Report 8th International Microinsurance Conference 2012 Making insurance work for the poor

6 – 8 November 2012 Dar es Salaam,

Edited by Zahid Qureshi and Dirk Reinhard Contents

1 Acknowledgements 53 Agenda Day 3 morning sessions 2 Agenda Day 1 morning sessions 54 Parallel session 11 Pre-conference seminars Technology 4 Pre-conference seminar 1 56 Parallel session 12 Regulation, supervision Health and policy 58 Parallel session 13 8 Pre-conference seminar 2 Agricultural microinsurance – Academic track The index insurance experiment 1 12 Agenda 61 Parallel session 14 Day 1 afternoon sessions Proactive market development approaches 13 Opening and welcome addresses 64 Plenary 3 How to provide sustainable 16 Keynote address insurance for low-income farmers 18 Plenary 1 69 Agenda Round table – Opportunities Day 3 afternoon sessions and gaps of microinsurance market development in 70 Parallel session 15 Agenda-setting for 21 Agenda 2 microinsurance in Tanzania Day 2 morning sessions 1 — Craig Churchill, 73 Parallel session 16 22 Parallel session 1 ILO / Microinsurance Innovation Case studies on how to Failures in microinsurance Facility, Switzeland, Chairman insure the poor’s property of the Microinsurance Network. 25 Parallel session 2 76 Parallel session 17 Strengthening training 2 — Dirk Reinhard, Case studies institutions Munich Re Foundation, Germany. 79 Parallel session 18 28 Parallel session 3 Academic / Healthcare track Health 83 Plenary 4 32 Parallel session 4 Institutional arrangements Academic track – for covering the health needs Agricultural insurance of low-income households 34 Plenary 2 86 Outlook session Is mutuality the missing link Next steps in market in microinsurance? development 37 Agenda 88 Field trip Day 2 afternoon sessions A cooperative health plan 38 Parallel sessions 5 and 9 for coffee farmers Presentation of the actuarial 90 Countries represented training modules for microinsurance and Pricing of microinsurance 92 Participating organisations 42 Parallel session 6 94 Acronyms Consumer protection for the low-income market 45 Parallel session 7 Client Math tool kit for understanding the value of microinsurance for clients 47 Parallel session 8 Training session on process mapping for business excellence Conference documents and 50 Parallel session 10 presentations Financial and social key are available online at: performance indicators for www.microinsuranceconference.org / 2012 microinsurance Links: Munich Re Foundation www.munichre-foundation.org Microinsurance Network www.microinsurancenetwork.org Report 8th International Microinsurance Conference 2012 1

Acknowledgements

This report is the summary of the For three days, approximately 90 A conference of such magnitude 8th International Microinsurance speakers and facilitators discussed needs a lot of people working behind Conference that took place in Dar es innovative and sustainable micro- the scenes. The organisation team – Salaam, Tanzania, on 6–8 November insurance programmes, illustrated by Paula Jiménez, Petra Hinteramskogler, 2012. The conference was hosted the latest case studies and research Christian Barthelt, Torsten Kraus – by the Munich Re Foundation and the results.e W would like to thank all did an amazing job to organise an Microinsurance Network, with the of the presenters for dedicating time exceptional event. A special “thank support of the Tanzania Insurance and resources to share their know- you” goes to Thomas Loster, Chairman Regulatory Authority (TIRA), the Asso- ledge and experiences with the goal of of the Munich Re Foundation, for his ciation of Tanzanian Insurers (ATI), expanding effective risk management ongoing support of the conference GIZ / BMZ, Making Finance Work for solutions for the vulnerable low- project.e W would also like to thank Africa (MFW4A), the African Insurance income sector. the Executive Director of the Micro- Organisation (AIO), the Insurance insurance Network, Véronique Faber, No fewer than 16 insurance regulatory Regulatory Authority of (iRA), and her entire team for their great bodies were represented – more than Uganda Insurers Association (UIA), support with communication and in any of the previous conferences. Georgia State University’s Center for evaluation. the Economic Analysis of Risk (CEAR), This signals the strong commitment the (AfDB), of commissioners to build inclusive What’s next? After Latin America in the International Cooperative and insurance markets, and their keen 2011 and Africa in 2012, it is Asia’s turn Mutual Insurance Federation (ICMIF), interest in learning more about the again. The 9th International Microin- FinMark Trust, and the International application paper on microinsurance surance Conference will take place Labour Organization (ILO). regulation that was recently published from 12–14 November 2013 in Jakarta, by the International Association of Indonesia. The conference will see TIRA and ATI provided outstanding Insurance Supervisors (IAIS). the presentation of a groundbreaking support and guidance to make this study on the “Landscape of microin- Our appreciation also goes to the conference an extremely well attended surance in Asia” as well as presenta- nearly 600 participants from 60 coun- event and a true success. We would tions on a variety of new research and tries for contributing their comments especially like to thank the Insurance lessons learnt. We eagerly anticipate and questions and making the discus- Commissioner Mr. Israel Kamuzora the interesting sessions, presentations sions lively and thought-provoking. and ATI’s Chairman Manfred Sibande, and discussions and look forward to On behalf of the organisers, we would who were personally involved in the welcoming you in Jakarta. entire organisational process. It was like to thank the 18 members of the a great honour and pleasure to work conference steering committee. This Dirk Reinhard, Vice-Chairman, with them and their engagement was event would not have been possible Munich Re Foundation, Germany, unprecedented. We would also like without their work to identify suitable Chairman of the Conference Steering to express our appreciation to the speakers and presentations from Committee almost 200 submissions for speeches entire team of TIRA, especially Senior Craig Churchill, Chairman, that were received during the prepar- Public Relations Officer Eliezer Rweikiza, Microinsurance Network, and Team ations for this conference. who worked literally day and night Leader of the ILO’s Microinsurance and solved any problem that arose. A special “thank you” goes to the team Innovation Facility of rapporteurs – Sarah Ebrahimi, The 8th International Microinsurance Munich, Geneva, March 2013 Conference was honoured by Alice Merry, Marlene Mueller, María the presence of the Hon. Mohamed Victoria Saenz and Marijn van der Gharib Bilal, Vice-President of the List – led by Zahid Qureshi, for United Republic of Tanzania and helping us gather and document Hon. William Mgimwa, Minister of the key messages and lessons from Finance of the United Republic of the various sessions of the 2012 Tanzania. H.R.H Princess Máxima of conference. They did a terrific job the Netherlands, UN Secretary- objectively summarising the speakers’ General’s Special Advocate for presentations as well as the different Inclusive Finance for Development, views and opinions expressed during contributed to the opening session the discussions. As the style of the with a video message. The dignitaries’ sessions changes, so does the style keynote and welcoming speeches of the individual summaries. Readers, laid the ground for the discussions authors or organisers may not share in the subsequent 28 sessions of the all opinions expressed or recommen- conference. dations given – but they reflect the rich diversity of the discussions. Report 8th International Microinsurance Conference 2012 2

Agenda Day 1 morning sessions 6 November 2012

Pre-conference seminar 1 Pre-conference seminar 2 Regulation, supervision and policy Academic track Hosted by IAIS, MIN, Hosted by Georgia State Access to Insurance Initiative University / CEAR

Facilitator Elisabet Rutstrom Brigitte Klein Professor, GSU, USA GIZ, Chair of Regulation, Experimental methods and Supervision and Policy Working Behavioural economics Group of the MIN, Germany Jimmy Martínez-Correa Welcome Professor, Copenhagen Israel Kamuzora Business School, Denmark Commissioner of Insurance, Behavioural risk management TIRA, Tanzania and Insurance IAIS guidance on inclusive Daniel Clarke insurance: Presentation University of Oxford / of IAIS application paper World Bank, UK Peter van den Broeke Actuarial science, International Association of economics and the design of Insurance Supervisors (IAIS), index insurance products Switzerland Facilitator Richard Phillips Intermediation challenges – Chairman, Department of Panel of supervisors Risk Management and Insurance, Georgia State Nyamikeh Kyiamah University (GSU), USA Commissioner, NIC, Evelyn Singun Head of Investment Division, IC, Philippines Ibrahim Jankara Deputy Manager, NAICOM, Nigeria Faraz Uddin Amjad Joint Director (Insurance), SECP, Pakistan Facilitator Hennie Bester FinMark Trust, South Afric

Consumer protection and market conduct challenges – Panel of supervisors Ibrahim Lubega Commissioner of Insurance, IRA, Uganda Sudhin Roy Chowdhury Member at IRDA, India Sammy Makove Commissioner of Insurance, IRA, Facilitator Jacky Huma Head Microinsurance Supervision, FSB, South Africa

Closing Mustapha Lebbar Chair of the IAIS-MIN Joint Working Group and Financial Inclusion Subcommittee of the IAIS, Morocco Report 8th International Microinsurance Conference 2012 3

3 — Journalists interviewing “Microinsurance alone is not sufficient Tanzania’s Vice-President. to protect the poor. It nevertheless plays 4 — 15 organisations presented a very critical role in complementing their work in the exhibition area. 5 — Group discussions in parallel the more formal insurance schemes and sessions 5 and 9. governmental social protection systems 6 —Left to right: Yvonne Deblon, GIZ, Germany; Craig Churchill, which are not reaching the rural poor.” Microinsurance Network ILO / Micro- insurance Innovation Facility, Hon. Mohamed Gharib Bilal Switzerland; Martina Wiedmaier- Vice-President of the United Republic of Tanzania Pfister, A2ii / BMZ, Germany; Jordan Rugimbana, Dar es Salaam Regional Commissioner Represen- tative; Dirk Reinhard, Munich Re Foundation, Germany; Hon. William Mgimwa, Minister of Finance of the United Republic of Tanzania; Richard Phillips, Georgia State University, USA; Brigitte Klein, GIZ, Germany; Yoseph Aseffa, ILO, ; Hon. Mohamed Gharib Bilal, Vice-President of the United Republic of Tanzania; Gaby Ramm, Consultant, Germany; Richard Leftley, MicroEnsure, UK; Doubell Chamberlain, Cenfri, South Africa; Thomas Loster, Munich Re Foun- dation, Germany; Claudia Huber, GIZ, Germany; Prisca Soares, African Insurance Organisation, Cameroon; Israel Kamuzora, 3 4 Commissioner of Insurance, TIRA, Tanzania. 7 —A participant in parallel session 8 discussing a mapping solution for business excellence.

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Pre-conference Regulation, supervision seminar 1 and policy

Regulation plays a critical role in Ghana Nigeria creating an enabling environment People are not always aware that The regulatory framework is which motivates financial service insurance products other than manda- addressing mis-selling and the lack providers, protects the interests of tory ones are available…. A key of insurance education; most people clients and ensures that they can challenge is effective disclosure by who would qualify for insurance have access innovative insurance products mobile operators to a population with no idea why and how it can help them. and doorstep services that are a high illiteracy rate. affordable. In Nigeria, the microfinance market Ghana’s National Insurance Commis- is focused on lending and insurance is In recognising the importance of sion (NIC) has been driving a country- driven by informal operators. The effective regulation and supervision wide process, for several years now, main intermediation channels in the in developing sustainable microin- in close dialogue with industry. country are MFIs and cooperatives – surance markets, over 100 represen- A recent achievement is a regulatory both informal – and brokers. Mobile tatives of insurance supervisory framework for insurance. payments are making their way into authorities from 30 countries and all the insurance sector. Corporate agen- continents deliberated the opportun- One new measure is implementation cies are prohibited by law. ities and challenges for microinsur- of the requirement of insurers to let ance policy, regulation and super- the NIC know that their products are The National Insurance Commission vision in this 4th seminar preceding affordable and accessible – the latter (NAICOM) is on the verge of issuing the annual conference. focusing mainly on doorstep ser- microinsurance guidelines that aim at vices – rather than the NIC approving opening up the intermediation space, The seminar informed supervisors of microinsurance products. which will allow innovative models the newly released guidance of the such as cooperatives, esusus (rotating International Association of Insurance Commercial insurers and specialised credit and savings groups), NGOs and Supervisors (IAIS) in the form of the microinsurance intermediaries are NIPOST. “IAIS Application Paper on Regulation the main market participants driving and Supervision Supporting Inclusive microinsurance. The key challenge The recent country-wide process Insurance Markets”. in Ghana’s market is the fact that the being driven by NAICOM includes the population is not always aware that creation of a regulatory framework The IAIS guidance highlights crucial insurance products other than manda- that can facilitate the development of areas for proportionate application tory ones are available. the industry and provides for a total of generally accepted international review of the system. insurance supervisory standards There is also the challenge of regula- when pursuing initiatives on financial tory issues relating to mobile oper- The regulatory framework will include inclusion. ators. Mobile phones play an import- proposals to fix market conduct / mis- ant role in insurance distribution and selling issues and promote insurance In two expert panels, supervisors re- two of the four major distributors of education, to improve the existing viewed their challenges and regulatory mobile services are involved in micro- situation in which most people who experiences on intermediation, market insurance. They must resolve the would qualify for insurance have no conduct and consumer protection. problem of effective disclosure to a idea why and how insurance can help Panellists represented supervisory population with a high illiteracy rate. them. authorities in Ghana, India, Kenya, It is expected that this new regulatory Nigeria, Pakistan, the Philippines and framework will earn consumers’ Uganda. trust in the market when they see that the regulator is addressing issues to protect them.

8 — Israel Kamuzora, Commissioner of Insurance, TIRA, Tanzania. 9 — Peter van der Broeke, IAIS, Switzerland.

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The Philippines Pakistan Innovative distributors are on the rise: Pakistani Telecom, digital The regulator specifically defines The regulator is making sure that TV channels, shops or third-party microinsurance: premiums per insurers comply with codes of compe- kiosks. There are drugstores selling day not exceeding 5% of the daily tence and ethics in selling with total prepaid microinsurance cards. Two minimum wage for non-agricultural disclosure. Mobile companies must international brokers have come activities in Manila (US$ 0.50), and submit their distribution contracts to the country. Selling through utility sum insured not more than 500 times with insurers and agents to the super- companies is also increasing. this minimum wage. visor for approval. Furthermore, the mobile industry has In the Philippines, around eight Pakistan’s microinsurance market an important stake. Mobile com- million policyholders are proof of has four million policyholders, panies must submit their distribution strong industry engagement coupled according to a recent country study. contracts with insurance companies with regulatory action. To facilitate Microfinance banks predominantly and agents to the supervisor for intermediation, the national Insurance have the greatest outreach in micro- approval. Pakistan is also promoting Commission (IC) has issued several insurance. However, the fact that other distributors such as third-party circulars on new entry requirements, the market is served largely by unregu- administrators. opening up microinsurance distri- lated providers presents a challenge. bution space, granting approval for Regulation has encouraged a variety Consumer protection is a major chal- training programmes for microinsur- of brokers and agents; it promotes lenge as is low in rural areas ance agents, setting performance innovation but also allows for regula- and among the poor in general. SECP indicators, incorporating previously tory arbitrage. is trying to make sure that insurance informal activities (notably coopera- companies comply with codes of Pakistan’s recent and comprehensive tives and NGOs) into the insurance competence and ethics in the selling country diagnostic study looked at regulatory regime, and facilitating inter- process with total disclosure. the various building blocks, providing agency coordination among various a basis for determining its regulatory SECP will soon issue a Code of government authorities. The main direction. Consumer Protection for which delivery channels for microinsurance insurers are liable, and a Code of products are brokers, insurance The Securities and Exchange Commis- Conduct for agents. agents, MFIs, rural banks, and co- sion of Pakistan (SECP) has circulated operative banks. a consultation paper in preparation SECP has also embarked on partner- for the adoption of a dedicated regula- ships to facilitate intermediation. Mobile payment systems have tory framework for microinsurance. A striking example is the mobile net- facilitated outreach and claims work operator that bought a micro- settlements, especially in rural areas So far, the channel that has been finance bank and now has more through rural banks. Regulation has promoting microinsurance has been outlets than bank branches in the made distribution easier with the the individual agents, who have gone country. creation of microinsurance agents to poor neighbourhoods, knocking and over 13 training and educa- on every door. Individual agents are A key challenge is to achieve true tion programmes administered by not registered by the SECP; it is the scale and value. SECP recognises insurers. insurer that is liable for their conduct its role as a driver of this process. and for training. Nor are corporate The country also has a specific defin- insurance agents obliged to register ition of microinsurance: premiums with SECP, as they can be included in per day not exceeding 5% of the daily the corporate register. minimum wage for non-agriculture activities in Manila (US$ 0.50), and sum insured not more than 500 times this minimum wage. There are more than 93 different products and more than four million policies comply with the definition. The vision for the Philippines is for every citizen to have 10 — Left to right: insurance protection by 2020. Ibrahim Jankara, NAICOM, Nigeria; Evelyn Singun, IC, Philippines; Nyamikeh Kyiamah, NIC, Ghana; Faraz Uddin Amjad, SECP, Pakistan.

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Pre-conference seminar 1 Regulation, supervision and policy

India Over the past four years, microinsur- Kenya ance sales increased by a factor of In terms of protection, IRDA is also Mobile payments are revolutionising almost 25, from US$ 4.62m in 2008/9 concerned about protecting insurers intermediation and inclusion, but to US$ 123.4m in 2011/12. from false claims. pose regulatory challenges from IRDA’s current concerns relate to insurance transactions that are no India was the first country to issue consumer protection issues, such as longer conducted face-to-face and microinsurance regulations in 2005. mis-selling and lack of transparency, involve no electronic policies. The Insurance Regulatory and Devel- misrepresentation of insurance, opment Authority (IRDA) is now Kenya’s Insurance Regulatory breach of contract, misappropriation preparing for the adoption of a revised Authority (IRA) sees consumer of premiums, claims management, regulatory framework for microin- protection and consumer value as financial literacy and capping charges surance. The main thrust of the up- being closely linked. IRA does not see on group policies. The challenges dated regulation is the definition consumer protection as an exclusive are many as the supervisor must of microinsurance, the scope of the area of supervisors. guarantee the good service of the product and the delivery channels. agent and must oversee the contracts, Efficient company customer service IRDA is planning to remove the cap which could be written in any of the desks could be a great help, as griev- on the sum insured of INR 10,000 22 different languages. ance handling should be first sorted (US$ 185), which proved to be too low. out in the company. However, the low- In terms of protection, IRDA is also Premium-level restrictions will also income client may not know or not concerned about safeguarding be removed. Another envisaged dare to access this mechanism. insurers from false claims. change is aimed at encouraging more Supervising all steps of the delivery product flexibility such as “combo” Finally, IRDA has been closely co- process and disclosure of clear products insuring life, health and operating with the Reserve Bank of information are focus areas of the fire. Last but not least, IRDA plans to India and the Ministry of Finance to regulator. IRA, for example, approves allow the selling of insurance through advance microinsurance in terms of contracts between the insurance banking correspondents, or other quality and scale. companies and agents. new kinds of intermediaries such as state cooperative banks, regional Microinsurance intermediation in banks, small “kiranha shops” (stand- Kenya relies heavily on the mobile alone retail outlets), or the over payment system, M-PESA, which has 100,000 Government Common Service revolutionised the concept of financial Centres in villages. Ordinary insur- inclusion. It has driven the success ance agents will also be allowed to sell of the financial sector in Kenya with microinsurance. more than ten million (of 40 million Kenyans) account holders now having access to financial transactions in their neighbourhoods. The specific market conduct chal- lenges of this system emanate from transactions that are no longer conducted face-to-face between the customer and insurance companies. It adds uncertainty to the process. Although real-time delivery is assured, there are no electronic policies. One of the characteristics of super- vision in Kenya is the collaborative effort among all supervisory entities: 11 cooperative regulator, central bank, 11 — Left to right: ministry of finance, and the pensions Sammy Makove, IRA, Kenya; and insurance regulators. Sudhin Roy Chowdhury, IRDA, India; Flavia Nakimera Mpagi, Insurance Regulatory Authority, Uganda. 12 — Facilitator: Hennie Bester, FinMark Trust, South Africa.

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Uganda Uganda’s market has various types of Main findings and conclusions companies which are involved in the The supervisor has created a A main concern of regulators and insurance value chain but regulated claims bureau to handle customer supervisors is consumer protection. by several regulators. The iRA signed complaints. Its experience shows High illiteracy rates among potential memorandums of understanding that the vast majority of complaints customers make them vulnerable with the Bank of Uganda, the Capital are related to the customer’s lack to mis-selling and fraud. Some Markets Authority and the Ministry of understanding of the coverage. clients do not even know that they of Finance to coordinate and tap into are buying insurance, as it is known, Uganda has a rich history of micro- their client bases. with credit life. Those who know they finance. Microinsurance has been Uganda’s supervisor has created a have it often do not understand it. growing for quite some time but has claims bureau to handle customer been operating informally. In 2011, Telecommunication regulators complaints. Its experience shows microinsurance was integrated into in charge of the mobile network that the vast majority of complaints the insurance amendment law and operators need to deal with transpar- are related to the customer’s lack of detailed regulations are being drafted ency issues and fraud prevention understanding of the coverage. at present. in conjunction with the insurance In the country’s financial sector, supervisor. Secure premium payment The sector still faces challenges actors like the Bank of Uganda and is an issue with mobile network because most insurers are far away the insurance association have been operations. from the “poor, illiterate and rural” taking steps to advance financial reality. People do not understand Innovative business models require literacy and financial consumer what they are buying – as in many clear responses from supervisors. protection, for example a toll-free developing countries. Various supervisors report efforts line for consumer complaints and to adapt their regulatory frameworks In Uganda, the biggest distribution an on-line portal at the insurance with the aim of allowing a wider channel is bancassurance. As formal- association. The practice of bancas- variety of delivery channels. ised microinsurance activity is very surance however entails some recent and insurers only offer a few consumer protection challenges. Supervisors need to engage in products, the iRA plans to improve Banks charge a premium of 2% and stakeholder processes with the the regulatory environment so as pass on 1% to the insurers (fairly industry in their countries to to encourage long-term protection priced premium rates in credit life develop the market in a holistic way. while creating incentives that will are much lower). As agencies are too expensive to allow bancassurance to prosper. set up and manage, individual agents might not be the most effective solution for broad coverage. Innova- tive aggregator models that come with a large client base are making headway. Loyalty programmes are on the rise in African markets, but most customers are not aware of the fact that they have insurance. These schemes are often also not regulated under the insurance space.

13 13 — Left to right: Brigitte Klein, GIZ, Germany; Mustapha Lebbar, Chair of the IAIS-MIN Joint Working Group and Financial Inclusion Subcommittee of the IAIS, Morocco. 14 — Jacky Huma, FSB, South Africa.

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Pre-conference Academic track seminar 2

The seminar, hosted by Georgia State It is important to measure subjec- Table 1 University, focused on the use of tive probabilities, which are “inside Summary of lessons and experiments in studying behavioural people’s heads” instead of actuarial common problems aspects of microinsurance. probabilities which are too sophisti- cated in relation to how people make How to design an experiment decisions in real life. Randomised controlled trials (RCTs) Lesson 1 Start with theory On the basis of the utility function, estimate whether an intervention has it is clear how many parameters need an impact. Because the impact of an Lesson 2 You cannot to be estimated. More parameters intervention can be heterogeneous, implement an ideal in the equation imply more work experiment it is important to go beyond the ques- but are necessary to achieve higher tion of whether a certain outcome or explanatory power. If one wants Lesson 3 Details of impact is found and look inside the to estimate two parameters, one instruments matter decision process to show why certain needs to vary two things. If only effects are found. This can be done Lesson 4 Theory needs to one thing is varied, an identification by doing experiments which, just like be augmented by problem will pop up. RCTs, rely on randomised assignment. a stochastic choice process Moreover, it is important to control According to researchers in this for variations in non-behaviour session, it is vital to first build a model Lesson 5 Identification quickly variables like the price of insurance, based on theory before setting up becomes a problem the value of the property insured in flexible models an experiment. This will guide the and the damage done as these vary process of the design of data collec- by product. Common Overfitting and tion and ensure internal validity. Problem 1 underidentification There are three elements of theory Furthermore, auxiliary influences that are important: choices, prefer- need to be controlled to whatever Common Lack of power ences and perceptions. degree possible to have precise meas- Problem 2 urements. The influence on respond- Experiments can be used to find out ents should be minimised by giving why demand for insurance differs monetary incentives, making people among people by eliciting the really understand the experiment and parameters within the utility function. keeping it short in order not to bore For the experiment, it is necessary Source: Rutstrom, Elisabet. Presentation them. “Experimental methods and behavioural to create a choice situation, specify economics”. 8th International Microinsurance the utility function and estimate r In an ideal experiment everything is Conference 2012 (curvature of the utility function) and observable, (monetary) incentives π (probability). suffice for respondents to tell the truth and one is able to predict demand across broader market segments. In practice, researchers should try to come close to this ideal (see Table 1).

15 — Elisabet Rutstrom, Georgia State University, USA.

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Risk attitudes of the poor The best way to look at risk attitudes Another important aspect of the risk is to measure the risk premium. premium is background risk, which People make decisions in different The risk premium is the minimum means that demand for a specific ways when exposed to risk and amount people would like to get insurance can also be influenced by uncertainty, which has an impact on to feel compensated for the risk they other risks people are facing which the type of insurance they would like are taking. Risk attitudes are multi- may or may not be correlated to the to have. The poor can deal with risk dimensional and composed of risk someone wants to insure. through mutual insurance schemes different elements. There are different and informal webs of risk-sharing. Ambiguity aversion is another theories that include one or more of The challenge of microinsurance is to component of the risk premium and these elements. find its place in the universe of risk- means that people have a preference managing strategies that the poor use. Expected utility theory (EUT) calcu- for known over unknown probabil- lates weighted averages and is based ities. Multivariate risk aversion, also To ensure that they provide better on aversion to variability. Rank- important to take into account when insurance, insurers need to know how dependent utility (RDU), with indi- looking at risk attitudes, means that risk attitudes of the poor are charac- viduals overweighting low-probability people can have different risk atti- terised and whether there actually are events such as winning the lottery, tudes towards different situations. any other formal and informal risk- is based on aversion to variability For example, people can gamble with management tools in place and probability pessimism. Cumula- their income in a casino and at the (see Figure 1). tive prospect theory (CPT) is a further same time display highly risk-averse development of prospect theory behaviour when it comes to buying and relies on aversion to variability, a house. In this case, insurance probability optimism or pessimism with flexible bundles of contracts and loss aversion. should be offered.

Figure 1 More components of the risk premium

Aversion Background to losses risk

Probability Ambiguity pessimism aversion

Aversion Multivariate to variability risk aversion of returns

Risk premium

Source: Martinez-Correa, Jimmy. Presentation “Optimal risk-sharing contracts: A behavioral perspective”. 8th International Microinsurance Conference 2012. Report 8th International Microinsurance Conference 2012 10

Pre-conference seminar 2 Academic track

Different behavioural assumptions Index insurance The difference from normal (indem- have an important impact on the nity) insurance is that instead of There are several reasons why it type of insurance contract people getting a pay-out if something can be interesting for researchers would like to buy. Low insurance happens to a policyholder, there is to look at index insurance: demand can relate to the fact that a pay-out when something happens contracts do not match the tastes of Firstly, because it is difficult for insur- to something external which is potential clients, that the poor may ance companies to measure individual hopefully linked to the policyholder. already have ways of dealing with cases and it can be a good idea to take Indemnity insurance reduces risk, risks, liquidity constraints or contract an aggregate measure on the basis but also reduces average return. non-performance. of which people are compensated. Index insurance reduces risk when Because of trust and deep knowledge Secondly, because it is complicated the hedge is successful, but when of consumer needs, informal or and fundamentally different from it is unsuccessful, it reduces the mean mutual formal insurance can be normal insurance. outcome. The size of the mismatch preferred above formal insurance. between what happens to the policy- Thirdly, because it is potentially However, there are limitations to holder and what happens to the unsafe and there has probably been mutual and informal insurance, for external measure depends on the a lot of mis-selling to the poor who example in the case of epidemics correlation between the two. do not understand the product well and natural disasters. enough. Formal insurance can play a role by Lastly, it is interesting for academics insuring non-diversifiable risk or because the industry is only just even a reinsurer role for local insur- starting to understand how to use ance schemes. indices in insurance.

