Report – 1st International Microinsurance Conference 2005 - Germany (2006)

Report Microinsurance Conference 2005 A1

ReportMicroinsurance Conference 2005Making insurance work for the poor:Current practices and lessons learnt

Schloss Hohenkammer,Munich, Germany18–20 October 2005

Edited byCraig Churchill, Dirk Reinhard and Zahid Qureshi

Contents

Introduction by the organisers

Welcome address

Agenda: Day 1

Panel 1Understanding and responding to risk and vulnerability

Panel 2What is microinsurance? Challenges of extending insurance to the low-income market

Agenda: Day 2/1

Parallel sessionsCase studies

Panel 3Challenges and strategies to extendhealth insurance to the poor


Agenda: Day 2/2

Parallel sessionsOperations working groups

Panel 4Role of insurers, reinsurers and technical assistance providers

Agenda: Day 3

Panel 5Roundtable on institutional options

Parallel sessions

Panel 6Role of regulators, government and donors

Participating organisations

Acronyms

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Report Microinsurance Conference 2005 1

Microinsurance against poverty:Although the need is great, thisinstrument has so far been accessible only to a small number of people. Of the four billion peoplein the world living on less than twodollars a day, only about ten millionhave access to insurance.

The number of people affected isvast, and it is particularly peoplefrom developing countries who areexposed to extreme natural perils.

Intense research into microinsuranceoperations conducted by the CGAP[Consultative Group to Assist thePoor] Working Group on Micro-insurance has been going on for thepast two years, and it is now time to look at the lessons learnt acrossorganisations and reflect on whatworks and what does not.

From 18 to 20 October, the Munich Re Foundation held the 2005 Micro-insurance Conference ‘Making Insurance Work for the Poor: CurrentPractices and Lessons Learnt’. Incooperation with the CGAP WorkingGroup on Microinsurance, around a hundred selected experts frominternational organisations, non-government organisations, development-aid organisations and the insurance industry from 24 countries discussed experiences and the challenges of insuring people with low incomes.

The agenda was designed to enableparticipants to look closely at the 20 ‘good and bad practices’ case studies that the CGAP Micro-insurance Working Group hasconducted as well as technical andoperational issues in microinsurance.Furthermore, the organisers of the conference wanted to create a platform for discussing the recommendations that are emergingfrom these experiences – simply to exchange ideas and build upnetworks. The event also sought tomake a contribution to intensifyingdialogue and to getting more insurance companies, particularlyprivate ones, on board for this topic.

This report reflects the main points of discussion of six panel sessions as well as the key findings of eight case studies and ten working groupsessions. It is not a coherent report as such but rather a summary of theindividual podium discussions andworking group sessions. The editorshave endeavoured to include allpoints as they were made and not to exclude any opinions. However, in view of the complexity of the topic, we ask for the participants’understanding if any aspects orpoints are missing.

We would like to thank the participants, speakers, and facilitatorswho contributed to the panels and a host of case study sessions and working groups. With theirenthusiasm and efforts, they werecrucial to the success of the conference.

The get-together of specialists at the conference helped clarify andcrystallise the pool of knowledge.Overall, the conference underlinedthe importance of further developinginsurance as a key instrument forreducing the vulnerability of the poor.The conference was not a one-offevent, but the beginning of a processfor the Munich Re Foundation topursue a long-term plan of actionwith specific steps designed toachieve results.

Introduction by the organisers

Craig ChurchillILO, SwitzerlandChair, CGAP Working Group onMicroinsurance

Thomas LosterChairman, Munich Re Foundation

Dirk ReinhardVice-Chairman, Munich Re Foundation


Welcome address Reducing poverty is certainly one of the most challenging tasks in theworld today. As one of the so-calledMillennium Development Goals, theUnited Nations has pledged to halvethe number of people living on less than one dollar a day by 2015.Progress has been made in economicdevelopment, for example in South-east Asia. But this is not enough,since current studies come to theconclusion that many of the Millennium Development Goals will most likely not be achieved,especially in Africa. Poverty is amulti-dimensional problem linked to other major challenges of ourcentury. Let me just point out a few of them: firstly, where and how willmany people live in the future?

We are now used to reading that theworld's population will most likelyreach 9 billion in the year 2050. If welook at population development inthe past, we may be astonished tosee that it took the entire period ofhistory up to 1800 to reach a globalpopulation of one billion people.After that, it took only 200 years forthe population to increase by a factorof six. And what is more, nearly halfof these people live in urban areastoday. So it is not just the absolutefigure, but also the speed of thistremendous increase which is anextreme problem for local and especially urban authorities that haveto adopt their infrastructure to theincreasing population. Air pollutionand unsafe drinking water seriouslyaffect human health, and again thepeople worst affected are those who have to live in habitats withoutappropriate infrastructure. Moreover,many megacities are located ingeographical areas with a high risk of natural disasters.

Dr. Hans-Jürgen SchinzlerChairman of the Board of Trustees of the Munich Re Foundation

Ladies and gentlemen, dear participants in the first Micro-insurance Conference here atHohenkammer.

It is a pleasure for me to welcomeyou here at the Akademie SchlossHohenkammer. As you may know,Munich Re is celebrating its 125thanniversary this year. That's quite anage, but we're still young comparedto this castle, which has its origins in the 15th century and was onlyacquired by Munich Re as a trainingand conference facility about threeyears ago. However, I hope this beautiful venue will not distract youfrom the serious topic you will bediscussing during this event. I wouldlike to take this opportunity to thank the CGAP Working Group on Microinsurance and especially itschairman, Craig Churchill, for theirinvaluable contribution to makingthis conference happen. Togetherwith the CGAP Working Group, the Munich Re Foundation aims to facilitate the development and exchange of knowledge and experience in the field of micro-insurance. And as chairman of theBoard of Trustees of the Munich ReFoundation, I sincerely hope that this will be the start of a long andfruitful cooperation in the face of the challenges that lie ahead.

Munich Re Foundation aims to facilitate the development andexchange of knowledge and experience in microinsurance,helping poor people at risk.

Let me briefly touch on the corporateresponsibility to which Munich Reresponds – as the founder of theMunich Re Foundation and as theworld's largest reinsurer. With staff in more than 60 countries, we have become the world's leading risk carrier and financial servicesprovider. Munich Re has beenhandling global risks for 125 years. A company with so much knowledgehas a certain responsibility to sharethat knowledge. And with the establishment of the Munich ReFoundation in its anniversary year, the company is fulfilling that very responsibility. Following the Foundation’s motto ‘From Knowledge to Action’, we want touse our knowledge to help people at risk – and that includes people inareas in which there is no particulareconomic interest. This is especiallythe case with poor people in developing countries.


This leads me to the second aspect:As a reinsurance company, MunichRe is certainly very concerned aboutdevelopments in the environment,one big issue being climate changeand its effects, especially majorweather-related natural disasters.The United Nations University Institute for Environment and HumanSafety warned that in 2010, we must expect there to be 50 millionenvironmental refugees. This year,we have seen the largest number ofhurricanes ever recorded in a singleyear. The absence of disaster-preven-tion schemes and a lack of awarenessare key factors underlying the manycatastrophic effects we have seen –not only after the tsunami at the endof 2004. The vulnerability of poorpeople is extremely high. The know-ledge and resources required to take the necessary precautionarymeasures are scarcely available.

As weather-related natural disastersincrease, so does the vulnerability ofthe poor. We need to build inclusivefinancial sectors for impoverishedcommunities to help them bettercope with risks.

The statistics show that it is mostlythe poor who are affected by naturaldisasters, including earthquakes.Again Africa is an unfortunate rolemodel in this respect. Despite beingsubject to the lowest number ofsevere natural disasters compared to other regions, Africa suffers thehighest number of casualties andpeople affected in proportion topopulation in the world. But as wehave also seen recently in the courseof Hurricane Katrina, even in therichest country in the world it ismostly the poor that are affected bythese severe events. Interestingly,there was a lot of media coverage of this aspect simply because ithappened in the United States. Butpoor people have always suffered in the past and how much attention has that received?

However serious the problem offloods and too much water may be in many regions of the world, just theopposite is an even greater problem.The lack of safe drinking water nowadays affects over one billionpeople, and about 2.3 billion have no access to appropriate sanitation facilities.

