microinsurance solutions need to clude: self-insuring, pooling through focus on the poor’s priorities: In South Africa insurance, and using reinsurance. — Sustaining sources of livelihood; microinsurance is already on the securing food, shelter and clothing map, though focused on funeral An estimated 25–35% of South Afri- — Surviving natural disasters insurance; cans are members of a burial society, — Maintaining the health of the and 7–15% have funeral insurance. breadwinner the Financial Sector Charter holds In South Africa, regulation for funeral great potential; Coverages to meet these needs savings and risk vehicles is anti- include: collaboration among domestic stake- quated and cumbersome, and a formal — Life/health (loss of life, critical holders, coupled with the sharing insurance licence is burdensome. illness, sickness) of experiences made internationally, The policy maker’s dilemma is: will — Property (agricultural productivity is yielding a sustainable commercial financial inclusion undermine and returns) microinsurance market. systemic stability, market efficiency — Loss of assets generating income and consumer protection? 30 32, 33 The South African approach is a Left to right: David Dror, Jonathan Dixon, Erasmus Univer- voluntary industry transformation National Treasury, sity Rotterdam, through a Financial Sector Charter. South Africa; the Netherlands Access to finance is defined in Robert Gordon, and Ellis Wohlner, AIG, South Africa Consultant to terms of: low-income market group, SIDA, Sweden, physical access (within a physical 31 challenging Left to right; radius of low-income communities), the speakers of Andreas Kleiner, Panel 4 appropriate products (meeting needs Munich Re of of low-income clients), and afford- Africa, South Africa; ability. And a prime objective of the 30 Jeremy Leach, reforms is to simplify, harmonise and FinMark Trust, close gaps in the legislation and South Africa regulations covering microinsurance (particularly funeral assistance busi- ness) activities.

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Panel 4 High exposure to natural hazards as well Commercialising insurance for the low-income market: Role of as a high vulnerability is a major problem regulators, policy makers and common to many emerging markets. insurance/reinsurance companies

What (re)insurers can do: The low-income market should be For low-income markets, segmented into three groups: Provide global expertise in risk the challenge is insuring the seg- sharing 1 Casual or seasonal workers ment in which premium payment in the informal economy without competes with necessities such Develop a statistical base for pricing formal housing as food; Conduct research on demand 2 Those with very low regular regulators should integrate life Introduce measures to contain employment incomes and with basic and non-life requirements, creating climate change and reduce the formal housing a new microinsurance category. impact of catastrophes 3 Those with varying amounts of Form partnerships with direct disposable income who can afford microinsurers housing and transport Reinsurance is a business-to-business There may also be a need to seg- model protecting peak risks. Indi- ment the market by gender to protect vidual financial exposures are low, women, for example, when claim and direct microinsurers can retain payments may be used by the hus- these on their own balance sheets. band’s family. Generic reinsurance demand from The second and third categories can microinsurance is for accumulation be addressed to penetrate the market risks, mainly natural catastrophes. and insurers are targeting them with To play a meaningful role in micro- credit insurance and funeral insur- insurance, insurers and reinsurers ance. The big challenge is the first should expand the value chain by segment, where payment of pre- adding value such as global expertise miums often competes against basic and resources, intrinsic local-market necessities such as food. Access knowledge, pricing capabilities and to individuals is difficult and service risk sharing. costs extremely high. Microinsurance must be commer- For this first or “bottom-of-the- cially viable; goodwill alone is not pyramid” segment, regulators should enough to make microinsurance consider integrating the require- sustainable. Therefore, two principles ments of life and non-life lines so that governing entry into the low-income a new microinsurance category can market are: can the insurer write be sold as a line of business by both enough premium in a given time to types of companies. justify the effort, and can it generate They should also amend the insur- enough profit to meet the business ance law to monitor and control criteria? entities carrying insurance risk out- side current legislation, and change consumer regulation where needed to allow MFIs to provide compulsory insurance schemes for borrowers. In addition, access to potentially harmful products can be prevented 32 by introducing some parameters for product design. However, in many cases one should not forget that there is a skills and capacity constraint in regulation, and that enforcement is a key issue of concern.