Figure 2 Optimal demand of index insurance under constant relative risk aversion (CRRA) – Who “should” buy unsubsidised indexed insurance?

Risk neutral will There is an upper bound Infinitely risk averse will optimally purchase zero for ‘rational’ purchase optimally purchase zero Purchasing worsens ‘If you care enough about risk Purchasing worsens the the mean outcome to want to hedge, you care worst that could happen enough about the downside Optimal basis risk to limit the size of demand your hedge’ under CRRA

40 %

30 %

20 %

10 %

0 2 4 6 8 10 Coefficient of relative risk aversion

Source: Clarke, Daniel. Presentation “Actuarial science, economics and the design of index insurance products”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 11

Optimal demand under constant An experiment has been conducted Lessons learnt relative risk aversion shows that risk- to look at insurance choices under — Experiments can help explain neutral people do not buy insurance known probabilities; the chance of heterogeneous behaviour and (see Figure 2). Infinitely risk-adverse having a bad or good outcome and heterogeneous impact of inter- people will also not buy because the outcome of the weather station is ventions, and can help explain purchasing worsens the worst that known. The experiment is designed demand for insurance. could happen: having a bad outcome in such a way that one pays US$ 1.20 and no pay-out. People who are more to get US$ 1. The result shows that — One cannot implement an ideal or less risk averse should buy most two-thirds of people in the experiment experiment. insurance. chose too much insurance. — Risk attitudes can be explained In India, weather insurance is being The question is whether people care by looking at the risk premium sold to 11 million farmers a year. enough about the risk to buy the and this is composed of different The correlation between the yield insurance or care enough about the elements which can help explain of farmers and claim payment is only downside risk (having a bad harvest heterogeneity. 13%. This means that the basis risk, without pay-out) not to buy insurance. — Index insurance is interesting for the risk of an unsuccessful hedge, Of course the bad harvest can also academics, but a theory in some is high. Actuaries would say that it is be related to things other than bad cases may not be upheld in an a bad product and therefore nobody weather, for example bad manage- experiment, with a bad product should buy it. However, it seems people ment. This should also be taken into producing a surprisingly high are buying this “bad insurance”. account when looking at the basis risk. uptake. This is work in progress. As an addition to using the weather as an index for pay-out, it is also possible to look at area yield, which reduces the basis risk. However, there are some downsides to using this, such as it taking more time. These two could be a good combination: the speed of the weather and the accuracy of the area yield.

16 — Jimmy Martinez-Correa, Georgia State University, USA. 17 — Daniel Clarke, Oxford University, UK.

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Agenda Day 1 afternoon sessions 6 November 2012

Opening Plenary 1 Welcome addresses Round table – Opportunities and gaps of microinsurance market development in Africa Israel Kamuzora Introductory presentation Commissioner of Insurance, Results from the study TIRA,Tanzania “The landscape of micro- insurance in Africa 2012” Thomas Loster Chairman, Munich Re Afua Boahemaa Donkor Foundation, Germany Executive Director, Star Microinsurance Services, Keynote address Ghana Video message by H.R.H. Princess Máxima Winnie Njau-Mbugua of the Netherlands Head of Insurance Business, United Nations Secretary- Equity Insurance Agency, General’s Special Advocate Kenya for Inclusive Finance for Richard Leftley Development CEO, MicroEnsure, UK Craig Churchill Patrick Mommeja Chairman of the Head of life-related insurance Microinsurance Network, and microinsurance, ILO / Microinsurance Allianz Africa, France Innovation Facility, Switzerland Kayembe Gilles Ilunga Hon. William Mgimwa Head of Trustco Mobile, Minister of Finance Trustco Group International, of the United Republic of Tanzania Facilitator Hon. Mohamed Gharib Bilal Michael McCord Vice-President of President, MicroInsurance the United Republic of Centre, USA Tanzania Report 8th International Microinsurance Conference 2012 13

Opening and welcome addresses

“Why Tanzania?” was a question The government is focused on micro- The nearly 600 conference partici- in many delegates’ minds as they insurance as a key tool in achieving pants came from 60 countries, headed to Dar es Salaam for the its national development Vision 2025 representing the insurance industry, 8th International Microinsurance and the Strategy for Growth and donor organisations, policymakers Conference to be held 6 – 8 November Poverty Alleviation MKUKUTA. The and regulators, academics and 2012. The country in East Africa had country’s insurance market has been consultants. About 33% were from thus far not figured prominently growing at around 20% annually, at the private sector – a sign of its on the global microinsurance map. a rate roughly three times its GDP – increasing involvement – and 60% in itself no mean feat over the past were from Africa. When mainland Tanganyika and few years of the global financial crisis. off-coast Zanzibar came together in The conference agenda addressed 1964, lending their names’ first syl- “This conference represents an topics fundamental to providing lables to the new name of the union, important milestone in the life of good-value products to low-income Tanzania had half of its people living Tanzanian insurance industry as it people – such as how to create and below the poverty line and a third coincides with the launching of maintain trust. The conference had in abject poverty. Most development our country’s access to insurance an academic track – already a trade- agencies today regard these levels diagnostic study report.” mark of this largest international as having changed only marginally platform for exchange of microin- Israel Kamuzora, since then. But this huge challenge of surance knowledge and experience – Commissioner of Insurance, TIRA alleviating poverty also holds an along with themes dealing with enormous potential for microinsur- Tanzania’s progress in achieving product development and sustain- ance and, as the conference got under- some of the Millennium Development ability (specifically agriculture and way, participants soon sensed that Goals may be due in part to stable health), illustrated by case studies Tanzania now is well on its way to political leadership which over the and even by the analysis of failures. realising that potential. years has helped it avoid conflicts Other topics of relevance were plaguing a number of neighbouring consumer protection, pricing, and countries. It has lived up to the name an actuarial toolkit designed for of its largest city and capital until microinsurers. 1974: Dar es Salaam, in Persian- “In the use of cell phones for financial Arabic “home of peace.” Its nearly transactions, East Africa is certainly 43 million inhabitants consist of some Number One, and the so-called First 120 ethnic groups – including around World can by comparison be seen 70,000 Arabs, 55,000 South Asians as the Third World of mobile finance.” and 10,000 Europeans. About 75% of the GDP is generated by agricul- Thomas Loster, ture and the population is more than Chairman, Munich Re Foundation 80% rural.

18 — Israel Kamuzora, Commissioner of Insurance, TIRA, Tanzania. 19 — Thomas Loster, Chairman, Munich Re Foundation, Germany. 18 19 Report 8th International Microinsurance Conference 2012 14

Opening and welcome addresses

Thomas Loster, Chairman of the Craig Churchill, Chairman of the ”The initial emphasis in microinsur- Munich Re Foundation, welcomed Microinsurance Network, recalled ance was on quantity to reach participants and said that, with this in his welcoming remarks that when scale; now the discussion should event, the foundation is aiming at 16 people met in Geneva in 2002 shift from quantity to quality.” helping to develop microinsurance to start studying microinsurance, Craig Churchill, “not only in Tanzania but in the entire it was hard to imagine that ten years Chairman, Microinsurance Network region.” East Africa, he added, is later, “hundreds of thousands and among the most interesting regions in some cases millions” of low- Mr. Churchill also highlighted the in the world for many reasons, among income households would be development and promotion of them the prevalence of microfinance provided with microinsurance. From the key performance indicators (KPIs) and the growing acceptance of an initial estimate of 78 million that enable monitoring of micro- microinsurance, as well as financial persons covered in 2006, the number insurance operations by providers. services inclusion spurred by mobile had grown to half a billion in 2011, Consumer protection is another technology for payments and other according to landscape studies area in which the Network has been transactions. “Indeed, in this respect conducted by the Microinsurance deeply involved to help providers the region is certainly Number One Centre. For the founding group it build trust among low-income and the so-called First World – was also difficult to envision that customers, and at the same time including Germany and the USA – ten years later the Network’s member- keep premiums low by controlling can by comparison be seen as the ship would include more than 200 costs. He also mentioned a number Third World of mobile finance.” persons, many from developing of important publications that countries. the Network has helped develop, Referring to the latest study of the latest of which is Volume II “The landscape of microinsurance in The evolution of the industry in many of the Microinsurance Compendium. Africa”, he said that despite a rapid ways parallels the evolution of the growth of nearly 200% in the last Network, Mr. Churchill added. A case He pointed out that despite the three years, the market penetra- in point is the engagement with the growth seen in Africa and elsewhere, tion is still very low. “However, the International Association of Insurance it is not sufficient to cultivate a future looks promising given the Supervisors (IAIS) to identify obs- demand for insurance or to enable commitment and support of various tacles and promote sound and condu- the poor to manage risks. Most governments through their regulatory cive regulations, supervision and products in the market are basic ones agencies.” policies. Besides working in many with limited benefits. “In order for countries to implement diagnostics the poor to appreciate insurance, and At the global level, Mr. Loster said, and help them introduce suitable see it as an important component a long-term partnership that has regulation, the Network and IAIS have of their risk management toolkit, we worked well is between the Founda- published an applications paper to need to push the evolution of prod- tion and the Microinsurance Network, provide guidance to supervisors on ucts so they provide real client value.” which has just published the “Memory creating more enabling environments Book” to mark its tenth anniversary. for microinsurance. “This paper is a major accomplishment, positioning the IAIS as the leader among the global standard-setting bodies in the pursuit of financial inclusion.”

20 — Hon. William Mgimwa, Minister of Finance of the United Republic of Tanzania. 21 — Craig Churchill, Microinsurance Network ILO / Microinsurance Innovation Facility, Switzerland. 20 21 Report 8th International Microinsurance Conference 2012 15

Mr. Churchill said that the initial In his view, the challenge for the A pressing need, he added, is to know emphasis was on quantity to reach conference participants is tackling whether subsidies implicit in many scale; now the discussion should some key issues: of the microinsurance schemes are shift from quantity to quality. “The effectively reaching the low-income 1. How to change the corporate rationale for this new tune is not people, specifically poor families strategy of insurers and other finan- just to achieve social objectives, but in rural areas. “Special efforts are cial institutions so that they take also to build a viable market, where required to reach the poor because the responsibility for extending there is a demand for and supply they cannot afford services directly services to the less privileged. of services. We need to cultivate the nor can they afford to pay for normal 2. How to encourage insurance for demand by demonstrating to the insurance premiums from formal the low-income population and working poor that insurance does commercial insurers. This indeed is how to do it efficiently. indeed satisfy a critical need. That what this conference is all about.” 3. How to strengthen microinsurance is our next challenge.” so it is sustainable and has a The Vice-President acknowledged Hon. William Mgimwa, Minister of potential to grow as a business. that while microinsurance alone is Finance of Tanzania, outlined the 4. How to align microinsurance not enough to protect the poor from importance of the conference for schemes professionally so they risks they face – including natural Tanzania and indeed for the whole can compete effectively. disasters and weather catastrophes – of the developing world, as the 5. How to redeploy successful models it nevertheless has a critical role in key issues to be addressed by the of some countries (for example, complementing formal insurance conference deal with the challenges India) elsewhere to achieve econ- schemes and government pro- that the poor face daily along with omies of scale and make the busi- grammes like the social protection the challenges the governments face ness profitable. system. in order to make microinsurance Hon. Mohamed Gharib Bilal, Vice- The Vice-President expected the work effectively. “The Government President of Tanzania, said that the conference to achieve implementable of Tanzania is committed to taking global financial crisis has shown solutions to challenges to the poor, all necessary steps to support the that developments in leading econ- ways in which delivery channels growth of the microinsurance sector.” omies such as the USA and EU will can be improved and complement affect low-income families in the Third one another to extend outreach, World. “Down the line there will be and ways that existing schemes can declining investment and financial and should be strengthened to protect flows to support government inter- consumers. vention addressing pressing local social and development issues. There is a need for policymakers to work in coordination with other stake- holders to explore other means of serving the low-income population.”

22 — Hon. Mohamed Gharib Bilal, Vice-President of the United Republic of Tanzania. 22 Report 8th International Microinsurance Conference 2012 16

Keynote address H.R.H. Princess Máxima of the Netherlands, UN Secretary-General’s Special Advocate for Inclusive Finance for Development

Good afternoon, Excellencies, A global milestone was reached in Like us, most poor people use several Ladies and Gentlemen, June. At the G20 Leaders Summit, or even a dozen financial products to 17 countries committed to creating meet their needs. I think it is very good I am so pleased that technology is a coordination platform and a national that pilots are investigating which permitting me to join you. I had the strategy as part of the G20 Financial combinations of financial products are honour of visiting Tanzania two years Inclusion Peer Learning Program. In best for specific goals. For example, ago. Tanzania’s efforts are a good doing so, countries including Tanzania, one company in Indonesia is testing reflection of the sky-rocketing journey South Africa, Brazil, Mexico, Indonesia a product that encourages families to that financial inclusion has made. and Nigeria put financial inclusion save for their children’s education. A few years ago, most people were at the heart of their economic and It provides life and hospital insurance discussing only microcredit. I would national development. So, this all as a benefit to protect these weekly get a lot of questions when I talked to say that we are well underway in contributions. In Africa, pilots suggest about the need for savings accounts or our efforts to make financial inclusion that having crop insurance makes enterprise finance, financial education a reality. farmers more able to get formal loans, or basic insurance. as it reduces the risks. We think it can Financial inclusion recognises that The situation is very different today. also reduce the cost of finance. And the impact of unexpected shocks We see more policies, technologies in India, insurance is helping farmers can be devastating. In fact, about and partnerships that are putting to shift to riskier but more profitable 100 million people around the world financial products at the service of crops, and to invest more in them. fall into poverty every year due to poor communities. The difference Other efforts are seeing how the health expenses. And this is where this has made to lives and livelihoods private sector can contribute to public microinsurance has so much potential. is real. It is particularly thrilling that policy objectives through insurance – so much innovation is originating The good news is that more and more such as development of universal in developing countries. insurance is reaching low-income health coverage. Ghana and populations and businesses. In 2011, are good examples of this. We are also seeing more attention there were almost half a billion among global standard setters. For all the good news, microinsur- insured risks globally. I am pleased I would like to recognise the Inter- ance still faces challenges. Significant to note the growth of microinsurance national Association of Insurance growth remains concentrated in a in Tanzania and other African coun- Supervisors for its efforts, including limited number of countries and tries. I know that subsequent presen- the recent application paper on concentrated in a few products, like tations will expand on this. We have inclusive insurance markets. credit life and life insurance. Where also seen many more kinds of products there are new products, uptake can developed that protect people against be limited or costs high. As a result, floods, fire, funeral costs and other some pilots struggle to reach scale shocks. and sustainability. And in a few markets in Africa, health insurance coverage even seems to be slipping. Why is this? In my work on financial inclusion, I have realised that three issues are especially important: client demand, impact and trust. Only when we truly understand demand will we design products that have the right features, the right prices, and the proper delivery mechanisms.

23 — H.R.H. Princess Máxima, UN Secretary-General’s Special Advocate for Inclusive Finance for Development. 23 Report 8th International Microinsurance Conference 2012 17

When products are valued by The need now is to move from pilots In closing, I would like to congratulate clients, they will be used. And product to scale. This will not happen by the Microinsurance Network and the use leads to expansion and scale. addressing microinsurance in isol- Munich Re Foundation for this annual ation. It requires that policy makers event. And of course the Network on I find it useful to remind myself that and providers in insurance and social its tenth anniversary. The last few demand and impact are not the protection work with each other and years have been an important learning same. Some things that are not in also coordinate closely with stake- process. Even more knowledge, demand can have big impact. Such holders in agriculture, environment, practical analysis, and research will as preventative healthcare. It is one health, communications, and financial be the basis on which we can make reason why countries like Brazil, services. In most circumstances, a difference going forward. In all these Colombia and Mexico are making insurance business models benefit areas, I encourage you to approach cash transfers to poor households from a basic level of financial in- microinsurance in a broader context conditional on visiting health clinics. frastructure and customer access. of how people live their lives, what Conversely, there are insurance For example, small, regular premium other financial products they use, and products that are in demand, but have payments are more convenient to local development priorities. Partner little social-welfare impact, such as poor people. And clients need to and coordinate even more widely – cover for loss of mobile phones. receive benefits very quickly in times and join national financial inclusion Moreover, there will be no demand of distress so as to prevent costly processes. This will help to achieve if clients do not trust the products borrowing or doing without. Elec- real benefit and protection for clients and companies. Proliferation of weak tronic payment systems, mobile against risks. And this, Ladies and microinsurance institutions can also money and agent banking are making Gentlemen, is the ultimate purpose of undermine overall confidence in this possible – and affordable. microinsurance. insurance. There is a Dutch saying: We therefore have to build on the I wish you productive conversations Trust arrives on foot, but leaves on foundation of financial inclusion to and good success. horseback. So, it is very important that achieve the potential synergies. microinsurance delivers real value Thank you. I especially encourage the integra- and grows carefully, especially in tion of microinsurance targets and countries where the sector is new or metrics into national strategic plan- there is lack of confidence in other Source: http://www.koninklijkhuis.nl/ ning processes for financial inclu- globale-paginas/taalrubrieken/english/speeches/ financial providers. Policies such sion. This will facilitate constructive speeches-archive/ as transparency and consumer protec- dialogue on how insurance can tion can and should be considered. flourish and support national goals. But it is the responsibility of providers And, it is a timely way to identify to build trust. concrete steps to strengthen the enabling environment and regula- tions for microinsurance – and for the private sector to build partnerships with other stakeholders. I often say that there is no good policy without data. Data on microinsurance is expanding, but is still often limited. Thus, I urge you to integrate data collection plans into your work, public policies and national action plans. Even in countries where the priority is on building basic access to financial systems, data collection efforts can begin now as they will take time. This will also give providers the necessary actuarial data to design good products when the broader environment is ready. Report 8th International Microinsurance Conference 2012 18

Plenary 1 Round table – Opportunities and gaps of microinsurance market development in Africa

This round table explored expanding Growth has been driven by Star Micro, Ghana. Star began its microinsurance beyond the 44 million microinsurance service by distributing — greater involvement of the clients currently identified as voluntary products at markets, but commercial sector; accessing microinsurance in Africa. to reach scale it has engaged in part- — technology, particularly telecom- nerships with telephone companies Discussion began with the results munications (of the nine counties and other groups, allowing it to grow of the study “The landscape of micro- identified as covering more to 800,000 clients. insurance in Africa 2012”, conducted than one million people each, by the Microinsurance Centre. four have significant numbers MicroEnsure, UK. MicroEnsure of customers serviced through has been working in Africa for ten The study investigates the reach mobile technology); years, and has more than 2.5 million of microinsurance in Africa. The data — donor involvement; active clients on the continent. given is aggregate because it was — regulatory changes allowing new It has achieved rapid growth by necessary to promise insurers confi- organisations to become involved. re-evaluating its approach to partners, dentiality. putting insurance out in front of its It is encouraging to see a wide array The study identified 44.4 million partners’ core products. of delivery channels, as this will be people covered by microinsurance vital for microinsurance to go beyond Allianz Africa, France. Allianz Africa across Africa, the vast majority microfinance institutions (MFIs) in started microinsurance from scratch by life insurance of some kind. Africa. Moving forward, it will be very in 2008. It began in , then Earlier landscape studies had found important to think about expansion expanded into western and central that in 2005 only 3.5 million lives were in terms of product types as well as Africa, and now has 220,000 insured covered. In 2008 the number had numbers. clients. already increased to 14.7 million. Organisations represented at the However, this still only represents round table included: about 4.5% of the population of Africa. Trustco, Namibia. Trustco’s core If South Africa’s results are excluded, business is microinsurance and micro- only about 1.75% of Africa is covered. finance for education. The fact that Nine countries have more than one Namibia is a large place with a small million microinsurance clients each, population presents a major chal- but the vast majority of countries have lenge. Distribution is therefore the key. Figure 3 a penetration rate of less than 1% Equity, Kenya. Equity has focused Microinsurance coverage in Africa (notable exceptions are South Africa on microinsurance for the last four 2012 (based on 2011 yearend data): and Namibia). years, starting with credit life to secure Proportion insureds the livelihoods of those taking loans through banks. Now Equity also has health and embedded products, among them funeral and business insurance.

24 — Left to right: Patrick Mommeja, Allianz Africa, France; Richard Leftley, Micro- Ensure, UK; Winnie Njau-Mbugua, Equity Insurance Agency, Kenya; Afua Boahemaa Donkor, Star Microinsurance Services, Ghana; and Kayembe Gilles Ilunga, Trustco Group International, Namibia. Insureds in programme > 1000,000 83.6 % 100,000 –1000,000 14.1 % 50,000 – 100,000 1.8 % 0 – 50,000 0.5 %

97.7 % from above 100,000 0.1 % under 10,000

Source: McCord, Michael J. Presentation “The landscape of microinsurance in Africa 2012”. 8th International Microinsurance Conference 2012 24 Report 8th International Microinsurance Conference 2012 19

Figure 4 Microinsurance coverage in Africa Total lives / properties covered in 2011: 44.4 million A study on the development of microinsurance in Africa was presented at the conference (“The landscape of microinsurance in Africa 2012”). South Africa, Tanzania and Ghana take the pole positions; most of the insurance policies are held in these countries. However, market penetration is still low in many countries on the continent.

Population covered Morocco Tunisia by microinsurance 0.06% 1.9% No data 0 – 1% 1 – 5% Algeria Libya Egypt 5 – 10% 0.01% 0.0002% 0.25% 10 – 50% > 50%

Mauritania Mali Niger 0.16% 0.73% 0.002% Sudan 6% 0.42%

Gambia Burkina Faso 0.5% 1.3% Guinea Nigeria Ethiopia 0.32% 0.68% 2.6%

Sierra Leone 0.02% Ivory Coast Ghana 2.3% Cameroon Kenya 0.38% 7% 1.7% 3.2% Togo Congo Uganda 3.1% 0.78% 4.6% Rwanda 0.12% Dem. Rep. of Congo Burundi 0.32% 1.1%

Tanzania 7.3% Total lives and properties 0.94% Malawi covered (in millions) 1.7% 0 – 0.1m Mozambique Madagascar 0.1 – 1m Namibia 0.23% 0.08% 55.8% Botswana 1 – 2.5m 1.2% Zimbabwe 11% 6.1% 2.5 – 5m Swaziland 12% 500 km South Africa 54.5%

5 – 30m

Source: McCord, Michael J. Presentation “The landscape of microinsurance in Africa 2012”. 8th International Microinsurance Conference 2012. Report 8th International Microinsurance Conference 2012 20

Round table – Opportunities and gaps of microinsurance market development in Africa

Distribution is a significant chal- Mobile technology offers the prospect Lessons learnt lenge for all providers. Many different of reaching scale, as even people — Microinsurance has grown solutions have been experimented living below the poverty line have significantly, but there is still with, such as introducing compulsory mobile phones. Telephone companies a long way to go. products, using mobile money and are willing to offer access to their telephone companies, approaching distribution channels, if they see that — Distribution will be the key to alternative banks, and connecting with insurance benefits increase customer dramatically increasing the money transfers, like remittances. loyalty. Mobile microinsurance may number of people served by even be a solution for more complex microinsurance. Even where the distribution channel products. For example, Allianz Africa is part of the same institution, there — Technology may provide a is currently preparing to launch a are often real challenges to achieving solution, but the drive to access mobile health microinsurance pilot in internal buy-in. For example, Equity the mass market should be Cameroon, where premium payments found that constant education was balanced with the social mission will be made by migrants. required to ensure that those distrib- of microinsurance. uting the product have a good under- There are concerns about the extent — A provider’s working relationship standing of it. to which such mass market micro- with the regulator is very insurance can be socially driven, and Generating positive experiences important for effectively intro- that it may be moving away from the is vital to success. MicroEnsure ducing new microinsurance low-income market. However, serving has found that despite its extensive products in Africa. both the mass and low-income consumer education activities, markets may help insurers to reach the best education proved to be scale and become viable. getting an extremely simple product, preferably for free, into the hands Distribution of services provided by of poor people. Once they have ex- insurance is also problematic. Equity perienced the product and see others found that for its motorbike insurance, The aggregated data from the study in their community benefiting from one of biggest difficulties was getting “The landscape of microinsurance it, it is much easier to persuade them quality service providers in rural in Africa 2012” can be explored to voluntarily buy insurance. areas, and therefore trained repair through an interactive map at people in villages. www.microinsurancelandscape.org For many organisations, the relation- ship with the regulator is crucial, and sometimes more important than the actual regulation. It is important to work with regulators from the outset, as they can provide valuable feedback and help find workable solutions.

25 — Facilitator: Michael McCord, Micro- Insurance Centre, USA.

25 Report 8th International Microinsurance Conference 2012 21

Agenda Day 2 morning sessions 7 November 2012

Parallel session 1 Parallel session 2 Parallel session 3 Failures in microinsurance Strengthening training Health institutions

Agnes Nyondo Chakonta Antonis Malagardis Sapna Desai CEO, Madison Life Program Manager, SEWA, India Insurance, Zambia GIZ, Philippines Is there health in health Lessons learnt from insurance? The case of Yoseph Aseffa failures in microinsurance VimoSEWA CTA, ILO, Ethiopia Richard Leftley Marielle Goursat Mary Yang CEO, MicroEnsure, UK Technical Assistant to Capacity-Building Officer, Ten years of trial and error: Ministry of Health – ILO / Microinsurance Lessons from MicroEnsure Lao PDR on CBHI, GRET, Innovation Facility, Switzerland Lao PDR Lucas Greyling Facilitator Linking social assistance Independent microinsurance Gaby Ramm programmes to microinsurance: consultant and former director Consultant, Germany The experience of the of Microcare, Lucas Greyling SKY health insurance scheme Consulting CC, South Africa Microcare Uganda – Barbara Magnoni The perfect storm Client Value Project Manager, MILK Project – Facilitator MicroInsurance Centre, USA Thierry van Bastelaer How understanding patients’ Principal Associate, financial strategies for Abt Associates, USA coping with health shocks can inform health insurance design in both subsidised and non-subsidised programmes Facilitator Denis Garand President, Denis Garand and Associates, Canada

Parallel session 4 Plenary 2 Academic track – Is mutuality the missing link Agricultural insurance in microinsurance? Geoffrey R. McCarney Nelson Kuria PhD Student in Sustainable CEO, CIC, Kenya Development, Columbia May Dawat University, USA General Manager, Evidence of demand for CARD MBA, Philippines index insurance: Experimental games and commercial Kumar Shailabh transactions in Ethiopia General Manager, Uplift Mutuals, India Stephan Dietrich PhD Student, University of Facilitator Göttingen, Germany Doubell Chamberlain Impact of weather insurances Managing Director, on small-scale farmers: Cenfri, South Africa A natural experiment Facilitator Elisabet Rutstrom Director – Dean’s Behavioral Economics Laboratory, Georgia State University, USA Report 8th International Microinsurance Conference 2012 22

Parallel session 1 Failures in microinsurance

As microinsurance comes of age, Microcare’s perfect storm This curiosity, lack of trust, the big stakeholder community is questionable perceptions, and lack This case can be summarised as looking more and more into lessons of knowledge of microinsurance, the confluence of negative and learnt so far, particularly from what generated a number of problems: unpredictable factors with some has fallen short of expectations. unintended mistakes. — Conflicts with the regulatory Like the aviation industry in its authorities Indeed, as the companies (a health fledgling years, microinsurance — Lack of understanding of health company and an insurance company) needs to focus on extracting “the insurance claims administration started to grow fast (133% per year good from the bad,” to build on by reinsurers and regulators from 2006 until 2008) while filling the elements of energised attempts — Difficulties managing the network gap of a large proportion of low- and great innovations that ran of medical providers income people without health insur- aground but have the potential of — Media speculations as a conse- ance, competitors and regulators taking off if remodelled. quence of court actions started to shift their attention to Micro- Against this backdrop, the session care. For many, those good numbers covered the stories of three were just not plausible. Many others ventures – misaligned partner- wanted to receive the magical advan- ships? – that eventually came to tages they thought Microcare was nought. getting.