Since many of you are developmentexperts, there is no need for me to go into any more detail about theconsequences related to bad healthand economic development. I wouldjust like to draw your attention to one aspect and that is education.Professor Wilderer, winner of theStockholm Water Prize in 2003 – theNobel prize for water-related issues – said that solving the problem of sanitation does not only involvebuilding sanitation facilities for a citythe size of Munich every day until2015 – we also need the experts tobuild, operate and maintain thesefacilities – which is even more of aproblem. This one example aloneillustrates that financial resources arenot the only bottleneck. Intellectualcapacity is also a major problem.

Let me come back to Munich Re’score business, which is assessingrisks and providing sophisticatedinsurance and financial products.Studies conducted by the UnitedNations show the enormous need in particular for the basic financialproducts that have become normalfor people in industrialised countriessuch as savings, credit or insurance.According to the United NationsCapital Development Fund, up to 80%of the 5.1 billion people in developingcountries derive their incomes fromthe informal economy. Of the fourbillion people who live on less thanUSD 1,500 a year, only a fraction haveaccess to basic financial services.

Together we should come up with not only studies but also solutions,and turn these solutions into actionstep by step.

Microinsurance complements credit and savings and can provide a solution for poor people to bettercope with their main risk, which is in most cases related to the severe sickness or even death of the person providing the family'sincome. Access to insurance enables people to look after their farms or concentrate more on developingtheir businesses while mitigatingother risks to life, health, property or the ability to work. The Year ofMicrocredit 2005 – which shouldreally be called the year of micro-finance, so that it also includesmicroinsurance – is the UnitedNations' call to build inclusive financial sectors and strengthen the powerful, but often untapped, entrepreneurial spirit existing inimpoverished communities.

What are the challenges of micro-insurance? There are many. Premiumincome is low and administrationcosts are relatively high – these arethe main reasons why commercialinsurers are still reluctant or have not taken more interest in thismarket. Reaching the people directlyis difficult, however. And the benefitof insurance as a means of saving isoften misinterpreted since people do not understand why the premium is not reimbursed if no claims aremade. Organisational problems needto be solved, such as how to build upthe infrastructure and how to reachlow-income people, especially theilliterate and persons in remoteareas. How can the cost of handlingsuch a large number of smallcontracts be reduced? Legislation to facilitate the insurance of poorpeople and to protect them againstfraud is also an important issue. In the light of the challenges lyingahead, we strongly believe that only by pulling together, will we – the insurance industry, local NGOs, development agencies and regulatory authorities – be able toprovide appropriate solutions thatmeet the needs of the poor and help them to secure their livelihoods.Munich Re has therefore taken animportant step in identifying micro-insurance as a strategic topic for its innovation teams.

I encourage you to come up not onlywith studies but also with solutions.The Munich Re Foundation will be a reliable partner to facilitate thatprocess.

I would like to thank all of you verymuch for your efforts and for the time you have taken to prepare this conference with its numeroussessions and for sharing your experiences. I wish you a successfulconference and I sincerely hope that you will find solutions to theproblems that lie ahead and thattogether we can turn these solutionsinto action step by step.


11.00–12.30 Registration

12.30–14.00 Lunch break

14.00–14.30 Welcome/Orientation

14.30–16.00 Panel 1Understanding and responding to risk and vulnerability

16.00–16.30 Coffee break

16.30–18.00 Panel 2What is microinsurance?Challenges of extending insurance to the low-income market

19.00–20.00 Dinner

20.00–22.00 Welcome reception

Craig Churchill International Labour Organization(ILO), Switzerland

Thomas Loster Munich Re Foundation, Germany

Christian Lahnstein Munich Re, Germany

Valerie KozelWorld Bank, USA

Monique CohenMicrofinance Opportunities, USA

FacilitatorEllis WohlnerConsultant to SIDA, Sweden

Craig ChurchillILO, Switzerland

Michael McCordMicroInsurance Centre, USA

Jean-Louis BancelInternational Cooperative and Mutual Insurance Federation (ICMIF), France

FacilitatorDirk ReinhardMunich Re Foundation, Germany

Agenda Day 118 October 2005

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Panel 1 Understanding and responding to risk and vulnerability

Panelists

Christian LahnsteinMunich Re, Germany

Valerie KozelThe World Bank, USA


FacilitatorEllis Wohlner Consultant, Sweden

The poor are not a homogeneous lot.Individuals in the low-income markethave needs and preferences that maybe as varied as in other segments.Microinsurance product designshould reflect this heterogeneity, and premium payments should betailored to the customer’s cash flow. Products should have five keyattributes: coverage, accessibility,timeliness, affordability, and valuefor money.

One thing the poor do have incommon is that most of them don’tunderstand the concept of insurance.They are familiar with risk though,and their ways of coping with riskinclude

— retaining risk (self-insurance);

— sharing risk (informal group-basedmechanisms);

— transferring risk (social protection).

Microinsurance is likely to complement, rather than displace,existing ways of coping with risk.Insurance education – to changeperceptions and financial practicesthrough knowledge, skills and attitudes – must use local conceptsand skills.

A certain level or coordination inpoverty-assistance mechanisms isessential, and there is a need to move from protection to prevention.

New directions in Social RiskManagement (SRM) include greaterfocus on natural disasters and political conflicts. Covariate, high-loss events have an enormousimpact on the lives of the poor. Some innovative insurance instruments are currently beingexamined, e.g. index-based weather insurance.

Modern social security has notsucceeded for the poor in developingcountries, and private insurance isvirtually absent from the overallsocial protection. But the informaleconomy is the hidden wealth ofdeveloping countries; the low-income target market holds greatpotential for insurers.

Microinsurance is also a huge opportunity for reinsurers in thecoming decade. Two of the key questions they need to address are: Can reinsurers insure informalschemes, and to what extent aremicrosolutions appropriate forcoping with natural disasters?

1Opening of theMicroinsuranceConference 2005

2Thomas Loster,Chairman, MunichRe Foundation

3Craig Churchill,ILO, Switzerland;Chair, CGAPWorking Group onMicroinsurance

4Monique Cohen,MicrofinanceOpportunities,USA

5Left to right:Valerie Kozel, The World Bank,USA; Ellis Wohlner,Consultant,Sweden

6Christian Lahnstein, Munich Re,Germany

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For the poor, there is little social security and virtually no private insurance. But the informal economy is the developing countries’ hidden wealth, and it is a target market of great potential.

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7Craig Churchill,ILO, Switzerland

8, 9Some 100 expertsfrom 25 countriesdiscussed the challengesinvolved inproviding insur-ance to peoplewith low income.

10Second from left:Michael McCord,MicroInsuranceCentre, USA

Second fromright: Jean-LouisBancel, ICMIF,France


Panel 2 What is microinsurance? Challenges of extending insurance to the low-income market

Panelists



Jean-Louis BancelICMIF, France

FacilitatorDirk ReinhardMunich Re Foundation, Germany

Microinsurance, as defined in thepreliminary donor guidelines, is ‘the protection of low-income peopleagainst specific perils in exchange for regular premium paymentsproportionate to the likelihood andcost of the risk involved’. The threewords ‘low-income people’ make abig difference. Microinsurance is oneof several risk-management toolsavailable to low-income households.

Janus, the ancient Roman god ofdoorways and of beginnings isdepicted with two faces back to back.Microinsurance, too, has more thanone face: a new market for the privatesector, and social security to workersin the informal economy and othersclassed as poor.

As ‘a new market for the privatesector’ it occupies a place in whatauthor C K Prahalad calls the bottomof the income-pyramid, made up ofthe poor and low-income householdsliving on less than USD 1,500 a year.

Among the key principles of innovation for this market with enormous potential are that

— conventional wisdom in delivery of products and services has to bechallenged;

— significant investment incustomer-education is necessary;

— volume is a basis for returns oninvestment; and

— technology has to be combinedwith the existing infrastructure.

Social security, collectively, is government policies and programmesto reduce poverty and vulnerability. It diminishes people’s exposure torisks and enhances their capacity toprotect themselves, such as

— unemployment and disability benefits;

— universal healthcare; and

— old age pension.

Annual per capita income Tiers Population in millions

More than USD 20,000 1 75–100

USD 1,500—20,000 2 and 3 1,500–1,750

Less than USD 1,500 4 4,000

The worldeconomic pyramid

Annual per capitaincome based onpurchasing powerparity in USD.

