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Introduction to Microinsurance Craig Churchill International Labour Organization

Introduction to Microinsurance Craig Churchill International Labour Organization. Overview of Presentation. Introduction to inclusive insurance Key differences between insurance and microinsurance Overview of the Microinsurance Innovation Facility Examples of microinsurance innovations.

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Introduction to Microinsurance Craig Churchill International Labour Organization

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  1. Introduction to Microinsurance Craig Churchill International Labour Organization

  2. Overview of Presentation • Introduction to inclusive insurance • Key differences between insurance and microinsurance • Overview of the Microinsurance Innovation Facility • Examples of microinsurance innovations

  3. 1) Introduction to inclusive insurance: Microinsurance

  4. ILO’s interest in microinsurance The ILO is concerned about the promotion of decent work: more and better jobs • The availability of social protection for workers and their families • The impact of financial polices on social justice, i.e. toward more inclusive financial markets This reflects the two most common perspectives on microinsurance…

  5. The microinsurance continuum • New Market • 4 billion persons living on less than $2/day • Product and distribution innovations can make the poor a viable market for insurers • Social Protection • Benefits are a human right (e.g. health, pension) • Contains a redistributive element

  6. Microinsurance is… “…a mechanism to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved” Microinsurance is not… • Small insurance companies • Just another product offered by MFIs • Regular insurance products with smaller sums insured and premiums • Savings, credit, risk prevention

  7. Formal insurance industry WEALTH Informal insurance Insurable, without access Uninsurable through market mechanisms POPULATION Who is insured by whom?

  8. What risks are the poor concerned about? Adapted from Cohen and Sebstad (2006)

  9. Degree of Success Degree of Difficulty Most common types of microinsurance products • Credit life • Term life/Personal accident • Savings life • Property insurance • Endowment life • Health insurance • Agriculture

  10. 2. Main differences between insurance and microinsurance

  11. Characteristics of the insurable poor • Vulnerable to risks • Often work in the informal economy • Irregular cash flows • Manage risks through myriad of informal means, including social networks • Limited education, literacy • Limited familiarity with formal insurance • May not trust insurance companies

  12. Illustrative differences between micro and conventional insurance Continued…

  13. Illustrative differences between micro and conventional insurance (cont.)

  14. Challenges for microinsurance • Developing sustainable products that meet the needs of the market • Reducing transactions costs (enhancing affordability) • Creating an enabling regulatory environment • Overcoming the market’s natural resistance and educational barriers • Building microinsurance infrastructure (e.g. actuaries, TA providers, data management systems) • Developing a microinsurance approach to claims • Distribution: getting products to market

  15. On-line & ATM Labour unions Utility companies Cooperatives Employers Cell phones Insurance companies Delivery Channels Banks Credit unions Self-help groups MFIs NGOs Retailers Low-Income People Smart cards Computer kiosks Service providers Link to existing transactions for efficiency

  16. 3) Microinsurance Innovation Facility

  17. Four Pillars of Activities Microinsurance Innovation Facility Innovation Grants Technical assistance Research Dissemin-ation

  18. Innovation Grants Grants: $20,000 to $600,000 for 2-3 years Frequency: 5-10 issued every 6 months Purpose: To test new products, models or approaches to consumer education Organizations eligible include insurance companies, semi-formal microinsurers, employers’ associations, labour unions, cooperatives and other people’s organizations, and other distribution channels

  19. Research Key themes: Demand Supply Client value and impact Methodologies: Action research with innovation grantees Small research grants Thematic studies Impact studies

  20. 4) Examples of innovations: - delivery channels - products

  21. Partnerships between insurers and distribution agents like cooperatives and MFIs AIG and Ugandan MFIs Zurich Venezuela and BanGente Equidad and MFIs/Coops (Colombia)

  22. Partnerships with utility companies or service providers • La Positiva (Peru) and water associations • MAPFRE Seguros and CODENSA, Colombia • Philam Life, and cell phones (Philippines)

  23. Cooperative Insurance Company, Kenya • Developing Bima ya Jamii: “Basket” product covering life, disability and the National Health Insurance Fund (NHIF) coverage • Selling through MFIs, SACCOs and other cooperatives • Emphasizing training and consumer education for distribution channels and their members • Collaborating with Swedish Cooperative Centre, NHIF, and Folksam Insurance (Sweden)

  24. Hollard, South Africa Providing homeowners and content coverage for low-income households Selling through non-traditional distributors: retail shops, mobile phone air time vendors Testing inexpensive claims assessment strategies Providing replacement materials instead of cash payouts Learning about the demand for voluntary asset cover (most microinsurance is mandatory)

  25. Insurance companies that target the low-income market through retailers Colseguros and Carrefour, Colombia Max New York Life, India

  26. Union des Assurances du Burkina Vie (UAB) • Targeting informal sector entrepreneurs (e.g. market vendors) • Distributing Cauri d’or, based on a contractual savings scheme that includes life and disability coverage • Collecting clients’ contributions daily (as low as 150 francs CFA or 0.35 USD per day) • Testing smart cards and collectors with hand-held terminals to improve efficiency and reduce fraud

  27. Community-based schemes that pool funds, carry risk and manage a relationship with a healthcare provider (e.g. L’Union Technique de la Mutualité Malienne, Mali)

  28. Product for which there is the greatest demand Often coverage limited to hospitalization, or even a daily payment not linked to health care costs Straddles the gray area between social protection and commercial insurance Difficult to offer because: Additional player involved (health care provider) Prone to moral hazard, fraud, adverse selection and over-usage problems Skewed incentives On a commercial basis, can only be made affordable to the poor by severely limiting benefits Products Health insurance

  29. Products Agriculture insurance • No evidence yet of sustainable agriculture insurance (for the poor), all heavily government subsidized • Prone to moral hazard problems: farmers were less likely to pursue sound practices • Recent innovations such as rain-fall index insurance show some potential to make agriculture insurance measurable, objective and viable...although most experiences are only in the pilot stage

  30. Products Conclusion: Key product issues • Piggyback or standalone • Mandatory or voluntary • Group or individual • Long or short term • Inclusive vs. cherry picking risks • Premium collection timing and mechanism • Fast claims payments • KISS

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