Figure 5 Premium allocation of Microcare Uganda

SPECIMEN Running the business? the Running

40% 70% 2% X Net premium Claims X Gross premium Unexpired risk reserve Contingency reserve

Source: Greyling, Lucas. Presentation “Microcare Uganda – The perfect storm”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 23

Moreover, the legal environment Madison Life: Lessons from Madison Life was not conducive: there were inap- The funeral of high expectations — Achieve clients’ trust from propriate reserves requirements for After having successfully launched the start. health microinsurance, creating a credit life microinsurance working conflicting situation between meeting — It is very important to understand with local MFIs in Zambia, Madison the solvency requirements and quickly the culture and environment. decided to offer funeral insurance. growing the business to scale, while It partnered insurance-tied agents — The financial education of continuing to meet claim costs. that were also selling coffins and clients, agents, and staff of Finally, the lack of an effective dispute burial services, more or less like a MFIs is key. resolution mechanism affected the loyalty programme. The hypothesis company and implied many months — The products need to have a was that a bundled product offering at court. strong value proposition while all these new services would have remaining simple. great success as a stand-alone product. A high take-up was expected. — The distribution channel should be a strong and capable But that was not to be. Zambia is a aggregator with technical and country where 64% of the popula- operative capacity to collect tion is poor, the mortality rate is high, premiums and settle claims at microinsurance is not widely known a low cost. and where the poor use social services run by their own communities. The — Try and try again to obtain product was expensive and hardly those large numbers that make understood by clients, who preferred insurance possible. their trusted informal protection schemes. The potential clients did not show any interest and volume was never achieved. Madison became dependent on the agent who in the end, given the cost structure, decided to give up the product.

26 — Left to right: Richard Leftley, MicroEnsure, UK; Lucas Greyling, Lucas Greyling Consulting CC, South Africa; Agnes Nyondo Chakonta, Madison Life Insurance, Zambia. 27 — Facilitator: Thierry van Bastelaer, Abt Associates, USA.

26 27 Report 8th International Microinsurance Conference 2012 24

Parallel session 1 Failures in microinsurance

How MicroEnsure reinvented itself It is clear that when the claims ratio Lessons from MicroEnsure is around 60%, the insurer will see Starting from scratch, even with — Do not make partnerships some net margin. However, this ratio important resources from donors, without having first aligned all oscillated between 25% and 300%, and with many dreams can be very the needs and incentives. making it difficult for the insurance tricky – even more so if the new Do not assume that all the company to set an appropriate risk venture is related to microinsurance partners know exactly what premium. and a new paradigm of how to do they need. business. TheA TP also shows a negative — Stay focused. margin. It has to be noted that From its inception in 2008 until early when the TPAs work with corporate — When you see it is not working, 2010, MicroEnsure struggled to serve accounts or standard group policies, know when to stop. around 600,000 clients. The many they can obtain a net margin of partnerships and new countries around 2%. served had yet to yield results on the bottom line. There was no real growth. Last but not least, for MicroEnsure What was clear was that adequately to maintain this product, with a level serving new countries and partners of fixed costs around US$ 650,000, overtaxed the company’s technical it would have been necessary to have and human capacity. five million outstanding policies. One example of the staggering activ- This situation generated a realignment ities and challenges MicroEnsure of its strategy design by McKinsey. was facing was the roll-out of a The results of this new strategy are cash-less in-patient health microin- positive. surance programme in India. The 1 programme involved a large MFI and The data in this example is not exact, aA. TP The initial distribution partner but is representative of reality. failed to ramp up. So MicroEnsure started working with smaller MFIs that were not able to generate econ- omies of scale, and finally partnered with district cooperative banks until Table 2 India’s government health insurance Economics across the value chain programme for below-poverty-line Micro- families, the Rashtriya Swasthya Bima Client Insurer TPA TPA MFI Ensure Yojna (RSBY), started its operations. US$ US$ % US$ % US$ US$ A general view of the economics of Premium 10.00 80.00 % 1 1 the value chain involved (see Table 2) Claims – 60.00 % illustrates this case1: Marketing and Acquisition Costs – 4.00 % FeeA to TP – 6.00 % 0.60 100.00 % Other overhead costs – 3.50 % Card printing 0.34 56.25 % Administration and other direct costs 0.64 106.25 % Indirect costs 0.30 50.00 % Enrollment costs – data entry 0.06 Enrollment costs = courier 0.05 Enrollment costs – rework 0.01 Policy servicing 0.75 Contribution margin 0.13 Margin 6.50 % (0.68) – 112.50 % 10.00 MEs fixed costs 650,000 Policies to break-even 5,000,000

Source: Leftley, Richard. Presentation “Economics across the value chain for health insurance”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 25

Parallel session 2 Strengthening training institutions

Although microinsurance is constantly Accordingly, this session provided As these tools do not yet cover growing, providers struggle to an overview of microinsurance all topics needed for operating overcome challenges of providing capacity building, and discussed microinsurance, plans are to develop high value to the low-income market, strategies for enabling local service a comprehensive microinsurance scaling up and achieving sustain- providers to conduct microinsurance curriculum which will consist of ability. As new knowledge and lessons training programmes. It highlighted the most important capacity-building emerge, effective dissemination their role and illustrated experiences aspects of the microinsurance of this information becomes critical. of selected training institutions. value chain at micro, meso and Without effective and efficient training macro levels (see Table 3). Capacity development is one compon- initiatives, scaling up is not possible ent of strengthening the availability for providers. of microinsurance services and reducing the likelihood of providers Access to high-quality training damaging the reputation of insurance materials in low-income markets. Time and Despite the existence of training again, discussions with microinsur- tools, many microinsurance providers ance stakeholders reveal the lack lack access to high-standard mater- of an accessible training infrastructure ials. Responding to this need , the and suitable materials. MIN Capacity-Building Working Group (CBWG) established a microinsurance “tool inventory” on the MIN website where training tools can be down- loaded and new tools uploaded. The tools allow local institutions to adapt them to best suit their training needs. It saves resources for de- veloping new tools which may already be available and facilitates the sharing of information with ease.

28 — Mary Yang, ILO / Microinsurance Innovation Facility, Switzerland. 29 — Yoseph Aseffa, ILO, Ethiopia. 30 — Antonis Malagardis, GIZ, Philippines. 31 — Gaby Ramm, Consultant, Germany. 28 29

30 31 Report 8th International Microinsurance Conference 2012 26

Parallel session 2 Strengthening training institutions

The need for local training The conference session provided Microinsurance is still in its earliest institutions (service providers) examples of organisations addressing stages in the region where the centre the need for capacity building among operates, so the primary focus of Local service providers are crucial various industry stakeholders using the capacity-building training for the availability of products and diverse methodologies. Three of currently offered is advocacy and services of high client value. They these, the Microinsurance Research client education. The centre has had work with all types of microinsur- Centre, Cenfri, and the Institute for great success in promoting microin- ance stakeholders and are physically Microfinance, participated in a round surance and the importance of public- present in the local environments table discussion, providing insights private partnerships. However, the where microinsurance needs to grow. into their approaches, the challenges infancy of the market has proven to Since training programmes must they have faced in their capacity- be a challenge, as participants often be accessible, affordable and adapted building experiences, and steps taken are interested in microinsurance to the needs and realities of course to overcome those. schemes which have not been de- participants, local service providers veloped yet. constitute the most strategic channel The Microinsurance Research Centre for delivering training programmes is the first organisation of its kind in South Africa-based Cenfri employs that seek to achieve large-scale results the Philippines. The centre’s focus an open training programme as quickly and with quality. is on promoting microinsurance, one tool within a capacity-building advocacy, financial literacy through suite to disseminate information However, to date the few existing partner universities and community and stimulate innovative thinking. local training institutions are not extension offices. The curriculum Cenfri develops training material in a position to effectively address is accredited and licensed by the with the objective of getting the most the microinsurance needs of the Insurance Commission of the Philip- important research and knowledge multiple actors. In the near future pines. into the hands of market participants significant efforts are required and regulatory and / or supervisory to equip existing service providers authorities that can use it best. to undertake these tasks. By leveraging the infrastructure and accreditation that university partner- ships provide, Cenfri can build uni- versity capacity for delivering micro- Table 3 insurance training and offer execu- Capacity-building needs tive-education style training both domestically and abroad. The training programmes are attended primar- Micro-level (Potential) customers: e.g. awareness building, ily by commercial insurers who, in understand & use suitable risk financial / insurance literacy general, already possess technical management tools skills but have limited experience in

MI providers & delivery channels: e.g. MI business planning, low-income markets. To address

provide valuable products & market demand, product develop- this capacity gap, Cenfri has officially

services ment, MI operations, M&E partnered with the ILO to present

Meso-level TA providers: e.g. microinsurance tools & tools and share case studies and improve knowledge, skills & materials, ToTs research for participants entering the attitudes of practitioners microinsurance or low-income space.

Other contributors: promote MI market, support

insurance associations, MI practises, e.g. data consolida-

reinsurers, federations, tion, technology solutions

TPAs, technology firms

Donors e.g. support projects & capacity development, monitor client value, facilitate multi-stakeholder dialogue Macro-level Policy makers e.g. integrate microinsurance into social protection and other policies, harmonising sector policies Regulators and supervisors e.g., create a conducive legal framework that supports microin- surance and consumer protection

Source: Ramm, Gaby. Presentation “Strengthening training institutions”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 27

The Institute for Microfinance (InM) Lessons learnt For more information on was launched in 2006 as a non- capacity-building tools, see — Sharing is better than spending profit independent entity to meet www.microinsurancenetwork.org / scarce resources on developing research and training needs of national capacitybuildingtoolsinventory / materials which may already be as well as global microfinance institu- index.php available: the MIN CBWG’s online tions (MFIs) and to engage in broader microinsurance “tool inventory” poverty reduction programmes. links new local knowledge with Microinsurance has emerged as industry best practices available a flagship research programme of the to the public. institute, which entails, among other — Structured training is just one objectives, development and imple- capacity-building mechanism. mentation of (a) microinsurance prod- To be effective, it needs to be ucts (health, climate, and composite linked to other capacity-building insurance products) suitable for the initiatives that reinforce newly local environment, and (b) effective acquired skills and knowledge. training, curriculum and awareness programmes / courses / events targeted — A successful microinsurance at all stakeholders. training programme requires good content and good delivery Until recently, in much of Bangladesh, applied in a way that strengthens the poor have had zero exposure to microinsurance services and insurance, and the few clients who increases access to insurance. had typically purchased low-value life products from commercial insurers — As microinsurance continues to feel they were taken advantage of. grow, the number of local training institutions needs to be increased InM has begun developing training to meet the capacity-building material to cater to diverse groups of demand of multiple microinsur- stakeholders (e.g., from hospital ance actors. doctors, nurses and administrators and different levels of MFI staff to the — Contents and methodologies insured beneficiaries) in an attempt of local training institutions have to begin establishing an insurance to be adapted to suit their core culture. The training material takes clients, reflecting the diversity into special consideration factors such of stakeholders. as client age, level of education and gender. While the panel addressed many of the challenges facing training institutions in different regions, it also affirmed that the same critical issues are emerging across the sector and they can be dealt with through collaboration. It concluded that the future of microinsurance is promising and capacity-building institutions will continue to play a vital role in community education and empower- ment. Report 8th International Microinsurance Conference 2012 28

Parallel session 3 Health

Different insurance schemes were SKY has been active since 1998 and Everyone in the catchment area is presented in this session. And an targets the rural poor and near-poor. eligible for the insurance. The HEF innovative way of doing research The objectives are to protect its members (the poor) get the premium was introduced that can help explain members from the risk of catastrophic paid for by the government; other more about the way insured and medical expenditures and to ensure people are voluntary members. uninsured people deal with health equity and solidarity within the health Transportation vouchers are given shocks. system and the social health protec- to clients and the scheme also has tion system. The insured pay a single a mother care programme. Linking social assistance to premium for all members of the family microinsurance Following SKY’s introduction, the and receive free care in public health University of California at Berkeley In Cambodia, there is a private volun- facilities. conducted a randomised controlled tary community-based health insur- SKY trial (RCT) and found a significant ance (CBHI) scheme known as SKY. (Insurance for our Families) increase in utilisation of health ser- It works through a public mandate and vices, especially by the poor, and an associated public funding, and was Number of people insured increased number of deliveries created by the Groupe de Recherche 70,000 in the health centre (see Figure 6). et d’Echanges Technologiques (GRET), Insured risks The former result can be attributed a French NGO. SKY is linked to a Health and funeral expenses to the absence of discrimination for public social assistance programme, HEF members, active information Health Equity Funds (HEF), which Premium range sharing, stronger negotiation power identifies the poor and provides finan- US$ 4 for rural – towards health facilities to improve cial and social support to ensure that US$ 9 for urban insureds quality of care, and the transportation they can better access government vouchers. health services. The role of SKY is indicative. It is a challenge to keep the scheme afford- able and sustainable in the long run, and it is believed to require public funding, especially if extension to the entire population is desired. Figure 6 Political commitment is important for Increased healthcare utilisation by the poor such programmes to attract significant membership.

Chak Krey Ting Kampong Kandal Kampong Kreng Koh Toch Kon Sat Kraing Ampil Prey Khmum Stoeung Keo Ee Tun Seing Chom Karel Trapaing Roh Pov Trapaing Sangke Treuy Koh Average SKY-HEF 1 Average HEF Schemes 2

0 0,5 1 1,5 2 2,5 3

1 Average contact rate per capita per year in the standard HEF model: 0.5 2 Average contact rate per capita per year in SKY HEF-CBHI linkage: 1.47

Source: Goursat, Marielle. Presentation “Linking social assistance programmes to microinsurance: The experience of the SKY health insurance scheme in Cambodia”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 29

Understanding responses to health Both insured and uninsured people Financial value offers insufficient shocks for insurance design have access to many different strat- support for families whose costs egies to cover the cost of a health far exceed the care itself. Cashless Client Math is a tool to look at claims shock. It is important to think about coverage can markedly reduce made by clients to insurers and how insurance in the context of those other out-of-pocket spending, but oppor- they finance their health shocks, for strategies and to understand to what tunity costs such as loss of income gaining insights into how to design extent insurance complements or can still comprise a substantial health insurance. It has been de- substitutes them as an aid for coping. part of the costs. Loans, both formal veloped by Micro Insurance Learning and informal, and income were and Knowledge (MILK) and is a method Insureds still face additional health important sources of financing for that fills the gap between focus group costs on top of premiums. To pay both the insured and uninsured. discussions and large household for these expenditures, people surveys. A downside of this method have to borrow from others or from Clients who received a benefit can is that foregone care is not measured; institutions where they face high perceive a great value in a product only people who actually visit a clinic interest rates. Typically, Client Math even when the pay-out is small are interviewed. studies show that insureds are able relative to the full cost of the shock to take advantage of less formidable they experience. When looking financing methods. However, this at financial value, it is important to is not the case for health. When it look at the quality of the services comes to health, people seem to be offered. crowding into better services and having to make payments with various resources (see Figure 7).

Figure 7 Health costs for the insured Hospitalisation expenses, MicroEnsure, Solapur, India

US$ — Keeping total costs in mind is 400 critical to understanding value — In Solapur, the total cost of insurance for insured farmers 300 was seven times the US$ 51 reimbursement received — Is it sufficiently improving the “math”? Or is the value

200 more in the availability of information about which clinics to go to? 100 Insurance reimbursement: 51 US$ Insurance was not sufficientto cover costs 0 Insured Uninsured

Follow-up visit expenses Readmission expenses Lost income Indirect hospital expenses Direct hospital expenses

Source: Magnoni, Barbara. Presentation “How understanding financial responses to shocks can inform insurance design”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 30

Parallel session 3 Health

Is there health in microinsurance? When reviewing the claims for hos- Despite similarities in observable pitalisation within the programme, characteristics between the two VimoSEWA VimoSEWA found that diarrhoea, groups, the insured group goes to Number of people insured fever and hysterectomy were among hospitals more often than the unin- Close to 100,000 the top five causes of hospitalisation sured. among adult women, with a mean Insured risks It was believed that women, who age of 37.6 for hysterectomies Life and in-patient hospitalisation would previously have gone for out- (Figure 8). Waterborne illnesses and patient care, may seek in-patient care Premium range fever can be treated in an outpatient because this is included in coverage. US$ 6-15 setting if detected early, and However, qualitative interviews hysterectomy at a young age may VimoSEWA is an integrated insurance indicated that women try outpatient not be medically necessary. programme that was started in 1991 care first before resorting to in-patient byA, SEW a trade union for female The study that followed was aimed care. Hospitalisation is only resorted workers in the informal sector in India. at finding out whether the insured to when outpatient treatment fails – and the uninsured differ with regard compensation for a weak public health to morbidity and utilisation of health- system. care. A mixed-method approach was used, whereby a cross-sectional household survey was conducted among 1,980 households (of which half were insured) and qualitative interviews were conducted.

Figure 8 Top five hospitalisation claims among adult women – VimoSEWA health claims review (2007–2009)

% of claims

16

12

8

4

0 Diarrhoea Fever Hysterec- Malaria Respiratory Claims tomy infection category

36.9 36.3 37.6 36.1 40.0 Mean age

Source: Desai, Sapna. Presentation “Is there health in microinsurance?”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 31

It is unlikely that the moral hazard Lessons learnt on the provider’s side plays a role — Political commitment is import- in increased hospitalisation among ant for take-up of insurance the insured, because the provider programmes and for funding cannot determine whether someone in the long run to make these is insured or not. Some of the driving schemes sustainable. factors for the high incidence of hysterectomies among young women — Coverage should take into are a lack of primary gynaecological account the needs of the clients care, unawareness of side effects and and other tools already the absence of regular examinations. available to them to cope with The insurance is a facilitating factor, health shocks. not a driving one. Of all hysterec- — Private programmes need to tomies in the study, 40% were done in complement public programmes. government hospitals, which suggests that it is not profit-driven. — It is important to look at the effect of the insurance package It is difficult to have an affordable on health utilisation and whether package that meets health needs. doctors are making the right By putting outpatient care in the decisions and have the knowledge package, it easily becomes unafford- to do so. able. However, it is important to look at the effect of the insurance package on utilisation of healthcare and, ultimately, health outcomes.

32 — Barbara Magnoni, MILK Project, MicroInsurance Centre, USA. 33 — Sapna Desai, SEWA, India; Marielle Goursat, GRET, Lao PDR; Facilitator: Denis Garand, Denis Garand and Associates, Canada.

32

33 Report 8th International Microinsurance Conference 2012 32

Parallel session 4 Academic track – Agricultural insurance

Most rural households depend on A clear preference for more pay-outs Participating farmers showed a clear agriculture and are vulnerable to preference for the more expensive The first study explored the demand weather shocks. A changing climate insurance option with higher pay- for index insurance, particularly is resulting in more frequent and out frequency. They also preferred whether farmers only take out severe perils such as droughts and buying this insurance over investing minimal index insurance coverage. typhoons. Agricultural insurance or saving the money. An experimental game was conducted protects rural households against this to study choices between index in- Most of the low-income farmers risk and can reduce their exposure. surance options – as part of the Horn chose to pay at least part of the This session shed light on two of Africa Risk Transfer for Adaptation insurance premium in labour. They different approaches to measuring (HARITA) project, a holistic adaptation purchased HARITA insurance and the demand for agricultural insurance: risk management scheme involving opted for the scheme that had more a designed experiment in Ethiopia, risk reduction, risk transfer and pay-outs. and a quasi-natural experiment in prudent risk taking. Potential clients Reasons for farmers’ preference Colombia. of the HARITA project in Ethiopia of higher frequency pay-outs will participated in the games. These be investigated in follow-on studies. farmers received ETB (Ethiopian birr) 70 (US$ 5), approximately twice their Impact of weather insurance daily salaries, and had to choose on small-scale farmers among five options for managing The second study looked at the their risks. impacts of a subsidised insurance The options included keeping the programme on coping strategies money, putting the money in a savings and capital use after extreme weather account, investing in a community events. savings fund, and two index insur- Colombia’s tobacco industry is ance options – one covering only dominated by two companies with severe droughts with lower pay-out similar features. Farmers working frequency, and a second, more for them have comparable socio- expensive option with higher pay-out economic characteristics. They have frequency. The insurance products also been working for these compa- were developed in collaboration with nies for at least several years, or even the communities to meet local needs. generations. These features provided Low-income farmers also had ideal conditions for a quasi-natural the option to purchase insurance experimental study. For the experi- with labour instead of cash. Such ment, one company offered voluntary labour activities had to contribute to traditional indemnity-based insur- risk reduction activities such as ance to its farmers, while the other composting, water harvesting and company did not offer an insurance planting trees. scheme. Traditional insurance was 34 — Daniel Osgood, chosen for the study after experiments Columbia University, USA. based on rainfall index failed because 35 — Geoffrey R. McCarney, of inadequate data. Columbia University, USA, presenting the topic of agricultural insurance, which attracted many participants. Other speakers were Stephan Dietrich, University of Göttingen, Germany, and Elisabet Rutstrom, Georgia State Univer- sity, USA (Facilitator).

34 35 Report 8th International Microinsurance Conference 2012 33

The analysis was based on survey Increased capital use did not lead Lessons learnt data of 468 households for 2011 to a higher vulnerability to debt — Farmers prefer an insurance and retrospective questions for the traps. Insurance reduced the risk of product with more frequent pay- years 2009 and 2010, with detailed the loan-debt cycle. outs, even if it is more expensive. information on household character- The insurance product is heavily istics, shocks and capital use. — Low-income farmers, given dependent on subsidies and could a choice, want to pay at least The results suggested that households not be provided in this form on a part of the insurance premium that bought insurance dealt differently a commercial basis. However, the with labour instead of cash. with the impacts of extreme weather scheme met the objective of the perils. Insured households were more government to reduce the need for — Insured farm households are likely to use formal loans, mainly bank emergency aid after extreme more likely to use formal loans loans, to cope with the financial shock. weather events. from banks to cope with climatic shocks, without having to This increase in capital use enabled dispose of their productive assets. households to handle the financial shock without having to sell their — Subsidised weather insurance productive assets. As a result, their helps the government by reducing need for emergency aid decreased the farmers’ need for emergency and the recovery period was shorter. aid after an extreme event. — Index insurance should be viewed as part of a holistic risk management programme including risk reduction, risk mitigation, and cautious risk-taking.

Figure 9 Geographic disparities in the predicted impacts of climate change on human populations

CIV High: 20

Low: –18

Source: Dietrich, Stephan. Presentation “Impact of weather insurance on small-scale farmers: A natural experiment”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 34

Plenary 2 Is mutuality the missing link in microinsurance?

The United Nations declared 2012 Box 1 The mutual difference the International Year of Cooperatives, Video message for the International In essence, the mutual concept with the theme of “Cooperative Day of Cooperatives is that a group of people would collect- Enterprises Build a Better World.” ively be in a better position to act This highlights the contribution of Ban Ki-moon, United Nations for their mutual benefit compared to cooperatives to socio-economic Secretary-General each person acting alone. A coopera- development, particularly their impact Today we celebrate how cooperatives tive or mutual company is owned on poverty reduction, employment build a better world. Cooperatives by its members. It is focused on generation and social integration. advance sustainable development meeting the needs of its members, Cooperative and mutual insurance and social integration. They create in addition to financial sustainability. companies are active in microinsur- jobs, empower their members and In contrast, stock companies are ance. They play a unique role because strengthen communities. owned by their shareholders and of their ownership structure, coopera- are heavily focused on generating They promote food security and tive values and the inherent concept profits as part of delivering share- enhance opportunities for small agri- of mutuality. This plenary looked at holder value. cultural producers. They are better the concept of mutuality and whether tuned to local needs. it is the missing link in making micro- insurance widely successful and By pooling resources, they improve sustainable. access to information, finance and technology. And their underlying values of self-help, equality and soli- darity offer a guidepost in challenging economic times. Cooperatives are also critical in supporting indigenous communities, and in offering productive employ- ment opportunities for women, youth, persons with disabilities, older persons and others who face discrimination and marginalisation. Figure 10 The global financial and economic Global market share of crisis has also demonstrated the mutuals in 2010 resilience of alternative financial institutions such as credit unions and cooperative banks. Non-life In this International Year of Coopera- 28 % tives, I encourage all stakeholders to continue building awareness and pursuing policies to strengthen cooperatives everywhere. By contrib- uting to human dignity and global solidarity, cooperatives truly do build a better world. Overall market share 36 — Left to right: 26 % Kumar Shailabh, Uplift Source: Video “Insurance for the people, by the people”. www.youtube.com/ Mutuals, India; May Dawat, watch?v=_uxvSXXy6jI CARD MBA, Philippines.

Life 25 %

Source: ICMIF 2012 36 Report 8th International Microinsurance Conference 2012 35

Box 2 The basis of insurance, the sharing The mutuality link to microinsurance of risk, is inherently a mutual concept ICMIF’s view of cooperatives Cooperatives and mutuals exist to established to address a need and serve their members. They have closer — One billion people are members a response to market failure. Mutuality relationships with their members, of cooperatives worldwide. is at the heart of insurance. often even knowing them by face — A cooperative meets As cooperative and mutual com- and name. As the client value is top members’ needs because it is panies do not have shareholders in priority, mutuals are well-positioned owned by them. the market and are owned by their to understand and address their — Cooperatives improve livelihoods members, their ownership structure members’ needs. Creating a culture and strengthen economies. enables them to focus on long-term of trust, acceptance and under- — Cooperatives are successful business objectives to make sure they standing convinces members to stay and sustainable enterprises. deliver their promises and commit- with the programme for the long term. — The 300 largest cooperatives in ments rather than pursuing aggres- the world have combined sales Cooperatives and mutuals involve sive strategies and short-term object- of over US$ 2tn. members in decision-making such as ives to satisfy shareholders. This — Cooperatives account for claims settlements and product long-term strategy helped cooperative 100 million jobs around the world. development. Processing claims is and mutual insurers to outperform — Cooperatives care for their at the heart of the business to demon- their peers in the insurance industry communities. strate trust and make insurance during the global financial crisis from — Cooperatives put people before tangible. 2008 to 2010. profit. Members of a cooperative or mutual — Cooperatives are member- are inherently motivated to support owned and democratically run. their own institution and are willing — Cooperatives are businesses to invest significant resources into run on principles. education, training and awareness- — Cooperatives empower people. raising programmes as part of their regular meetings.

Figure 11 Mutual market shares in top five insurance markets Source: Video “Insurance for the people, by the people”

Germany USA 45.4 % mutual 34.6 % mutual

Japan UK 41.4 % mutual 7.3 % mutual

37 — Nelson Kuria, CIC, Kenya.

France 40.1 % mutual

Source: ICMIF 2012 37 Report 8th International Microinsurance Conference 2012 36

Plenary 2 Is mutuality the missing link in microinsurance?

