Intoaction 1 / Microinsurance Page 2

January 2006 IntoAction 1 Microinsurance Making insurance work for the poor Report Summary Schloss Hohenkammer By Craig Churchill, Dirk Reinhard Microinsurance Conference Munich, 18—20 October 2005 and Zahid Qureshi Of the four billion people on earth today who live on less than two dollars a day, fewer than ten million currently have access to insurance. Published by In cooperation with Munich Re Foundation From Knowledge International Labour to Action Office Geneva IntoAction 1 / Microinsurance Page 2 In its quest to be more useful at a “Only by pulling together,” Dr. Schin- Aside from preparing microinsurance smaller cost to more poor people, zler said, “will we – the insurance guidelines for donors and having a microinsurance got a macro boost industry, local NGOs, development number of sub-groups look in depth when about a hundred experts from agencies as well as regulatory author- at topics ranging from demand to around the world gathered to thrash ities – be able to provide appropriate regulations, the CGAP Working Group out obstacles and opportunities at solutions. Munich Re has therefore on Microinsurance has carried out the conference facility of Munich Re taken an important step in identifying some 20 case studies of existing in Germany from 18 to 20 October microinsurance as a strategic topic for microinsurance programmes 2005. its innovation teams.” in different countries (e.g., Benin, Bangladesh and Peru) to identify good The challenges of microinsurance Thomas Loster, Chairman of the and bad practices. The case studies are many, delegates were reminded in Munich Re Foundation, also touched were funded by SIDA (Swedish Inter- the welcoming address by Dr. Hans- on the long-term, results-oriented national Development Cooperation Jürgen Schinzler, Chairman of the approach: “For us this is not a one- Agency), GTZ (Deutsche Gesellschaft Supervisory Board of Munich Re and day business that will be taken care of für Technische Zusammenarbeit, Chairman of the Board of Trustees of by hosting a conference. To help Germany), DFID (Department for the Munich Re Foundation, which improve living conditions for those International Development, UK) and hosted the conference jointly with the who do not have access to financial the ILO. CGAP Working Group on Micro- services, a concerted effort is needed insurance. “Premium income is low, to find solutions to problems and then administrative costs are relatively turn these solutions into action, step Learning from experience high, and infrastructure for insurance by step. The Munich Re Foundation The focus of the conference was to is lacking; that’s why commercial will be a reliable partner in facilitating analyse the findings of these case insurers have not taken more interest this process.” studies and fine-tune the emerging in this market.” As a key initial step, the conference solutions: what has worked, in which lived up to its billing: “Making settings, how does it benefit the poor, Cooperation is key Insurance Work for the Poor – Current and is it likely to be a model for other Practices and Lessons Learnt.” Dirk programmes in the years ahead? Reaching poor people, many of Reinhard, Deputy Chairman of the whom are illiterate and make a living Craig Churchill defined micro- Munich Re Foundation, worked with in the informal economy, is difficult, insurance as “the protection of low- Craig Churchill of the ILO’s Social he added, and the benefit of insurance income people against specific perils Finance Programme (International is often misinterpreted since the low- in exchange for regular premium Labour Organization), who serves as income markets do not understand payments proportionate to the likeli- Chairman of the CGAP Working why the premium is not reimbursed if hood and cost of the risk involved.” Group on Microinsurance, to organise no claims are made. It has the potential of providing the event. a new market for the private sector How can the cost of handling a CGAP (the Consultative Group to while complementing the public large number of small contracts be Assist the Poor), a consortium of sector’s efforts towards social security reduced, he asked, and is there donors including the World Bank, is for workers in the informal economy, legislation to facilitate the insurance based in Washington DC. Its Working he said. of poor people and to protect them Group on Microinsurance, set up four against fraud? years ago, comprises consultants and experts as well as representatives of donor agencies and organisations committed to extending insurance protection to low-income people. Microfinance is a way to extend the same rights and services to low-income households that are available to everyone else. It protects people against shocks, and allows the majority of the population to become part of a country’s economic activity. It can help to build markets, and show that profits and principles can reinforce each other. Kofi Annan, UN Secretary General, 10 October 2005 IntoAction 1 / Microinsurance Page 3 Why insurers shy away from insuring low-income people: — Premiums small — Costs high — Infrastructure lacking Why microinsurance can be good business: — Vast new segment for insurers whose own markets are saturating — Today’s low-income customers are tomorrow’s high-end clients There are government policies and Institutional options The study, however, takes exception programmes to reduce poverty and to its profit level of around 20% on vulnerability by diminishing people’s A key element is how entrepreneurs – the premium as excessive and takes exposure to risks and enhancing micro or macro, individuals or groups, both AIG Uganda and its partner their capacity to protect themselves, private or public – have gone about institutions to task for not upgrading he added, but in most developing setting up and operating microinsur- the product and claims payment countries these programmes are ance programmes. The case studies processes and for neglecting client not particularly effective. point to four institutional options: education as a key part of marketing. “The main obstacles are: no — Partner–agent model The need for more or better training mechanisms to systematically reach — Credit unions and for field staff in the MFIs – so informal workers; no employer cooperative/mutual insurers they can do a better job of explaining contributions; the poor cannot afford insurance to their clients – is also the full cost; insufficient government — Direct sales model recommended by a case study in resources to cover recurring expen- — Community-based model Zambia. There, Madison Insurance, ses; and inadequate infrastructure to with both life and non-life licences, provide appropriate services.” partners up with four MFIs to insure Partner–agent model roughly 100,000 lives. Notable in this In six plenary and 18 parallel case: one MFI has a profit-sharing sessions, participants discussed The partner-agent model involves arrangement with Madison instead ways of overcoming these challenges an established insurance company of a commission; and the availability by considering the role of clients, working with a distribution channel – of insurance seems to have increased insurers, reinsurers, technical a microfinance institution (MFI) acceptance among borrowers assistance providers, regulators and or other – that is actively serving of members suspected of being HIV- governments as well as analysing low-income clients. The insurance positive. bread-and-butter functions such as company maintains the reserves, sets underwriting, premium collection premiums, supervises claims and For MFIs a key priority, and claims payment, product design, manages compliance with regulatory as agents of partner requirements. The agent institution marketing and distribution channels, insurers, should be training and financial management and facilitates the rational transfer of risk, resources and expertise between the staff to explain insurance governance to develop strategies for in ways the illiterate poor sustainability. informal and formal sectors. can understand. The conference sessions were It is a “win-win-win” arrangement; planned and designed to enable for the insurer which is able to reach While the partnership model participants to serve as a sounding a market (through the MFI) that eliminates most regulatory complica- board for the CGAP Working Group it cannot reach on its own; for the tions, often the distribution channel on Microinsurance, which will MFI that can provide members with must still be licensed as an agent. synthesise the results of its work better services at lower risk; and A point made at the conference in a comprehensive book to be for low-income households which get was that, where warranted, some published by the ILO and Munich Re valuable protection that otherwise flexibility by regulators and super- Foundation in 2006. would not be accessible to them. visors could facilitate partner–agent An often-cited example of this model relationships. This publication will be a is AIG Uganda which started its compendium involving some 30 microinsurance programme eight authors, a seminal work that is years ago. It now covers 1.6 million expected to shape the development lives through 26 MFIs, with an and growth of microinsurance in estimated US$ 800,000 in premiums years to come. for 2004. IntoAction 1 / Microinsurance Page 4 Credit unions and coopera- The case of ServiPerú, however, A prime example of the direct sales tive/mutual insurers demonstrates that affiliation with a model is the 15-year-old Delta Life of movement can be a double-edged Bangladesh, serving the low-income Savings and credit cooperatives, sword. This insurer lived by this market on its own without donor or credit unions as they are called in sword for some 30 years, but almost support or technical assistance. many countries, often offer loan died by it in the early ‘90s when spon- A for-profit company listed on the protection insurance – usually soring cooperatives, along with the Dhaka Stock Exchange, it is regarded referred to as credit life – to ensure country’s economy, took a nose-dive.

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