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Parallel sessions Demand Thematic working groups

Vijay Athreye Economic stress can be caused by Questions to ask to assess demand TATA-AIG, India a number of events in varying for a microinsurance product: degrees. A demand survey in Zambia Warwick Bloom — What is your greatest fear? found that for the poor, death and Hollard Life, South Africa — Do you have assets, things illness produced a high level of you own? Arup Chatterjee stress, education fees and rentals a — What natural disasters do IAIS, Switzerland medium level, theft and fire medium, you fear? and weddings and births low. Craig Churchill — How much are you prepared ILO, Switzerland The survey also found that potential to pay to cover your biggest fear? Monique Cohen microinsurance clients used three — What are your healthcare costs Microfinance Opportunities, kinds of coping mechanisms: on a monthly basis? — What are your demands? USA — Social assets, mainly social net- (Do not ask for needs – everyone works, largely based on reciprocity Lemmy Manje has many needs.) ILO, Zambia — Physical assets such as household — What have been your shocks? Denis Garand items that could be turned into cash — Assess the weights/rankings of financial shocks and pressures. Consultant, Canada — Financial assets, for example — How do you manage shocks? savings under the mattress, Brigitte Klein — Which shocks will work for insur- savings clubs, and money lenders GTZ, Germany ance (for some you use family who charge high interest rates but savings, for some you use credit, Gerry Noble provide quick access Microcare, Uganda and some are appropriate for For all coping mechanisms, the insurance)? Martina Wiedmaier-Pfister strengths and limitations and the — What is the family profile – Consultant to GTZ, Germany poor’s preferences must be deter- what type and amount of cover mined. In practice, most people would suit it? can afford only one coping strategy – — How would you like to pay Sometimes women have claims for example, in poor communities premiums? payments sent to a trusted friend so in the developing world, people say — How would you like claims they cannot be used by the husband they have a hard enough time to be paid? in ways that do not benefit the family. paying back their loans, let alone It may also be possible to structure a an insurance premium. claim payment as an in-kind benefit, if the client prefers. USAID has developed a 52-page publication called Guidelines for Market Research on the Demand for 34 36 Microinsurance (accessible as a How to evaluate Left to right: the demand was Denis Garand, conference document on the confer- the question in Consultant, ence website). The study provides Working Group 10, Canada; donors and technical service pro- led by Monique Warwick Bloom, Cohen, Microfi- Hollard Life, viders with a framework for de- nance Opportuni- South Africa; signing market research for micro- ties, USA Gerry Noble, insurance. It is a step-by-step guide (centre) Microcare, Uganda to a process which will generate 35 37 information that can be used to Lemmy Manje, ILO, Left to right: Zambia Martina Wied- determine the attributes of a new 34 maier-Pfister; microinsurance product, refine those Consultant to of existing products, and identify GTZ, Germany Brigitte Klein, ways microinsurance might be best GTZ, Germany; delivered. Arup Chatterjee, IAIS, Switzerland