The cooperative or mutual structure Box 3 Lessons learnt is an aggregator by nature and groups Examples of mutual insurance — Mutuality has the same concep- people together. This group can tual roots as insurance, and fits provide the critical mass of people CIC Kenya customer-focused microinsurance for a risk pool, which is integral to Insured risks particularly well. making the concept of insurance work. Life and health — In developed countries, co- Many countries do not have a separate Number of people insured operative and mutual insurers were regulatory framework for coopera- 1.3 million, 600,000 in created and driven decades ago tive and mutual insurers. But in some microinsurance by groups of disadvantaged countries solvency requirements for people who could not get coverage popularly based schemes may not Growth perspective from private insurers. In de- be as restrictive as for private insurers, Currently second largest veloping countries today, mutuality and mutuals can benefit from lower insurance company in Kenya, can be the answer to a similar lack tax rates. As a result, their insur- fastest growing insurance of access to microinsurance. ance products can be sold at a lower company because of the premium and thus become more microinsurance component — As member-owned institutions, affordable and accessible. cooperative and mutual insurers CARD MBA Philippines can focus on long-term goals Furthermore, they are in a position to Insured risks and perspectives, guided by the develop and test insurance products Life, credit life, retirement needs of their members. that are difficult to provide on a savings, and hospitalisation sustainable basis, such as healthcare — Cooperative and mutual insurers and agricultural insurance. As a group, Number of people insured have a key role in the insurance they can closely look at how their 7.5 million individuals (1.5 million industry value chain and should members live and manage their risks, members plus their families) be duly recognised. They are and focus on risk-reduction measures. not inferior insurers and they Growth perspective For example, they invest in promoting are not a threat to commercial Started with 29,000 members good health among their members insurers. in 1999 and reached 1.5 million to avoid serious illnesses, which keeps this year — There are hundreds of coopera- claims low. tive and mutual microinsurance Uplift Mutual India Because they do not raise share schemes operating informally in capital in the market, cooperatives Insured risk emerging markets and developing and mutuals may be looked upon Health countries, serving low-income as not strong enough financially to communities. There is a need Number of people insured sustain a capital-intensive service like to formalise these groups, so they 200,000 insurance. But experience has shown can be part of the global network otherwise. Cooperative and mutual Growth perspective to share and exchange knowledge insurers are contributing to the growth Steady but slow growth, and experience. of the microinsurance industry in focus on quality not quantity. — Regulators in developing countries a number of countries (see Box 3). (e.g., India) need to understand They could do more. what a good mutual is so they can come up with effective regula- tions. Such work can be supported by ICMIF, which represents the mutual and cooperative insurers worldwide. 38 — Facilitator: Doubell Chamberlain, Cenfri, South Africa.

38 Report 8th International Microinsurance Conference 2012 37

Agenda Day 2 afternoon sessions 7 November 2012

Parallel session 5 Parallel session 6 Parallel session 7 Presentation of the actuarial Consumer protection Client Math tool kit for training modules for the low-income market understanding the value of for microinsurance microinsurance for clients This session is linked

with Session 9

Eamon Kelly Janina Voss Barbara Magnoni Microinsurance Consultant, Advisor, GIZ, Germany Client Value Project UK Actuarial Profession A holistic approach Manager, MILK Project, Microinsurance Working Party, to consumer protection MicroInsurance Centre, USA UK Pedro Bulcao Michael McCord Nigel Bowman CEO, SINAF Seguros, Brazil President, MicroInsurance Consultant, Nigel Bowman Guided discussion about Centre, USA Actuarial Consulting, role of insurers and insurance Facilitator South Africa associations Michal Matul Abayomi Sule Senior Research Officer, Programme Coordinator, ILO / Microinsurance Innovation Hygeia Community Facility, Switzerland Health Plan, Nigeria Katherine Gibson Consultant, South Africa Market failures and regulatory responses Facilitator Hennie Bester Strategic Advisor and Regulatory Expert, FinMark Trust / Cenfri, South Africa

Parallel session 8 Parallel session 9 Parallel session 10 Training session on process Pricing of microinsurance Financial and social key mapping for business excellence performance indicators for This session is microinsurance a follow-up to Session 5

Clémence Tatin-Jaleran William Collins Bert Opdebeeck MicroInsurance Centre, ILO Microinsurance Fellow, Microinsurance Programme Canada Kenya Orient Insurance, Coordinator, BRS – Kenya Belgian Raiffeisen Foundation, Sawsan Eskander Belgium Sajida Foundation, Caroline Phily Bangladesh Technical Officer, Jennifer Hennig ILO / Microinsurance Innovation Policy Advisor, GIZ, Ayham Esmaiel Facility, Switzerland Germany ILO, Fellow Star Microinsurance Services, Ghana Facilitator Roland Steinmann Microinsurance Specialist, MicroInsurance Centre, Switzerland Report 8th International Microinsurance Conference 2012 38

Parallel sessions Presentation of the actuarial 5 and 92 training modules for microinsurance and Pricing of microinsurance

The two sessions were held Main steps in pricing The pricing process starts by concurrently, as the topics are com- gathering quantitative and qualitative Starting from a basic institutional plementary. Pricing was dealt with data necessary to determine the assessment and market research, first, and then the tool kit (training risk premium. The data may include the entity can start by designing the modules). claims experience from similar prod- product and having an initial business ucts, distributor’s information, national For the pricing part, the integrated plan. The next step before testing and international surveys, market session used a holistic approach the product and rolling it out is research (for example, a competitor’s based on group interaction, to pro- setting the price, which in the case offer), and country-wide claims vide participants with a better under- of insurance and microinsurance experience. standing of the pricing process. is the premium. This information is used to provide the Participants were split in groups. The gross premium, the premium clients’ characteristics (mortality rates, An experienced professional with payable by the client, is calculated as: morbidity rates, willingness to pay, pricing experience was assigned to — Risk premium etc.), the cost of potential claims and each group formed, and helped (the expected cost of claims), plus the amount of expenses the product with the analysis of three questions: implies. These details must be adjusted — Safety margin — What are the main steps and validated through qualitative (to account for the uncertainty involved in pricing? information obtained from meetings of the calculation), plus — What main challenges have you with clients and experts. encountered? — Expenses The next step is setting assumptions – — What are the most important (start-up and development costs, on the claim frequency rate, claims factors to consider for improving marketing and distribution, cost and volume. pricing for microinsurance? fixed costs, net cost of reinsurance, cost of capital and taxes), plus Frequency rate = Number of claims ÷ exposure — Profit margin (profit margin and surplus, 2 Parallel sessions 5 and 9 were consecutive equity build-up). sessions on the same theme. For this reason, the results are jointly presented here.

Figure 12 Phases of insurance development

— Market — Gather data Research — Set assumptions — Calculate — Validate

Product Calculate design risk premium

— Define objectives Monitor Calculate — Gather data — Identify data to product gross — Set assumptions be monitored experience premium — Calculate — Define reporting — Validate format — Ensure data quality — Adjust product and processes

Source: Phily, Caroline. Presentation “The pricing of microinsurance”. 8th International Microinsurance Conference Report 8th International Microinsurance Conference 2012 39

Exposure is the population to which After the data and assumptions After the risk premium is determined, the claims experience applies. For are set, the next phase is calculating it is necessary to include in the example, the number of lives insured the risk premium or the expected equation the expenses. The loading during a period is the “lives exposed cost of insurance: for expenses in the premiums should to risk”. cover the operating expenses of the Expected cost of insurance = company, provide a safety margin, The claim amount can be simple Frequency of event x expected allow for dividends or profits and or complex depending on the insured amount of insurance claim contribute to building equity and thus benefits. The main methods for This cost is calculated per period solvency. There are two common arriving at the claim amount, where (annual, bi-annual, etc.) and per methods to include (load) expenses it is not a predefined amount, are unit: policy, person, insured group, into the gross premium: using an average claim assumption insured car, etc. or a probability distribution assump- a. A percentage of the premium, tion. The latter refers to the cost linked A simple example of a calculation in which case the formula is to the probability of occurrence of the is the cost of individual life insurance: Gross premium = Risk premium ÷ claim. The probability that low-cost expense loading (%), or Annual risk premium = Annual small events occur is higher in general mortality rate x sum insured b. A fixed amount for every policy, than the probability of a single large in which case the formula is event causing a considerable claim. Gross premium = Risk premium + The volume will be affected by other expense loading (US$) assumptions, like characteristics of When the pricing process is complete the product (voluntary or mandatory), and a pilot test conducted, the insurance culture and consumer product is ready to roll out. However, education, whether or not the product a monitoring system should be set up. offers tangible benefits, the incentives for sales force, etc. The process ends its first phase by comparing the results with the product design and making changes if necessary.

39 — Left to right: Eamon Kelly, UK Actuarial Profession Microinsurance Working Party, UK; Nigel Bowman, Nigel Bowman Actuarial Consulting, South Africa; William Collins, Kenya Orient Insurance, Kenya. 40 — Caroline Phily, ILO / Microinsurance 39 Innovation Facility, Switzerland.

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Parallel sessions 5 and 9 Presentation of the actuarial training modules for microinsurance and Pricing of microinsurance

Training modules The case of an MFI in Vietnam Additional information included: The Actuarial Microinsurance Training With this technical background, par- Memberships and claims history Modules are the result of a project ticipants worked in groups on a case The sum of end-of-year members being run jointly by the Microinsur- of a Vietnamese MFI, with 20 branches (EOYM) for the years 2004 to 2011: ance Working Party of the UK Actuarial operating primarily in agriculture- 124,253. Profession and the International based communities within the poorest Actuarial Association, the entity that districts in northern Vietnam. In 2006, Number of deaths of members coordinates the Actuarial Discussion the MFI added insurance to its ser- for the same period: 143 Group of the Microinsurance Network. vices. Premiums were collected in Number of deaths of spouses combination with the weekly loan The objective of the training modules in the same period: 624 repayments and with savings deposits. is to introduce microinsurance In 2012 it created a distinct entity, Number of deaths of children practitioners who are not actuaries Mutual Benefit Program (MBP), sep- in the same period: 262 to actuarial principles and method- arating microfinance from the micro- ologies to better help them serve their Market research insurance operation, and hired a team clients. Specifically, it may of consultants to help design and — Funeral life – — help practitioners to design price a new microinsurance product. ability to pay p.a.: VND 400 better products for their clients; — Funeral life – Based on market research confirming — help microinsurance organisations willingness to pay p.a.: VND 200 the interest of the members in life to manage their risk profile in coverage, the consultants designed Past experience a sustainable manner; a microinsurance product with — empower microinsurance Discussion with the front-line staff the following benefits and features practitioners in interactions of the MFI pointed to some issues (VND is Vietnamese dong, and with third parties; that affected the interpretation of the 1 US$ = VND 20,840): — be a “how to” guide in spread- experience data: sheet form. Member death benefits — Some branches are allowing — The full benefit is VND 30,000 It is for education and guidance, members to enrol siblings or — Benefits reduce to 50% if age at not a “one size fits all” solution. older children as proxy spouses death is 65 or older in order to avail of the spouse The module consists of a number Spouse death benefits death benefits. of sections: — The full benefit is VND 10,000 — Health of members is the base A. Life Assurance Module — Benefits reduce to 50% if age for eligibility. A member must be B. Agriculture Module is 65 or older in good health to access a loan. C. Health Module (expected in 2013) Child death benefits No health check is performed on D. Data Structure – A hypothetical — Identical to spouse death benefits other lives. data structure for claims, premium and membership that would Eligibility facilitate consistent, accurate, — All MFI members are eligible timely analyses that inform pricing, — Entry age: 18–55 reserving and other risk manage- — Exit age: None ment activities. The information collected by the Within each module, key areas consultants included information on such as pricing and reserving are the current MFI membership, claims addressed. history on previous products, the 2005 WHO mortality rate for Vietnam, The tool kit can be found at: market research results and MFI www.stats.ox.ac.uk/research/ expenses. insurance/actuarial_toolkit Report 8th International Microinsurance Conference 2012 41

MBP expenses Fixed costs Lessons learnt The annual amount budgeted for The fixed costs per person are — The purpose of pricing is operational expenses, excluding VND 10. This is the result of dividing to determine a premium that is variable expenses, is VND 1,000,000. VND 1,000,000 (See MBP expenses) a fair price for the insurance This covers a full year’s expenses by 100,000 members. coverage promised. (e.g., rent and salaries). Total Variable costs — Experience data for microinsur- number of members is 100,000. ance is limited. There is a need Although many assumptions Based on this information, the for capacity and systems to collect could have been made, a reasonable participants were to find and set quality data. one for variable costs is 25% of assumptions, define what other the sum of the risk premium plus the — Processes have a huge impact on information it would be necessary fixed loading. pricing assumptions, especially to collect, what the approximate enrolment mechanism and claim premium rate would be and how 25% x [111 + 10] = VND 30.25 control. it compares with the market. Finally, another assumption could be — The microinsurance market is With all the previous information, that MBP wants to obtain VND 7.5 not exposed to insurance and very the next step is to assess the risk per policy as a profit margin and an sensitive to pricing fluctuations. premium, which requires the additional 10% of the previous sum It is important to get pricing right. mortality rate. Even though the as build-up equity. The gross premium Increasing premium after launch WHO mortality rate for Vietnam was would then be: will cause considerable resistance. part of the information received, [111 + 10 + 30.25 + 7.5] x 1.1 = in this case it is possible to assess — Context is crucial in microinsur- VND 174.62 mortality by using the MFI’s records, ance. Spend time understanding as follows: When this amount is compared it. Check premium reasonability to the market research, the conclusion against the clients’ willingness Sum (EOYM) = 124,253 is that many other assumptions can to, pay competitors’ prices, the Death of member: 143 be made to arrive at a gross premium related cost to client, and expected Death of spouse: 624 more likely to meet clients’ expect- claim amount. Death of child: 262 ations and the market competitor’s — sThe ILO’ Microinsurance Innov- Mortality rates per member: price. This is an illustrative calculation ation Facility has developed Member 143 ÷ 124,253 = 0.12% and a “first go” to benchmark some a three-day training workshop Spouse 624 ÷ 124,253 = 0.53% of the key assumptions. Final pricing and has a corresponding Child 262 ÷ 124,253 = 0.22% would require further detailed analysis technical guide, to be found at around the key assumptions specified Risk premium: www.microinsurancefacility.org above, i.e., claim frequency, expense Member 30,000 x 0.12% = 36 loading, profit margin and security Spouse 10,000 x 0.53% = 53 margin. Child 10,000 x 0.22% = 22 TOTAL VND 111 Report 8th International Microinsurance Conference 2012 42

Parallel session 6 Consumer protection for the low-income market

Consumer protection for the Consumer protection for micro- Using the PACE framework low-income market insurance is distinctive because: Hygeia offers a health microinsurance This session looked into two key — Traditional insurers are not used product in Nigeria. It sees health questions around consumer to serving this market. microinsurance as an opportunity protection for microinsurance: to expand its market and also to — Informal or community-based provide social value. Its clients are — Why, in consumer protection organisations and new delivery particularly vulnerable to health terms, is microinsurance different channels often lack insurance shocks, are usually new to insurance, from traditional insurance? experience. have low education levels and distrust — In relation to these distinctive — The longer value chain makes formal schemes. aspects, what are specific issues accountability difficult. Hygeia Community Health Plan and examples for consumer — Weaknesses at the policy level, protection from different Number of people insured where there is no appropriate regu- stakeholders’ perspectives? 100,000 individuals lation in place, or supervision is Distinguishing features sluggish, add to these challenges. Insured risks In-patient and outpatient health Microinsurance markets are grow- From a consumer’s perspective, ing rapidly as providers are recog- an ideal insurance process requires In Nigeria insurance penetration is very nising the business potential and, a well-informed consumer, capable low, at less than 5%. There is a need in some countries, financial inclusion of choosing (deciding on a choice of) for health microinsurance to be efforts are high on the policy agenda. valuable products from trustworthy regulated separately from mainstream This improves access to microinsur- and financially sound providers – with health insurance, but the Nigerian ance but it also increases the risk appropriate, transparent processes market suffers from under-regulation. of intentional or unintentional abuse. and effective complaints mechanisms A lack of clarity results from the in place. existence of multiple regulators, and Trust is imperative to the success multiple players. of this market. Low-income This ideal scenario is challenged in consumers are highly vulnerable and many ways. However, it should serve Hygeia has tackled this issue by often have a limited understanding as a point of reference for evaluating using the PACE tool to address of and access to risk management the consumer protection implications client protection principles. The tool tools. Their low trust in insurance of insurance practices and products correlates closely with client protec- providers, coupled with fluctuating for the low-income market. tion principles (see Figure 13) and cash flows, works against access evaluates how the product compares to insurance. to its competitors’. In its analysis Hygeia chose a government product for comparison, and recorded that it was outperforming that product in all aspects covered by PACE. For Hygeia, its consumer protection 41 — Left to right: efforts are a vital part of its marketing Janina Voss, GIZ, Germany; drive. Abayomi Sule, Hygeia Community Health Care, Nigeria; Katherine Gibson, Consultant, South Africa; Facilitator: Hennie Bester, FinMark Trust / Cenfri, South Africa. 42 — Pedro Bulcao, SINAF Seguros, Brazil.

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Self-regulation is particularly im- The need for competition At the moment, the biggest issue portant because insurers are in the to ensure choice for the microinsurance market business of trust, and gaining and in Brazil is not one of ethics but The main role of insurance associ- maintaining this trust are essential of market design: distribution is ations is to make sure that consumers to the sustainability of the industry. dominated by bancassurance and have a choice in how, where, and The challenge is to be there for clients there is a lack of competition. what insurance they buy, and this in their moments of trouble. From requires a healthy market. Microinsurance is essentially the the first contact, it is necessary to same as other insurance, and should demonstrate credibility and reliability In Brazil there has been collaboration be treated as such. For example, in all interactions. Hygeia benefited to ensure that insurance education there is fraud among the poor, as with from the fact that it is not a traditional is included in primary education. any other segment of society. This insurance company and has a good, A code of ethics has also been is not “a big deal”; it should just be long-standing brand to start with. enforced and there is a drive towards dealt with as with any other segment. a more inclusive market. However, One unusual aspect of health micro- the most important aspect is to insurance is that the insurance ensure that free markets and strong company is not in control of the final competition provide the low-income service clients receive. To try to ensure client with choice. Legislation should the quality of this service, Hygeia allow the market freedom for new provides customer training to front- initiatives, and should lower the office staff, insisting that all clients barriers for new providers. This is are treated in a dignified manner, especially important for microinsur- and has implemented methods to ance, where many solutions are record complaints. Hygeia has ex- coming from non-regulated entities. perienced most problems with the service aspect, rather than with the financial product itself.

Figure 13 Client protection principles and PACE framework

Client protection principles1 PACE framework

Appropriate product design PRODUCT and delivery 1.Coverage, service quality, exclusions, waiting periods; 2. Sum insured to cost of risk; 3. Eligibility criteria; Prevention of 4. Value-added services over-indebtedness ACCESS Transparency 1. Choice and enrolment; 2. Information & understanding; 3. Premium payment method; 4. Proximity Responsible pricing

COST 1. Premium to benefit; 2. Premium Fair and respectful treatment to client income; 3. Other fees & costs; of clients 4. Cost structure and controls 1  The Smart Campaign developed these principles Privacy of client data in collaboration with the EXPERIENCE Microinsurance Network 1. Claims procedures; 2. Claims (MIN), including the MIN processing time & quality of service; Consumer Protection Mechanisms for complaint 3. Policy administration & tangibility; Task Force and the MIN resolution 4. Customer care Performance Indicator Working Group.

Source: Abayomi Sule. Presentation “Self-regulatory assurance of client protection using the PACE Framework”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 44

Parallel session 6 Consumer protection for the low-income market

Looking at market conduct In such a complex framework many Lessons learnt players who were developing the Financial services must be a response — There is a trend for a more open market in a positive way were not to the real economy and ultimately regulatory architecture in many able to comply. It is also important consumers must be protected. countries, with greater variation to provide the support infrastructure in the entities able to work as Normally when providers think about to enable compliance and formali- underwriters and distributors. consumer protection they mostly sation – for example, by helping build As a result it becomes harder have product design in mind, but they accounting expertise. and harder to control entry, so need to look beyond that to market Microinsurance markets reflect consumer protection is becoming conduct and prudential regulation. different types of providers (like more important as a proxy for Market conduct is about how clients insurers, MFIs and funeral parlours) controlling entry. are treated and also about how with varying degrees of formalisa- players treat one another, i.e., the level — Regulation must tread a fine line tion and sophistication, and poorly of competition in the market. Pruden- to encourage competition and informed clients for whom the con- tial regulation ensures that insurers support the development and sequence of exploitive insurance can satisfy their claim obligations formalisation of the market, while practices can mean poverty. These (failure to do so hurts consumers and also protecting consumers. features necessitate regulation trust in the market as a whole). to accommodate different providers / — Insurers are in the business Consumer demand in South Africa intermediaries on a level playing of trust, so even in under- has driven a mushrooming of funeral field, while at the same time being regulated markets, self-regulation insurance for low-income people, flexible enough to address what may is vital to promote trust and provided by funeral parlours and be different consumer abuse experi- make the industry sustainable. funeral societies. ences across these different channels. The intuitive policy response was A functional rather than an institu- a witch-hunt to find those that were tional approach to regulation is illegal. But then there came the proposed to ensure against incom- realisation that these players were plete and inconsistent regulatory providing important access, so coverage. Indeed the regulatory the question changed to how to response to these challenges in South formalise these entities and aid market Africa has been to try to bring entities development, while still protecting onto a level playing field through consumers. product standardisation, based on the belief that if products can be The insurance penetration rate in streamlined, the regulation can be too. South Africa is now 26%. But there are still significant problems, with A significant stumbling block encoun- consumers continuing to buy products tered in this case was how these that they do not necessarily need stakeholders view each other. The and that they certainly do not under- regulator is overly cynical in assuming stand. that whatever the market is doing must be against the interests of Furthermore, the regulatory situation consumers, while market players is complicated, with different entities underestimate the strategic and subject to significantly different technical understanding regulators rules, and confusing overlap between have of the market. In reality the two insurance law and intermediation law. need to work proactively together In practice this means that regulatory to make the right policy decisions for requirements are too often incom- the consumer. plete, ignored, inconsistent, and Attention should increasingly be the resources available for compliance given to support countries in the trans- and enforcement are stretched. lation of international benchmarking standards into actual regulation. Regulation, once implemented, needs to be tested for effectiveness – are consumers better protected, and at what cost? Report 8th International Microinsurance Conference 2012 45

Parallel session 7 Client Math tool kit for understanding the value of microinsurance for clients

As the global microinsurance A new tool has been developed When an institution wants to deter- market has grown in the last decade, and has helped to generate greater mine whether a product provides there has been a notable shift in interest in client value, and that client value, different tools can serve conversations among practitioners. was the focus of this session. In 2010 different purposes. Picking the incor- While there are still many undevel- the Microinsurance Centre under- rect tool can be costly. MILK uses oped markets and opportunities took the three-year Microinsurance a quiz to help institutions decide which for growth, the needs of developed Learning and Knowledge (MILK) tool – Client Math, client satisfaction markets are changing. project that aims to understand both studies, academic impact studies, client value and the business case key performance indicators, market Conversations once revolved around for microinsurance. MILK’s client-value studies, or PACE (product, access, cost how to tackle operational challenges. methodology, Client Math, investi- and experience) – best fits their needs. They are now focused on not just gates whether or not microinsurance how to provide microinsurance to the Once an institution chooses Client helps protect the poor from large poor, but rather, how to make sure Math, focus groups are first used to shocks in comparison to other alterna- that the product provides value to the develop and refine research questions tives, and to what extent microinsur- client. This shift has marked an import- based on the insurer’s perception of ance helps to smooth consumption ant moment in industry development, value the product provides. Examples and protect assets of the poor when and sparked a new way of thinking of questions that may arise are: smaller shocks occur. about microinsurance product design. “Does the insurance product cover Now, not only are insurers and MILK’s premise is that client value the amounts and types of losses the delivery channels concerned with the and business case go together, and target clients suffer?” or “How do number of policies they can sell, microinsurance cannot have one complicated claims processes and but also about providing clients with without the other. To be sustainable, delayed claims payments influence a product of value. products have to have fair profitability the value of a product?” for insurers, while client value is evalu- ated using randomised controlled trials and Client Math methodologies. Client Math focuses on the aftermath of a shock. It describes how clients and non-clients cope with shocks, provides insight into ways insurance is used, and explores the role insurance plays compared to and in the context of alternative coping mechanisms.

43 43 — Barbara Magnoni, MicroInsurance Centre, USA. 44 — Left to right: Facilitator: Michal Matul, ILO / Microinsurance Innovation Facility, Switzerland; Michael McCord, MicroInsurance Centre, USA.

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Parallel session 7 Client Math tool kit for understanding the value of microinsurance for clients

The questions, incorporating the The surveying process is labour- Lessons learnt context and elements of the cost and intensive and requires patience and — Client Math investigates whether financing of the shock, help arrive creativity, but the investment pays or not microinsurance helps at a customised Client Math survey. off in the quality of the data analysis protect the poor from large The survey team works closely with and reports. Reports are drafted shocks and smoothes income and insurers and intermediaries to identify with the aim of reaching a broad range consumption during small shocks. the sample of respondents through of audience including academics, claims data, seeking to find the widest practitioners, donors, and other — Different client value evaluation variety possible to get at the truth. industry stakeholders. They provide tools serve different needs, so It is difficult for clients to accurately insights into the cost of the shock, the process of selecting the correct respond to how they would have how the shock was financed, how the tool is important to avoid wasting handled the shock if they did not have microinsurance product contributed time and money. insurance. They tend to overestimate to the financing of the shock, and — Client Math looks at financial value the role money from family, friends, what clients would have done without and perceived value of a product and community would have played. insurance. (i.e., peace of mind) as well as So surveyors always contact individ- To date, every study has resulted in service value. uals who suffered the disaster but an institution making a change to its did not have insurance to see how — Client Math requires concentration, product and / or processes to add more they fared in comparison to those that effort, patience, and creativity, value, confirming that Client Math did have insurance (see Figure 14). but is of great value to the organ- is a useful tool. It ensures that client isation. value remains a key consideration in product design and evaluation. — Each institution using Client Math has ended up making changes For more information visit to add value to its product line. www.microinsurancecentre.org/ milk-project

Figure 14 How did clients in the Philippines finance funerals?

US$ 1,656 1,631

1,600

1,200 Insurance benefit

800

400

0 Insured Uninsured Uses of insurance benefit Treated as income 35 % Paid funeral home Ioan 18 % Average financing sources Paid family or friend Ioan 14 % Savings / assets Paid other Ioan 7 % Reduced consumption Deposited savings 7 % Income Made investment 6 % Gifts & contributions Paid funeral costs 6 % Informal Ioans Bought a good or animal 4 % Formal Ioans Increased spending 3 %

Source: McCord, Michael J., Magnoni, Barbara, and Matul, Michal. Presentation “Using Client Math to measure client value”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 47

Parallel session 8 Training session on process mapping for business excellence

This training session was based on What is process mapping? Box 4 the Microinsurance Centre’s publica- Process mapping is a tool to stream- Why process mapping? tion, “Process mapping for micro- line and understand individual insurance operations: A toolkit for — To document how business components of existing processes, understanding and improving busi- is (or should be) done and to design new ones. It clearly ness processes and client value”, — To understand and simplify illustrates how the business is and focused on tools for optimising a process conducted, where value is added and processes in microinsurance. — To understand and minimise where inefficiencies might occur. cost and time factors The training session comprised The goals of process mapping include — To understand and mitigate risks two parts: the theoretical introduction high levels of customer satisfaction, — To understand and clarify to process mapping, and applying internal transparency and traceability, responsibilities the theory to two case studies. and financial sustainability. — For training and / or communication The objective was to enable partici- The process map is a graphic repre- (internal and external) pants to understand the key concepts sentation of tasks and procedures — To improve customer satisfaction of process mapping and its value using symbols and arrows. A process — To plan and introduce new (see Box 4), aside from taking part in is defined as an action that has an processes a hands-on experience. input at its starting point and output at its end. An example of input is filing claims, with the output being the claims payment. A precise process map shows individual steps Source: The MicroInsurance Centre. “Process mapping for microinsurance operations – in the process. It presents a clear A toolkit for understanding and improving picture of what happens when, how business processes and client value”, p.8 much time it takes, how much it costs, and who is responsible for each step (see Figure 15).

