report – 2nd international microinsurance conference 2006 - south africa (2007)

Report Microinsurance Conference 2006 A1

ReportMicroinsurance Conference 2006Making insurance work for Africa

Cape Town, South Africa21–23 November 2006

Edited byDirk Reinhard and Zahid Qureshi

There were a lot of people workingbehind the scenes. Prior to andduring the event, the conferenceteam Angelika Boos, Petra Hinter-amskogler, Ursula Forstner andMarkus Heigl provided significantorganisational support andworked with a lot of passion tomake this a successful event. Lastbut not least, we would like tothank the team of rapporteurs ledby Zahid Qureshi – Marco Ger-hardt, Ailsa Holloway, Leigh Sonn,Koko Warner and Gina Ziervogel –for helping us gather and docu-ment all the important lessonslearned from the various sessions,which can be found in this report.

Craig ChurchillDirk Reinhard

This report is a summary of theMicroinsurance Conference 2006held in Cape Town, South Africa,jointly hosted by the CAGPWorking Group on Microinsuranceand the Munich Re Foundationwith the support of FinMark Trust.The conference would not havebeen possible without the con-tributions, time and efforts of the38 speakers. Thanks to their input,we had a broad range and varietyof experience and important les-sons to share. Their feedback onthe conference report after theevent was also very much appre-ciated.

This event was aimed at discussingcurrent practices as well as futureconcepts for microinsurance. Itprovided a platform enabling theexchange of ideas and solutionsfor the many problems to besolved. Without the input from the participants, however, it would have remained an emptyspace. We would therefore like to acknowledge the over 150 par-ticipating experts representing 80 organisations from 30 differentcountries around the world.

On behalf of the organisers, wewould like to thank the peopleactively involved in shaping theconference, identifying suitablespeakers, and structuring theworkshops: Véronique Faber,Brigitte Klein, Jeremy Leach,Thomas Loster, Michael McCordand Gaby Ramm. We would alsolike to thank Andreas Kleiner andGeorge Allen from Munich Re ofAfrica for their guidance on keyplayers in the market, and forhelping us find such a great con-ference venue.

AcknowledgementsContents

Opening address

Introduction by the organisers

Launch of the new book

Agenda: Day 1/1

Panel 1What is insurance for the low-income market?

Panel 2Institutional options

Agenda: Day 1/2

Parallel sessionsCase studies

Panel 3Challenges and strategies to extendhealth insurance to the poor in Africa

Agenda: Day 2/1

Panel 4Commercialising insurance for the low-income market: Role of regulators, policy makers and insurance/reinsurance companies

Parallel sessionsThematic working groups

Agenda: Day 2/2


Panel 5Beyond life and health: Microinsurance innovations

Participating organisations

Acronyms

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To address the transaction costs ofdealing with low-income households,transactional banking services areessential so that premiums can becollected and claims paid. However,ATM densities in Africa are extremelylow. For example, Tanzania has oneATM per 600,000 people comparedwith over 100 for the same number ofpeople in Brazil. On the other hand,technology could play a unique role,given that the use of mobile tele-phones is high. In Botswana for ex-ample, 43% have access to a mobilephone, including 36% of the un-banked. In the wake of what may be a new mobile phone bankingwave, townships have many airtimevendors, and airtime is becoming accepted as a currency, pointing to the potential of using technologyto increase access.

The new technology, which holds the key to cutting transaction costs,finally appears to have reached a critical mass, being user-friendly andaccessible, but it requires micro-insurers to change the supply land-scape and address customer-adop-tion issues. A majority of consumersare prepared to use technology (65%)but still prefer to deal with someoneface to face (56%).

Coupled with technology and the roleof branchless banking – along thelines of the Brazilian model – is anotable supervisory and regulatoryissue. While policy makers becomemore activist, interventions oftenhave unintended consequences,restraining access. More appropriatetools to improve the enabling envir-onment are necessary. Further, regu-lators will need to consider a regionalapproach, with cross-border assess-ment of interventions and harmoni-sation to facilitate the growth ofregional players.