35 Report Microinsurance Conference 2006 27

Managing microinsurance schemes Regulation, supervision and policy

A key to sustainability is striking, The IAIS-CGAP Joint Working Group The paper reaches a number of con- and maintaining, a balance among on Microinsurance, set up in February clusions. Small adjustments to the coverage, operating costs and 2006, has drafted an Issues Paper mainstream regulatory framework affordability. And that involves four on the regulation and supervision of may serve better to increase access principal strategies: microinsurance. than creating a “parallel universe” of specialised regulation (e.g. a new — Limit benefits Recognising that microinsurance tier). “Microinsurance regulation” is activities should not be held to super- — Focus on efficiency not one topic, but a range of topics, visory standards lower than those for depending on the type of loss insured — Diversify income sources mainstream insurance, the paper and the distribution channel used. focuses on prudential, governance, — Good management In microinsurance, it is the “credibility market-conduct and operational of the market” argument that moti- Ways of limiting benefits are to issues. It identifies areas where the vates transformation and prudential start with credit life, cap benefits, IAIS Insurance Core Principles criteria regulation and supervision. target benefits, and focus on big- can be customised to the regulation ticket items. and supervision of microinsurance. The paper recommends nine steps supervisors can take to adapt regula- To achieve efficiency, use low-cost The paper reviews some microinsur- tions for promoting microinsurance; premium payment methods, rely on ance scenarios and suggests what for example, seeking a political inexpensive distribution systems, needs to be done: funeral and health mandate and financial support from control costs, and buy benefits in insurance based on associations, their authorities, strengthening their bulk. Steer away from working with mutuals or friendly societies requires microinsurance capacities, and cash as this is expensive; rather, use oversight by insurance supervisors; south-to-south dialogues with other an MFI and other partners to assist credit life products developed by MFIs supervisors. with collection. Often it is better require formalisation or linkage with to work with a community or group insurers; and products for poor cus- The IAIS-CGAP Joint Working and not with individuals as this tomers developed by commercial in- Group says: contributes to keeping the cost low. surers require regulatory adaptations. “Microinsurance regulation” does VimoSEWA, for example, increased A few emerging markets have spe- not necessarily mean an entirely its outreach and sustainability cific laws or regulations to encourage separate regulatory framework. considerably by holding rolling microinsurance. India has micro- campaigns in communities to enrol Regulation of microinsurance is insurance agent regulations to link groups of people. complex, involving many different formal insurers with village-based issues and market players. Income sources can be diversified by NGOs and MFIs. The Philippines has cross-subsidising, augmenting introduced mutual benefit associa- Microinsurance regulation aims income with that from other products tions (MBAs) as microinsurance foremost at consumer protection or markets, using an endowment institutions under the Insurance Law, enhancing financial inclusion. fund to subsidise the product and supervised by the Insurance Commis- operations, and by accessing govern- sion. And in Brazil the supervisory ment subsidies. authorities have created both a life group microinsurance product and an Good management means leading automobile microinsurance product. a disciplined organisation, bench- marking, and owning the risk. Control is very important. Appropriate technology can be used to implement these controls.

36 37 Report Microinsurance Conference 2006 28

Parallel sessions Marketing Thematic working groups

In the low-income market, most To activate the market, use enrolment potential customers are unfamiliar campaigns, testimonials and pro- with insurance and often confuse motions (raffles, lotteries). An addi- insurance with savings. Even those tional technique that can be effective who know insurance may already is to set moderate sales targets have had a bad experience with it. and balance sales commissions with They may also not be conversant re-enrolment incentives. with financial planning, and lack Marketing lessons from TATA-AIG disposable income to buy peace of mind – instead living day to day A microinsurance operation requires without thinking about risk or risk top-management and regulatory management. Illiteracy and a lack of commitment to get established in banking, transport and communica- the market. tions infrastructure compound the Target market awareness is best marketing challenge. built through livelihood-based grass- Microinsurers often use a combina- roots capacity-building. tion of four main messages – protec- Relevant, affordable products tion, solidarity, optimism and trust – are key to changing prospects into in a three-step marketing process: customers. raise awareness (about insurance and the specific insurer), cultivate Technology innovation is essential an understanding of insurance, and to keep servicing costs down. activate the market. Commercial viability in micro- Loss prevention campaigns, branding insurance is facilitated by the devel- (logos, tag lines), and public relations opment sector’s involvement and (corporate sponsorship) are helpful support. in raising awareness. To cultivate an understanding of insurance, provide staff with ap- propriate resources (e.g. brochures, pictorial presentations, FAQ sheets), design simple products that are easier to explain, provide sales training for front-line staff and encourage them to buy insurance as well, use local concepts, and consider diverse com- munication channels.