Figure 15 Example of process map

Source: Steinmann, Roland. Presentation “Efficient business processes – Process mapping for business excellence”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 48

Parallel session 8 Training session on process mapping for business excellence

Creating a process map Box 5 To fully benefit from process mapping, Six steps of process mapping, and the mapping should be embedded how Micro Star Ghana used them in a comprehensive quality manage- 1. Clarify the purpose 4. Outline the process and ment strategy or implemented gather data by the internal audit department. Micro Star assessed the current The mapping should be a continuous back-office systems and proposed First draft of the subject maps process, not a one-off exercise. improved ones. It analysed processes: was drawn using MS Excel; detailed underwriting, sales, premium collec- feedback given by the mentor. The starting point is an “as-is” map tion, claims, commission payment, showing how business is currently Continuous interviews with team and renewals. done and the end goal is the map members conducted, with some of an optimised process: the “should- 2. Create the business case, changing previous statements to be” map (see Box 5). get backing from the top correct conflicting details. When studying the process, particular Micro Star’s executive director and 5. Draw a detailed map attention should be given to: operations manager facilitated “As-is” process maps were finalised. the preparations for mapping the — Reducing complexity – Are all different processes of the back office, Meetings with team members process steps necessary? and found the team very cooperative. were held to discuss improvements — Responsibilities – Is there one to different processes. person who is responsible and 3. Assemble the team, accountable for each step? structure the mapping procedure Improved process maps were drafted — Risk – Are there any loopholes in Interviews with each team member 6. Finalise the map the process? Is it possible to cheat? were conducted, then crosschecking — Timeline – How much time do you Improved maps were reviewed provided details. spend where and why? with team members and the mentor — Cost – How can costs be reduced Each process scenario was refined consulted. without compromising quality? before drafting each process map. Once all these issues have been Draft process maps were reviewed addressed, the optimised theoretical with the team members. process needs to undergo successful The mentor was consulted on draft testing on the ground before the process maps. process mapping can be considered finished. This endpoint, however, is temporary and should be monitored and evaluated regularly as part of the practice of continuous improve- ment. Source: Steinmann, Roland. Presentation “Efficient business processes – Process mapping for business excellence”, 8th International Microinsurance Conference 2012

45 — Ayham Esmaiel, Star Microinsurance Services, Ghana. 46 — Facilitator: Roland Steinmann, MicroInsurance Centre, Switzerland. 45 46 Report 8th International Microinsurance Conference 2012 49

Box 6 Lessons learnt Case study SAJIDA Foundation – The session revealed frequent Improving claims settlement challenges that analysts should to provide better client value address to create effective and efficient process maps: The foundation held a three-day workshop on current claims settle- — Process described inconsistently ment processes involving all parties by different team members with a role in the claims process — Difficulties in analysing accurate such as doctors, field staff, and timing management information system and microfinance teams. — Difficulties in analysing process costs; no clear break- Many participants were not aware down of expenses of the different roles and time spent for each step of the claims — Same task completed several process. They also discovered several times and by different people loopholes and redundancies. For — Responsibilities not assigned example, two people were doing clearly the same tasks. Further, the partici- pants realised that the most time — Multiple data entries in different spent was on the manual transfer of systems increase workload and claim documents between relevant probability of mistakes parties. — Progress not tracked Afterwards, SAJIDA decided (i.e. completed steps of the to improve its claims settlement process not monitored) process by: — Physical transfers and filing of 1. Creating a map for claims settle- documents take a long time ment within seven days while electronic transfers can be completed instantly 2. Introducing a claims settlement tool to help branch managers settle claims at their respective branches 3. Introducing the electronic transfer of documents SAJIDA ended up using the process mapping exercise for other pro- cesses, including a flowchart for a claims settlement tool outlining what will lead to approval, rejection, or referral decisions within the logic code; and claims settlement maps for death, disaster and educa- 47 — Clémence Tatin-Jaleran tion claims. The Foundation included (standing), MicroInsurance these claims settlement maps in Centre, Canada, and Sawsan the user manual at all branches so Eskander (not shown in this everyone has a clear understanding photograph), Sajida Foundation, Bangladesh were also speakers of their roles and the prescribed in this session. time for each step of the process.

Source: Presentation “Efficient business processes – Process mapping for business excellence”, 8th International Microinsurance Conference 2012

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Parallel session 10 Financial and social key performance indicators for microinsurance

How does an organisation know Practitioners who developed the Similar to a car’s dashboard, the how good a job it is doing? It came indicators acknowledge that the KPIs show whether various compon- into being with certain objectives – primary goal of microinsurance is to ents of the product are operating objectives that may primarily be provide risk mitigation techniques efficiently and providing clients and financial in nature but need to be specifically for the poor, and the key the community with value. coupled with social goals to indicate performance indicators represent It is difficult to know and understand its contribution to the community. a sector-wide consensus that micro- how an insurer is truly doing just insurance also needs to be fair and In 2006, the Microinsurance Network by looking at its balance sheet and transparent. The use of KPIs and undertook to develop a set of financial profit and loss statement. KPIs help other tools developed to measure performance indicators. Working to highlight exactly what areas are client value will ultimately build a with a group of practitioners, it important and require further investi- stronger and fairer industry. identified ten indicators of financial gation. KPIs provide a first, basic well-being. In the process, it became idea of how an insurer is performing, apparent that five of these key but should by no means be viewed performance indicators (KPIs) had as the only indicators an insurer a social component too. So, in 2010, should calculate. Insurers are encour- the Network started helping practi- aged to add more indicators relating tioners design a companion set to their specific scheme so that they of social performance indicators. can look more closely at it. As a result, five more indicators have now been added to the four also included in the financial set – to, monitor improve, and champion social performance. This session combined financial and social performance indicators in one training exercise for the very first time.

Figure 16 Social performance framework for microinsurance

Dimension Principles Guidelines Indicators Product value The product provides — Client needs are assessed during — Incurred claims ratio* the client with appropriate the product development stage — Renewal ratio* and effective risk coping — Client feedback is monitored to enable — Promptness of claims ratio* mechanisms regular improvements — Improvements are designed to add value for clients

Client The insured are treated The microinsurer ensures: — Claims rejection ratio* protection fairly and respectfully — Transparency of all client information — Complaints ratio — Fair and respectful treatment of clients — Privacy of client data — Mechanisms for complaint resolution exist Based on Smart Campaign guidelines. Product specific Product

Inclusion The product aims to include — Physical, financial and educational — Coverage ratio* the less privileged obstacles are reduced — % insured under the poverty line — Exclusion criteria are reduced — % female insured — The socio-economic profile of clients — % insured above retirement age is monitored — Social investment ratio

Socially The microinsurer’s — Social mission and goals are defined responsible institutional system — The board, management and employees management enables socially are committed to the social mission responsible management — External and internal social audits are conducted — Employees are treated responsibly Based on the Microfinance Universal Standards for Social Performance Management. Institution specific Institution

Source: Social performance indicators for microinsurance – A handbook for microinsurance practitioners“. ADA, BRS, GIZ, Grameen Crédit Agricole Foundation, 2013 * Extract from the financial KPIs Report 8th International Microinsurance Conference 2012 51

Table 4 Using the balance sheet and the Each KPI offers an opportunity for The four categories of financial historical data of a fictitious insurance insurers to get to know their business, performance indicator company, presenters led participants products, and clients better. through calculations and analyses While performance indicators can of several KPIs. Category Indicator sometimes be compared across As they completed the calculations companies, it was emphasised that Product Coverage ratio and began sharing their observations, no benchmarks can easily be set for awareness and Growth ratio client satisfaction it quickly became evident that such a comparison in the microin- Renewal ratio knowing how to interpret the indica- surance sector. Products and target tors is just as important, if not more markets are so different that an Service quality Promptness of so, as understanding how to calculate acceptable ratio for one would be off claims settlement them. the mark for another. Therefore, it Claims rejection ratio is better for microinsurers and institu- When interpreting calculated KPI Product value Incurred tions utilising KPI methodology to ratios and values, the point to keep expense ratio track calculations over time, and set in mind is the context in which the internal goals. Incurred claims ratio data has been collected, to see what Net income ratio outside factors might be influencing Financial prudence Solvency ratio the ratios. For example, the country in which the fictitious insurance Liquidity ratio company was based experienced violent riots one year, resulting in five times the usual number of claims. This greatly affected the promptness of claims settlement ratio but, because of the riots, the year was atypical, Source: Opdebeeck, Bert and Hennig, Jennifer. and not a cause for alarm. Presentation “Key performance indicators for microinsurance”. 8th International Microinsurance Other ratios, such as the ones for Conference 2012. complaints and claims rejection, encourage insurers to investigate ways in which they can increase customer satisfaction, client education and awareness, and ensure products are providing value.

48 — Bert Opdebeeck (standing), BRS – Belgian Raiffeisen Foundation, Belgium, working with participants. 49 — Jennifer Hennig (standing), GIZ, Germany, interacting with a working group.

48 49 Report 8th International Microinsurance Conference 2012 52

Parallel session 10 Financial and social key performance indicators for microinsurance

KPIs help insurers and practitioners Lessons learnt get a better view of, and manage, — Social and financial key perform- a scheme by providing a dashboard ance indicators can help insurers so that they know where they are and diagnose operating inefficiencies, where they are going. It is important identify opportunities for adding to remember that, as with any analy- client value to products, and make sis, one needs to have a balanced better informed management view – in this case between financial decisions. and social performance. Focusing only on one set of indicators may be — Looking for trends over time, counter-productive – as it may be combining indicators to see at the expense of the other set. As impact, and identifying potential microinsurance targets low-income cause-and-effect relationships people, the right balance between are all ways of maximising the financial and social objectives is all the value of KPIs. more significant. A microinsurer can — All KPI indicators are intertwined meet and maintain social performance and connected, and making standards only if it can be sustained decisions based on one indicator financially as a viable business. And will have an influence on other its financial success cannot count for indicators. much if it neglects social performance. — Used in tandem, the two sets Since properly calculating and inter- of KPIs will help microinsurers preting KPIs is so important, three-day keep a balanced view of social interactive workshops are offered and financial performance. to help the financial decision-makers of microinsurance programmes For KPI implementation, tailored make the most of the framework and assistance including on-site indicators. The workshops focus support is available. There on financial statements for microin- is an online resource centre for surance and the understanding requesting help: and usage of the KPIs for management www.microfact.org decisions. For more information, visit www.microfact.org. Report 8th International Microinsurance Conference 2012 53

Agenda Day 3 morning sessions 8 November 2012

Parallel session 11 Parallel session 12 Parallel session 13 Technology Health Agricultural microinsurance – The index insurance experiment Peter Gross Jose Muralles Rose Goslinga Business Development Sole Administrator, Empresa Programme Officer, Syngenta Manager – Africa, Promotora de Servicios Foundation for Sustainable MicroEnsure, Kenya de Salud, Sociedad Anónima, Agriculture, Switzerland Replacing the agent: Guatemala Redesigning and packaging crop Mobile technology for scale Health at your fingertips insurance to ensure commercial and quality with Banrural success, lessons from Kenya Premanand Ponnuswamy C. John Pott Munaye Makonnen Team Leader, Independent Consultant Microinsurance Program Officer, DHAN Foundation, India to ILO, USA Oxfam, USA Large-scale microinsurance A call for action-value-added Building index insurance with literacy and service delivery services farmers to meet farmers’ needs: through ICT A perspective from Ethiopia Facilitator Jack Kionga Thierry van Bastelaer Mathieu Dubreuil Assistant General Manager, Principal Associate, Chef Projet Assurance Récolte CIC Life Assurance Ltd, Kenya Abt Associates, USA Sahel, PlaNet Guarantee, The role of mobile Senegal technology in microinsurance Index insurance in West Africa: offerings in Kenya The experience of the first regional management platform Facilitator Pranav Prashad Facilitator Microinsurance Officer, Dan Osgood ILO / Microinsruance Innovation Lead Scientist, International Facility, Switzerland Research Institute for Climate and Society (IRI), USA

Parallel session 14 Plenary 3 Proactive market How to provide sustainable development approaches insurance for low-income farmers Antonis Malagardis Introduction Carlos Arce Program Manager, Daniel Clarke Agricultural Risk GIZ, Philippines Departmental Lecturer, Management Team of Improving value for clients and University of Oxford / World the World Bank, USA consumer protection – A case Bank, UK Shadreck Mapfumo of public-private partnership in State of agricultural insurance IFC – Global Index Insurance developing prototype products for low-income farmers Fund, USA Pedro Bulcao Video message from farmers: Facilitator CEO, SINAF Seguros, Brazil Why did they buy insurance, Dirk Reinhard Opportunities and barriers why did they not buy Vice-Chairman, Munich Re of microinsurance development Satish Pillarisetti Foundation, Germany in Brazil from the insurers’ Chief General Manager, perspective National Bank for Agriculture Barry Maher and Rural Development ILO Microinsurance Fellow, (NABARD), India Pacific Financial Inclusion Weather-based agricultural Programme (PFIP), Fiji microinsurance through partner- Rooting and growing micro- ship mode: A case study from insurance in the Pacific the Indian state of Maharashtra Facilitator Joachim Herbold Brigitte Klein Senior Underwriter, Munich Head of Sector Project – Reinsurance Company, Germany Financial System Approaches Index-based agricultural to Insurance, GIZ,Germany insurance in developing economies – Separating fact from fiction Report 8th International Microinsurance Conference 2012 54

Parallel session 11 Technology

This session addressed two key MiLife, Ghana Large-scale microinsurance literacy questions on technology as a catalyst Number of people insured Microfinance is the backbone of all for scale: 25,000 Dhan Foundation’s work in India, and — How can technology offer better microinsurance is an important part Insured risks client value? of its microfinance programme. Its Life — How can technology improve work is supported extensively by low- the business case across the value Premium cost and sustainable ICT (information chain? US$ 0.35–6.00 per month and communication technology), for example, in monitoring and evalu- Replacing the agent yuCover, Kenya ation, management systems and client It is not possible to reach a billion Number of people insured education. customers across Africa with agents, 15,000 in the first three weeks It developed its social security soft- so it is necessary to look elsewhere Insured risks ware specifically for microinsurance. to deliver to the mass market. Life, disability Its aim was to take government and MicroEnsure introduced free micro- commercial microinsurance products Premium insurance with the service of and make them suitable for the people Paid by telco, not made public telephone company Tigo in Ghana, by filling any gaps. Tanzania and Senegal. Through The embedded product needs to For example, Dhan saw a need for this distribution channel, it gained benefit all the entities in the value weather insurance in the commu- a million clients in 14 months. It then chain. Commission is not enough, nity, but there was no automatic leveraged this client base by offering and does not allow you to make use rain gauge. So it developed a simple clients the opportunity to double of the telephone company’s brand. model using GPS technology. This their insurance protection for US$ 1. It is necessary, rather, to align with the solution, developed in the mutuals aims of the company. For example, It has now expanded its range of sector, has now become mainstream. YuMobile is hungry for market share. mobile insurance products in Africa. Dhan also uses ICT for financial inclu- The product is not underwritten by Tigo Bima, Ghana, Tanzania, sion through consumer education. a traditional underwriter, but Micro- Senegal It provides an online course, comple- Ensure has not found this necessary: mented by a chat facility, for both Number of people insured scale covers a multitude of sins! There clients and field workers. In addition, One million is no need to combat anti-selection it trains women in the villages so that with a free product. And while the Insured risks and premiums they can manage computer centres market is still new, fraud is not yet Hospital (paid by airtime), to extend access to ICT in situ- an important issue. Bad experiences US$ 0.40–6.20 per month; ations where households do not own are a far bigger risk to the product life (paid by airtime), US$ 0.90 per computers. It found that a combin- than fraud. month; life (loyalty-based), ation of conventional literacy methods paid by telco, not made public and e-learning brought down costs and was more results-orientated than a purely conventional approach.

50 — Left to right: Jack Kionga, CIC Life Assurance Ltd, Kenya; Premanand Ponnuswamy, DHAN Founda- tion, India; Peter Gross, MicroEnsure, Kenya. 51 — Facilitator: Pranav Prashad, ILO / Micro- insurance Innovation Facility, Switzerland. 50 51 Report 8th International Microinsurance Conference 2012 55

The role of mobile technology in The entire process revolves around Lessons learnt microinsurance offerings in Kenya mobile use. For example, enrolment — Technology is not a panacea uses mobile data capture, and the Mobiles and mobile money have and must be approached as agent enters all details directly on experienced rapid expansion, with a means to an end, and not an a mobile phone. Kenya has 50,000 mobile money becoming a way of end in itself. mobile phone agents, so CIC decided life in Kenya (see Figure 17). This is to incentivise these mobile agents — It can, however, enhance client opening the door for microinsurance. to have people subscribe to the value, particularly through CIC began delivering an affordable product. Furthermore, mass media efficient client education and savings product with a natural death were used to create a strong first claims payment. cover. It chose to use mobile money impression. — In addition it can greatly enhance rather than airtime as its payment However, although this approach the viability of microinsurance method because it wanted to couple was successful in creating initial through scale and efficiency. its insurance product with savings, excitement, the systems struggled to and the telephone companies felt that — The strategy for retail voluntary cope with the large number of new selling savings through airtime would products must be different from enrolments. CIC found that it needed compete with their core product. that for group / compulsory to segment its market properly to products. Constant engagement Jijenge Savings Plan really understand what was driving with clients is critical to sustain the target market. It found that people Insured risks interest and gain persistency. were motivated to buy the product Natural death claims subject as they found it a very convenient — Start with one simple product to a six-month waiting period way to save, particularly since there and develop gradually. Manage Premium are no transaction costs. Constant perceptions: bear in mind that Weekly instalments of customer engagement is also needed the product will be compared KES 140 (US$ 1.64) to reduce the lapse rate with bank savings products. — Heavy spending will be necessary at the start, with careful monitoring of results throughout.

Figure 17 Mobile penetration in Kenya: Opening the door for microinsurance

2011

— Over 19 million mobile phone users 2007 — 18 million Mobile Money users — Over 8 million mobile phone users 1999 — Launch of Mobile Money. 52,000 Less than 1 in Mobile Money 1,000 had a users mobile phone

Source: Kionga, Jack. Presentation “The role of mobile technology in microinsurance offerings in Kenya”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 56

Parallel session 12 Health

This session addressed value-added Moreover, there are also the poverty There are several examples of VAS: services (VAS) in health microinsur- aspects of illness; ill-health episodes free dial-a-doctor call centres, a limited ance. Outpatient care may not be very are the single most important cause number of free outpatient visits per insurable and too expensive. But if of descent into poverty. In 2010, year, access to low-cost / discounted outpatient care is ignored, in-patient 6.2% of low-income families in India medicines, health camps and health care may go up, as people will prefer fell into poverty because of health education programmes. in-patient care for diseases that could expenditure associated with year- The two value-added services with have been solved by cheaper outpa- on-year outpatient costs. This was the most potential are probably tient care. By offering outpatient care, almost three times the percentage the dial-a-doctor service and discounts more expensive in-patient care can falling into poverty because of on medicines. Although the quality be prevented. hospitalisation costs. Most worrying, of doctors and nurses that answer medicines are the single most im- VAS in health microinsurance the phone and their reliance on algo- portant component (70%) and driver rithms led to some questions. VAS are aimed at enhancing the of year-on-year impoverishing out- value to clients of a basic insurance patient costs. There are also possibilities of work- product (in this case in-patient ing with a capitation fee, which can In order to meet this demand while hospitalisation), and providing the prevent financial stress, reduces at the same time ensuring schemes prospect of business savings for the number of financial transactions remain affordable for the insurer, the insurer through higher renewal and can include both in-patient and insurance companies are experi- rates and earlier outpatient visits outpatient care. Some schemes are menting with VAS to find out what (which can lower in-patient claims). experimenting with such fees. elements of free outpatient coverage Why is there a need for VAS? Uptake they can add to enhance client There is a need to do research on and renewals of voluntary in-patient satisfaction with a core hospital- the effects of interventions like dial- schemes have traditionally been isation insurance product. a-doctor on in-patient care and claims. disappointing in most countries; However, most VAS have developed Research sponsored by the Inter- people demand, and place greater organically, making it difficult to sep- national Labour Organization (ILO) value on, assistance with outpatient arate the different effects. investigated 20 schemes that were care. Family outpatient expenses trying to add VAS or were planning 1.1 Salud a su alcance occur relentlessly year on year, to do so in the future, including some whereas a hospitalisation episode EPSS examples leveraging off wireless occurs on average some eight or nine technology. By adding outpatient Number of people insured years into the future, significantly services there could be a win-win 2.5 million beyond a low-income family’s finan- situation because more clients (18% of entire population) cial horizon. will want to enrol and access the Insured risks added outpatient services, so that Outpatient care claims can possibly be reduced. Premium range US$ 3 per family per month

52 53

52 — John Pott, Independent Consultant to ILO, USA. 53 — José Muralles, Empresa Promotora de Servicios de Salud, Guatemala. 54 — Facilitator: Thierry van Bastelaer, Abt Associates, USA. 54 Report 8th International Microinsurance Conference 2012 57

A Guatemalan company founded Clients of the bank can access the Lessons learnt in 2003 called Empresa Promotora de scheme alongside their bank account — People demand outpatient care. Servicios de Salud (EPSS) has the or loan. The scheme works as follows: aim of providing high-quality health- people can dial a call centre (free — Value-added service can provide care at affordable prices for the of charge) which connects them to some outpatient care while poor. It is a profit-driven company, a doctor in their area. Doctors on call keeping the scheme affordable. but with the social goal of providing are paid, and include general prac- — There are innovative ways of value-added services for health to titioners, paediatricians and gynae- providing VAS. low-income groups. cologists. At pharmacies, clients can purchase quality medication at reason- — The example of EPSS in Guate- EPSS and Bank Rural built an alterna- able prices. Monitoring the quality mala has shown that such a tive structure of medical services. of the programme is an integral part scheme can be self-sustainable The strong element of the programme of the scheme. without donor support. is its alliance with a bank. The relation with the bank is twofold: the bank The product is self-sustainable: the — The ultimate goal should be sells the product and receives commis- average loss ratio is 45–55%. Clients universal coverage managed by sion and the bank subsidises the do not get any form of subsidy. the government; in the mean- treatment of its clients. The product is The retention rate is 60% and insur- time, microinsurance has a role. the loan; the VAS is first-level primary ance is voluntary. care. The people covered for outpa- The product has been developed in tient services are the members of the the context of bad services provided client’s family (some five to six). by the government. Private insurance is filling in the gap until the govern- ment can offer universal coverage. The goal should always be to have uni- versal insurance. The founder of EPSS is having discussions with the government on what can be done in the future.

Figure 18 Figure 19 Explanation of the preference of outpatient to in-patient coverage Results of the scheme Value-added services in health microinsurance – Medical services provided Why the preference? Totals for Longitudinal comparison of IP costs and OP costs 10 years (Estimated average for low-income family in India) US$ 220

US$

200

Totals for 160 10 years US$ 89 every US$ 89 120 8 years Medicines Medicines 25 % 70 % 80 (US$ 22) (US$ 154) US$ 22 p.a. General practitioners 172,000 43 % Paediatricians 144,000 36 % 40 Consul- Gynaecologists 84,000 21 % Other tations 75 % 30 % In ten months, 70 % of families 0 1 2 3 4 5 6 7 8 9 10 year have been using the service.

Outpatient In-patient

Source: Muralles, Jose. Presentation “Salud Source: Pott, C. John. Presentation “Value-added services (VAS) in health microinsurance”. a su alcance”. 8th International Microinsurance 8th International Microinsurance Conference 2012 Conference 2012 Report 8th International Microinsurance Conference 2012 58

Parallel session 13 Agricultural microinsurance – The index insurance experiment

This session looked at different The frequent and early pay-outs Kilimo Salama: Lessons learnt strategies on how to successfully contribute significantly to educating — Explore unconventional data provide agricultural index insurance farmers about the product, meeting sources. For example, health schemes, and how to scale them their expectations of it and building organisations often collect up from small pilot projects to trust by helping them recover as weather data, given its relevance commercially viable models. Case fast as possible. These client-centred to malaria. studies across Africa portrayed three efforts have resulted in a high reten- of these strategies. tion rate. — Spend time with clients and educate them about the product Redesigning crop insurance A regional approach to index to earn their trust. in Kenya for commercial success insurance in West Africa — Successful distribution channels The Syngenta Foundation’s Kilimo PlaNet Guarantee started developing and aggregators are companies Salama product has evolved over index insurance in West Africa directly related to agricultural the last three years, now insuring in 2009 and is now focusing on a activities such as distributors of some 64,000 farmers in Kenya and regional strategy, Assurance Récolte seeds and fertilisers. Rwanda. Sahel (ARS). The strategy will be implemented in seven francophone — Index insurance facilitates fast Besides reliable and broad distribution West African countries over five and early pay-outs so that farmers channels, customer care and robust years. can quickly focus on continuing data sources, Syngenta Foundation their business activities. believes that a key element of its The aim of ARS is to reduce variations success is continuously improving in farmers’ incomes to prevent ARS: Lessons learnt and adapting its product to meet the deterioration of their living con- — Mind the huge challenge of the needs of the farmers. ditions, to contribute to more secure moving from education to financing mechanisms for agricul- A key product feature is the ability marketing, and from pilot project ture, and to improve food security. to provide early pay-outs to farmers. to business. Such early pay-outs, made possible A regional strategy seemed appro- — Microfinance institutions are by triggers in index insurance, give priate since the entire region had interested in distributing the farmers the chance to replant during similar characteristics, such as product as an additional financial the ongoing season and benefit landscape and low farming density. service and in limiting their from the new harvest. It was found It is also a way of spreading risk credit risk, whereas cooperatives that the product improved if the goal across several countries, particularly focus on improving access to of the product development team as some are involved in political credit. was to insure a harvest rather than conflicts. only providing compensation for — Farmers are aware that they Further, it would not be possible to lost crops. In 2012, Sygenta Founda- need risk management tools set up a sustainable business model tion made early pay-outs to over but take-up is mostly voluntary covering only one or two countries. 6,700 smallholder farmers (see and very slow. This approach allowed similar prod- Figures 20 and 21). It also provided ucts, marketing strategies and tools, — Working with aggregators is in-kind support in the form of and economies of scale, and required crucial for scaling and keeping US$ 350,000 worth of fertilisers an efficient team with the right tech- costs under control; exploring and seeds. nical skills. the use of new technology can improve efficiency with limited investment.

55 — Left to right: Rose Goslinga, Syngenta Foundation for Sustainable Agriculture, Switzerland; Mathieu Dubreuil, PlaNet Guarantee, Senegal. 56 — Munaye Makonnen, Oxfam,USA.