Whilst improving access is chal-lenging, a greater use of technology,proactive supervisory involvement,and greater information on the risksand needs of consumers are startingto create the right conditions to in-crease access.

Among the poor in Africa, use ofmobile phones is high, and airtime is being accepted as currency. The question is whether insurerscould use it to collect premiums.

Regulation lacks enforcement. Policy makers need to harmoniseapproaches and facilitate the growth of regional players.

Access to financial services clearlymatters. Whether the providers areformal or informal, poor householdsare active users of financial servicesand yet their choices are often sub-optimal, costly and high-risk. Further,research has shown that access tofinancial services is a social and polit-ical priority – in that exclusion cancreate social instability – and aneconomic priority, with greater finan-cial sector development stimulatingincreased economic growth.

However, research also shows that the financial sector in Africa isthe smallest in the world, which is a problem in terms of economies ofscale, infrastructure and efficiency.Further, the roll-out of the FinScopeAfrica surveys demonstrates that the lower-income market has littleaccess to formal financial services forthe management of risks, restrictingthem to informal mechanisms.

Nevertheless, it is not all bad. Globalstudies show that life and non-lifeinsurance are growing at a good ratein emerging economies, includingAfrica. With surveys such asFinScope and Financial Diariesdemonstrating the high propensityfor poor households to activelymanage their finances, the challengewill now be to ensure that thecoverage reaches deep into the low-income market and meets the realrisks. For example, the FinancialDiaries project in South Africa showedhow poor households manage risks.55% of one poor household’s incomewas placed into formal and informalsavings and insurance products. This example, one of many, certainlypoints to the potential size of themarket and how poor householdsalready manage risk.

In understanding the market, it iscrucial to understand whether the realrisks are being covered. FinScopesurveys again show that many of the real riIsks that people face areinsurable events, but go uncovered.While insurance companies tend to believe that the access frontiersare the unbanked and non-payrollcustomers, FinScope showed that inaddition to the current 6% of SouthAfricans who have householdcontents insurance, there are 29%within fairly easy reach. Beyond that,the challenges are trickier.

Report Microinsurance Conference 2006 1

Opening address

Jeremy LeachFinMark Trust,South Africa


According to recent research from theMicroInsurance Centre, fewer than3% of poor people in the poorest 100countries have formal insurance ofsome sort. Poor households are es-pecially vulnerable to risk, both in theform of natural disasters as well asmore regular occurrences, such asillness and accidents. Recently pub-lished reports on climate change showthat the situation is getting worse.

Microinsurance is an important tool to reduce risks for people withlow incomes, but there are greatchallenges as well as opportunities.Can we – governments, donors andregulators, as well as insurers, rein-surers, and finance and developmentorganisations – together find the willand means to effectively serve thissizeable market?

That was the focus as 150 expertsand practitioners from 30 countriesrepresenting 80 entities gathered inCape Town on 21–23 November forthe Microinsurance Conference 2006:Making insurance work for Africa.

The conference was the second spon-sored by the Munich Re Foundationin cooperation with the CGAP (Con-sultative Group to Assist the Poor)Working Group on Microinsurance. It was held with the support of theSouth Africa-based FinMarkTrust, andenabled microinsurance experts fromEurope, North America, Asia andLatin America to share their views.

The first conference, held in Munichin October 2005, brought together a hundred specialists from around theworld to look closely at some 20“good and bad practice” case studiesconducted by the Working Group aswell as technical and operationalissues in microinsurance.

The second conference featured the launch of the book “Protectingthe poor – A microinsurancecompendium.” This 650-page booksynthesises lessons drawn from thecase studies and experiences ofmicroinsurance pioneers around theworld – analysed by 38 authors,including academics and insuranceand development professionals.

The findings reveal that “microinsur-ance is indeed viable, and even prof-itable under some circumstances, buta number of difficulties must be over-come for it to succeed.” This reportsummarises the main points made inthe 21 sessions.