38 Craig Churchill, ILO, Switzerland (left), and Vijay Athreye, TATA- AIG, India, explaining the marketing lessons from TATA-AIG in Working Group 12

38

Report Microinsurance Conference 2006 29 Agenda Day 2/2 23 November 2006

13.30–14.30 Parallel sessions Thematic working groups

WG 13 David Dror Product design Erasmus University Rotterdam, the Netherlands Dominic Liber Quindiem Consulting, South Africa

WG 14 Craig Churchill Organisational development ILO, Switzerland Shadreck Mapfumo Opportunity International, Malawi WG 15 Grzegorz Buczkowski Premium collection TUW SKOK, Poland Ellis Wohlner Consultant to SIDA, Sweden WG 16 Agnes Chakonta Claims payments Madison Insurance, Zambia Denis Garand Consultant, Canada 14.30–15.00 Coffee break 15.00–16.30 Panel 5 Shadreck Mapfumo Beyond life and health: Opportunity International, Malawi (Drought insurance for Malawi) Microinsurance innovations Reinhard Mechler IIASA, Austria (Can microinsurance work in natural disasters?) Leila Moonda SAIA, South Africa (Corporate non-life microinsurance products) Facilitator Thomas Loster Munich Re Foundation, Germany

16.30–17.30 Wrap-up discussion and closing remarks 17.30 End of conference Report Microinsurance Conference 2006 30

Parallel sessions Product design Thematic working groups

Grzegorz Buczkowski Choice is important. People will not In the exercise in India, different TUW SKOK, Poland pay for what they cannot choose. insurance product demand outcomes Agnes Chakonta They want insurance for their biggest were observed when people de- Madison Insurance, Zambia expenses – they will not pay for insur- signed the product alone (such as Craig Churchill ILO, Switzerland ance that provides cover for things through a questionnaire) and when they do not want. they participated in the group David Dror process. In the individual process, for Erasmus University Rotterdam, Hospitalisation is an example of this: the Netherlands example, the demand for maternity people do not want to go to the cover was lower than when the Denis Garand hospital where often rates of infection Consultant, Canada group designed its own product. and complication are higher than Dominic Liber In the latter case, women and their home treatment; they want coverage Quindiem Consulting, children played the game and chose South Africa for medicine, which is where they 100% cover for maternity risks, pre- spend the largest portion of their cash. Shadreck Mapfumo sumably a result of group solidarity. Opportunity International, The three criteria to assess effective- Malawi Insurers are worried about adverse ness of choices are reimbursement, Ellis Wohlner selection, but people do not cheat the Consultant to SIDA, Sweden fairness and catastrophic events group they network with to survive. (outlier cases and coverage). This is especially true for the poor in The key is a group process and rural areas. There is a strong flow of group participation in product design. information at the local level. Gossip The poor know what they want and is a powerful business tool and it is they need a voice in the design of how groups shape conduct – which microinsurance products. If design in turn is important for adverse selec- matches client demand, then sales tion and moral hazards. The issue are greatly facilitated. of information cost is about reaching the village level because that is where At the end of a participatory product product designers must go to shape design activity in India, villagers appropriate products. immediately demanded to buy the product they had just designed For low transaction costs, keep through the exercise. the product simple and limit choices of cover. Such activities could be partnered with insurance providers so actual in- Group participation is the key. surance products could be designed, People will not pay for what they marketed, and sold following the cannot choose. participatory approach. They can be actuarially sound and reflect real Participating as a group in product prices and costs of risk (prevalence, design, they make better choices distribution of risks, and the cost of than when asked individually. alternative benefit packages). The participatory approach also Illiterate people are able to design addresses risk pooling, adverse relevant products when given a selection and moral hazards. chance to define the risks of greatest concern and when they are facilitated 39 in explaining the costs of perils in terms of their livelihoods (willingness to pay). This process results in proxies that are useful in designing and pricing microinsurance products. The participatory approach is also important for risk pooling and for addressing the issue of adverse selection.

