There’s a popular phrase that says one should always “expect the unexpected.” We don’t know when these unexpected events might happen, or what they will entail, but we know that they will happen. If we know to expect the unexpected, how can we plan ahead to protect ourselves and our families from the negative impacts of unanticipated events? One of the answers is insurance.
Insurance is a form of risk management, helping ease the impact of significant unexpected events, like death, illness, or natural disaster. It is especially important to low-income people for whom the unexpected can have dire financial consequences.
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CONSUMER EDUCATION:Insurance can be confusing, especially for those who have never been exposed to the concept. There is a huge need to educate people about insurance so they can make informed decisions. Microfinance Opportunities and the ILO's Microinsurance Innovation Facility are two organizations working on this issue.
“I think there is still a perception out there that insurance is for the rich only. Our challenge will be to reach large numbers of people with effective and economical insurance education messages.
There are two areas we should look at in particular – and we are starting to do this at Microfinance Opportunities – one is to embed insurance education into the marketing and promotion materials and activities. The other is to find those points of contact where the delivery channels have face-to-face contact with potential or active policyholders, and are able to deliver insurance and risk management education in short, concise messages by someone who has had a minimal level of training on the subject. In other words, the insurance education should be integrated in the operations of the delivery channel."
“Insurance education should help customers understand the difference between the variety of risk management tools they can find on the market and choose what suits them best. ILO's Microinsurance Innovation Facility is partnering with several organizations that develop insurance literacy campaigns. CNseg in Brazil, Fasecolda in Colombia and the Kenyan Insurance Association have all worked with the mass media to assess the cost benefits of radio and video over face-to-face interventions. I don’t think we have yet a clear answer as there are different tools for different learning styles and different objectives. It is obvious that through a radio campaign you will reach a wider audience than a training session, but how deep can you really go in terms of knowledge change?”
PRICING:Setting the price of any insurance product is complicated and typically involves highly specialized actuaries. The International Actuarial Association'sWorking Group on Microinsurance is working with the microinsurance industry to improve the pricing of insurance products targeted at poor customers.
The largest single obstacle is a lack of relevant data to price risks.
Howard Bolnick
“…If premiums are too low, risk bearing is unprofitable, and, if premiums are too high, customers who can be effectively served by insurance will decide not to buy insurance causing a failure to thrive among microinsurance organizations. Government and donor developmental-stage subsidies allow some leeway for pricing errors, but over time microinsurance organizations will need to stand on their own, which requires proper pricing. Thus, proper pricing is every bit as important to microinsurance organizations as to insurance companies in the developed world.
The largest single obstacle is a lack of relevant data to price risks. This is a huge challenge, and one without easy short-term solutions. A second major challenge is to transfer to the actuaries and technicians actually doing pricing on behalf of microinsurance organizations the skills and tools they need to do a proper and professional job.”
PRODUCT DEVELOPMENT AND MARKETING:As with any financial product, thorough market research is essential to designing products aligned to the needs of the target market. But a well-designed product is not the only ingredient. Eugênio Velasques of Bradesco Seguros discusses how they combine product development, marketing, and consumer education for successful uptake of products.
"Bradesco Seguros is the first insurance company in Brazil to offer products with the philosophy and concepts of traditional microinsurance products. Currently, we have two products on the market:
The First Protection Bradesco, a personal accident insurance, with USD 11,000 coverage for a monthly premium payment of USD 1.89.
Residential Bradesco Ticket, a home insurance product that covers damages caused by lightning, fire, explosion and flood, with a USD 5,500 coverage, in exchange of a single premium payment of USD 5.35.
...offer products that are perfectly aligned to the needs of the low-income market.
Eugênio Velasques
Our products have been developed by following two distinct ideologies. The first one is to offer products that are perfectly aligned to the needs of the low-income market. The second is to enhance the educational aspect, showing people the costs and benefits of buying insurance products. Last year, through the Estou Seguro Project (sponsored by the ILO’s Microinsurance Innovation Facility), we made a video that illustrates the benefits of insurance are greater than the cost of the buying a policy. With microinsurance on the increase in Brazil, the government is putting together a number of campaigns to raise the insurance awareness to ensure families are better protected."
DISTRIBUTION:Insurance requires a large number of subscribers so the provider can disburse the risk among a large and diverse group. Getting insurance products out to a large number of people is, therefore, essential. MicroEnsure is using technology to scale up their client base in Ghana.
"Distribution is the central challenge facing microinsurance, and technology is the best answer to that challenge. Agent networks are expensive to create and manage, and in any case they limit the growth of an in-demand product. Our experience is that under-served markets are more interested in insurance than traditional markets - the poor know their risks better than anyone else, so if an insurance package can be provided which is attractive, they will jump at the chance to have the product. However, a product sold by agents, instead of through technological platforms, doesn't have the potential to access that demand quickly, which limits the core value proposition of the product.
Without scale, and therefore without technology, the product is a non-starter.
Peter Gross
We offer several products where the premium is implicitly charged to the customer; for example, the premium is paid by customer loyalty to a telco, or in place of an interest payment by a bank. Such packaging makes the product appear "free" to customers, but only if that product is able to reach hundreds of thousands of customers, can the premium remain low enough so that the business case of "free" can make sense. Without scale, and therefore without technology, the product is a non-starter."