An in-depth and practical look atthese challenges, needs and opportu-nities – particularly in Africa – thatdrove the agenda of the Cape Townconference. In five panels and 16parallel sessions, 57 presenters inter-acted with the participants to exploreways of enhancing and increasingthe outreach of microinsurance.

All conference presentations can bedownloaded atwww.microinsuranceconference2006.org


Craig ChurchillILO, SwitzerlandChair, CGAP Working Group on Microinsurance

Dirk ReinhardVice-Chairman, Munich Re Foundation



Worldwide per capita distribution of insurance premiums

The world is made up of the insuredand the uninsured. There is a thrivingmarket for microcredits and micro-insurance in the developing world.

Property insurance premiums (non-life including health) per personand per year

UninsuredUS$1–25

Basically insuredUS$26–50

Well insuredUS$51–100US$101–500US$501–1,000 > US$1,000

No data

SourceMunich Re, 2006

The conference began by launching a new book published by the Inter-national Labour Organization andMunich Re Foundation, Protectingthe poor – A microinsurance compen-dium, edited by Craig Churchill fromthe ILO’s Social Finance Programme.

Based on an in-depth analysis of 40 microinsurance schemes aroundthe world conducted for the CGAPWorking Group on Microinsurance,this authoritative book, written by 38 microinsurance experts, bringstogether the latest thinking of leadingacademics and insurance and devel-opment professionals in the microin-surance field. The result is a practical,wide-ranging resource which pro-vides the most thorough overview of the subject to date.

The book defines microinsurance asthe protection of low-income peopleagainst specific perils in exchange forregular premium payments propor-tionate to the likelihood and cost ofthe risk involved. This definition isessentially the same as one might usefor regular insurance except for theclearly prescribed target market: low-income people. However, as demon-strated throughout the book, thosethree words make a big difference.

“This book brings together the per-spectives and experiences of manyorganisations and experts all in oneplace,” said Churchill. “The CGAPWorking Group can be proud of pro-ducing such a comprehensive volume,but we cannot rest on our laurels.The next step is to disseminate thebook and the lessons that it contains,and to stimulate further innovation to cover more poor people with betterinsurance products.”

Contents of the book

Part 1Principles and practices

— What is microinsurance?— The demand for microinsurance— The social protection perspective

on microinsurance

Part 2Microinsurance products and services

— Challenges and strategies to extend health insurance to the poor

— Long-term savings and insurance— Savings- and credit-linked

insurance— Meeting the special needs of

women and children

Part 3Microinsurance operations

— Product design and insurance risk management

— Marketing microinsurance— Premium collection: Minimising

transaction costs and maximising customer service

— Claims processing— Pricing microinsurance products— Risk and financial management— Organisation development in

microinsurance— Governance

Part 4Institutional options

— Cooperatives and insurance: The mutual advantage

— The partner-agent model: Challenges and opportunities

— The community-based model: Mutual health organisations in Africa

— Institutional options for delivering health microinsurance

— Beyond MFIs and community-based models: Institutional alternatives

— Retailers as microinsurance distribution agents

— Microinsurance: Opportunities and pitfalls for MFIs

Part 5The role of other stakeholders

— Role of donors— An enabling regulatory

environment for microinsurance— The promotional role of

governments— The role of insurers and reinsur-

ers in supporting insurance for the poor

— The provision of technical assistance

Part 6Conclusions

— Strategies for sustainability— The future of microinsurance

The book can be downloaded atwww.microinsurancecompendium.org

The book can be ordered via the ILO:www.ilo.org/public/english/support/publ/intro/

Launch of the new book

Protecting the poor – A microinsurance compendium


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08.30–09.00 Opening day 1

09.00–10.30 Panel 1What is insurance for the low-income market?

10.30–11.00 Coffee break

11.00–12.30 Panel 2Institutional options

12.30–14.00 Lunch break

Agenda Day 1/122 November 2006

Opening addressJeremy LeachFinMark Trust, South Africa

Craig ChurchillILO, Switzerland

Monique CohenMicrofinance Opportunities, USA

Dominic LiberQuindiem Consulting, South Africa

Jeremy RowseConsultant, South Africa

FacilitatorDirk ReinhardMunich Re Foundation, Germany

Grzegorz Buczkowski (cooperatives)TUW SKOK, Poland

Doubell Chamberlain (retailers)Genesis Analytics, South Africa

Bénédicte Fonteneau (community-based)University of Leuven, Belgium

FacilitatorGaby RammSenior Adviser to GTZ, Germany


Panel 1 What is insurance for the low-income market?