55 56 Report 8th International Microinsurance Conference 2012 59

Figure 20 Rainfall requirements for a good yield

Source: Goslinga, Rose. Presentation “Repackaging and redesigning index insurance”. 8th International Microinsurance Conference 2012

Figure 21 Example of early pay-out Western Kenya 2012

6,700 farmers received seed and fertiliser in April 2012

25 mm 24 days with no rain = rainfall volume 54 % loss of sum insured US$ 300,000 loss

Source: Goslinga, Rose. Presentation “Repackaging and redesigning index insurance”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 60

Parallel session 13 Agricultural microinsurance – The index insurance experiment

The Horn of Africa Risk Transfer The weather index insurance is the HARITA: Lessons learnt for Adaptation (HARITA) risk transfer element of the project — HARITA is not an insurance and protects farmers from low rainfall The Horn of Africa Risk Transfer for project, but an adaptation project and drought. Two options of insur- Adaptation (HARITA) project is to build resilience to weather ance are available and farmers have a holistic risk management model risks. Weather index insurance, shown a clear preference for the involving risk reduction, insurance as a risk transfer instrument, more expensive insurance cover with and credit (see Figure 22). is an integral part of this holistic a higher pay-out frequency. risk management approach. The risk reduction component in- The prudent risk-taking aspect of cludes an insurance-for-work mech- — The insurance-for-work mecha- the project includes improved access anism, where farmers can work nism requires farmers to pay to credit, as insurance lowers credit on disaster risk reduction activities 10% of the premium in cash risk. This enables farmers to invest such as spate irrigation, micro- and up to 90% in labour. This has in higher-risk, higher-return activities. gardening and composting for soil left a significant financial gap. Savings allow farmers to cope with fertility, instead of paying the insur- individual risks without relying on — Encouraging trends include higher ance premium in cash. The purpose comprehensive insurance coverage fertiliser uptake from those for these activities is three-fold: because they can self-insure against insured, increased use of improved — Help farmers adapt to climate smaller shocks. seeds, higher yield in some variability and change. insured villages, and increased — Provide long-term benefits, household-level savings and even in the absence of a pay-out. borrowing. — Enable the poorest farmers to pay their premiums through labour.

Figure 22 HARITA conceptual framework Holistic risk management

2

Residual Credit Insurance taking

risk risk

transfer Prudent

3

57 — Facilitator: Dan Osgood, International Research Institute for Climate 1 Disaster risk reduction and Society (IRI), USA.

Risk reduction

Source: Makonnen, Munaye. Presentation “The Horn of Africa Risk Transfer for Adaptation (HARITA) Project / R4”. 8th International Microinsurance Conference 2012 57 Report 8th International Microinsurance Conference 2012 61

Parallel Session 14 Proactive market development approaches

Landscape studies show that micro- A public-private partnership In addition to creating the regulatory insurance has grown exponentially framework and financial literacy The first case provided insights into in recent years, but growth has not campaign, the Philippines developed how regulatory framework and policy occurred evenly across the globe. an alternative dispute resolution reform can drive private-public part- There still remain many undeveloped framework and product prototypes. nerships and market development. markets, and factors contributing to The innovative framework combines the lack of development are as diverse In 2009, the Philippines began creating mediation and conciliation techniques as regions themselves. This session a microinsurance regulatory frame- to resolve disputes swiftly and introduced three cases of proactive work, to improve value for clients efficiently. The prototypes facilitated market development, all of which and provide consumer protection fast product approvals by regulators confronted the issues facing their (see Figure 23). The process was part and encouraged insurers to create respective markets, and in doing so, of a larger national strategy for the products of their own. successfully tapped the opportunity promotion of microinsurance and for financial inclusion. encouraging participation of stake- holders in both the public and private sectors. A financial literacy campaign was launched to educate members of nine stakeholder groups it had identified. The campaign successfully delivered tailored messages to 2,500 members across each group in the microinsurance market.

Figure 23 Microinsurance policy reforms 58 — Left to right: in the Philippines Barry Maher, Pacific Financial Effectively institutionalised value Inclusion Programme (PFIP), Fiji; for clients and consumer protection Pedro Bulcao, SINAF Seguros, Brazil; Antonis Malagardis, GIZ, Philippines. Alternative dispute resolution framework 59 — Facilitator: Brigitte Klein, GIZ, Germany.

Magpaseguro para protektado: A roadmap to financial literacy on microinsurance

National strategy

58 Regulatory framework

Source: Malagardis, Antonis. Presentation “Improving value for clients and consumer protection – A case of public-private partnership in developing prototype products”. 8th International Microinsurance Conference 2012 59 Report 8th International Microinsurance Conference 2012 62

Parallel Session 14 Proactive market development approaches

Today, eight million clients are Despite this market growth, 80% of The third case covered experience covered by microinsurance in the all insurance is offered through of the Pacific Financial Inclusion Philippines, demonstrating that banks, largely owing to favourable Programme (PFIP) in developing the encouraging broad participation regulation and established delivery microinsurance market of Fiji. PFIP’s from the public and private sectors channels. Historically, the growth strategy is to seek out new ways early on can lead to successful of microinsurance has been severely to introduce financial services to hard- market development (see Figure 24). hindered by a tough regulatory to-reach populations. framework. Recently, a new micro- Growing despite tough regulation, Fiji’s challenging geography insurance regulation framework was the second case outlined challenges (332 islands, 500 islets), poor infra- developed after a deeply engaged and opportunities in the expansion structure (remote islands only acces- stakeholder process. of microinsurance in Brazil, and sible by boat every 3–6 months), and the critical role regulation has played The process successfully brought high poverty rate (over one-third of in market development. together insurers to discuss their the total population) have all contrib- businesses and experiences in a way uted to its having one of the lowest In the last 20 years, Brazil’s econom- never done before. The resulting financial literacy rates in the Pacific. ically active population has grown regulation has so far not facilitated A three-pronged approach to financial by 40 million, resulting in an enor- market growth as expected. But education was taken, and included mous increase in the number and Brazil continues to overcome capital capacity building with regulators, earning capacity of consumers, requirement and distribution chal- providers, and clients. particularly in low-income commu- lenges, and serves as an example nities. Microinsurance has benefited With regard to product development, of a microinsurance market that from this new segment of consumers, no previous insurance market can achieve growth despite an un- with life and accident covers growing knowledge existed. A demand side favourable regulatory environment fastest. study was completed, and revealed for non-bank insurers. that a funeral product would be most useful to clients, as the social obligations associated with a funeral can cost individuals up to 50% of their annual income. PFIP facilitated relationships between Figure 24 distribution channels, insurers and The policy reforms have employed inclusive processes regulators from an early stage of and public-private collaboration product development, which helped avoid breakdown of the partnerships, and ensured the understanding of everyone’s role and responsibility.

The actors Regulatory National — Regulators framework strategy — Associations of insurance providers — Associations of rural banks Technical Stakeholder Launching of and MFIs working group consultation outputs and — Academic meetings issuance institutions of circulars — Development organisations Magpaseguro Alternative para protektado: dispute resolution A Roadmap to framework Financial Literacy on Microinsurance

Source: Malagardis, Antonis. Presentation “Improving value for clients and consumer protection – A case of public-private partnership in developing prototype products”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 63

Product development was driven Lessons learnt by the two community-based and — Market development requires two faith-based organisations that a strong political will and sustained would serve as distribution channels. leadership of the regulatory This gave them ownership and agencies. an incentive to drive sales. Product proposals were sent to insurers, — Coordination among support prices and costs reviewed and groups such as development a provider selected – as part of the organisations active in a country overall strategy (see Figure 25). will increase the yield on invested effort. While a financial inclusion event held three months after the product — Small gains lead to bigger mile- launch helped to boost sales and stones. Have patience and invest consumer knowledge, lack of finan- in the process. cial literacy and of an insurance — Engaging stakeholders from both culture remain significant obstacles the public and private sectors to future growth in Fiji. Meanwhile, early on can greatly help in the PFIP has demonstrated that markets development of regulatory frame- with little insurance knowledge work, financial literacy campaigns, and low financial literacy can be and product prototypes that viable candidates for microinsurance facilitate market development. development. — Bringing together insurers to discuss their businesses and share their experiences in microinsur- ance can help regulators create policies that promote microinsur- ance. — Do not underestimate the impact Figure 25 that logistics and accessibility to Microinsurance strategy clients will have on the successful implementation of financial literacy campaigns and microin- 1. Product development driven surance products. by distribution channels

2. Sent proposals to insurance companies

3. Selection of insurance provider

4. Partnership discussion

5. Refinement of product

6. Training workshop and pilot launch

7. Observe in field

8. Follow-up training

9. Financial inclusion event

Source: Maher, Barry. Presentation “Rooting and growing microinsurance in the Pacific”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 64

Plenary 3 How to provide sustainable insurance for low-income farmers

This plenary session dealt with the Figure 26 state of agricultural insurance for Agricultural insurance is not a complete solution the poor and how its shortcomings to agricultural risk may be addressed.

Agriculture is the main source of Probability poor people’s income and employ- Layer 2 Layer 3 ment in most developing countries. Low frequency, Very low frequency, To protect them from its covariate medium losses very high losses risks – most of all weather – many pilot projects for formal insurance Risk mitigation Risk mitigation undertaken since the early 1970s have + Risk transfer + Risk transfer + Risk coping produced mixed results. With trad- itional, indemnity-based approaches to crop insurance proving unsus- tainable, most pilots offered index insurance that promised smallholder Layer 1 farmers low-cost protection against High frequency, key perils, while involving no moral low losses hazard for the insurer. Risk mitigation What providers have learnt from agricultural microinsurance pilots 1. Agricultural insurance is not a complete solution to agricultural risk. Severity Given the high costs of formal insur- ance, it makes more sense to insure the extreme, low-probability shocks Source: Clarke, Daniel. Presentation “State of agricultural insurance for low-income farmers”. and, for the less extreme but frequent 8th International Microinsurance Conference 2012 shocks, retain part of the risk, using savings, credit or even risk-sharing Figure 27 with family and friends (see Figure 26). Subdistrict average yield, as percentage of average 2. Public sector roles are critical historical yield 1999 – 2007 for sustainable scale-up. Although many pilots have focused WBCIS claim payment, on the role of the private sector, the as percentage of sum insured successfully scaled-up programmes have typically been private-public 50 % partnerships. Government’s role Claim payment Actual average is critical in creating the enabling schedule if weather claim payment risk market infrastructure which scale- 40 % index insurance was reliable up requires. And many aspects of agricultural insurance are natural monopolies, like data collection for 30 % reliable, high-quality indices.

20 %

10 %

0 % 50 % 100 % 150 % 200 %

Source: Clarke, Daniel. Presentation “State of agricultural insurance for low-income farmers”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 65

A good example of the positive Box 7 involvement of the public sector is A case study in partnership the National Agriculture Insurance from Maharashtra Scheme (NAIS) of India, the world’s largest crop insurance programme, Although Maharashtra is a highly WBCIS was introduced as a pilot which has covered 192 million industrialised state in India, and in 2007 and later scaled up. In the farmers since its inception in 1999. the richest, agriculture continues to case study district, farmers’ satisfac- This public-private partnership be the main occupation of the state. tion with this product is higher. involves a long-term commitment, Two agricultural insurance schemes The main reasons are: the presence large subsidies, and coordinated are at work there: the National of modern weather stations, reliabil- investment in infrastructure Agriculture Insurance Scheme (NAIS) ity of weather data, localised area, for weather stations and remote and the Weather-Based Crop Insur- transparency of data and information- sensing data. Piloted to scale-up, the ance Scheme (WBCIS). sharing locally, belief that the data scheme is compulsory for borrowing cannot be manipulated, quicker NAIS was set up in 1999 and has farmers, and has had substantial claims settlement, and flexibility in since covered more than 192 million involvement from the private sector the insured sum. The premiums for farmers. This scale is the result of since. 2007 WBCIS are also subsidised by the linkages with banks and credit. Bank government. 3. Farmers want reliable protection. branches and credit cooperatives are enthusiastic participants; they A private-public partnership facili- Low trust, exclusions /“small print” automatically deduct the premium tated the implementation of WBCIS. and risk of insurer default are the from loan payments and send it to It involved the National Bank for main reasons why policyholders do the insurance company. The scheme Agriculture and Rural Development not believe that their insurance will is subsidised by the government. (NABARD), the Indian Meteorological pay when they need it. If the product There is some dissatisfaction among Department and NGOs. It ensured is index insurance, yet another reason farmers because the area unit for goes on this list: basis risk, that is, — the setting-up of weather yields is a block or sub-district and the risk that the claim payment does stations covering a smaller area huge yield variations often occur not match the farmer’s loss. for robust results; in the same block, resulting in long- — locally trained management 4. Weather index insurance drawn-out claims settlement. of these stations; does not (seem to) offer reliable — a stronger stake for farmers in protection to farmers. the scheme;

There is currently no convincing — stronger support from banks statistical evidence from any pro- for insurance coverage of all gramme suggesting that weather borrowing farmers; index insurance can be relied on — easier and faster claim settle- to pay in years that are bad for small- ment, generating as a by-product holder farmers. reduced transaction costs for the insurance company also. This is borne out by an analysis of nine years and yield data for 318 index insurance products sold in an Indian state (see Figure 27). The correlation between area average yields and indexed claim payments is only -13%. This low correlation can be explained by the fact that perils other than weather-related can cause catastrophic losses. Besides, the behaviour of the farmer is difficult to capture for modelling purposes – and long-term data (30 years?) is often not available for proper model calibration. Report 8th International Microinsurance Conference 2012 66

Plenary 3 How to provide sustainable insurance for low-income farmers

5. Need for better claim The Global Index Insurance The World Bank reported mixed payment rules suggests mutuality Facility (GIIF) results from its experience with index may be a missing link. insurance pilots. In general, most The International Finance Corporation of the pilots implemented are still The formal sector cannot offer (IFC), together with the International working but have not reached scale affordable protection for small local Bank for Reconstruction and Develop- and are not expected do so in the (idiosyncratic) shocks. These are ment (IBRD), the original institution near future. This is perhaps because plagued with high cost and moral of the World Bank Group, established the wrong initial approach to imple- hazard. Mutuality may be the answer the GIIF to address the problem that mentation has been taken by inter- and for communities themselves insurance providers in developing national consultants helping insur- to cover these shocks. countries rarely offer natural hazard ance companies develop the agricul- insurance. These countries are For large (systemic) shocks, the tural insurance market. The process particularly exposed to weather and formal sector should be able to offer was left incomplete and no knowledge catastrophic risks because of lack of reliable protection – along the lines was transferred to the countries. infrastructure, dependence on agricul- of Mexico’s Fondos, or India’s The consultants were hired to explain ture and low insurance penetration. Modified NAIS, or by using satellite but not to support the learning pro- The goal of the GIIF is to help develop or weather data “behind the scenes” cesses of stakeholders involved. markets for index insurance, particularly for auditing or targeting. The system that the World Bank is for farmers and rural communities. sponsoring as a corollary of past ex- 6. Meso-insurance for lenders GIIF has served nearly 100,000 farmers perience is to train and build capacity has potential. through its six partners3 in nine sub- for local risk-manager brokers so that Providing meso-level agricultural Saharan African countries, Sri Lanka they can implement a system approach. insurance for lenders would take and South Asia. These brokers could go to the coun- away the agricultural risk and leave tries and analyse the situation along GIIF’s experience has shown that them with only the lending risk. with local experts. Together they It would allow them to increase their — without subsidies it is not possible design and model an agriculture risk exposure to the agricultural sector, to reach scale; profile, including production risk, and support more investment in — it is absolutely necessary to have market risks, exchange rates, price, productivity (fertiliser, improved an efficient distribution channel and conducive environment. Based seeds, technology). to sell the insurance; on this analysis, they then identify and — the lack of data affects the design, define priorities and specific solutions so much that, for example, it can required. See also Box 8.

imply that to reach scale only 3 a million insured is enough when MicroEnsure, International Livestock Research in reality it is ten million, or vice Institute, PlaNet Guarantee, Syngenta, Guy Carpenter and Sanasa. versa; — the basis risk must be reduced as much as possible; — the product must be affordable; — investments should be made in building distribution channels, capacity in general and innovative design.

60 — Left to right: Facilitator: Joachim Herbold, Munich Reinsurance Company, Germany; Dirk Reinhard, Munich Re Foundation, Germany; Daniel Clarke, Univer- sity of Oxford, UK. 61 — Left to right: Shadreck Mapfumo, IFC – Global Index Insurance Fund, USA; Satish Pillarisetti, National Bank for Agriculture and Rural Development (NABARD), India; Carlos Arce, World Bank, USA. 60 61 Report 8th International Microinsurance Conference 2012 67

Box 8 The plenary ended with some lessons Lessons learnt for developing markets drawn by Index insurance lessons from — Agriculture index insurance is Munich Re from agricultural schemes the World Bank’s experience not appropriate for all risks. in developed markets. — It is important that countries and — An institutional framework with 1. Agricultural insurance cannot be different levels of implementation participation of all stakeholders addressed in the same way as other entities know just what to do, of the supply chain is necessary. insurance lines. It must be a part and how and when to adjust the of the national agricultural policy. — Do not believe stories, believe data. triggers of index insurance. Designing a good parameter that 2. System approach rather than — oT achieve this hands-on has a high correlation with the a product approach. It requires experience, all stakeholders peril insured minimises basis risk. an institutional framework that should be thoroughly trained. includes a PPP of government, — Education and training at all levels A modular training tool, farmers, the (re)insurance industry is n a must. I other words, building www.agrisktraining.org, offers and the banking sector. Purely capacitys i the name of the game; on-line training in topics private and purely public institu- it helps build knowledge, and thus ranging from weather to pricing. tional approaches have failed. This trust. — Donors should also verify that institutional structure is different — A public-private partnership the supply side has the technical in each country and should be tailor- is important. Make it work; the capacity, the project is technically made to the economic and social scaling up of index insurance feasible and there are enough conditions of existing institutions. schemes needs the support of good-quality data. The government has the respon- the public sector. sibilities of setting guidelines and — When a robust institution or pool controls, subsidising premiums — Offer reliable products, and inno- of insurance companies is ready and financing catastrophic losses. vate behind the scenes. to start implementation, reinsurers We need tailor-made solutions that should be on board as well, and factor in the local conditions. claims and premium collection systems designed. 3. Cooperative instead of competitive approach. It is useful to have or — Always have the supply chain set up a coinsurance pool and a in mind in order to include centralised technical entity in charge all the possible risks, including of bundling and developing expert- price volatility. ise, and to establish uniform terms and conditions of insurance. In other words, make the incentives right. 4. Nationwide instead of pilot-project approach. Agricultural insurance is all about spreading risks by insuring different regions and crops and by achieving a high market penetration. Pilots are difficult to scale up. 5. Overestimated potential of weather index insurance on farm level. Experience indicates greater poten- tial for area yield index insurance due to the various shortcomings of weather index insurance. 6. Combine insurance with credit. Stand-alone solutions are not economically viable or sustainable (as shown by India’s experience and Madison Insurance during the Failures sessions). Report 8th International Microinsurance Conference 2012 68

62 — Almost 80 journalists “Microinsurance is indeed one of attended the press conference. the viable solutions to the challenges Left to right: Israel Kamuzora, Commissioner of Insurance, TIRA, that confront the poor.” Tanzania; Dirk Reinhard, Munich Re Foundation, Germany; Stefan Hon. William Mgimwa Nalletamby, Making Finance Work Minister of Finance of the United Republic of Tanzania for Africa, Tunisia. 63 — Left to right: Manfred Sibande, ATI, Tanzania; Craig Churchill, ILO / Microinsurance Innovation Facility, Switzerland. 64 — For the fourth time, a special policy seminar on regulation and supervision was held in Dar es Salaam. High-level insurance regulatory representatives from no fewer than 15 countries were present. A special academic seminar also took place for the fourth time. 65 — Participants in parallel session 3 discussing good practice in microinsurance. Véronique Faber, Microinsurance Network, Luxembourg. 66 — 590 participants from around 60 countries attended the 8th International Microinsurance Conference. 67 — The conference’s organisation 62 63 team. Left to right: Christian Barthelt, Petra Hinteramskogler, Dirk Reinhard, Paula Jiménez, Torsten Kraus.

64 65

67

66 Report 8th International Microinsurance Conference 2012 69

Agenda Day 3 afternoon sessions 8 November 2012

Parallel session 15 Parallel session 16 Parallel session 17 Agenda-setting for Case studies on how to Case studies microinsurance in Tanzania insure the poor’s property

Introduction Tyler Tappendorf Sabbir Patel Hennie Bester Project Manager, Fonkoze, Haiti Senior Vice-President Strategic Advisor and Regulatory MiCRO and Fonkoze: and CFO, ICMIF, UK Expert, FinMark Trust / Cenfri, First-year experiences with Takaful and poverty alleviation South Africa catastrophe insurance for Arman Oza Tanzania insurance landscape: Haitian microentrepreneurs CEO, VimoSEWA, India A diagnostic of the challenges Pravin Kalpage Increasing outreach and and opportunities for Head of Hollard Direct, managing costs in a voluntary microinsurance development Hollard, South Africa microinsurance scheme – Israel Kamuzora Experience from Jet Home VimoSEWA’s resurgence Commissioner of Insurance, insurance Michael McCord TIRA, Tanzania K Gopinath President, MicroInsurance Manfred Sibande Head – Rural and Centre, USA Chairman, ATI, Tanzania Cooperatives, IFFCO Tokio MAPFRE Colombia: General Insurance, India Combining valuable funeral Sosthenes Kewe A case for livestock insurance: insurance products with Technical Director, FSDT, IFFCO-Tokio General a strong business case Tanzania Insurance Ltd Facilitator Facilitator Facilitator Craig Churchill Yoseph Aseffa Thomas Loster Chairman of the Microinsurance CTA, ILO, Ethiopia Chairman, Munich Re Network, ILO / Microinsurance Foundation, Germany Innovation Facility, Switzerland

Parallel session 18 Plenary 4 Outlook session Academic / Healthcare track Institutional arrangements Next steps in market for covering the health needs development of low-income households

Karuna Krishnaswamy Nathaniel Otoo Prisca Soares Researcher, CIRM Design Director of Administration General Secretary, and Research Labs, India and General Counsel, NHIF, African Insurance Organisation, The impact of outpatient health Ghana Cameroon insurance and preventive and Onno Schellekens Stefan Nalletamby promotive products in rural India CEO, PharmAccess Coordinator, Making Finance Andreas Landmann Foundation, Netherlands Work for Africa, Tunisia PhD student, University Zafrullah Chowdhury Stewart Kinloch of Mannheim, Germany Trustee, Gonoshasthaya Kendra Consultant, African Can microinsurance help Trust, Bangladesh Development Bank, Kenya prevent child labour? An impact evaluation from Pakistan Facilitator Mustapha Lebbar Denis Garand Chair of the IAIS-MIN Joint Wendy Janssens President, Denis Garand Working Group and Financial Post-doctoral research fellow, and Associates, Canada Inclusion Subcommittee VU University Amsterdam, of the IAIS, Morocco Netherlands Out-versus in-patient healthcare Facilitator coverage and foregone care: Brandon Matthews Evidence from a health and Stonestep, Switzerland financial diaries study in Nigeria and Kenya Facilitator Richard Phillips Chair – Department of Risk and Insurance, Georgia State University, USA Report 8th International Microinsurance Conference 2012 70

Parallel session 15 Agenda-setting for microinsurance in Tanzania

“Years ago, when I worked for an Box 9 Microinsurance in context insurer, we had a policy for farmers The Tanzania Insurance Regulatory The diagnostic study, whose findings in northern Tanzania,” said the Authority (TIRA) is studying were presented to a stakeholders’ Commissioner of Insurance, “but individual gaps identified in the workshop in September 2012, evalu- the first claim on it was refused. diagnostic to establish ates the demand for and supply of Had we paid that first claim we would insurance in Tanzania, and the impact have gone far in microinsurance — the adequacy of the legal and regu- that, policy regulation and supervision development.” latory framework for the promo- have on them. The analyses portray tion of the microinsurance sector; “We have learnt lessons,” he added, the current situation as well as how — the range of products being “and now with the help of the diag- the market has developed over time, provided in the market and micro- nostic study under the Access to Insur- outlining the underlying driving forces insurance products needed; ance Initiative (A2ii) we can proceed of the market – including the broader — the efficiency of current distribu- effectively.” financial sector, and the macroeco- tion channels; nomic and socio-economic context. The session reviewed findings of — the level of insurance penetration the study and thrusts of the national in formal and informal sectors; Regulatory commitment to strategy for insurance – including — the optimal arrangement for low-income market microinsurance – that is being agreed. insurance of government assets; While formulating regulatory and — the effectiveness of existing Acknowledging a lack of a microinsur- market-related recommendations programmes to increase insurance ance law and regulatory framework for future development, the study awareness; as well as a lack of products designed focuses not on microinsurance exclu- — current impediments to further with the poor people in mind, the sively but on the whole insurance development of the insurance Tanzania Insurance Regulatory market. It scopes the market’s trends market. Authority (TIRA) is following up on and underlying drivers to project the diagnostic’s findings with a number the potential for microinsurance. Source: Kamuzora, Israel. Presentation “Tanzania of studies on individual topics to insurance landscape: A diagnostic of the The study pegs the target market for pinpoint required action (see Box 9). challenges and opportunities for microinsurance microinsurance at 16.4 million, 66% development”. 8th International Microinsurance of adults in Tanzania (see Figure 28). Conference 2012 Conspicuous in their absence from Figure 28 the low-income market are agricultural Identifying the market opportunity and private health insurance. Health in Tanzania is the paramount demand-side need; in the study’s scale of six needs, in-patient care scores highest at Total adult Some insurance 93.4% and death of the breadwinner Already some cover, population cover lowest at 22.7%. but still unserved 100 % (24.8 m) 19 % (4.6 m) needs 15 % (3.7 m)

Above affordability threshold and not yet insured Potential 51 % (12.7 m) microinsurance target market 66 % (16.4 m)

Below basic needs Below affordability poverty line threshold 34 % (8.4 m) 30 % (7.4 m)

Source: Bester, Hennie. Presentation “Tanzania access to insurance diagnostic – Key market trends”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 71

Insurers’ perspective A challenge in ATI’s view is that An NGO’s role in expanding insurance the rural poor have a very negative The Association of Tanzania Insurers Among sponsors of the diagnostic perception of insurance, and the (ATI), whose 27 member com- is Financial Sector Deepening market needs success stories on panies are focused on urban centres, Trust (FSDT) set up by five govern- payment of claims if there is to be acknowledged in its presentation that ment donors – from Canada, Denmark, an increased uptake of insurance “microinsurance is where the future the Netherlands, Sweden and the in the rural population. “Insurance of the industry lies in terms of serving United Kingdom – in collaboration is value-less until there is a claim; the poor”. with the Bank of Tanzania. the proof of the pudding is in the Although the insurance sector eating.” FDST believes access alone does has risen at an average 20% annually, not mean financial inclusion. Access ATI is encouraging member insurers the companies’ market shares are must be followed with actual and to come up with new microinsur- stagnating with increasing compe- regular usage of the product, quality ance products in the wake of stag- tition. Like products, distribution ensuring that product attributes match nated growth from traditional covers. channels are limited to urban areas the customers’ needs, and welfare It would increase premiums and and regulated by TIRA. There is or the effect on customers’ livelihoods. market shares, and reduce expense one microinsurance broker that ratios. In implementing the diagnostic’s has now registered. The diagnostic findings, three things in FDST’s view suggests using mobile phone are critical: innovation (thinking out- com-panies to increase the outreach, side the box), scale (inclusive growth) as more than 70% of adults own and impact (value-benefit). “The poor a mobile phone and are aware of people do not have the time to wait. mobile money services. Let us get going. A public-private part- nership between government, market players and development partners is the way forward.” See Figure 29.