I was running a small survey in the Central American region recently about a micro-insurance potential program that could establish soon. This experience taught me that key word and most of Micro-finance is education so micro-insurance has same goal, the one who really would like to promote it as a compensation to the poor covering the properly risk running nowadays would have to invest at the beginning in the education.
El Salvador
22 Nov 2011
Micro-insurance requires an integral and factual approach
In response to what the colleague of the African Microinsurance and Rural Network stated, insuring poor and rural citizens in an effective (meaning that the clients receive compensation that covers the damage suffered from an event, much more than the actual premium regularly paid) and sustainable manner, as a commercial business, can only be done when the poor and rural people are integrated into the formal, financial sector. Micro-insurance can only succeed if the poor and rural clients are all individually, factually known to the insurers and to the different authorities, as specific people, living lives in a certain way in a specific environment, backed by longitudinal data from which risks can be analysed over time. Micro-insurance can only succeed when premiums can be collected that can be invested at such a level that it can produce good returns in a cash-flow, with liquidity, allowing premiums to be small per insurance sold and compensations can be paid in relation to the insured event. Both factors mean that Micro-insurance can only succeed in a diversified regulated financial sector, in which all citizens, including healthy and wealthy people, are involved who gladly contribute to a system that takes care of all throughout their lives. Look at the example of the USA, where wealthy people don't seem to care about poor people and that some 20% of society don't have access to basic public healthcare. In such situation where co-citizens don't care and want to leave the poor to charity, micro-insurance will not be able to fill the gap.
Peter van Dijk Indonesia
14 Nov 2011
AWARENESS
For the less developed sub-Saharan Africa, micro insurance faces the multiple problems of awareness, capacity, pricing and distribution. But most serious is awareness and appreciation of its need by individuals and households. The crux here is the cost (money) and time involved in disseminating the educational and awareness programs to the public. The cost here is quite prohibitive that microfinance institutions cannot bear and neither are the insurance companies prepared for this. It is more of a social mission that institutions have to embark on for the greater good of society tomorrow and we must add with the help and support of Government. This is where the NGOs, SHGs, Cooperatives, Community and Township organizations, Farmers societies, Women groups and other rural movements have to be fully integrated and carried along as it were.
When fully integrated into the global fight against poverty, micro insurance have the potential of uplifting households, hedging their poverty levels and raising the standard of living of micro clients.
In Nigeria, there is a movement towards this angle via the Health Management Organizations (HMOs) as some have scaled down to accommodate poor households. Again, the Lagos State Government (in South West Nigeria) has gone a step further to commence a Community Health Insurance Scheme for a Local Council - Ikosi Isheri LCDA. It is hoped that as this gathers sustainability the same will be replicated in other councils of the State. But still, much needs to be done in the area of awareness creation as even many residents of the council are not aware of the insurance talk less of the benefits there from.
Chimaobi Agwu Africa Microinsurance and Rural Network Nigeria
07 Nov 2011
The three pillars of Insurance equally valid for Micro-Insurance
Micro-Insurance is the canary in the mine for Micro-Finance. If there is a real risk in providing access to financial services to so far unbanked people and areas, insurance will bring them clearly out in the open to those who want to see, acknowledge and work on really managing or resolving the risk.
The three pillars of Insurance that are even more true for Micro-Insurance are the following:
n1. Collecting and analysing data over a long time on the insured people, their lives and activities. Insurance is based on actuary work. Traditionally, MF Clients are often people who are not registered or regulated as individuals, citizens, and their work and businesses even less. The risks they run in their lives can thus not be transformed in data relevant for insurance. Often this first pillar is intentionally omitted by micro-insurance specialists and I am glad that in this add Mr. Bolnick of the Int-l Actuarial Ass-n reminds us. Waving away the importance of data on clients is selling the “Death Insurance” whilst knowing very well that it is a credit risk management tool with some extra money the partner of the deceased borrower will not refuse (so s/he is really helped and will not complain);
n2. Insurance is a “Balance Sheet” job where many things happen on its Asset side. Many small premiums are collected as cash and are invested to produce a continuous cash flow that makes insurance viable and sustainable. That means that insurance companies are, as everyone knows, with pension funds among the world's biggest “institutional investors.” Subsequently, the development of insurance goes at par with the development of capital markets of a country. In countries with narrow and shallow capital markets, insurers and pension funds find little other alternative than build a huge skyscraper, to house its business there and rent out the rest. This adds risks of course.
n3. The last pillar is full understanding of the product and its financing by clients. This is even more true for insurance than for bank clients. Central banks and Insurance regulators know that and thus put strong conditions on insurance agents and their supervision. The impression must be avoided that insurance is just a “pyramid scheme” that anybody can sell. Mr. Gross's comment that “the poor know their risk better than anyone else and jump on” an insurance product is thus a very risky one and his remark to have insurance simply sold by technology (does he mean by SMS message on a mobile telephone?!) even more so and I would be surprised that, if he is an insurance expert, he doesn't know.