Jeremy RowseConsultant, South Africa

FacilitatorDirk ReinhardMunich Re Foundation, Germany

Microinsurance helps achieve twoobjectives that are part of the ILO’smission: social justice, and inclusivefinancial markets. It represents notonly a new market for the privatesector, but also social security forworkers in the informal economy andothers classed as poor – a vastmajority of whom do not have thepublic safety net which governmentsin developed countries are able toprovide. As a tool against poverty,microinsurance is a significant factorbenefiting economic growth andhuman development.

Microinsurance, whether providedthrough the private sector or a publicscheme, has a core element: productsand services must conform to thegenerally accepted insurance prin-ciples. This is also a core requirementadopted by the International Associa-tion of Insurance Supervisors (IAIS).

Challenges to entry into the low-income market include gender, income level, location and lack ofunderstanding of insurance. Insur-ance education to link the product to the customer involves teaching the knowledge, skills and attitudes required to adopt good money-management and risk-managementpractices. Those who need this edu-cation include MFI staff and agents as well as policyholders.

Although insurance is regarded as an intangible, it takes on a materialdimension when a claim is made.The swift and efficient payment of a claim not only meets the needs ofthe customer, it also counters theinherent sceptism around insuranceproducts and reinforces the promiseon delivery. Serving the low-incomemarket, microinsurers should keep in mind a South African insurer’smotto: “Today’s claim paymentsecures tomorrow’s new business.”

Life for the poor is one long risk.

A formal insurance product to helpthem cope must have five attributes:

1 Coverage (of real perils)

2 Accessibility

3 Timeliness

4 Affordability

5 Value for money

In South Africa, the emerging marketwas recognised in the early ’80s,particularly by four smaller insurerswhich saw the low-income market’shistorical disadvantage in requiringlow-cost administration creating a strategic advantage for those ableto keep such costs low in meeting theneeds of this emerging, rapidlygrowing market. They realised that inthe market of lower but regularlypaid workers, sales growth furtherlowered unit costs which in turnimproved the value proposition tothe customer. Such product innova-tions as

— wider family cover,

— premium collection by salarydeduction,

— and online real-time claimsapproval and transfer of payments

resulted in substantial penetration in South Africa.

1Left to right:Jeremy Leach,FinMark Trust,South Africa; Craig Churchill, ILO, Switzerland; Monique Cohen,Microfinance Opportunities,USA;

Dominic Liber,QuindiemConsulting, South Africa; Jeremy Rowse,Consultant, South Africa

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The size of the funeral insurancemarket is estimated to be in excess of ZAR18bn (US$2.4bn). And 28formal insurers now operate underfuneral assistance licence, with netpremiums of just over ZAR3.8bn(US$373m). Of these, four are onlyregistered for funeral business –including two which are in the pro-cess of winding down. 50 friendlysocieties submitting financial state-ments to the FSB reported premiumincome of ZAR69m (US$9.2m) peryear. Of these 50 societies only fiveare reported to provide contractuallyguaranteed benefits to their membersand are, therefore, considered to beoffering insurance. The remainderare offering non-guaranteed benefitsmostly in the form of traditionalburial societies.

Some of these insurers started toexport their formula to other Africancountries in the ’90s as they recog-nised the potential in other low-income markets.

Future changes expected in meetingthe needs of this market include:

Process improvements

— Mobile phone and call centreadministration

— New distribution and premium-collection options via retailers andaffinity groups

Product innovations

— Pricing in line with customer riskrequirements

— Value-added benefits such asevent arrangement for funerals

— Loss-of-income illness benefits

— A non-lapsable policy

A lapse is not a lapse when people areon irregular incomes. If they cannotpay premium, the microinsurer shouldaccumulate cover until they can pay –and consider payment in kind.