40 41

Report Microinsurance Conference 2006 31

Organisational development

From the microinsurance perspec- Training is not a one-off exercise. The institutional culture in micro- tive, organisational development Back-office and frontline skills need insurance should strive to achieve involves five factors: to be continuously updated. If staff social and commercial objectives. do not understand insurance and How can this culture be used to — Organisational structure (where are not sufficiently familiar with the minimise staff turnover? And, in a does microinsurance fit in?) products, policyholders will not diverse organisation that serves both — Recruitment (whom do you hire?) understand them either. Front-line the not so poor and the poor, how do training is overlooked, particularly you ensure that the poor market gets — Training (how do you provide with mandatory products. sufficient attention? them with sufficient skills?) In terms of compensation, a number To build trust and overcome scep- — Compensation (how do you of questions need addressing. ticism in a lukewarm low-income reward them?) market, microinsurers should focus — Are there alternative incentives for — Institutional culture (how do on relationship-building, after-sales the front line to commissions, you strike the microinsurance service, fast claims processing, and which may just increase the cost of balance?) minimising claims rejections. insurance to the customer? One point to consider in the organi- Elements of organisational develop- — How do you ensure the front-line sational structure is whether to use ment and their role representatives pay sufficient specialists or generalists on the front attention to insurance sales and Structure line. In diverse organisations, a services when these are not their Accommodate microinsurance. specialised department is needed for primary responsibilities? microinsurance in the back office. Recruitment TATA-AIG and VimoSEWA both serve — How do you deal with the huge To acquire skills needed. as good examples of such a struc- risk of mis-selling in providing Training ture. The role of outsourcing is also an unfamiliar product to an un- Keep skills relevant. worth considering, as demonstrated educated market? by TUW SKOK. Compensation — For voluntary insurance, how do Reward approaches sensitive to Choices to be made in recruitment you reward staff for achieving needs of the low-income segment. involve the use of policyholders greater outreach without pushing as agents in the front line (e.g. CARD, insurance on people? Institutional culture TATA-AIG), and the balance of tech- Ensure ongoing attention to poor nical and development expertise in customers. the back office.

39 42, 43 Dominic Liber, Shadreck Quindiem Mapfumo, Oppor- Consulting, South tunity Interna- Africa tional, Malawi (left), and Craig 40 Churchill, ILO, David Dror, Switzerland, Erasmus Univer- explaining the sity Rotterdam, elements of the Netherlands organisational 41 development David Dror, and the roles 42 Erasmus Univer- these play sity Rotterdam, the Netherlands, explaining the importance of participants’ satisfaction

43 Report Microinsurance Conference 2006 32

Parallel sessions Premium collection Thematic working groups

Flaws in the premium-collection Frequency and timing choices should process may endanger the entire involve sensitive understanding of insurer-customer relationship. client preferences and capabilities. The process has four key elements: While providing a number of choices collection modes, frequency and reduces the likelihood of cancella- timing, client considerations, and tion/default, it increases insurers’ collection controls. direct costs – and corresponding costs to clients. Choices should not Four major premium collection include highly flexible time frames. modes are: The payment of a premium before — Piggy-backing premiums by policy activation is a necessary condi- linking them to loans or other tion of cover. All premium due dates transactions are dates by which (not on which) premiums are due. For example, if — Deducting premiums from the due date is 15 March, the insurer customer accounts must have been paid the premium — Paying premiums from account before the 15th so the policy can be interest effective on the 15th. — Actual physical collection (door- Three major client considerations to-door, for example) are: providing flexibility in premium financing, achieving simultaneous Two other options are to include the objectives of affordability and efficient premium in other economic transac- collection, and ensuring that renewal tions (besides loans) or in a member- and lapse processes are more flexible ship fee of some kind. than those provided for commercial While the first three modes involve clients. Late premium payers should low transaction costs, they presup- be penalised in some fashion, as pose the existence of some form premiums are calculated on the basis of banking or other accounts. Direct of their being paid on time. physical premium collection is ex- Fraud is a major threat in premium pensive, but achieves strong pene- collection, necessitating tight con- tration in areas with limited banking trols from the product design stage. or commercial infrastructure, where Horizontal controls (where respon- it may be the most realistic and sibility for premium collection is practical option. Additional options spread across the group) and vertical include group-linked collection via controls (where the insurer is respon- community leaders, churches or sible for supervision and audit) are savings cooperatives, and working both crucial. with local or corner-shop retailers with dedicated premium collection equipment.