SourceC D Prahalad: Fortune at the Bottom of the Pyramid, 2004 – Databased on UN WorldDevelopmentReports



We should look to our past and go back to basics. The disadvantaged in developedcountries 150 years ago did what the poor in developing countries need to do today: rely on mutuality.

Panel 2What is microinsurance? Challenges of extending insurance to the low-income market

Challenges to the provision of socialsecurity to informal and other poorworkers include

— no mechanism to systematicallyreach informal workers – workersare unorganised;

— no employer contribution;

— the poor may not be able to affordthe full cost;

— insufficient government resourcesto cover recurring expenses; and

— inadequate infrastructure toprovide appropriate services (e.g. healthcare).

Microinsurance as social security:

— fills the gap to provide coverage tothe excluded;

— responds to an urgent need in theabsence of formal social security;

— creates delivery mechanisms toextend government programmes(and subsidies) to the informaleconomy; and

— strives to integrate the informaland the formal.

The ten most important factors thatqualify insurance as micro are:

1 Relevant to the risks of low-income households

2 As inclusive as possible

3 Affordable premiums payable in small amounts

4 Small benefit amounts

5 Clearly defined and simple rulesand restrictions

6 Easily accessible claims documentation requirements

7 Fast payment of benefits

8 Specially adapted client education

9 Strategies to overcome the wariness of customers

10 Microinsurance attitude: help people manage basic risks

Among customers in the low-incomemarket of the informal economy arevendors and small manufacturers. Anumber of domestic private insurersas well as multinationals such as AIGare already in the market, providingpredominantly credit life insurance.

Many countries such as Singapore,Argentina, Canada and Sweden, have well-established and largecooperative insurers owned andcontrolled jointly by a number ofcooperative businesses and organisations. In others, like theUnited Kingdom, France, Germany,Finland, New Zealand, Costa Rica and South Africa, there are successfuland well-run mutual insurers ownedby individual policyholders. Whatcooperative and mutual insurershave in common is democraticcontrol and the interest of owners/policyholders, rather than othershareholders, at heart. This model is recognised as lending itself particularly well to low-incomesegments of the market.

Some 140 cooperative and mutualinsurers in 70 countries are servinglow-income as well as higher-endsegments of their markets. They arepart of a global association calledICMIF (International Cooperative andMutual Insurance Federation).

There is fertile soil in some intermediate-income countries forschemes to protect the poor againstrisk, but if the conditions are notright, such microinsurance could turnout to be a white elephant – costlybut not altogether useful or wanted.

For a path towards the future, weshould look to our past and go backto basics. There is a parallel betweenconditions that existed in the developed countries a hundred andfifty years ago and how things are in the developing world today. Thedisadvantaged then relied on themutual and cooperative culture tomeet their insurance and financialneeds, and the same culture shouldnow serve as the mainstay ofmicroinsurance development.

A majority of the poor in developingcountries are in rural communities,most are involved in agriculture andmost have no protection against the risks to their livestock and crops.There are major gaps in micro agricultural covers, and innovativereinsurance approaches are sorelyneeded to fill them.


Hans-Jürgen SchinzlerChairman of the Supervisory Board of Munich Re, Germany


Ed PotterThe Americas Association of Cooperative/Mutual Insurance Societies (AAC/MIS), USA

Karen SchwartzAAC/MIS, USA

Gerald PierikRabobank Foundation, Netherlands

Sven EnarssonSwedish Cooperative Centre (SCC), Sweden

Denis GarandConsultant, Canada

Mosleh AhmedConsultant, UK


Ralf RadermacherUniversity of Cologne, Germany

Jens HolstConsultant, Germany

Klaus FischerLaval University, Canada

FacilitatorChristian JacquierILO, Switzerland

Gloria AlmeydaConsultant, USA

Ed PotterAAC/MIS, USA


Jim RothMicroInsurance Centre, UK

Vijay AthreyeTata AIG, India

Adeeba RahmanDelta Life, Bangladesh


Christine BockstalILO, Senegal

Janine AgnikpeAssEF, Benin

09.00–09.15 Welcome address

09.15–10.15 Parallel sessionsCase studies

Case Study 1CARD MBA (Philippines)

Case Study 2ServiPerú (Peru)

Case Study 3Yasiru (Sri Lanka )

Case Study 4Grameen Kalyan (Bangladesh)


10.30–12.00 Panel 3Challenges and strategies to extend health insurance to the poor

12.00–13.00 Parallel sessionsCase studies

Case Study 5La Equidad (Colombia)

Case Study 6Tata AIG (India)

Case Study 7Delta Life (Bangladesh)

Case Study 8AssEF (Benin)

Agenda Day 2/119 October 2005



Participants




Gerald PierikRabobank Foundation, Netherlands

Sven EnarssonSCC, Sweden



CARD MBA, Philippines

People insured: 600,000

Benefit: Credit life

Premium range: 1.5% of loan value per year

This case tells the story of a mutualbenefit association that was createdby a microfinance institution. The MFI nearly went bankrupt byoffering insurance without sufficient professional and technical expertise,or as the authors of the case studycase explain: ‘It is fair to say thatCARD MBA ... arose from a severemiscalculation resulting from toomuch good heart.’ CARD MBA (The Center for Agriculture and Rural Development Mutual Benefit Association) offers three products:

1 A loan redemption fund, which is essentially credit life except that the sum assured is thedisbursed amount rather than the outstanding balance.

2 A life insurance product thatcovers the member (almost allmembers are women), her spouse and three dependent children under 21 (or if themember is single, she can include her parents).

3 A provident fund, which is a long-term savings product withoutany risk pooling, designed to helpmembers save for retirement. The key to its success is in its intimate relationship with its affiliates in the CARD MutuallyReinforcing Institutions (MRI)system, in particular the CARDBank and CARD NGO.

The CARD MBA case shows the clear importance of capacity building in local markets. Without the appropriate knowledge, offeringinsurance may put an entire MFI at risk of bankruptcy.

ServiPerú, Peru

People insured: 6,700

Benefit: Health and funeral services

Premium range: USD 1.43–5.80 per month

Originally founded in 1966 as a Peruvian cooperative insurer,ServiPerú was forced to restructureas a cooperative provider of healthand funeral services in response to a devastating economic crisis andinsurance regulatory changes in theearly 1990s. Seeing opportunities in crisis, ServiPerú focused on itsstrengths. The scheme forged astrategic alliance with an insurer to offer coverage for its PrevisiónFamiliar health and funeral servicesand also created a subsidiarybrokerage firm to manage cooperatives’ insurance portfolios.

Working through challenges withunstable client incomes, limitedgeographic reach and breakevenmargins, the company gained experience yielding a number oflessons. These include: Developmentof multiple strategic alliances withinsurers, employers, clinics, andinternational partners is important.Flexible premium collection methodsmay increase accessibility. Lowpremiums can only be achieved bycarefully controlling medical/funeralcosts and emphasising preventivemedicine. Subsidiaries help to leverage administrative and operating costs. Finally, the provision of in-kind services helps to overcome aversion to insurance.

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Yasiru, Sri Lanka

People insured:9,000

Benefit:Life, accident, funeral,

Premium range:USD 1.20–18.00 per year

Yasiru started in the mid-1990s as an in-house insurance service in afederation of NGOs called ACCDC. In 2000, Yasiru was registered as aspecial society and ACCDC becameits partner for the implementation ofthe insurance scheme. After a coupleof years Yasiru started partnershipswith other local NGOs and today ithas eight active partners with some60,000 members.

Yasiru provides its insurance packageto more than 9,000 members throughits partners. It has accumulatedequity and reserves of almost LKR 5 million (USD 50,000). The productcovers (for all individual members of a family) death, disability andhospitalisation and has a typical low-income profile. The monthlypremiums vary from LKR 10 to 150(USD 0.1 to 1.5) and the benefitsrange from LKR 3,000 to 120,000(USD 30 to 1,200). Since its start,Yasiru has been supported by theRabobank Group and its reinsurancecompany, N V Interpolis. Yasiru has received funding, technical assistance and a very favourablereinsurance arrangement.