Success will depend on customereducation and changes in regulation.In South Africa, for example, thegovernment could dramatically im-prove the accessibility of burial bene-fits today by providing life companieswith electronic access to the govern-ment’s death register.

Policies are “turned on” and “turnedoff” as ongoing affordability dictates.Microinsurers should recognise thisaspect of the market and link cover topremium payment, irrespective ofregularity.

Preliminary findings of a landscapingstudy on the world’s 100 poorestcountries show that microinsuranceschemes cover a total of 78 millionpeople. However, this number in-cludes some 20 million from Chinaand eight million from India – makingthe outreach across other countriesless extensive than the total mightindicate. Overall, the total accountsfor less than 3% of the poor.

Ignorance and lack of awareness ofinsurance have a narrow, nuts-and-bolts implication (not knowing what a policy covers), but also result in a broad-scale absence of insurancefrom the culture and from socialawareness.

Microinsurers are optimistic but face barriers, especially consumerignorance.

A variety of approaches have beentried, but few have reached anysignificant scale.

Case studies, e.g. from India andZambia, show that there is a highdropout rate among the poor. The 78 million now microinsuredmay not be quite so numeroustomorrow – unless steps are taken to preserve their business and tofocus on innovations such as “thenon-lapsable policy”.

Panel 1What is insurance for the low-income market?

In the 100 poorest countries microinsurancecovers 78 million, but this is not even 3% ofthe poor.


The case of TUW SKOK – a mutualinsurance company of cooperativesavings and credit unions in Polandproviding credit unions with cor-porate covers and their members forindividual covers (except motorinsurance) – shows that the coop-erative/mutual form is an organisa-tional solution suitable for an MFI-related market.

Built around an outsourcing model,with functions retained as the needand economy dictate, TUW SKOKdeveloped from a brokerage firm to a full-service insurance organisation.This model may serve other affinitygroups too, placing their insurancecompany at various points along the development axis in response totheir needs and capacity.

Genesis Analytics (South Africa)demonstrates how retailers can beused as effective intermediaries formicroinsurance.

Intermediation may involve a largenumber of functions – not only sales,premium collection and claimspayment, but also policy administra-tion and serving key third parties.Retailers are being found that areplaying some or all of these roles.

A strong brand presence and trust arekey, and retailers often have thesecharacteristics, whether retailer inter-mediation is stand-alone, account-based or bundled/embedded.

Some challenges that these modelsface are

— how to extend success beyondcompulsory covers and funeralinsurance to other lines; and

— how to compensate for lack ofadvice where disclosures accom-panying tick-box selling may bedisregarded or not understood.

The community-based model hasmany forms and approaches. In the“ideal” type – mutual health organi-sations (mutuelles de santé), in francophone Africa – members arealso owners/policyholders/decision-makers. These entities involve par-ticipation in the design of the health-risk products, and in financial andorganisational control mechanisms,risk sharing and resource pooling.

Membership is voluntary and there is a community bond, based on anorganisation or village. Accessibilityis emphasised, as are functionsbeyond insurance: health education,and representation of the healthcaredemand side. The model calls for an enabling environment (commit-ment of health authorities andhospital management), coordinationwith external support organisations,long-term access to training andactuarial services, and in many casesexternal financing, at least initially.

Panel 2 Institutional options

Panellists*

Grzegorz Buczkowski (cooperatives)TUW SKOK, Poland

Doubell Chamberlain (retailers)Genesis Analytics, South Africa

Bénédicte Fonteneau (community-based)University of Leuven, Belgium

FacilitatorGaby RammSenior Adviser to GTZ, Germany

* For a description of the various institutional options, see also the report on the Microinsurance Conference 2005

www.microinsuranceconference2006.org


The partner-agent model, which enables the two organisations tomaximise synergies while focusingon their core business and expertise,has a number of advantages. For anNGO or MFI, it makes scaling-up ofproducts possible through a regis-tered insurance provider, and the linkto formal insurance business officiallyrecognises microinsurance as aninstrument of social protection.