Figure 29 Approach – The market system

Enabling environment

les of the gam The state Ru e Government Institutions and governance The macro level

enfo Informal and rcin Policies g g rules and in ru tt le e Core s norms S

Demand Supply The micro level

In s Market fo ce Related rm rvi infrastructure ation and se markets

Information Knowledge The meso level Private sector Civil society Su s pport function

Markets

Source: Kewe, Sosthenes. Presentation “Role of FSDT in expanding insurance in Tanzania”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 72

Parallel session 15 Agenda-setting for microinsurance in Tanzania

Strategic steps Box 10 Lessons learnt The proposed strategy to implement Strategic imperatives Agenda-setting for microinsurance the study’s recommendations does development requires a good Top five market essentials: indeed aim at a PPP. To reach the understanding of stage of forming a partnership, some 1. Creating a compelling — the socio- and macro-economic key steps are suggested: retail business case context, as well as the broader — TIRA to accept the diagnostic 2. Building skills and capacity to financial sector within which study and to lead implementation trigger product innovation the insurance market operates; — Ownership of the microinsur- 3. Ensuring positive market — the potential demand for micro- ance development process by discovery insurance, with insights drawn stakeholders (regulator, suppliers, from analyses of existing market distributors, consumer groups, etc.) 4. Educating customers through characteristics as well as focus — Setting-up of a microinsurance the sales process group discussions; working group 5. Pursuing strategic distribution — Definition of the microinsurance — the supply capacity of the whole partnerships action plan (work programme, insurance market, across product quick wins, coordinator, funding, types, as well as all the players deliverables, data and reports, in the value chain; exit strategy) — the policy and regulatory — A public-private partnership Source: Bester, Hennie. Presentation “Tanzania landscape; Cenfri, which led the diagnostic access to insurance diagnostic – Key market — the main opportunities and study, has reminded participants in trends”. 8th International Microinsurance Conference 2012 challenges; microinsurance development that there are five strategic imperatives — an implementation strategy that in the process (see Box 10). These can engage government, market essentials will lead to microinsurance players and development partners increasing the uptake of other finan- in a public-private partnership. cial services. Through the process More information: microinsurers need to look at the www.tira.co.tz market from the access, not from the micro, perspective – to get a better sense of how the market will develop.

68 69 68 — Facilitator: Yoseph Aseffa, ILO, Ethiopia. 69 —Manfred Sibande, ATI, Tanzania. 70 — Left to right: Israel Kamuzora, TIRA, Tanzania; Hennie Bester, FinMark Trust / Cenfri, South Africa. 71 — Sosthenes Kewe, FSDT, Tanzania. 70 71 Report 8th International Microinsurance Conference 2012 73

Parallel session 16 Case studies on how to insure the poor’s property

When discussing different lines of As a low-margin product with Pashudhan Bima Yojana in India microinsurance, the focus is mostly only adequate resources allocated, In microinsurance, covering live- on health and agricultural insurance Jet Home Protect has so far not built stock – an important asset of small- as they are more challenging products a huge customer base but it is off to a holder farmers – is fraught with to provide, or on credit life as it is good start, with some 20,000 policies a number of constraints, not the least one of the most established products. sold. Promotion has included a de- of which is a high loss ratio. Here is This session, chaired by Thomas tailed marketing campaign via radio, a case that brought the ratio down to Loster, looked at three very different and word-of-mouth endorsements in as low as 35% in three years. examples of property insurance as community meetings. A client-centred a risk management tool. approach in a simple claims process IFFCO-Tokio General Insurance is provides assistance to repair the a joint venture between IFFCO, the Jet Home Protect in South Africa damage and reduce the loss before largest cooperative fertiliser company When Hollard launched this home a claim is paid. Face-to-face interaction in the world, and Tokio Marine & insurance product in South Africa in easily accessible stores and strong Nichido Fire Insurance of Japan, one three years ago, only 4% of the trust in the established Jet brand has of the largest insurers in the world. targeted households had some form led to a high retention rate. It aims to spread risk management of property insurance. In view of and insurance knowledge and aware- Hollard: Jet Home Protect a lack of market and customer infor- ness to rural communities by lever- mation, Hollard conducted a survey Number of people insured aging the strength of cooperatives. before designing the product. 20,000+ IFFCO-Tokio introduced its Pashudhan In the survey, low-income consumers Insured risks Bima Yojana (cattle insurance policy) had identified theft, fire and destruc- Loss or damage to buildings in August 2009 and since then tion of property as major risks. To keep up to ZAR 50,000 (US$ 5,618) has insured more than 28,000 cattle costs low, Hollard chose to distribute and contents up to ZAR 50,000 with a gross written premium of the product through a partner, Jet, the (US$ 5,618) caused by fire, US$ 496,000. Pursuing both business largest clothing retailer in the region. lightning, explosion, storm, viability and client value, it refined The Jet store chain added a strong wind, hail, snow, natural flood. product and enrolment processes and brand affinity and provided access to Theft or burglary covered used new technology for identifying its existing network of customers. up to ZAR 15,000 (US$ 2,809) cattle, offering clients lower premiums and faster claim payments. Initially using a call centre for sales, Premium range Jet Home Protect was later rolled ZAR 49 per month (US$ 5.50) To bring the benefits of insurance out to in-store. The survey had shown with a deductible of ZAR 100 to cooperative members and to a preference for purchasing from per claim (US$ 11) expand IFFCO-Tokio’s rural portfolio, a trusted channel, with an opportunity the joint venture needed to strengthen Note to discuss the product and ask ques- its bancassurance business by Using a large retailer tions. Offering the product in stores, enlisting more rural cooperative for accessing clients agents are also able to leverage banks as distribution partners. Jet customer accounts for premium Cooperative banks were challenged collection and claim settlement. with loss ratios on cattle loans of up to 300%. Therefore, IFFCO-Tokio developed a credit-linked product for farmers with cattle loans.

72 — Tyler Tappendorf, Fonkoze, Haiti. 73 — Left to right:; Pravin Kalpage, Hollard, South Africa, K Gopinath, IFFCO Tokio, India; Facilitator: Thomas Loster, Munich Re Foundation, Germany.

72 73 Report 8th International Microinsurance Conference 2012 74

Parallel session 16 Case studies on how to insure the poor’s property

A major reason for the high loss ratio Figure 30 in livestock insurance is the difficulty How MiCRO-Fonkoze catastrophe insurance works – of identifying the insured animal. Fonkoze’s Kore W programme. With a grant from the ILO’s Microin- surance Innovation Facility IFFCO- Structure Tokio successfully piloted the use of — 100% of Fonkoze’s group-lending clients are covered by obligatory a radio frequency identification (RFID) catastrophe insurance, which protects each client if their merchandise, microchip, similar to the size of a home, or place of business is severely damaged by a natural disaster. — The majority of clients pay 3 % of their loan amount for coverage. grain of rice, which is injected with — When a rain, wind or earthquake event occurs, clients submit their claims a syringe to accurately identify the through their Solidarity centers. cattle. — Qualifying losses provide the following pay-out: • Reimbursement of the client’s existing Fonkoze loan balance Farmers also have easy access to • An HTG 5,000 (~US$ 125) cash payment the product and related services. • A new loan to recapitalise their business when the client is ready Insurance offices operating out of local cooperative banks are staffed by just one person, a “son of the Event occurs MiCRO calculates Beneficiary MiCRO provides soil” called bima sahayak or relation- and makes receives basis risk pay-out ship executive who, together with parametric payout pay-out (if applicable) a veterinarian, provides enrolment Fonkoze adjusts and loss prevention services. claims by clients With this encouraging case of profit- ably providing an insurance cover in high demand in rural communities, Total time from event occurrence to basis risk pay-out: 30 – 45 days* IFFCO-Tokio plans to expand the line through “new distribution chan- nels in new geographies”. *Indicated time-frame not a guarantee of service; experience may vary IFFCC-Tokio: Source: Tappendorf, Tyler. Presentation “MiCRO and Fonkoze: First year experiences with catastrophe insurance for Haitian microentrepreneurs”. 8th International Microinsurance Conference 2012 Pashudhan Bima Yojana

Number of cattle insured Figure 31 28,136 Structural overview of MiCRO pay-outs Insured risks Cattle death due to disease or accident; sum insured is loan value Reinsurer Premium range 3–5% of sum insured paid on Parametric premium Parametric payments to MiCRO annual basis paid to reinsurers in the event of triggered loss

Note Multi-donor trust MiCRO Basis Technical innovation to bring loss fund (MDTF) risk ratio down significantly (35%)

Microinsurance Loss settlement premiums paid to MiCRO payment from MiCRO

Insured Organisation

Sub-claims settled by organisation

Protected beneficiaries

Source: Tappendorf, Tyler. Presentation “MiCRO and Fonkoze: First year experiences with catastrophe insurance for Haitian microentrepreneurs”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 75

MiCRO and Fonkoze in Haiti The product allows both Fonkoze Lessons learnt and its clients to transfer the risk of In this case, a (re)insurer and an — Developing partnerships with natural catastrophes to the inter- MFI have demonstrated a realistic, established organisations, national markets through MiCRO globally replicable model of catas- piloting and training are vital for (see Figure 31). This bridge between trophe insurance in one of the successful product launches, previously separated worlds ensures world’s most vulnerable countries. distribution and take-up. the durability of Fonkoze’s services Microinsurance Catastrophe Risk in troubling times and helps clients — oT achieve a critical mass, Organisation (MiCRO), created by and their families endure devastating, the product should be not only an international consortium of donors unexpected losses. accessible but affordable. in 2011, is a licensed (re)insurance MiCRO / Fonkoze — Business viability and client value company focused on Haiti’s micro- Kore W catastrophe insurance can coexist without a trade-off entrepreneurs in the informal sector. if processes are client-centred and It issues customised protections in Number of people insured efficient. response to the negative social and 100% of Fonkoze’s financial impact of natural disasters. 60,000+ group-lending clients — The RFID microchip is a cost- effective technology for cattle MiCRO is the first organisation to Insured risks identification, and helps reduce offer a combined parametric and Damage to merchandise, the claims processing period. basis-risk transfer solution. Parametric home, or place of business by indemnification allows for fast and a natural disaster — In MiCRO, Haiti has a workable efficient claims payments, and example for other developing Premium range the basis-risk coverage helps mitigate countries of an innovative 3% of the loan amount potential deviations from the para- combination of parametric and metric triggers and actual losses. Note basis-risk insurance for catas- Using local partners to aggregate trophes – and sets a good example The innovative set-up uses local micro-risk, and global partners for partnership approaches. partners to aggregate micro-risk, and international (re)insurers to and global partners and international — Two parametric products being price, manage and retain risk. (re)insurers to price, manage and launched in the Caribbean break retain this risk. Next steps for parametric products new ground in how to provide financially sound index-based Fonkoze is Haiti’s largest MFI and In the session discussion, a new weather insurance to low-income helps the country’s poorest take product was brought up. Building on people. the first steps out of poverty. It has the success of MiCRO and comple- 46 branches, 60,000 borrowers and menting its regional presence in 280,000 savers, the Caribbean, the Munich Climate Insurance Initiative (MCII) is launching Fonkoze set up its Kore W programme two parametric insurance products in in January 2011 to provide MiCRO’s Jamaica, St. Lucia and Grenada. The insurance to its microcredit clients first one, a Livelihood Shock Absorber, (see Figure 30). Employing a team of will insure individuals to protect their 23 trainers, Fonkoze spent the first livelihoods against strong wind and six months teaching clients about rainfall. The second product, a portfolio insurance, how to protect themselves hedge, provides insurance for disaster- from weather risks, and sharing related loan defaults to encourage details of the new product. lending to vulnerable people, such as Clients who incur losses are required those in the agricultural sector. to contact their respective credit The two insurance products will be centres.o T reduce fraud, assessors launched in due course and represent use centre members to validate a first step in a wider dialogue between loss reports. Pay-outs are decided in regulators and insurers. The aim of solidarity groups. this dialogue is to explore options on how to provide financially stable index- based weather insurance solutions for low-income people and integrate them into a disaster-risk management programme as part of the sustainable development agenda. Report 8th International Microinsurance Conference 2012 76

Parallel session 17 Case studies

Microinsurance often requires an Takaful still represents a relatively Based on a Client Math study, attempt to reconcile elements that small part of the insurance industry, MAPFRE’s funeral product Seguro are in conflict. Business needs can but it is growing rapidly. In general, Exequial seems to provide significant clash with social missions, religious countries with high Muslim popula- value for clients. Funerals have little requirements and client value. tions have very low insurance pene- financial impact on the insured, This session examined three case trations, so takaful represents a major but they cause significant medium- studies which illustrate attempts growth opportunity (see Figure 32). to long-term damage on the finan- to find a balance that works for all cial health of the uninsured. Without However, these countries also have players. funeral cover, surviving members of large low-income populations. the family are forced to wipe out their Takaful and poverty alleviation Out of the billion people living in low- savings, take much higher levels of income countries, half are Muslim. Conventional insurance contracts informal loans and reduce their day- Therefore, to serve them involves two are not compatible with Sharia to-day expenditure, as illustrated in challenges: religious compliance law, so Muslim scholars developed Figure 33. and affordability. Microtakaful is trying the principles of takaful insurance, to address this. An important aspect of the MAPFRE based on the idea of “bearing one policy is that it is cashless and claims another’s burdens”. Valued funeral insurance makes are made quickly, meaning that the a business case In principle, takaful is mutual; in insured do not have to decapitalise, practice it separates policyholder Seguro Exequial even in the short term. funds from shareholder funds, Number of people insured Based on the business case study, there is sharing of an underwriting Around one million the product also provides good surplus and, in the event of an business value. Although it made underwriting loss, shareholders are Insured risks a small loss initially, the product soon expected to provide interest-free Lives of the primary made a profit, and this has improved loans. policyholder, spouse and children each year. Administrative expenses (under 26 years of age) The first official takaful company are high at 45%, because of the fees was established in 1979. Now multi- Premium range required by the distribution channel. nationals have entered the market US$ 3.63 a month However, MAPFRE is unlikely to and reinsurers have started offering be able to access this volume of clients This presentation reflects results of re-takaful. without a distribution channel such both a Client Math study and a business as it finds in the utility company that case study by the MicroInsurance sells its products. Centre’s MILK project. By linking the two studies, participants were able to gain a clear understanding of the two key sides of one product within an institution.

74 — Left to right: Michael McCord, MicroInsurance Centre, USA; Arman Oza, VimoSEWA, India; Sabbir Patel, ICMIF, UK; Facilitator of the session: Craig Churchill, ILO / Microinsurance Innovation Facility, Switzerland.

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Figure 32 Potential takaful markets

11

6 10 9 2 8 5 4 3

7

Estimated 1 Muslim populations in 2010 100m + 50 – 100m 10 – 50m 5 – 10m 1 – 5m Under 1m

1 Indonesia 5 Egypt 9 Morocco Population: ~213 m Population: ~80 m Population: ~32 m Per capita income: US$ 4,094 Per capita income: US$ 5,598 Per capita income: US$ 7,360 Insurance penetration: 1.5 % Insurance penetration: 0.7 % Insurance penetration: 2.8 %

2 Pakistan 6 Turkey 10 China Population: ~178 m Population: ~75 m Population: ~ 23 m Per capita income: US$ 1,250 Per capita income: US$ 12,390 Per capita income: US$ 7,503 Insurance penetration: 0.7 % Insurance penetration: 1.3 % Insurance penetration: 3.8 %

3 India 7 Nigeria 11 Russia Population: ~177 m Population: ~75 m Population: ~ 16 m Per capita income: US$ 3,194 Per capita income: US$ 2,241 Per capita income: US$ 15,756 Insurance penetration: 5.1 % Insurance penetration: 0.5 % Insurance penetration: 2.3 %

4 Bangladesh 8 Algeria CIS Region Population: ~148 m Population: ~35 m Population: ~ 61 m Per capita income: US$ 3,125 Per capita income: US$ 7,100 Per capita income: US$ 10,715 Insurance penetration: 0.9 % Insurance penetration: 0.8 % Insurance penetration: N / A

Source: Patel, Sabbir. Presentation “Takaful and Poverty Alleviation”. 8th International Microinsurance Conference 2012. The World Takaful Report 2012, Ernst & Young Report 8th International Microinsurance Conference 2012 78

Parallel session 17 Case studies

Nonetheless, the client value is Over the following three years, Lessons learnt questionable as the claims ratio is only VimoSEWA took several steps to try — Religion plays a fundamental role 22%, primarily dictated by the costs to rectify its poor financial situation, in the lives of the poor, so that of. delivery However, this is a volun- including the values of takaful are of great tary product covering a million people — introducing a more formal organ- relevance in increasing access who seem to see value in it and benefit isational structure and a system to insurance for low-income from it, as was clearly seen through of appraisals; people in regions where Islam has the Client Math study. This product — improved marketing, including a sizeable presence – e.g. Africa, might force experts to question their a shift in focus from membership which has 52.4% of the world’s assumptions on claims ratio and its numbers to premium income; Muslims. place in client value. — changes to its product offering; — Microinsurance experts may need Increasing outreach and managing — reduction of monitoring and to reconsider the link between costs in a voluntary scheme evaluating efforts to those areas value and claims ratios. A business necessary for decision-making; In 2009, VimoSEWA’s membership may be able to provide a valuable — a shift in its claims management had been decreasing, claims were product with a relatively low approach, accepting that rejections consistently higher than premiums, claims ratio and make a fair profit. would have to be made, but focusing gross margins were erratic, and costs The fees of distribution chan- on reducing turn-around time. were overshooting revenues. The nels may drive the overall cost to organisation was forced to ask itself All these changes required, above clients. some tough questions about its all, a cultural shift in the organisa- — It is difficult to survive as a financial viability. tion. It was necessary to evaluate the voluntary stand-alone micro- efficiency of each activity without insurance intermediary. It cannot allowing it to hide behind the “grand scale up beyond a certain point, goal” of the organisation. There was no matter how much it can a need to move beyond focusing on increase efficiency and how well inputs to looking at what was actually it can balance social and financial being achieved. goals. Attaining viability requires Impact of these changes: resilience and a cultural shift.

Figure 33 — Although the membership is still Financing sources decreasing, premiums are up. — Its product and sales mix has become more balanced. US$ — Previously, increasing the organisa- 2500 tion’s business actually increased its losses, but now acquisition costs have decreased. 2000 — VimoSEWA is still unable to cover the viability gap. 1500 — Its capital had been depleting; now it is back up. — Renewal ratios remain at about 1000 70% on annual products.

500

0 Insured Uninsured

Reduced consumption Gifts Informal loans Income Savings / Assets

Source: McCord, Michael J. Presentation “MAPFRE Colombia: Combining valuable funeral insurance products with a strong business case”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 79

Parallel session 18 Academic / Healthcare track

This session discussed whether Treatment groups 1 and 3 and 2 and 3 Researchers conjecture that increased micro health insurance should focus are compared. This makes it possible referrals perhaps lead to earlier detec- on in-patient or outpatient care. to measure the effect of the insurance tion of serious ailments, and hence It also discussed the effect health product and the effect of the insurance get people hospitalised before the insurance can have on child labour. product combined with the preven- condition becomes worse, leading tive / promotive products regarding to fewer days spent in a hospital and How much is a health card worth? health-seeking behaviour, morbidity, lower expenses. A randomised controlled trial was health status and health expenses. The study demonstrates the power of carried out in India by CARE Founda- Everyone in the area had access to the a prepaid health card model compared tion in partnership with the Centre insurance cover (but not everyone at to a pay-per-use model, even when for Insurance and Risk Management a discounted rate); hence the design the fee per visit is only US$ 0.20. (CIRM) in 2009. of experiment did not lead to denial of While more research should be done, service to anyone. CARE the policy implication is that insurers The results of a randomised trial and government agencies providing Insured risks show that outpatient insurance in-patient insurance products should Outpatient care substantially increased visits to the consider adding a primary care Premium range CHWs and referrals to the CARE component, which could potentially US$ 6 per annum clinic and hospital; hospitalisation lead to a reduction in claims ratios and expenses were lower than the insur- promote client value, renewals The intervention consisted of ance premium. No impact was found and profitability for the provider. three different treatment arms: on morbidity. — A group that received one free visit to the community health worker (CHW, a low-skilled, married lady, village resident) worth US$ 0.20 (Treatment 1); — A group that got an 80% discount on outpatient insurance (Treatment 2); — A group that got an 80% discount on outpatient insurance and access Figure 34 to preventive / promotive products Outline of the difference-in-differences method used such as water purifiers, napkins to measure the impact of the intervention and mosquito repellents, all sold at a low price (Treatment 3). Hospitalisation The outpatient insurance covers four expenses members of the household, for a sum insured of US$ 50, and unlimited free visits to the CHW and doctor (on referral). It also covers drugs, tests and consultations, and has a trans- A Control portation allowance in case of refer- rals to hospitals. In-patient care is not covered.

B Treatment Effect = B – A

Before health 1 year Time card launch after launch

Source: Krishnaswamy, Karuna. Presentation “How much is a health card worth?”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 80

Parallel session 18 Academic / Healthcare track

Can microinsurance help prevent Health and accident insurance From the results, it appears that the child labour? in Pakistan effect of treatment on child labour is negative, with a stronger effect for Microinsurance can help poor Insured risks boys. The treatment effects between households cope with shocks. Health and accident the voluntary insurance (for the extra This can prevent people from falling Premium range household members) and help with into poverty and even increase Cannot be specified, built into claims can be disentangled using investments. credit product; for additional a special feature of the innovation. Does microinsurance also have an household members it As households only having members effect on child labour, both ex ante is US$ 1.40 extra per year carrying mandatory insurance cannot and ex post? An RCT was done in an further expand their coverage through The innovation of the product is that area in Pakistan known for its high the innovation, they should only it allows coverage of other house- prevalence of child labour. The inter- be affected by help with claims, and hold members that are not within vention consisted of adapting a thus its effect can be isolated. The the coverage and clients are offered health and accident insurance built result is that the innovation’s effect help with the insurance product and into a credit product offered by a local on decreased child labour appears to claims. There were nine treatment MFI. It is mandatory for clients and be through insurance and not through and four control branches, and one covers the client, spouse and minor the help with claims. baseline and four follow-up surveys children in all branches. were done.

Figure 35 Disentangling treatment effects

Voluntary Shock

Assistance Claim payment Child labour / with claims Schooling

Voluntary Insurance insurance

100 % mandatory Shock

Assistance Claim payment Child labour / with claims Schooling

Insurance

Covered by mandatory insurance Covered by additional voluntary insurance

Source: Landmann, Andreas. Presentation “Can Microinsurance help prevent child labour?”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 81

Because the effect was still found One study using this method was The advantage of the diaries method when looking at people without claims carried out in a community-based is the use of a weekly recall period and as the claims made were not health insurance scheme in Nigeria (large household surveys use large very frequent, most of the effect on by the Amsterdam Institute for recall periods), the possibility of child labour is ex-ante: people do not International Development. It was measuring foregone care (which need to send their children to work designed to show the type of health in-clinic studies do not provide) and to protect themselves in case some- events people face and how they the real health events people are thing happens, because they deal with these: where they go, how facing (instead of asking what people are covered for this by insurance. much they spend and how this is would like to have in their benefit financed. Since the study looks at both package through CHAT or “Choosing In-patient or outpatient care? insured and uninsured individuals – Health plans All Together” sessions). Health and financial diaries are an a total of about 600 – it is possible to The method also makes it possible innovative methodology for collecting see whether there is a difference in to measure how people pay for their high-frequency and detailed data of health-seeking behaviour and expend- health events, because all financial all incidences of minor and major itures between these two groups. transactions are recorded. illnesses, subsequent health-seeking Hygeia Community Health Care The main disadvantage is that it behaviour and foregone care. in Kwara State in Nigeria misses out on the large catastrophic events because of the small sample Number of people insured size. As a large household survey was More than 60,000 done in the same area in 2008, it is Insured risks also possible to compare the diaries Health insurance, in- and data with the household survey data. outpatient care Premium range 300 naira (US$ 1.50) per annum

Figure 36 Total health expenditure per person in the past six months

US$

4 3.6 3.5 3.2 3.5 3.1

3 2.3 2.5 2.0 2

1.5

1 0.6 0.5 0.5 0.2 0.2 0.2 0.0

0 Programme Non programme Traditional Patent medicine clinic clinic healer vendor

Total (843) Insured (189) Uninsured (651)

Source: Janssens, Wendy. Presentation “Out- versus in-patient healthcare coverage and foregone care”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 82

Parallel session 18 Academic / Healthcare track

Preliminary findings are that health Lessons learnt expenditures are mainly driven by — Insurance can increase health- minor but frequent illnesses and that care utilisation. Outpatient the most common way of dealing coverage is preferred, but remains with illness, for both the insured and a challenge. Hospitalisation in- the uninsured, is to go to the patent surance schemes could lower medicine vendor. The total expend- overall claims costs by including iture on patent medicine vendors cash-less primary care as a value- exceeds the amount spent on facil- added service. ities, especially when looking at the uninsured. The number of illnesses, — Both the insured and uninsured consultations and expenditures found spend high amounts on outpatient in the diaries is higher than in the care. More research should household survey, which could indi- be done into reasons why out-of- cate the existence of a recall bias. pocket expenditure is still high for insured people. The study has product design and policy implications in at least two — There is potential for microin- respects. It assesses the relative surance to reduce child labour importance from the point of view and increase school attendance. of clients of in-patient versus outpa- Parents with insurance do not tient care, suggesting design of need to send their children benefit packages that best address to work to secure their futures. their needs. Secondly, it assesses — Micro health insurance schemes the prevalence of foregone care should take into account the due to financial constraints which, relative preferences and needs in the longer run, can lead to increas- of their client base for in-patient ingly severe health problems. Post- and outpatient care. ponement of care may ultimately cause much higher medical costs and personal misery than treating the illness immediately.

75 — Left to right: Andreas Landmann, University of Mannheim, Germany; Facilitator: Richard Phillips, Georgia State University, USA. Not shown in this photograph: Karuna Krishnaswamy, CIRM Design and Research Labs, India. 76 — Wendy Janssens, VU University Amsterdam, 75 Netherlands.