44 Grzegorz Buczkowski, TUW SKOK, Poland (left) and Ellis Wohlner, Consul- tant to SIDA, Sweden

44 Report Microinsurance Conference 2006 33

Claims payments

Realistically, it is still not possible MFIs need to understand the import- Tips on claims to design an effective mechanism ance of the submission of claim Simplify documentation and process. to reach every potential client. There documents for quick settlement of will always be people that cannot claims. Loan officers should give the Educate MFI staff and clients about be reached efficiently to distribute same attention to the provision of how claims are settled. individual microinsurance products. documentation as to the collection of Explain rejections to community. For people far from formal banking premiums. and commercial infrastructure in Aside from insufficient documenta- particular, group-linked insurance tion, major causes of claim rejection is significantly more robust and are misinformation about the product efficient. parameters and fraud. Four elements of premium collection: Educating staff and clients about Collection modes (e.g. linking benefits covered by the product and premium to another transaction) the claims settlement process is key to improving service. Frequency and timing (must be sensitive to client preferences and Helping clients understand, for capabilities) example, how the sickness cover works for the benefit of all would Client considerations (flexibility in help reduce the fraudulent tenden- financing) cies of some. Collection controls (to curb fraud) Insurers should aim at reducing the time taken to settle a claim by being more flexible in the documentation requirement, and by assessing each case on its own merits – taking into account the small values involved. Where documentation is difficult, they should accept alternative evidence. And where practical, they should issue payments to bene- ficiaries directly instead of MFIs. Microinsurers should simplify the claims work process and comput- erise functions. Sometimes, removing exclusions simplifies and accelerates claims settlement. A complicated product and cumber- some process add to the cost of insurance. Any claim rejections must be ex- plained to the community, to prevent damage to the product’s credibility. 45 45 46 In health insurance, it is important Agnes Chakonta, Denis Garand, Madison Insur- Consultant, to ensure quality care. ance, Zambia Canada

46 Report Microinsurance Conference 2006 34 Panel 5 Beyond life and health: Microinsurance innovations

Speakers Insurance serving the poor can be In 2004, the South African Insurance in four scales with different impacts Association (SAIA) started devel- Shadreck Mapfumo oping a no-frills product called Opportunity International, and solutions: micro, meso, macro . Mzansi that would be “accessible and Malawi and other affordable” for low-income groups – (Drought insurance The micro scale is most widespread covering the dwelling, household for Malawi) and focuses on health, life (funeral) goods and personal effects against and low-end property and crop Reinhard Mechler fire, lightning, explosion, storm, (home, plough, boat) insurance. IIASA, Austria flood, impact and theft (sudden and (Can microinsurance work The focus of the meso scale can be accidental events). To date, one in natural disasters?) serving larger groups of people. The company has introduced this prod- Leila Moonda products are derivatives and index uct, with more companies expected SAIA, South Africa insurance: weather and drought so to follow in 2007. far, mostly established in the devel- (Corporate non-life The target market is 70% of the oped world but the first index in microinsurance products) population – the very poor. Repeated Ethiopia is expected to lead to others fires make hundreds of these people Facilitator in the poor countries. Thomas Loster homeless every week. Thefts of Munich Re Foundation, At the macro scale are cat bonds, household belongings are also Germany which cover storms, floods and frequent – the most stolen items are earthquakes, but are only available pots and pans. Literacy is a big in the developed world at present. problem, and there can be no ap- Examples in the other category are plications in writing. These people pools and funds such as the Turkish have no regular incomes and can Catastrophe Insurance Pool and the make no regular payments. Climate Adaptation Fund. Access is not the only barrier. The Looking beyond life and health, we first obstacle to the Mzansi initiative will need to take the micro scale and was regulatory. A standard product touch the higher scales – integrating wording – not acceptable to the the new challenges with the basic Insurance Commission on account of covers. The core principle of undermining competition – had to spreading risk would continue to give way to a set of minimum stand- apply: a good portfolio spread over ards which various companies could a few regions would, for example, use to develop their own products. serve as a foundation for protection Other challenges being addressed against a tsunami. are: changing legislation to allow lower-level intermediaries to sell microinsurance products; education to enable consumers to understand short-term insurance, e.g. training teachers to teach financial literacy in schools; and alternative distribution channels such as retail stores. A weather index-based crop insur- ance pilot scheme started in Malawi 47 by Opportunity International for Left to right: Reinhard Mechler, 800 farmers now has 1,800 enrolled. Thomas Loster, IIASA, Austria; They are smallholder farmers in Munich Re Founda- Shadreck tion, Germany; Mapfumo, Oppor- clubs of ten to 20 members with joint Leila Moonda, tunity Interna- liability for loan repayment, who live SAIA, South tional, Malawi within 20 km of one of five Class A Africa; weather stations.