The main challenge is that bothparties are dependent on the qualityof the other. This model, therefore,calls for an investment in institution-building: regular interaction betweenthe insurance provider and the part-ner, and ongoing dialogue with theregulator on issues such as outreach,commission levels and consumerprotection. Experience also points tothe need to consider the genderperspective in product development.

Conducive political conditions helpstrengthen the partner-agent as wellas other institutional models. Insur-ance providers should be enabled todevelop customised products andprocedures, and civil society shouldhave government commitment tosocial protection for the informaleconomy.

Microinsurance can be deliveredthrough a variety of institutionalforms, including cooperative/mutual,retailer intermediation, community-based and partner-agent models.

Whichever option suits local condi-tions, value for money must underpinthe two core functions of insurance:sales and claims.

In South Africa, the mobile phone,rather than the internet, is used formany financial transactions – andthat may be true of other markets asthey develop.

Among the poor, the plight of womenneeds special attention. In microinsurance product development, thegender perspective should be apriority.

In institution-building, it is importantto battle-test a model in the market.

As a microinsurer grows and be-comes established in what may be a developed market, it will seecompliance requirements increasingexponentially – a function that can-not be outsourced.

There is also an increasing need to stay in tune with the changingcustomer base. Feedback on performance is important for long-term survival.

Insurance is complex and mis-sellingit is easy – and not always intentional.

From an operational viewpoint, thetwo faces of insurance are sales andclaims, and from the customer’sperspective, value for money shouldunderpin the two. The poor may notknow insurance well, but they are not stupid and have an eye for value.

Panel 2Institutional options

2Left to right:Bénédicte Fonteneau,University ofLeuven, Belgium; GrzegorzBuczkowski, TUWSKOK, Poland;

Gaby Ramm, SeniorAdviser to GTZ,Germany; Doubell Chamber-lain, GenesisAnalytics, SouthAfrica

The poor may not know the concept of insurance well enough (insurance illiteracy),but they have an eye for value.

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Mainstream insurers are active in thelow-income market, particularly whenpushed with regulation.

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

4Left to right:Kjell Wirén,Folksam, Sweden;Zahid Qureshi,ConsultantCanada

5Douglas Barnert,Barnert GlobalLtd., USA

6The importantback-office:Petra Hinterams-kogler, MarkusHeigl, AngelikaBoos (right toleft)

7Panel 1 opens the discussion on insurance forthe low-incomemarket


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Agnes ChakontaMadison Insurance, Zambia

Robert GordonAIG, South Africa

Denis GarandConsultant, Canada

Aly CisseILO, Senegal

Bénédicte FonteneauUniversity of Leuven, Belgium

Doubell ChamberlainGenesis Analytics, South Africa

Jeremy LeachFinMark Trust, South Africa

Grzegorz BuczkowskiTUW SKOK, Poland

David DrorErasmus University Rotterdam, the Netherlands

Kjell WirénFolksam, Sweden


Gerry NobleMicrocare, Uganda

Vijay AthreyeTATA-AIG, India


Samuel LeshabaneGreat North Burial Society, South Africa

Daniel MasemolaGreat North Burial Society, South Africa

Richard WalkerGenesis Analytics, South Africa



Marius OlivierUniversity of Johannesburg, South Africa

FacilitatorDavid DrorErasmus University Rotterdam,the Netherlands

14.00–15.00 Parallel sessionsCase studies/Working groups

CS 1AIG, Uganda/Madison Insurance, Zambia(Partner-agent model; credit-linked life and disability)

CS 2VimoSEWA, India(Partner-agent; voluntary life, health and asset)

CS 3West African health mutuals(Community-based; health)

CS 4Insurers and retailers, South Africa(Regulated-insurance companies; various risks)


15.30–16.30 Parallel sessionsCase studies/Working groups

CS 5Yeshasvini Trust, India/TUW SKOK, Poland/MUSCCO, Malawi(Cooperative model; various risks)

CS 6Microcare, Uganda(Regulated-insurance company; health)

CS 7TATA-AIG, India/Delta Life, Bangladesh(Regulated-insurance company; endowment)

CS 8Great North Burial Society, South Africa(Community-based; life)


17.00–18.30 Panel 3Challenges and strategies to extend health insurance to the poor in Africa

20.00–23.00 Reception

AIG Uganda has 26 partner MFIs,including one in Tanzania and one in Malawi. The parent, AIG, has a global network of programmes insome 130 countries and jurisdictionsthat continually share elements andlessons from local operations.