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Plenary 4 Institutional arrangements for covering the health needs of low-income households

Three different health (micro)insur- National Health Insurance The purpose of NHIS is to cover ance programmes were presented Scheme (NHIS) in Ghana catastrophic out-of-pocket health ex- in the plenary: a national, a social penditure, and it was designed as Number of people insured and a public-private one. a key part of Ghana’s poverty reduction More than 8,200,000 strategy. The very poor are identified In the long run, health insurance Insured risks through the Livelihood Empowerment schemes, even in many Western Health; about 95% of diseases Against Poverty (LEAP) programme; countries, will not be sustainable. eligibility is based on a poverty line. How can we make them sustainable? Premium range Dependent on level of income, Some of the challenges for NHIS The health system should be seen government subsidy; 2.5% VAT are the financial sustainability of as a holistic system; for example, on certain products, and 2.5% the scheme, identification and water and sanitation are also part transfers from social security. coverage of the poor, moral hazard of this system. There are a lot of ways (on the demand and supply side), main- to improve the health system. It is Three types of health insurance insti- streaming of IT, and quality of care. important to critically look at where tutions were set up: district (public) The scheme enjoys bi-partisan political money is spent and what delivers mutual, private mutual, and private will and support and strengthens the best results. commercial. All schemes depended the public sector: 90% of patients in on contributions from their clients. The national insurance scheme in public facilities are NHIS members The government decided to support Ghana started in 2003. It was a big and over 85% of the income of public the first type to make sure everyone step forward for the country; the facilities is derived from NHIS. had equal access to healthcare and scheme started without much involve- the focus was on the poorer segment Affordable healthcare ment from the donor community. of the population. The case of the social institutional set-up is Gonoshsthaya Kendra (GK), or people’s health centre, in Bangladesh – whose services cover 1.1 million people. Of these under- served poor across 629 villages, 38% are insured, while the non-insured receive full preventive care and family Figure 37 planning services. Universal coverage, developed by WHO: Shows possibilities for universal coverage Gonoshsthaya Kendra (GK), Bangladesh Number of people insured 418,000 Insured risks Primary health setbacks, Reduce in-patient and maternity care cost Premium range and sharing US$ 0.10 to 1.00 Extend fees Direct costs: Proportion non-coveredto costs of the covered Include services other Current pooled funds

Population: Who is covered? covered? Services: are services Which

Source: Otoo, Nathaniel. Presentation “Institutional arrangements for covering health needs of low-income households: Ghana’s National Health Insurance Scheme (NHIS)”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 84

Plenary 4 Institutional arrangements for covering the health needs of low-income households

GK’s people-oriented healthcare The premium ranges from US$ 0.10 In Africa, 50% of health facilities are services include: paramedics, well- to 1.00. In spite of the nominal private, but little capital is available. trained and mostly female, and mobile premium, GK has not so far scaled Why is more money pumped into clinics dispatched to rural commu- up to its potential. It now serves only the public system while half of the nities; and five hospitals with over about 38% of the 250,063 families in activities relate to the private sector? 650 beds in total plus 40 primary care its target market. GK cites four reasons In developed countries, the state clinics for the general public and for this shortfall: plays a role in providing quality and for patients covered by GK’s income- — Social-class-based health insurance affordable healthcare. In developing based health insurance. is still a new concept. countries, this is more difficult to For its service delivery and risk- — People think healthcare should arrange, and health systems seem pooling GK uses a mutual model. be free of charge. to be stuck in a vicious circle of low The insurance includes — Consumers doubt whether demand and low supply of healthcare services would be available at (see Figure 38). — in-patient coverage for the family; the right moment with such low — maternity benefits; It is thus important to stimulate fees and charges. — subsidised drugs. investment in the supply side; in the — Government is reluctant to promote end this can increase demand. The limit for in-patient care and GK as it is not backed by the WHO, maternity benefits is US$ 675. UNICEF or other donor agencies. One organisation that is helping create The discounts on medications, There is no opportunity for officials a virtuous circle is the Dutch NGO along with the insurance premium to gain any perks from social-class- PharmAccess Foundation. It does this and a co-payment, are based on based health insurance. in two ways: by offering affordable the insured’s socio-economic status. health insurance, including upgrading The status has four categories: When markets fail: contracted health facilities (public Health insurance and development money), and by offering affordable — Women and poor families in credit for healthcare providers (private distress Although Africa is home to about money). — Farmers who are marginal and 10% of the world’s population and staving off starvation carries almost half of the world’s — People who can afford to eat twice burden of communicable diseases, a day and have some surplus it spends not even 1% of global total — Those who have a good supply health expenditure. Only a small of food percentage of investments in health made by the International Finance The “smoking habit” also comes Corporation (IFC of the World Bank into play in premiums and discounts. Group) was in Sub-Saharan Africa, and only 4% of total health expen- diture in Africa is financed through health insurance.

77 — Left to right: Zafrullah Chowdhury, Gonoshasthaya Kendra Trust, Bangladesh; Onno Schellekens, PharmAccess Foundation, Netherlands. 78 — Nathaniel Otoo, NHIF, Ghana. 79 — Facilitator: Denis Garand, Denis Garand 77 78 and Associates, Canada.

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The Health Insurance Fund offers In the long term, health systems Lessons learnt (subsidised) health insurance to low- will only be successful if there is a — There are different institutional income groups in several Sub-Saharan logical, integrated approach, ensuring options for providing health African countries and, at the same reduction of morbidity with public insurance for the poor – including time, improves the quality of health- health, working with medical facilities public, private and public-private. care in the facilities linked to the to reduce over-provision, working programme. with clients to reduce over-utilisation — For government programmes, and working to ensure only the correct full political support is important, The Medical Credit Fund provides pharmaceuticals are prescribed. and financial sustainability is credit to health facilities that cannot With a clear logical framework, there a challenge. access the capital market. Loans would be room for both public and to 2,000 clinics have been given out — Public-private partnerships can private health insurance. already. Public money was used help overcome the sustainability first, which was then leveraged by Health insurance fund hurdle, if healthcare supply is private money. It is important to look insurance in several Sub-Saharan business-oriented and attracts at public-private partnerships more African countries private investment. in the future. Number of people insured — An innovative social-class-based PharmAccess received an award Around 70,000 healthcare and insurance system for its innovative financing model is serving the extremely poor Insured risks to improve African healthcare, and others below the poverty line Health, both in-patient and which US President Barack Obama in Bangladesh. outpatient care presented at the 2010 G20 summit in — In Africa, a lot of public money Seoul. Premium range is spent on the public health Ranges from US$ 1.5 to sector, while a lot of services are 27.4 per annum being provided in the private sector. A Dutch NGO in Sub- Sahara is showing how public and private money together can be put to work effectively.

Figure 38 Healthcare in Africa: A vicious circle African health systems are stuck in a vicious circle of low demand and low supply of healthcare. Trust in the system is low.

Demand Financing Supply — High out-of- — Low quality pocket expenses Low healthcare — Low access — Low efficiency — Low ownership — High risk — Low solidarity — Scarcity of data

Risk Low

Low

Delivery

Patient — Catastrophic spending — Low utilisation

Source: Schellekens, Onno. Presentation “When markets fail: Health insurance and development”. 8th International Microinsurance Conference 2012 Report 8th International Microinsurance Conference 2012 86

Outlook session Next steps in market development

This session examined future The International Association of What the ideal future looks like, market development in Africa from Insurance Supervisors (IAIS) repre- and how to get there a varied collection of viewpoints. sents 190 jurisdictions and 97% Visions of an ideal future for of insurance turnover in the world, The African Insurance Organisation microinsurance include the following: and works to secure and maintain works to develop a healthy insurance stable insurance markets. IAIS joined — Access to insurance is developed industry in Africa, and to promote with the Microinsurance Network to such a degree that there is no interregional cooperation. One key to create a joint working group which need to talk about microinsurance element of this is capacity building for prepared two issues papers on any more – just insurance catering providers, consumers and regulators. microinsurance-specific topics. The effectively for all segments of Making Finance Work for Africa is working group is now developing society. becoming increasingly involved an application paper on regulation — Microinsurance reaches a far in microinsurance following the and another on mutuals. greater scale. launching of the Africa Landscaping — A strong, efficient, well-regulated The African Development Bank has Study. MFW4A will join the MIN, and market less direct involvement in microin- then look to introduce, if necessary, surance, but it channels its resources Action is needed, but at the same an African chapter of both donor to the sector through others. For time it must be recognised that and stakeholder working groups. example, it administers the Japanese progress in this industry will take MFW4A has been working closely government’s Fund for African time and patience. Furthermore, with the Access to Insurance Initiative, Private Sector Assistance (FAPA) the development of microinsurance particularly on landscape and diag- available for technical assistance in is connected with the development nostic studies, and will continue to microinsurance. of financial systems as a whole, strengthen this relationship. and cannot be taken in isolation.

80 — Left to right: Stefan Nalletamby, Making Finance Work for Africa, Tunisia; Prisca Soares, African Insurance Organisation, Cameroon. 81 — Left to right: Stewart Kinloch, African Development Bank, Tunisia; Mustapha Lebbar, Chair of the IAIS-MIN Joint Working 80 81 Group and Financial Inclusion Subcommittee of the IAIS, Morocco. 82 — Facilitator: Brandon Mathews, Stonestep, Switzerland.

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To achieve greater development of Looking ahead the financial system requires political In order to achieve a strong market commitment and a regulatory system in the future that is viable for which brings informal schemes into insurers and beneficial for clients the formal sphere and ensures that the following will be necessary: the public is comfortable and its needs protected. This will require strong — Development of the financial dialogue between political leaders, system as a whole providers and consumers. — A suitable regulatory environment Sustained capacity building is — Sustained capacity building needed to capitalise on the increased interest in microinsurance. Organ- — Leveraging of technology isations should learn from one another — Products better suited to client through organised exchanges. needs Technology must be leveraged, — A combination of private sector in particular for data collection. strengthening and sustained It is also necessary to do more to donor support engage with the target markets and to win their trust gradually. Products must echo clients’ needs and preferences in order to close the gap between supply and demand. A combination of private sector strengthening and the continued support of donors will be necessary to develop the sector further.

83 — Indra Catarya, Jiwasraya Life Insurance, Indonesia, presenting Indonesia as the host country for the 9th International Microinsurance Conference. 84 — Professor Gamaliel Mgongo Fimbo, Chairman of the National Insurance Board, Tanzania, holding a copy of the Tanzania diagnostic study. 83

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Field trip A cooperative health plan for coffee farmers

The day after the conference, a group KNCU Health Plan Early on the morning of 9 November, of about 40 participants went to the the group was welcomed at the Number of farmers enrolled Kilimanjaro Native Cooperative Union KNCU head office in the town of Moshi between July and December 2012 (KNCU) to familiarise themselves by KNCU Chairman Maynard Swai. 8,151 with the KNCU Health Plan for the “It is such an honour that this group coffee farmers. It was an all-day event Benefit package of specialists is keen on learning more organised by PharmAccess, KNCU Primary care, about our Health Plan. We believe and MicroEnsure. HIV / AIDS treatment, that this plan can really make a differ- maternal and child care, ence in the lives of our famers, for The visit was set up to capture the chronic care whom good physical health is essen- whole process from the harvesting tial for improving productivity.” of coffee beans in the field to the Average yearly premium collection at KNCU as well as the US$ 9.25 After the welcome address, the group implementation of the Health Plan: was split into two for the actual field Number of clinics in programme from registration to treatment and visit. Each group visited a coffee Seven claim handling. collection point at a primary society, Number of referral hospitals several households and a renovated KNCU is Africa’s oldest cooperative Two health facility. and represents over 150,000 small- scale coffee farmers organised in Top three reasons for visits 92 primary societies. It was at the Lower respiratory tract infections, request of KNCU that the Health Plan malaria, hypertension was developed and introduced in The Health Plan is funded by the 2011, with the help of MicroEnsure, Netherlands’ Ministry of Foreign the Dutch Health Insurance Fund and Affairs. The two organisations that PharmAccess to improve access to worked with KNCU to develop healthcare for farmers. By paying and implement the Health Plan a small premium, KNCU members and are the insurance intermediary their families obtain access to afford- Micro-Ensure and PharmAccess, able and quality healthcare in reno- a not-for-profit Dutch organisation vated facilities. In addition, the Health dedicated to creating access to Plan protects them against health- affordable, quality healthcare in related risks. Africa in a public-private approach.

85 — At the household of a farmer, Charles Kainkwa of MicroEnsure demonstrates the different approaches used to inform and educate clients of the Health Plan. 86 — Participants visit the office of Kibosho Central Primary Society to learn about the role KNCU plays in improving 85 86 famers’ lives. 87 — A quality check of the coffee beans is conducted at the central collection point in Marangu Primary Society.

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Primary society Clinic At the primary society, the participants At the participating clinic, the process learnt more about coffee production, of determining the participation the farmers’ livelihoods and the role of clients was demonstrated, using that KNCU plays in improving the health identification cards. In addition, economic well-being of famers. KNCU participants were given a tour around sells coffee collectively to get a better the facility to view the expansion price for farmers, introduces a micro- and improvements made under the credit for members, and implements programme. The renovated clinics a health plan. have seen an increase in the number of patients. Coffee farmer Each facility in the programme The second event was a visit to has participated in an internation- a number of households. Sales teams ally recognised quality improvement from MicroEnsure demonstrated programme called SafeCare. the different approaches for informing SafeCare is an initiative of Pharm- and educating the people about Access, the Council for Health Service the Health Plan and managing the Accreditation of Southern Africa registration of participants. They (COHSASA) and the Joint Commis- showed how they go from door to sion International (JCI) based in door equipped with mobile devices the USA. such as computer tablets with inter- active educational videos and KNCU, MicroEnsure and Pharm- brochures and posters to educate Access, were pleased that they had farmers on the benefits of health plans the opportunity to interact with an and insurance. Lastly, they demon- international group of visitors about strated actual enrolment and collec- the processes involved in the imple- tion of the premium. mentation of a health plan for the coffee farmers – such as community ownership, registration and quality healthcare that need to be in place to effectively implement a health plan. For more information about the organisations, please visit: www.pharmaccess.org www.microensure.com www.kncutanzania.com

88 — At the health facility, visitors go over the improve- ments and renovations made under the programme.

88 Report 8th International Microinsurance Conference 2012 90

Countries represented

Canada United Kingdom Denmark Netherlands Belgium Germany Luxembourg Switzerland France Italy

USA

Tunisia Morocco Bermuda

Jamaica Haiti

Guatemala Senegal Saint Lucia Burkina Faso Grenada Nigeria Ghana Togo

Cameroon Colombia

The Democratic Republic of the Congo

Brazil

Plurinational State of Bolivia

Namibia

< 5 participants 5 –10 participants 10 – 50 participants > 50 participants Report 8th International Microinsurance Conference 2012 91

Turkey Japan

Lebanon

Jordan

Pakistan Egypt Bangladesh India

Vietnam Philippines

Ethiopia

Malaysia Uganda Kenya Rwanda Papua Indonesia United Republic New of Tanzania Guinea

Zambia Malawi Fiji

Zimbabwe Madagascar

Australia Swaziland Lesotho

South Africa Report 8th International Microinsurance Conference 2012 92

Participating organisations

Australia Germany India Kenya Broadcasting Pakistan Switzerland AMUCSS A2ii / BMZ BASIX Corporation Jubilee Life Insurance Consultant New Perimeter Access to Insurance CARE Kenya Orient Insurance Company Limited IAIS Initiative CIRM Design and Limited Naya Jeevan ILO Microinsurance Bangladesh BaFin Research Labs Kenya Reinsurance Securities and Exchange Innovation Facility Gonoshasthaya Kendra Consultant DHAN Foundation Corporation Commission International Labour INAFI Deutsche Welle FINO Paytech Limited MicroEnsure Office Institute of Microfinance Papua New Guinea Academy IFFCO TOKIO General National Hospital MicroInsurance Centre SAJIDA Foundation Office of Insurance GIZ / BMZ Insurance Co. Ltd. Insurance Fund SDC Commissioner Belgium Goethe University, IndiaFirst Life Insurance NHIF Stonestep GmbH BRS Frankfurt Company Limited PharmAccess Philippines Swiss Re Hannover Insurance Regulatory RCMRD CARD MBA Syngenta Foundation for Bermuda Rückversicherung AG and Development Royal Media / Citizen TV Cebuana Lhuillier Sustainable Agriculture Haverford Bermuda MFW4A Authority Standard Group, Kenya Insurance Solutions United Nations Limited Munich Climate IRDA Swedish Cooperative Consultant Environment Bolivia, Plurinational Insurance Initiative J.B. Boda Reinsurance Centre Father Saturnino Urios Programme Finance State of (MCII) Brokers Pvt. Ltd. Syngenta Foundation for University Initiative Fundación PROFIN Munich Re Foundation NABARD Sustainable Agriculture GIZ University of Zurich Munich Reinsurance National Insurance Takaful Insurance of Insurance Commission Brazil Tanzania, United Company VimoSEWA Africa Mapfre Insular Insurance Bradesco Auto / Re Cia. Republic of University of Göttingen Cooperative Ltd. UAP Insurance Company Corporation de Seguros Z.B.C. TV University of Mannheim SEWA Ltd Negros Women for CNSEG / FENASEG News Room Uplift India Association VisionFund International Tomorrow SINAF Seguros Ghana AAR Insurance (T) Ltd Weather Risk Foundation Inc Donewell Life Insurance Lebanon African Life Assurance Burkina Faso Management Services Paglaum Multi-Purpose Company Limited Commercial Insurance Tanzania UAB VIE Ltd. Cooperative Enterprise Life African Media Group Lesotho USWAG Development Cameroon Assurance Company Indonesia Channel Ten Central Bank of Lesotho Foundation African Insurance Limited Bank Indonesia Akiba Commercial Bank Ministry of Finance Organisation German Development Jiwasraya Life Insurance Rwanda Alexander Forbes (T) Ltd Cooperation Luxembourg Access to Finance Alliance Insurance Co. Canada Italy Ghana Agricultural Grameen Crédit Rwanda Ltd Denis Garand and Amici del Mondo – Insurance Programme Agricole Microfinance Alliance Life Asurance Associates World Friends Onlus Saint Lucia Ghana Insurance College Foundation Aon Tanzania Ltd. Développement IFAD – International EC Global Insurance Ghana Life Insurance Microinsurance Network AR Linkage Insurance international Fund for Agricultural Company Limited Ghana Union Assurance Brokers Ltd. Desjardins Development Madagascar Ministry of Finance, Life Company Limited Astra Insurance Brokers ID&CS AFAFI Inter Aide Economic Affairs and GIZ Jamaica Bank of Tanzania ILO Social Security Glico Life Insurance Jamaica International Malawi BBC World Service Microinsurance Centre Company Limited Insurance Company MUSCCO Senegal Changamoto Media Colombia Health Insurance Limited PlaNet Guarantee Channel Ten – AMGL Malaysia ILO / FASECOLDA Authority Transvie CIDR Japan Bank Negara Malaysia MicroEnsure Clouds TV Congo, Democratic Japan Productivity South Africa National Insurance Morocco Cosmos Insurance Republic of the Center Arrowpoint Consulting Commission DAPS / MEF Brokers SONAS rdc Cenfri SIC Insurance Company Jordan CRDB – Microfinance Namibia Financial Services Board Denmark Limited Microfund for Women Serv. Co. Ltd. NAMFISA Greenraven Consulting Copenhagen Business SIC Life Insurance Daily News Kenya Trustco Group Hollard Insurance School Company Limited Dar es Salaam City Press Africa Medilink Limited International IFC Star Microinsurance Club Egypt African Reinsurance ILO Microinsurance Services Limited Netherlands DCB Commercial Bank GIZ Corporation Innovation Facility University of Ghana ACHMEA Plc International Finance APA Insurance Fellow UT Life Amsterdam Institute Deutsche Welle Corporation Apollo Investments Metropolitan Vanguard Assurance for International Embassy of DR Congo Association of Kenya International Ethiopia Company Limited Development FCB Insurance Agency Insurers Nando’s ILO Vanguard Life Assurance Berende Consulting Financial Sector Cannon Assurance Nigel Bowman Actuarial Oxfam America Company Limited Health Insurance Fund Deepening Trust Chartis Kenya Insurance Consulting International Labour First Assurance Fiji Grenada Company Ltd Old Mutual Organization GIZ Pacific Financial GARFIN CIC Insurance Group Sanlam Ministry of Foreign Global Publishers Inclusion Programme CIC Life Assurance South African Insurance Guatemala Affairs Golden Crescent Continental Reinsurance Association France Empresa Promotora PharmAccess Assurance Equity Bank Limited University of Cape Town Allianz Africa de Servicios de International Guardian Family Bank Yellowwoods Ventures CIDR Salud, S.A. University of Twente Habari Leo Fidelity Shield Insurance Investment Grameen Crédit ILO Fellow / Aseguradora VU University Heritage Insurance Co. Ltd. Agricole Microfinance Rural Amsterdam Swaziland IERA FM Radio GIZ Foundation Financial Services Impex Insurance Brokers Haiti Heritage Ins Co Kenya Nigeria GRET Regulatory Authority Insurance Group of Fonkoze Ltd Blu-Ark Konsult PlaNet Guarantee Tanzania Limited Insurance Regulatory GIZ Insurance Institute of Authority Hygeia Tanzania Intra Africa Assurance National Insurance Intertrade Express Company Limited Commission Limited Jubilee Insurance Orange Insurance IPP Media Company Brokers Limited ITV / Capital Television Jumuia Fund for PharmAccess ITV / Radio One Development Foundation Riskguard-Africa (NIG) Ltd University of Lagos Report 8th International Microinsurance Conference 2012 93

Jibu La Maisha Turkey Figure 39 Jubilee Insurance IFC Company Number of participants Uganda Lion of Tanzania per country FIREL Maxinsure (Tanzania) Ltd GIZ Mgen Tanzania Insurance Regulatory MicroEnsure Authority Milembe Insurance Jubilee Insurance Co Ltd Uganda Ministry of Finance and Uganda Broadcasting Economic Affairs Corporation television Mlimani Media Uganda Insurers Momentum Tanzania Association Insurance Company Mwana Habari United Kingdom Newspaper IAA / UK Actuarial MI Mwananchi Comm Ltd Working Group Nafaka Project ICMIF NAFAKA Staples Value Institute of Actuaries Chain Activity Microinsurance National Insurance Working Party Corporation LeapFrog Labs National Social Security MicroEnsure Fund Microinsurance New Habari Ltd Research Centre Africa 67% Niko Insurance University of Oxford / Europe 15% (Tanzania) Limited World Bank Asia 9% Outassurance United States PharmAccess North America 7% Abt Associates Foundation Central and South America 2% Columbia University Phoenix of Tanzania Oceania 1% EA Consulltants Assurance Co. Ltd. Financial Inclusion TBG 2 Foundation Radio 5 GBRW Inc Radio Kilifu Georgia State University Reliance Insurance Global Insurance Company (T) Ltd Consulting Sahara Media Group IADB (T)TD L Illinois State University Star General Insurance ILO Microinsurance Tanzania Limited Innovation Facility Strategis Insurance Figure 40 IRI TAN-RE Type of representatives Meiji Yasuda America, Tanzania Broadcasting Inc. Corporation Mercy Corps Tanzania National Microinsurance Centre Reinsurance Milliman Corporation Limited Office of the UNSGSA TBC 1 Swiss Re The Citizen Ltd. The World Bank The Guardian Thorn Vietnam TIRA TYM Top Radio Zambia TSN FinMark Trust Tumaiwi Media ILO TV Sibuka Madison Finance Uhuru Publications LDT Company Ltd Wapo Radio Madison Life Insurance Zanzibar Broadcasting Company Corporation Pensions and Insurance Togo Authority INAM Professional Insurance Corporation Zambia Tunisia Ltd Insurance and finance industry 31.12% African Development Professional Life Donor agencies, development 17.69% Bank Assurance and international organisations MFW4A / AfDB ZSIC Life Ltd Media 11.05% Zimbabwe Government and 10.71% First Mutual Life regulatory bodies Other 9.18% Microfinance and 8.84% microinsurance providers Consultants 6.29% Academics 5.10% Report 8th International Microinsurance Conference 2012 94

Acronyms

AfDB EOYM IAIS MBA RCT African Development End of year members International Mutual benefits Randomised controlled Bank Association of association trial EPSS Insurance Supervisors AIO Empresa Promotora de MBP RDU African Insurance Servicios de Salud IBRD Mutual benefit Rank dependent utility Organisation International Bank for programme ETB RSBY Reconstruction and AKI Ethiopian birr MDTF Rashtriya Swasthya Development Association of Kenyan Multi-donor trust fund Bima Yojana EUT Insurers IC Expected utility theory MFI SECP Insurance Commission, AICI Microfinance institution Securities and FSB the Philippines Agricultural Insurance Exchange Commission, Financial Services MI Corporation of India ICMIF Pakistan Board, South Africa Microinsurance International ARS SINAF FSDT Cooperative and Mutual MiCRO Assurance Récolte Sistema Nacional de Financial Sector Insurance Federation Microinsurance Sahel Assistência à Família, Deepening Trust Catastrophe Risk ICT or National System for ATI Organisation G20 Information and Family Assistance Association of A group, formed communications MILK Tanzanian Insurers TA in 1999, of finance technology Microinsurance Technical assistance a2ii ministers and central Learning and IFC Access to Insurance bank governors from Knowledge TIRA International Finance Initiative 19 of the world’s largest Tanzania Insurance Corporation MIN economies (G7 plus Regulatory Authority BRS Microinsurance 12), and the European ILO Belgian Raiffeisen Network ToT Union. International Labour Foundation Tutorial Organization MFW4A GDP CARD Making Finance Work TPA Gross domestic product InM The Center for for Africa Third-party Institute for Agriculture and Rural GIIF administrator Microfinance MKUKUTA Development Global Index Insurance Mkakati wa Kukuza UNSGSA Facility INR CBHI Uchumi na Kupunguza United Nations Indian rupee Community-based GIZ / BMZ Umaskini Tanzania Secretary-General’s health insurance Deutsche Gesellschaft iRA Special Advocate (Kiswahili for the für Internationale Insurance Regulatory for Inclusive Finance CBWG National Strategy for Zusammenarbeit Authority, Uganda for Development Capacity Building Growth and Reduction (German Society Working Group IRA of Poverty in Tanzania) US$ for International Insurance Regulatory United States dollar CEAR Cooperation) / M-PESA Authority, Kenya The Center for the Bundesministerium Mobile pesa (Swahili for VAS Economic Analysis of für wirtschaftliche IRDA money), mobile-phone- Value-added services Risk at Georgia State Zusammenarbeit Insurance Regulatory based money transfer VND University, USA (German Federal and Development and microfinancing Vietnamese dong Ministry for Economic Authority service CHAT Cooperation and WBCIS Choosing Health plans IT NABARD Development) Weather-based crop All Together Information technology National Bank for insurance scheme GPS Agriculture and Rural CHF KES Global Positioning Development, India WHO Community health fund Kenyan shilling System World Health NAICOM CHW KNCU Organization GRET National Insurance Community health The Kilimanjaro Native Groupe de Recherche Commission, Nigeria ZAR worker Cooperative Union et d’Echanges South African rand NAIS CIS Technologiques KPI National Agricultural Commonwealth of Key performance GSU Insurance Scheme, Independent States indicator Georgia State India CPRA University LEAP NGO Constant relative risk Livelihood HARITA Non-governmental aversion Empowerment Against Horn of Africa Risk organisation Poverty CLIMBS Transfer for Adaptation NIC Co-op Life Insurance LLC HEF National Insurance and Mutual Benefit Limited liability Health equity fund Commission, Ghana Services company HMF PACE CPT Health mutual fund Product, access, cost Cumulative prospect and experience theory PDR CNSeg People’s Democratic Confederação Nacional Republic das Empresas de Seguros PFIP Pacific Financial Inclusion Programme PPP Public-private partnership Report 8th International Microinsurance Conference 2012 95

© 2013 Munich Re Foundation Königinstrasse 107 80802 München, Germany Letters: 80791 München, Germany Telephone: +49 (0)89 38 91-88 88 Fax: +49 (0)89 38 91-7 88 88 [email protected] www.munichre-foundation.org Order number 302-07891 Contact Dirk Reinhard [email protected] Design Keller Maurer Design, Munich Lithography Gold, Munich Printed by Druckerei Fritz Kriechbaumer Wettersteinstrasse 12 82024 Taufkirchen, Germany Picture credits Picture nos. 1, 3, 5, 6, 18-22, 38, 39, 56, 58, 66, 71-79, 82, 83: TIRA; Picture no. 23: UNSGSA; Picture no. 67: Paula Jiménez; Picture nos. 85-88: PharmAccess Foundation Trust arrives on foot, but leaves on horseback.

H.R.H. Princess Máxima of the Netherlands, United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development

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