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Report Microinsurance Conference 2006 35

Panel 5 Microinsurance needs to be scaled up to Beyond life and health: Microinsurance innovations higher levels of risk management.

Other stakeholders are the two Microinsurance is only viable to the The disaster risk management financing banks, the Insurance Asso- extent that the providers remain community – including reinsurers – ciation of Malawi as the insurer, three solvent following large-scale losses. has little understanding of micro- suppliers of seeds and fertilisers, If microinsurers with limited insurance. To bridge the gap, the and Malawi National Met Services, resources choose to indemnify large ProVention Consortium – a global which supplies rainfall data. covariant and recurring risks, they coalition of international organisa- must guard against insolvency by tions dedicated to reducing the The project processes include a credit diversifying their portfolios geo- impact of disasters in developing history check and if a loan is not graphically and transferring risks to countries – proposed in February repaid two years in a row, farmers the global reinsurance markets. 2005 to establish an international task are blacklisted. There are crop force on risk transfer and its potential inspections to help prevent claims Public-private alliances are also for developing countries. This for drought. needed to create partnerships and includes microinsurance and risk- institutional frameworks that may Poor seed germination, late sowing transfer experts, disaster-risk serve as safety nets for high-risk poor and the variance between the guar- researchers, and representatives communities. anteed price and the market price of civil society, governments and are among the scheme’s challenges For disaster microinsurance to work, donor institutions. and risks. the current pilot and fledgling pro- Eyeing the future grammes need to be scaled up. Ideas Such index-based schemes have considered should also include Short-term insurance based on demonstrated their value in securing creating warehouses for livestock, the South African Mzansi model farmers’ livelihoods, improving bundled products to cover health, can meet real needs. their creditworthiness, and facilita- life and weather-related perils, and ting disaster recovery. Nonetheless, The weather index-based crop a global index security scheme. in the face of large covariant losses insurance pilot in Malawi has proved and the need to reduce the imme- Pooling is demonstrated as a fair and practical. diate toll of disasters, the long-term effective tool and holds substantial Pooling is an effective and promising viability of these programmes is promise. It is a basic insurance con- tool to help manage risk of natural in question. cept. Looking beyond life and health, disasters. we need to think in terms of a “Volks- wagen” of natural disaster micro- A global task force should explore insurance schemes, and not get dizzy risk transfer for microinsurance. looking at sophisticated “Rolls- Royce” approaches.

48 50 Zahid Qureshi, Alesia Rodríguez, Consultant, Canada; Cámara de head of the Aseguradores de rapporteurs team Venezuela (CAV) at the Microinsur- 51 ance Conference Aude de Report 2006 Montesquiou, 49 CGAP, France John Pott, Aga Khan Development Net- work, Switzerland 48 49