Parallel sessionsCase studies*

Speakers


Doubell ChamberlainGenesis Analytics, South Africa


Bénédicte FonteneauUniversity of Leuven, Belgium



Jeremy LeachFinMark Trust, South Africa

AIG Uganda

Institutional model: Partner-agent

People insured: 1,600,000

Benefit: Group accident, credit life

Premium range:0.5% of loan amount

AIG Uganda is part of one of theworld’s largest insurance groups. Itlaunched its first microinsuranceproduct in Uganda in 1997 in partner-ship with one MFI, and has sinceexpanded its operations to 26 MFIs,including one in Tanzania and one inMalawi. It offers a group personalaccident product with disability, acci-dental death and credit life insuranceto some 1.6 million people alto-gether: borrowers of the MFIs andtheir family members. All but one of the MFI partners make insurancemandatory for their borrowers.

AIG Uganda developed products,distribution and service specificscomplementing the MFIs’ infrastruc-tures, in most cases using a licensedtied insurance agent to act as anintermediary.

The MFI market in Uganda is focusedon small enterprise developmentloans made for very short periods,mainly to groups of women involvedin kerbside trading or traders in re-cognised open markets. Loan periodsare generally three to six months andare rolled over. In some cases, anumber of women are jointly respon-sible for repayment of the loan.

AIG Uganda is keeping an eye ondevelopments in other markets inAfrica, too. In Nigeria, for example,consolidation of banks and the insur-ance industry is creating an opportu-nity for bancassurance. There are not many MFIs there, but credit isstarting to become available.

Lessons learnt

Products, distribution and serviceshould complement the partner MFIs’infrastructure.

Use licensed tied agents as inter-mediaries.

Expand operations to use economiesof scale.

* The case studiesexamined include two companies –TATA-AIG and DeltaLife – that werealso featured in the 2005 Confer-ence, and otherssuch as TUW SKOK and Madison Insur-ance that werediscussed in variousthematic and operations groups a year earlier. They made the 2006agenda, too, to help ensure that the largelydifferent audiencedid not miss thecases’ key lessons.

8Robert Gordon,AIG, South Africa

9Agnes Chakonta,Madison Insur-ance, Zambia

10Denis Garand,Consultant,Canada, ex-plaining financialdetails of the VimoSEWAscheme

Madison Insurance, Zambia


People insured: 31,700

Benefit: Loans and funeral insurance

Premium range:0.9–2.75% of loan amount

Madison Insurance started offeringmicroinsurance products in Zambiain 2000 in partnership with MFIs.There are over 31,000 subscribers to its group credit life and groupfuneral insurance products. The pur-chase of credit life insurance policiesis mandatory for people who borrowmoney from the partner financialinstitutions.

If credit life were made optional, amajority of clients would not take upcover – leaving the MFIs exposed.Funeral insurance, however, can bevoluntary, especially if it is expectedto cover other family members.

The insurance cover removes theneed for the poor to provide collat-eral security for a loan. This leads tomore people using loans to improvetheir living standards.

Most clients have a shallow under-standing of insurance features andbenefits. There also is a dearth ofinsurance knowledge among MFImanagers. Though acting as an agentfor an insurance company is theeasiest way for an MFI to providemicroinsurance, it still requires somework and expertise. Neglect of insur-ance services causes its own productdissatisfaction among clients – which also contributes to delinquen-cies and dropouts.