However, it was agreed to cease the funding by Rabobank from 2005 to encourage the financial independence of the programme.Technical assistance and the reinsurance agreement are continuing as long as needed. During these discussions, theconcern was raised that Yasiru – like many other cases – might face problems once the donorsupport is reduced.

Yasiru’s legal status is unclear. Registered as a society, Yasiru has approached the Registrar of Societies and argued that it be allowed to provide insurance services to members on a mutualbasis.

Grameen Kalyan, Bangladesh


Benefit:Health

Premium range:USD 0.88–1.76 per year

Grameen Kalyan (GK) was launchedin 1996 when Grameen Trust handedover ten of its clinics to this newlyregistered NGO. Membership of its health scheme is open to allGrameen Bank borrowers and theirfamilies, as well as to all villagersliving within an 8-km radius of a GKhealth centre. Grameen Kalyan nowoperates 28 clinics in eight districts in the country. It plays a dual role,that of insurer and direct serviceprovider. Its operational and financialsuccess is due largely to a generous endowment fund, which wasprovided by its parent company and on which it has earned a good investment return to offset operatinglosses. It is grappling with a numberof serious challenges of providinghealth insurance, in particular findingthe right balance between providingcoverage and covering costs. Itsstrategy of serving the community atlarge, and charging higher rates fromthe less poor, has merits as a tool ofcross-subsidisation and needs to beexplored further.

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11Ed Potter,AAC/MIS, USA

12Sven Enarsson,SCC, Sweden

13Left to right:Denis Garand,Consultant,Canada; Mosleh Ahmed,Consultant, UK


Let us remove barriers among public, private and non-profit subsystems, and coordinate and combine sources for administrative efficiency and better access to healthcare for the poor.

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Panel 3 Challenges and strategies to extend health insurance to the poor

Panelists



Jens HolstConsultant, Germany


FacilitatorChristian JacquierILO, Switzerland

Health insurance is not only an individual but also a collective risk. It might even be regarded as a fundamental human right. For mostof the poorest there is no healthinsurance and healthcare is an out-of-pocket expense. Health is also oneof the more complex insurance lines.

Various schemes have been introduced by governments in developing countries, but not allmeet our microinsurance definitioncriteria. Health coverage for the pooris a focal point for the aid agencies; it is growing fast, but large numbers of the poor are still to be covered. Mali as an example shows that the mutual initiative can, however, serve as a useful complement to the government programme, andmutuals are becoming a partner inthe development of local healthcentres. They have greater muscle to negotiate quality of services withhospitals. However, these initiativesexist on the edge of survival every month. Mutuals need to be integrated into the health system.Left alone, they will die out.

A major challenge is improving thepoor’s access to care and facilities.There are barriers between varioussubsystems: public, private and non-profit. There should be a collectiveeffort to see how different sourcescould be coordinated and combinedfor administrative efficiency andmore effective healthcare.

Micro health insurers should have a partnership with the network ofproviders. If a customer has noprovider nearby, transportation costsshould be covered too – along withdirect healthcare costs.

The sustainability of micro healthinsurance schemes is tied to thesustainability of health services.Health services need to be subsidisedfor the poor, and micro health insurance costs should be included in the overall cost of healthcare.

There is indeed a gap betweensupply and demand. More and more, micro health insurance isfilling this gap. It is important to build on strengths while focusing on weaknesses. A wise strategy is to start with already-existing organisations such as mutuals and cooperatives, and extend them to get stronger community involvement. The key challenge will be to help these organisationsestablish strategic links with formalinsurers, providers and the socialsecurity element.

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17Mosleh Ahmed,Consultant, UK

18Left to right:Jens Holst,Consultant,Germany; KlausFischer, LavalUniversity,Canada

14ChristianJacquier, ILO,Switzerland

15Ralf Radermacher,University ofCologne, Germany

16Conclusions drawnfrom panel threeincluded lack of financialsustainability asone of the keychallenges.


Seguros La Equidad, Colombia


Benefit:Life and disability

Premium range:USD 1.00–15.00 per month

La Equidad was created in March1970 by 45 cooperatives to provideinsurance for their members. Besides a broad range of products for the general market, it now offerstwo group-based microlife insuranceproducts through two partners: an MFI called Women’s World Foundation (WWF), and a group of its own affiliated cooperatives. Morethan 10,000 of WWF’s microcreditcustomers and 18,000 of cooperativemembers have so far taken up thisinsurance. Though WWF joined theprogramme essentially as an agent,La Equidad worked with it as if itwere an affiliate, designing a productthat responds to the real needs andpaying capacity of the insured, rather than maximising returns forshareholders. WWF has since takenan ownership stake in La Equidad.

La Equidad’s micro life insuranceproduct is interesting as it providesbenefits towards groceries, utilitiesand education expenses. In additionto these household expenses,Amparar’s coverage, according tobeneficiaries of claims, contributed to paying other debts and capitalisingtheir microenterprise so they would not lose their main income-generating activity. The insurer hasinvested in making the partnershipwith the MFI a success by developingsoftware that will enhance reportingand monitoring for both parties. La Equidad hopes to expand itsmicroinsurance activities by cultivating partnerships with otherMFIs as well.

Tata AIG, India


Benefit:Endowment, term life

Premium range:USD 0.10–0.57 per month

India requires what some other countries only encourage, i.e. thateach insurer has a set percentage of its business coming from the rural and social sectors. Tata AIG, in fulfilment of its regulatory obligations to serve the rural andsocial sectors, is experimenting with new delivery channels. It hasintroduced so-called microagents(the development of the model waspartly financed by a DfID grant). This is an innovative direct-marketingapproach that involves assistinghand-picked low-income women to form quasi insurance agencies.Initial results appear promising.

Organisationally, Tata AIG has been clever in pursuing its micro-insurance obligations. It has createda separate rural and social team thatis well-funded and has the autonomyto innovate. The insurer offers bothterm and endowment policies to thelow-income market, and the latterseem to be in greater demand thanstraight term insurance.


Participants

Gloria AlmeydaGeorgetown University/CIED,USA




Vijay AthreyeTata AIG, India


Christine BockstalILO, Senegal

Janine AgnikpeAssEF, Benin

19

20


Delta Life, Bangladesh

People insured:1,000,000

Benefit:Endowment with profit

Premium range:USD 2 per USD 20 face value per year

The 15-year-old Delta Life is servingthe low-income market on its ownwithout donor support or technicalassistance. A for-profit companylisted on the Dhaka Stock Exchange,it is regarded as the ‘Grameen Bankof microinsurance’, having pioneereda policy that pinpoints specific needs of the poor for credit as well as savings and insurance, all in anuncomplicated endowment packagefor a 10- or 15-year term. The policiesare essentially contractual savingsproducts that will pay a life insurancebenefit if the policyholder dies (and the premiums are up to date).The products are well suited for the risk-management needs of the low-income market since they provide lifeinsurance protection while allowingthe poor to gradually build up assets;and if there is a need for cash, thepolicyholder can borrow against the surrender value of the policy –savings, credit and insurance allrolled into one. Operating results,however, show high termination and expense ratios for the products,suggesting that the poor are notgetting good value for their money.

AssEF, Benin


Benefit:Health

Premium range:USD 0.75 per month

AssEF is a mutual microfinancenetwork in Benin with an in-househealth insurance scheme, Associationd’Entraide des Femmes (AssEF). The network has 27 savings andcredit funds and 240 groups servingpoor women in the capital city of Contonou and its outskirts.

A general assembly and a board of directors of 13 women elected by members lead the organisation. It has a voluntary membership. Policyholders prepay premiums into a fund and are entitled to specified benefits. The communityplays an important role in the designand running of the programme. A network support organisationprovides technical assistance andgeneral oversight, while it negotiatesfees with one or more healthcareproviders.

Close monitoring and good management have helped the health insurance programme achieve stronggrowth since it was founded in 2002,and have ensured its sustainability.Even though AssEF is a relativelysmall scheme, it has proven to besuccessful so far.


21

19Gloria Almeyda,Consultant, USA,explains her pointof view duringthe session onthe Seguros LaEquidad casestudy.