50 51 Report Microinsurance Conference 2006 36 Participating organisations

ADA (Appui au Développement Autonome), IIASA, Austria PEP, a division of Pepkor Retail Ltd., Luxembourg South Africa ILO/STEP, Switzerland African Development Insurance Company PKSF, Bangladesh ILO Zambia, South Africa Limited, Nigeria PlaNet Finance, France Insurance Commission, Philippines African Life Assurance, South Africa Quindiem Consulting, South Africa Insurebynet Ghana Limited, South Africa AIG South Africa, Ltd., South Africa Real People, South Africa International Association of Insurance Barnert Global, Ltd., USA Supervisors, Switzerland RGA Reinsurance Company, South Africa Blue Financial Services Ltd., South Africa International Cooperative and Mutual RIMANSI, Philippines BRS – Belgian Raiffeisen Foundation, Insurance Federation, United Kingdom SA Eagle Insurance Company Limited, Belgium International Development and South Africa Cámara de Aseguradores de Venezuela Communication Services Inc., Canada South African Federation of Burial (CAV), Venezuela International Finance Corporation, USA Societies (SAFOBS), South Africa Catholic University of Leuven, Belgium International Fund for Agricultural Safcam Underwriting Managers (Pty) Ltd., CGAP, USA Development, Italy South Africa Constantia Insurance Company Ltd., Just Good Business, Zambia Santam, South Africa South Africa Kenya Ecolof, Kenya SDT, South Africa Cre8 Alexander Forbes, South Africa Kwaaiwater Investments, South Africa SEF-LIFE Trust, South Africa Cruzsalud, Caracas, Venezuela Liberty Life, South Africa Seguradora Internacional de Moçambique, Customer Protection Insurance Mozambique Madison Insurance, Zambia Company Ltd., South Africa Shiekan Insurance and Reinsurance Metropolitan Life, South Africa Denis Garand and Associates, Canada Co. Ltd., Sudan Microcare, Uganda Die Burger, South Africa Sida – Swedish International Development Microfinance Opportunities, USA Cooperation Agency, Sweden East African Underwriters Ltd., Uganda Microhealthinsurance-India.org, Socremo – Banco de Microfinancas, Erasmus University Rotterdam, Switzerland Mozambique the Netherlands Microinsurance and Remittance South African Insurance Association, Federation Nationale Mutualité Française, Research Centre, United Kingdom South Africa France Ministry of Finance, Kenya Surety Fund, USA Financial Services Board, South Africa Momentum, South Africa Swedish Cooperative Centre, Kenya FINCA International, USA MS Life Assurance, South Africa TATA AIG Life Insurance Company Ltd., FinMark Trust, South Africa India Munich Re/Munich Re of Africa, Germany Folksam, Sweden Aga Khan Agency for Microfinance, Munich Re Foundation, Germany FOS Belgium, Belgium Switzerland Mutual & Federal Insurance Company Foyer, Luxembourg The Best Funeral Society, South Africa Limited, South Africa FSD Kenya, Kenya The Co-operative Insurance Company National Treasury, South Africa of Kenya Limited, Kenya Genesis Analytics, South Africa Old Mutual, South Africa Legon Financial Services Group, USA Gerhardt Consulting, Germany Old Mutual Group Schemes, South Africa The Life Offices’ Association of Great North Burial Society, South Africa Opportunity International Network, Malawi South Africa, South Africa GTZ, Germany OUTsurance Insurance Company, TUW SKOK, Poland Guardrisk Insurance Company Limited, South Africa UNIC Insurance plc., Nigeria South Africa United Nations University, Germany Hannover Life Re Africa Ltd., South Africa University of Lyon, France Hollard Insurance, South Africa University of Cape Town, South Africa University of Johannesburg, South Africa Zurich Financial Services, Switzerland

Report Microinsurance Conference 2005 37 Acronyms

AIG MFI © 2007 Munich Re Foundation American International Group Microfinance institution Königinstrasse 107 80802 München, Germany ATM MIU Letters: 80791 München, Germany Automated teller machine Micro health insurance units Telephone +49 (0)89/38 91-88 88 Fax +49 (0)89/38 91-7 88 88 BOP MIS [email protected] Bottom of the pyramid Management information system www.munichre-foundation.org Order number CGAP MUSCCO 302-05381 Consultative Group to Assist the Poor Malawi Union of Savings and Credit Contact Cooperatives Dirk Reinhard CUNA [email protected] Credit Union National Association NEL Design New Era Life GDP Keller Maurer Design www.km-d.com Gross domestic product NGO Non-governmental organisation GNBS Great North Burial Society Q&A Question and answer GTZ Deutsche Gesellschaft für Technische SA Zusammenarbeit (German Agency South Africa for Technical Cooperation) SAIA IAIS South African Insurance Association International Association of SIDA Insurance Supervisors Swedish International Development IIASA Cooperation Agency International Institute for Applied STEP Systems Analysis Strategies and Tools against Social INR Exclusion and Poverty Indian rupee TUW SKOK ILO Mutual Insurance Company of Coop- International Labour Organization erative Savings and Credit Unions MBA US$ Mutual benefit association United States dollar ZAR South African rand According to recent research from the MicroInsurance Centre, fewer than 3% of poor people in the poorest 100 countries have formal insurance of some sort.

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