20Vijay Athreye,Tata AIG, India

21Left to right:Christine Bockstal, ILO,Senegal; JanineAgnikpe, AssEF,Benin


13.00–14.00 Lunch break

14.00–16.00 Parallel sessions Operations working groups

WG 1Marketing, distribution channels and organisational development

WG 2Premium collection and claims payment: minimising transaction costs and maximising customer service

WG 3Appropriate product design for the poorest households

WG 4Underwriting and claims

WG 5Strategies for sustainability


16.30–18.00 Panel 4Role of insurers, reinsurers and technical assistance providers

20.00–23.00 Dinner

Agenda Day 2/219 October 2005



Richard LeftleyOpportunity International, UK


Dominic LiberQuindiem, South Africa



Dipankar MahalanobisMicrocare, Uganda


Zahid Qureshi(ICMIF), UK

Annette HoutekamerInterpolis, Netherlands

August PröbstlMunich Re, Germany


Jean-Bernard FournierDéveloppement International Desjardins (DID), Canada

FacilitatorDavid DrorErasmus University Rotterdam, Netherlands

22

22Monique Cohenpresentingmarketing opportunities for micro-insurance.

23Jim Roth, MicroInsuranceCentre, UK

24From left to right:Ralf Radermacher, University ofCologne, Germany;Richard Leftley,Opportunity International, UK


Among challenges that face micro-insurers, a key one is managingvarious functions in ways thataddress the special needs of the low-income market while keeping the cost of conducting business aslow as possible. Five working groupsexamined the major operationalissues from this perspective.

Marketing, distribution channels andorganisational development

Case studies show that even whenthe poor do have insurance coverage,they often do not know that they arecovered or what is covered or how toclaim their benefits. Marketing shouldnot only be aimed at conquering theirreluctance to buy, but at relationship-building and good after-sales service.Appropriate brochures, pictorialpresentations and Q&A sheets shouldbe provided to the staff. Front-linestaff should be trained in the use oflocal concepts to explain the productin simple terms. Furthermore, loss-prevention campaigns in partnershipwith collaborating organisationshave proven to be an appropriatetool to reduce losses.

For distribution, networks of organisations that already engage infinancial transactions with the poorshould be used. Organisations otherthan financial institutions could alsobe delivery agents. It is important to deliver what the customers want in a way that will reach them. In the Philippines, the SEA (Self-Employment Assistance)-KaunlaranIntegrated Program served hawkersand peddlers successfully by using a few of its clients as agents to ridearound on bicycles for collectionsand disbursements. In organisationaldevelopment, training of staff, particularly field staff, is the key. Forexpertise not on hand, outsourcingshould be considered. Compensationand incentives that reward clientretention, more so than sales, wouldbe appropriate. For microinsurersserving the not-so-poor as well as thepoor, a challenge is to ensure that thepoor receive enough attention.

Premium collection and claimspayment: minimising transactioncosts and maximising customerservice

Transaction costs, broadly, includeeverything needed to make a necessary component of insurancehappen. They should include bothreal costs and opportunity costs.Premium has two components: actuarial, to cover a risk; and admin-istrative, to cover transactions. Theadministrative part offers the betterchance of getting the price down.

Payment could be in cash, but there is security risk in money flow. Payment tied to an account isconvenient, and so are deductions.Procedures include timing andfrequency. Once a year is easy for the insurer, but periodical paymentsmay be more convenient for theclient. Also to be considered areplace of payment (who comes towhom), grace period, and instalments.

Some microinsurers can use theexisting structure of an organisationand accept payment in kind, fromproducers of a commodity, forexample. A trusted structure,ensuring a secure flow of funds,reduces transaction costs in collection. A control mechanism is needed, for where money is found, fraud is not far behind. Proper documentation is the key, and receipts should back registers or computer records.

Claims payment can also be in a cash lump sum, instalments, adeposit into an account, or in-kindbenefits such as a funeral service orgroceries. In partnerships, allowingthe MFI to verify and pay claimsreduces transaction time andincreases client satisfaction. Staffshould be aware of the claims-handling process so that transactioncosts are low, and clients should alsobe aware of ‘how it works’ so thatlack of understanding does not resultin dissatisfaction.

Parallel sessions Operations working groups

Participants





Dominic LiberQuindiem, South Africa



Dipankar MahalanobisMicrocare, Uganda


Zahid QureshiICMIF, UK

24

23


Parallel sessionsOperations working groups

Appropriate product design for thepoorest households

Product features to consider include:who should be eligible, terms andpayment options, benefits and claimscontrol. Affordability and design gotogether. Group coverage, which ismostly compulsory, has little adverseselection and involves low acquisitioncost. It is generally more appropriatefor the poor than individual coverage,which is mostly elective. Furthermore,individual coverage is underwrittencase-by-case and has a higher acquisition cost.

Some microinsurers such as CARDMBA offer household covers (quasigroup insurance), and others basketcoverage, integrating several riskcoverages into one product. Thechoice of benefits should be made on the basis of the most importantinsurable risks. High-risk persons can be included without requiringadditional screening and medicaltests by providing smaller benefitsfor new customers, and increasingthe benefits for persons who staywith a microinsurance provider forseveral years. Product design mustbe driven by market research (risksand needs, wants and priorities), and be simple (easy for the insurer to explain, and easy for the client to claim with minimal chances ofclaim rejection).

Underwriting and claims

Operating results of microinsurersstudied by the CGAP Working Groupon Microinsurance show a widerange of underwriting and claimsexperience. In ten cases examined,for example, loss ratios varied from10% to 88%, and expense ratios from 10% to 137%. Underwritingprofit is a must for mainstreaminsurers, but for-the-poor insurersshould look for profits mostly frominvestment income.

Unless backed by the social systemof the government, healthcare is difficult to deliver at an affordablecost. An option may be to keep agrant as a reserve fund, and use theinvestment income to cover administrative costs. Prevention and wellness programmes should be considered a part of underwritingand pricing. A healthcare providershould preferably be within walkingor cycling distance of the insured. To reduce administrative costs,coupons should be issued for use to access services. An effectiveunderwriting control would be periodic on-site inspections.

A primary reason for delays in claimspayment is the difficulty in obtainingthe death certificate. Claims paper-work can be more complex than the benefit amount warrants.

Strategies for sustainability

Insurance is built on a foundation of operational standards and legalrequirements that insurance companies disregard at their peril.The CGAP Working Group on Micro-insurance Case Study 6 ‘Lessonslearnt the hard way’ recounts worstpractices among some developinginsurers that failed and others thatstruggled. It also details fundamentalsof financial management that wouldbe well worth keeping in mind. Asidefrom good management, goodgovernance is important.

Insurers have frequently succeededor failed as a direct result of a choiceor decision made by its Board ofDirectors or Supervisory Board, as itis known in Europe. It is important formicroinsurers to know the differencebetween managing and governing,and technical assistance providersshould include governance as a partof the leadership training required.Chapter 4 of Case Study 6 ‘LessonsLearnt the Hard Way’ covers the theoretical basics of governance as well as lessons learnt by someinsurers whose Boards ignored these basics and jeopardised theirorganisations’ survival and sustainability.

Conversely, experts working withmicroinsurance schemes in various countries have come acrossapproaches and solutions that someschemes have used successfully toovercome challenges and becomesustainable. These strategies include:limitation of benefits (introduction of caps, and selection of those thatare most needed); minimisation of costs (selection of low-cost distribution and premium paymentmethods, controlling of claims costs);and diversification of income sources(cross-subsidisation from other prod-ucts or markets, earning investmentreturns). Strategies for sustainability,from the donors’ perspective, shouldalso include policies and programmesthat could help make the markets andeconomic environment for micro-insurance more sustainable.

The CGAP Microinsurance Working Group case studies can be downloaded at:http://www.microfinancegateway.org/resource_centers/insurance/case_studies


A trusted structure, ensuring a secure flow of funds, reduces transaction costs. And client awareness of how claims are handled prevents complaints anddissatisfaction.

2827

26

2525, 26Several work-shops took placein the historicalrenaissancecastle SchlossHohenkammer.

27Dipankar Mahalanobis,Microcare, Uganda

28From left toright: KarenSchwartz,AAC/MIS, USA;AnnetteHoutekamer,Interpolis,Netherlands


Insurers, reinsurers and technicalassistance providers can help start and establish programmes toincrease access to services by thepoor. This panel focused on whatneeds to be done.

The poor have increasing vulnerability to risk and disasters.Microcredit has a ceiling, and mainstream insurance and socialsecurity are either too expensive or not available.

Financial systems and risk culturesneed integration, and governmentand private institutions should be repositioned. There should be a joint international effort to upscalemicroinsurance. The upscaling challenges include a lack of information required for under-writing, and a lack of local insuranceexpertise and infrastructure. In addition, for the poor the premiumspayable have a high opportunity cost, and there is little dialogue with them as potential clients and scheme managers.

Mutual benefit schemes are a perfect match-up of microfinance and culture. They pool whateverideas there are locally. Mainstreaminsurers and reinsurers shouldprovide technical assistance and reinsurance – but treat it as a business case and treat them as business partners. Help them become independent by forcing them to stand on their own feet inthree to five years.

Insurance is a specialist business,which makes technical assistance(TA) important. The TA providers’ job is to realise that they are dealing with local institutions deeply rootedin the community. Keeping the localculture and ways of doing businessfirmly in mind, they have to helpensure that insurance transactionsand interfaces among clients, theinsurer and any reinsurer work effectively. They need to adjust thetechnical role and functions to thelocal situation without compromisingthe insurance fundamentals, andenable the local institutions tobecome professionalised. In thatprocess the TA providers need toensure that they help contain eachtransaction cost, so insuranceremains affordable for the poor.

The role of the reinsurer is at the end of the value chain of risk andprotection.

Panel 4 Role of insurers, reinsurers and technical assistance providers

Annette HoutekamerInterpolis, Netherlands

August PröbstlMunich Re, Germany


Jean-Bernard FournierDID, Canada

FacilitatorDavid DrorErasmus University Rotterdam,Netherlands

30

29

31Klaus Fischer,Laval University,Canada

32Fatou Assah,World Bank, USA

33On the right:Richard Leftley,OpportunityInternational, UK,August Pröbstl,Munich Re,Germany, andAnnetteHoutekamer,Interpolis,Netherlands

29David Dror,Erasmus UniversityRotterdam,Netherlands

30Jean-BernardFournier, DID,Canada


Panel 4Role of insurers, reinsurers and technical assistance providers

A globally acknowledged industrystandard is that a reinsurer canaccept risk from an insurer only if that insurer is licensed to do business. A reinsurer going into the market must follow the localregulations. The challenge forprimary insurers involved in micro-insurance is to enable informalschemes to act formally and dealdirectly with reinsurers. As thingsstand, clients (the primary insurers)rarely ask the reinsurers to beinvolved in microinsurance. If theydid, reinsurers would become moreactive in microinsurance.

Meanwhile, there are steps reinsurers could take to assist, such as:

— development of a common understanding of data needs andthen implementing mutual datacollection activities;

— technical assistance;

— support of premium calculation;

— organisation of reinsurance capacity;

— provision of risk transfer betweenregions by means of reinsuranceor derivatives;

— incentive-development to reducedisaster risk.

In the Netherlands there is a MicroInsurance Association (MIAN) tofocus the industry’s attention andtake steps to promote and extendinsurance for the poor. It aims especially at the development of cooperative structures in developing countries. MIAN workswith volunteers recruited with stafffrom cooperative insurers in theNetherlands. This example could be replicated in many countriesthroughout the insurance and reinsurance industry and would be an important step in the development of microinsurance.

Mutual benefit schemes should be given technical expertise and reinsurance by the mainstream industry – but such assistanceshould be treated as a business case,designed to help them become independent in a few years.

32

31 33


08.30–09.15 Panel 5Roundtable on institutional options

09.15–10.45 Parallel sessionsInstitutional options working groups

WG 6The mutual advantage: Credit unions, cooperatives and insurance

WG 7Partner-agent

WG 8Community-based

WG 9Alternative approaches

WG 10Performance benchmarking


11.15–12.45 Panel 6Role of regulators, governments and donors

12.45–13.00 Wrap-up and closing remarks

End of conference

13.00–14.00 Lunch

14.00–17.30 Meeting of the CGAP Working Group on Microinsurance

Agenda Day 320 October 2005



Bénédicte FonteneauUniversity of Leuven, Belgium


FacilitatorCraig ChurchillILO, Switzerland





Agnes ChakontaMadison Insurance, Zambia

Bruno GallandCIDR, France





Ellis WohlnerConsultant to SIDA, Sweden

Jeremy LeachFinmark Trust, South Africa

Rudiger KrechDeutsche Gesellschaft für Technische Zusammenarbeit (GTZ),Germany

Alexia LatortueCGAP, France

FacilitatorGabriele RammAdviser to GTZ, Germany


Dirk ReinhardMunich Re Foundation, Germany


To set up and operate micro-insurance programmes, entrepreneurs – whether micro or macro, individuals or groups,private or public – mainly have fourinstitutional models to choose from.A roundtable and parallel sessionstook a close look at each model.

Panel 5 Roundtable on institutional options

Panelists





FacilitatorCraig ChurchillILO, Switzerland

Participants parallel sessions





Agnes ChakontaMadison Insurance, Zambia

Bruno GallandCIDR, France





Ellis WohlnerConsultant, Sweden

36

35

3734

38

34, 37Panel 5 opens the discussion on institutionaloptions.

35Bénédicte Fonteneau,University ofLeuven, Belgium

36Left to right:Zahid Qureshi,ICMIF, UK; KlausFischer, LavalUniversity,Canada; Jean-BernardFournier, DID,Canada

38Left to right:Michael McCord,MicroInsuranceCentre, USA;Richard Leftley,OpportunityInternational, UK


Parallel sessions Partner-agent model

Considered by many experts to be the most appropriate way to overcome the problems of starting a microinsurance programme, thepartner-agent model involves anestablished insurance companyworking with an agent institution –microfinance (MFI) or other – that isactively serving low-income clients.

The insurance company maintainsthe reserves, sets premiums, supervises claims and managescompliance with regulatory requirements. The MFIs as the agent institution facilitates therational transfer of risk, resourcesand expertise between the informaland formal sectors. Their key priorityshould be training staff to explaininsurance in ways the illiterate poorcan understand.

The partner-agent model is a ‘win-win-win’ arrangement. Theinsurer is able to reach a market(through the MFI) that it cannot reach on its own; the MFI can provide members with better services at lower risk; and low-income households get valuableprotection that would otherwise not be accessible to them.

While the partnership model eliminates most regulatory complications, frequently the distribution channel must still be licensed as an agent. Wherewarranted, some flexibility on thepart of regulators and supervisorscould facilitate partner-agent relationships.

Lessons learnt

In Zambia, Madison Insurance, with both life and non-life licences,partners with four MFIs to insureroughly 100,000 lives. Notable in this case is that one MFI has a profit-sharing arrangement withMadison instead of a commission.

Important changes due to insurance:

Better client acceptance: Thereseems to be more acceptance amongborrowers of members suspected ofbeing HIV-positive (before insurance,the group’s lending methodologyscreened out potential borrowerssuspected of being HIV-positive).

Less concern: Group members are now less concerned aboutexcluding members who might be HIV-positive as long as theyappear physically healthy. In the past the mutual guaranteerequired group members to beresponsible for outstanding loanbalances if a member died, and for late loan payments due to sickness.

Generally, the case studies of thismodel revealed: There is a need formore or better training for field staffin the MFIs (this results in betterclient management and conviction).

Insurance company

Productmanu-facturing

MFI

Productsales

Policy- holder

Productservicing

Partner agent model

The partner-agent modelinvolves an establishedinsurancecompany workingwith an agentinstitution –microfinance(MFI) or other –that is activelyserving low-income clients.


The seemingly small way in whichcooperative insurance differs fromthe partner-agent model – the agent’sstake in the insurer – has in practicemade a big difference in complyingwith the spirit of microinsurance. The stake or ownership – that is,shareholding – gives the agent institution a say in the design andrunning of not only the insuranceprogramme but also in the democratically operated partnerinsurer itself, ensuring that it remainsresponsive to clients' needs andinterest.

The mutuality model is in line withthe advice of former World BankPresident James Wolfensohn thatdevelopment must not be done to the poor but by them.

Lessons learnt

There are two models of cooperative/mutual insurance.

First, insurance as a business affiliated to a network – where insurance is a secondary productoffered through a network of (usuallycredit and loan) cooperatives:

— Insurance products are tied to theco-ops’ core business.

— Success of insurance depends onsupport of the network.

— Belonging to the network facilitates premium collection.

— It is cost-effective.

— Insurance products should besimple, and marketing and salesshould be monitored by theinsurer.

The second model is a network ofinsurance mutuals developed solelyto provide insurance, particularlyhealth insurance. At the micro level,the viability of this model has not yetbeen established, but it

— has a huge growth potential,

— creates mechanisms to make the local community participationeffective.

The mutual advantage: Credit unions and cooperative/mutual insurers

Savings and credit cooperatives, or credit unions as they are called inmany countries, often offer loanprotection insurance. This insurance,usually referred to as credit life –ensures that ‘the debt dies with the debtor’, so that an unpaid loanbalance does not adversely affecteither the surviving family or theinstitution that granted the loan.

Credit unions also offer life savingscoverage to stimulate saving, andsome provide housing or funeralinsurance, disability, health and in a few cases even casualty insurance.These products are added ontoexisting credit and savings services.Many are provided informally –although in some countries they arelegally recognised as member-benefitproducts.

In addition to this scheme, mutualinstitutions can provide micro-insurance services as stand-aloneenterprises or through networks ofinsurance associations providing a variety of products, including in at least one country, Mexico, crop insurance.

Credit unions andcooperative/mutual insurers

Savings andcredit cooperatives, orcredit unions asthey are called inmany countries,often offerinsurance totheir members.

Licensing,monitoring,supervision

National association

Insurancecompany

Co-ops andcredit unions

Ownership,governance,captivemarket

Membershipfees, governance,legitimacy

CU andmember-payproducts

Premiums

Additionalservices formembers

Panel 5Parallel sessions


Direct sales model

This involves an insurance companyserving low-income policyholdersthrough individual agents that are on salary or commission, or both.

Insurance companies can succeed in reaching the low-income marketdirectly. Direct selling helps over-come some of the problems in thepartner-agent and credit unionmodels, where some insurers maynot have good control over theirdistribution channels and may beseparated from the market segment.

Nevertheless, this advantage to aninstitution may come with highercosts of a new delivery structure thatonly serves an insurance function(whereas the other models involvebuilding on a delivery structure thatalready exists for savings and credit,so additional transaction costs forinsurance are minimal).

Lessons learnt

The joint venture Tata AIG in Indiaand Delta Life of Bangladesh areexamples of the direct sales model.

Tata AIG introduced microagents as a new delivery channel (see page 14),and Delta Life pioneered a policy thatpinpoints specific needs of the poorfor credit as well as savings andinsurance (see page 15).

Five main institutional lessons can bedrawn from these two case studies:

— the start-up of microinsuranceshould be cross-subsidised;

— it is important to manage micro-insurance with the same businessapproach as traditional insurance;

— each party involved needs to focuson core competencies;

— a good management informationsystem for large volumes of smallpolicies has to be developed;

— internal controls (where money isinvolved, fraud will not be too farbehind) have to be implemented.

Direct salesmodel

This involves an insurancecompany servinglow-income policyholdersthrough individualagents that areon salary orcommission, orboth.

Insurance company Agents onsalaryand/orcommission

Policy- holders


Lessons learnt

Experience in promoting community-based mutual health organisations in Benin (see page15), Guinea,Kenya, Mali, Senegal and Tanzaniahave shown:

— Premium payment and member-ship levels for microinsuranceinstitutions are low.

— The quality of governance – partlydependent upon the regulatoryframework - is a determiningfactor for membership.

— The need is to increase the technical, financial and socialperformances of these organisations.

— There is an unequal power balance between the mutualhealth organisations and thehealth providers.

— Self-management and voluntarywork have their limits.

— The diversity of actors involvedcontributes to the complexity ofthe setting.

— Members’ health-seeking behavioris complex, the value of insurancecoverage and the quality of health-care supply can be very variable.

— Carefully designed networksupport organisations will solvemany of these problems andimprove the potential for scalingup to large numbers withoutlosing the advantage of smallnessand user control. It is worthsupporting these apex organisations as they can improve overall performancedramatically both in terms ofquality and numbers.


In sub-Saharan African countries,where up to 90% of working peoplehave informal employment lackingeven the most basic social protection,communities of poor people havebeen banding together to createmicro health insurance schemes. Theschemes are non-profit in characterand have a voluntary membership.Policyholders prepay premiums intoa fund and are entitled to specifiedbenefits.

The community plays an importantrole in the design and running of the programme. A network supportorganisation provides training, technical assistance and generaloversight, develops insurance products, negotiates service contractswith one or more healthcareproviders and supports creation of new institutions.

Though mutual in character and thus owned and governed by theirmembers, community-based healthinsurance associations – mutuellesde santé – are also operationallydifferent from microinsurers in thecredit union and cooperative/mutualcategory. There are an estimated 300such schemes in West Africa andaccording to ILO’s STEP-Programmesalmost doubling in number each year.

Technical support organisation

Community-based model

Union,federation

Hospitals,clinics

Initiatoryorganisation Social mobilisation,

technical support

Technical assistance,representative function andgeneral oversight

Certification of clinic, negotiation of fees

Healthcare

Payment

Community-based model

A networksupport organisationprovides training,technical assistance andgeneral over-sight, developsinsurance products, negotiatesservicecontracts withone or morehealthcareproviders and supportscreation of newinstitutions.


Mutual health organisation(Owners=policyholders)

Product manufacturingSales and service Underwriting


Performance benchmarking

Microinsurance around the world is still in the early stages of development. The main challengesstill remain

— finding economical solutions fordistribution, premium collection,claims settlement;

— access to quality service providers;

— affordable healthcare;

— relevant product design;

— accurate pricing;

— sound financial and risk management; and

— enabling policy.

Standards and indicators areexpected to boost microinsurancedevelopment. They should enablebenchmarking of microinsurers relative to peers, provide a frame-work and guide for development and business planning, and increasechances of a programme’s long-termsustainability.

The working group is reviewing aproposed set of standards and indicators in the following eight categories:

— Risk management

— Operations management

— Investment management

— Organisational structure

— Marketing and distribution

— Financial management and viability

— Economics and client value

— Impact and community outreach

The details of the standards and indicators will be released in 2006. It was agreed that there is a need to collaborate on developing themethodology for measuring performance standards and indicators, and then creating a central depository. Having the indicators will be useful to measurethe success of a microinsuranceprogramme and should result in improved performance. This is something that should be developedat the international level; receivingapproval for use by the CGAPWorking Group would be useful.Developing transparency on performance is also a necessary part of benchmarking. The resultsshould be published annually by the Working Group.

Alternative approaches and performance benchmarking

Alternative approaches

Insurance is a low-cost, high-volumebusiness. A microinsurer must keepdown the cost of sales and servicing:provider transaction costs AND clienttransaction costs. Besides the fourinstitutional models discussed above,there are other approaches thatwarrant consideration, such as:

— An MFI partner with an insurancepolicy linked to savings.

— Microinsurance agency/brokeragefirms, which can serve a largenumber of clients, accessing arange of products from a range of insurers.

— Protected cell company. A registered company rents out itscapital, licence and reinsurance.The MFI is responsible for productfeatures and pricing, retainingboth losses and profits. It is a formof the partner-agent model but theother extreme of outsourcing.

— Microinsurance is linked toanother good or service, forexample in India property insurance bundled with cellphones.


40 42

39 41


Regulatory obstacles that preventinsurers from reaching the low-income market call for new and alternative approaches. Policymakersin government can also do a range of things to ensure that low-income households have access to insurance. And donors have a keyrole in facilitating these efforts aswell as supporting microinsurancepractitioners. This panel examinedthe three roles.

Regulators

The financial sector is heavily regulated in most countries; yet regulators now face new questions.For example: how to manage thetrade-off between financial stabilityand societal stability; how to allow space for innovation and experimentation with new forms of insurers, without undermining the system; and how to handle international pressures, such assurveillance of international securities transactions, withoutdamaging local priorities.

For answers, insurers need to understand the demand side of themarket. In South Africa, for example,funeral insurance is one of the mostimportant markets, covering tenmillion adults compared with 13million in banking. They also need to analyse market structures andidentify market failures. This shouldhelp them clarify objectives inbalancing trade-offs, such as facilitating development of marketsbut maintaining stability, correctingimperfections and protectingconsumers. It is important to analyse the impact on access: Is the regulation inefficient and burdensome, and would it affect the product’s affordability, featuresand service, and consumers’ eligibility?

The new environment changes regulators’ roles from focusing onlyon regulation and supervision toleadership, coordination, facilitationand supervision.

Why microinsurance schemes do not succeed or are not sustainable is most likely due to: miscalculationof premiums; product developmentwithout expertise in insurance mathematics, quick introduction of ill-prepared products, financial instability, and legal loopholes.

A clear framework is needed toenable large insurers to becomemore involved in serving the low-income market; small insurers tobecome increasingly professional(and possibly regulated) and expand;new local microinsurance institutionsto take root; and good governance tocreate and sustain trust in insurance.Trust is hard to build but easy to lose.

Panel 6 Role of regulators, government and donors

Panelists

Jeremy LeachFinmark Trust, South Africa

Rudiger KrechGTZ, Germany

Alexia LatortueCGAP, France

Gabriele RammAdviser to GTZ, Germany

44

43

39On the left:Agnes Chakonta,Madison Insurance, Zambia

40On the right: Ellis Wohlner,Consultant toSIDA, Sweden

41Bruno Galland,CIDR, France

42Dominic Liber,Quindiem, SouthAfrica

43Jeremy Leach,Finmark Trust,South Africa

44Rudiger Krech,GTZ, Germany,explaining thenecessity for a clear legalframework duringthe final panel ofthe conference.

Government

The role of government is to identifythe different roles of multiple stake-holders with different interests,create incentives for business toengage in microinsurance, guaranteea level playing field in the market,and oversee the role of the regulator.

Governments should encourageregulators to bring about improvements. Minimum capitalrequirements are too high for locallyorganised microinsurance schemeswith a small number of policies.There are no incentives in the regulatory framework for informalinsurers to legally provide micro-insurance services. Requirements foragents can be either too lax (anybodycan act as an agent) or too restrictive.Semi-formal insurance schemes are not covered by conventionalinsurance regulations so the policy-holders lack consumer protection.And reinsurance is a seriousconstraint for microinsurers.

Instruments available to governments for executing this role include

— accreditation systems for insurers;

— supervision of quality management;

— auditing of national schemes;

— assessment of changing needs.


Panel 6Role of regulators, government and donors

Donors

Key roles of donors are:

1 Funding technical assistance,which involves both content andmechanisms. Content comprisesclient education, market research,feasibility studies, business planning, and operations guidance. Mechanisms include on-site advisers, short-termconsultants, managementcontract, training and study visits.

2 Financing mechanisms: fixedassets for start-up, covering operating losses, facilitating reinsurance. Decisions involve the choice of the incentive, for how long and when to exit.

3 Advocacy and policy: governmentadvocacy (health, finance andsocial ministries), obstacles in the regulatory framework, andconsumer protection.

4 Public goods: monitoring standards and benchmarking,management information systems,data management clearing house,and tools development.

CGAP, a consortium of 31 donoragencies, helps improve donor effectiveness in microfinancethrough performance-based funding.For microinsurance its WorkingGroup has prepared preliminarydonor guidelines, which include 12recommendations. Early commentson the guidelines suggest that

— the partnership model is notalways feasible;

— the criteria for selecting MFIs andcountries to work in are not alwaysrealistic;

— strict caution against working onregulatory/policy issues may notbe warranted; and

— reinsurance is very difficult toobtain.

Much more dissemination is needed:obtaining more feedback (interviews,review of case studies); revisingguidelines, incorporating experiences,and focusing more on potential donorcontributions, less on models.

Like Janus, the two faces of micro-insurance (public and private) arenow back to back looking in oppositedirections. They should turn and talkto each other.

We need to take a holistic approachand aim at a conducive environmentfor microinsurance. If successfulschemes are set up, governmentsand regulators as well as customersare happy.

The preliminary donor guidelines canbe downloaded at:http://www.microfinancegateway.org/content/article/detail/13836

4645

45, 46Alexia LatortueCGAP, France,discussing how donors can most effectivelycontribute to the developmentof micro-insurance.


50

48

47 49

Governments should encourage regulators to develop a clear framework enabling large insurers to serve the low-income market and small insurers to become professional.

47Middle: GabrieleRamm, Adviser toGTZ, Germany

48, 49Dirk Reinhard,Munich Re Foundation,Germany, duringthe closing ofthe conference

50Left to right:Angelika Boos,Munich ReFoundation,Germany;ConstantinTseretili,Constanta Foundation,Georgia


The Americas Association of Cooperative and Mutual InsuranceSocieties - AAC/MIS, USA

Appui au Développement Autonome(ADA), Luxemburg

All India Association for Micro Enterprise Development (AIAMED),India

Association d’Entraide des Femmes(AssEF), Benin

Bill and Melinda Gates Foundation,USA

Belgian Raiffeisen Foundation, BRS, Belgium

Centre D’Innovation Financière (CIF),Burkina Faso

Catholic University of Leuven,Belgium

Consultative Group to Assist the Poor, CGAP, France

Groupe Associatif, CIDR, France

Center for Intercultural Education & Development (CIED)/GeorgetownUniversity, USA

Citigroup, USA

Constanta Foundation, Georgia

Développement International Desjardins (DID), Canada

DKV Seguros, Spain

Enterplan, UK

Erasmus University, Netherlands

Federation of Indian Chambers ofCommerce and Industry (FICCI), India

FinMark Trust, South Africa

The Global Exchange for SocialInvestment (GEXSI), Germany

Deutsche Gesellschaft für TechnischeZusammenarbeit (GTZ), Germany

Hivos Foundation, Netherlands

Hollard Life Insurance, South Africa

International Cooperative and MutualInsurance Federation (ICMIF), UK

International Fund for AgriculturalDevelopment (IFAD), Italy

Insurance Regulatory and Development Authority (IRDA), India

International Institute for AppliedSystems Analysis, IIASA, Austria

International Labour Organization,ILO, Switzerland

Interpolis, Netherlands

International Development ResearchCentre (IRDC), Canada

Juris Benefit Strategies, USA

Madison Insurance, Zambia

Microcare, Uganda

Munich Re, Germany

Opportunity International, UK

ProVention Consortium Secretariat,Switzerland

Quindiem Consulting, South Africa

Rabobank Foundation, Netherlands

Swedish Cooperative Centre (SCC),Sweden

School of Business, Laval University,Canada

South African Insurance Association(SAIA), South Africa

Suramericana SA, Colombia

Swedish International DevelopmentCooperation Agency (SIDA)

Swiss Re, Switzerland

Tata AIG Life Insurance CompanyLtd., India

United Nations University, Germany

University of Cologne, Germany

University of St. Gallen, Switzerland

The World Bank, USA

Participating organisations


ACCDCAll Ceylon Community DevelopmentCouncil

CARDCenter for Agriculture and Rural Development, Philippines

DFID Department for International Development of the United Kingdom

GKGrameen Kalyan, Bangladesh

LKRSri Lanka rupees

MBAMutual benefits association

MFIMicrofinance institution

MHOMutual health organisation

MIANMicro Insurance Association of theNetherlands

MRIMutually Reinforcing Institution

NGONon-governmental organisation

Q&AQuestion and answer

SEASelf-Employment Assistance

SIDASwedish International DevelopmentCooperation Agency

SRMSocial Risk Management

STEPStrategies and Tools against Social Exclusion and Poverty

TATechnical assistance

USDUnited States dollar

WWFWomen’s World Foundation

Acronyms

© 2006Munich Re FoundationKöniginstrasse 10780802 München, GermanyLetters: 80791 München, GermanyTelephone +49 (0)89/38 91-88 88Fax +49 (0)89/38 91-7 88 [email protected]

Order number302-05046

ContactDirk [email protected]

DesignKeller Maurer Designwww.km-d.com

Munich ReFoundationFrom Knowledge to Action

In cooperation withPublished by

InternationalLabourOfficeGeneva

When we look back at this conference in ten years’ time, we will see it as a milestone in the development of microinsurance.Jan Pieter SixInterpolis, Netherlands

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Report – 1st International Microinsurance Conference 2005 - Germany (2006)

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