VimoSEWA, India



Benefit: Voluntary life, health and asset

Premium range:US$2.38–5.05

The Self-Employed Women’s Asso-ciation (SEWA) is a trades unionfounded in 1972 in the Indian state ofGujarat. It set up a special departmentfor insurance in 1992, VimoSEWA,which acts as an insurance broker.VimoSEWA offers a voluntary productwith life, health and asset benefitscovering more than 110,000 persons.The insurance product, which isundergoing many changes, is nowoffered in partnership with twoprivate-sector insurance companies,AVIVA and ICICI Lombard. For someyears, VimoSEWA was the risk-bearertoo, but went back to the partner-agent model following an earthquakeclaim after the Gujarat earthquake in2001. It now manages product design,distribution, data, claims paymentand all service aspects.

Distributing the product mainly via its aagewans (sales promoters),VimoSEWA promotes whole familycoverage and greater communityparticipation. Its management infor-mation system (MIS) captures allpremium and demographic informa-tion as well as claims data, enablingmanagement to understand andimprove operations.

For health cover, VimoSEWA is plan-ning a cashless benefit – whichwould result in better monitoring ofhospital treatment and more efficientquality care. Also in place is aprocess for dealing with claims fromnatural disasters.

Benefiting from assistance fromseven donors over the years,VimoSEWA is now mostly operatingon its own and focused on achievingviability within seven years. It haslearned that self-insurance can be a big risk, that an insurance organisa-tion should have a good MIS fromthe start, and that it should continu-ously look at process improvement to drive down expenses.

Lessons in marketing are to targetfamily coverage, high renewal rates,and whole communities in a concen-trated geographic area – findingmethods to enrol groups, and usingthreshold incentives for renewals andfor deepening outreach.

From 2001 to 2006, the number ofVimoSEWA’s insureds increaseddramatically from 30,000 to 170,000.Now, during an annual campaign,almost every policyholder is visitedonce. As a result, the renewal ratehas improved from 20% to 70%.

Lessons learnt

Focus on whole-family coverage andcommunity participation.

Look into cashless benefit for healthcover.

Rely on a good MIS for improvingprocesses to drive down expenses.

Keep an eye on viability, and reviewgoals periodically.

8


MFIs should be viewed not so muchas agents but as policyholders andadministrators of microinsurance.

While three of the MFI partners ofMadison receive a 10% commissionfrom it, one has negotiated a profit-sharing arrangement.

Lessons learnt

There are no exclusions in the pol-icies offered by Madison. Beforeintroducing insurance, MFIs used to screen out potential borrowerssuspected of being HIV-positive.

With insurance, members are nolonger responsible for the out-standing loan in the event of death or prolonged illness, and MFIs do not exclude members who might beHIV-positive as long as they appearphysically healthy.

A notable fact is that in Africa malariais a bigger problem than HIV/AIDS:more people die from it.

9

10


When extending social securitythrough isolated microinsuranceschemes, the positive aspects (thatmight include participation and proximity) should be acknowledgedas well as the fact that this processtakes time.

Options should be researched,including voluntary versus automaticinclusion and different methods ofpayment, such as indirect payment.In order to succeed, strong politicalwill is critical, accompanied by the involvement of social partnersand technical input from marketparticipants who are willing to worktogether. External partners, such asfederations of like-minded people-oriented organisations, help extendsocial protection to excluded groups,in particular with regard to healthcare. These partners may includegroups sharing common characteris-tics – agricultural producers, tradeunionists, villagers, etc. – which canimprove access to healthcare throughsolidarity mechanisms.

Lessons learnt

In mutuelles de santé

Limited membership reduces riskpools.

Weak management skills/systemshamper negotiation with healthcareproviders.

Technical management should be outsourced and new financingmechanisms developed.

Strong political will, an enabling legal framework and support ofsocial partners are critical.

West African health mutuals(Community-based insurance)

The ILO/STEP programme, initiatedin 1998, is being implemented inWest Africa to extend social protec-tion to excluded groups, particularlywith regard to health care, throughan integrated approach.

STEP has developed a number oftools:

— Improved information (inventoriesand case-study guides)

— Introduction to health mutuals

— Technical, methodological anddidactic tools

— Networking/lobbying opportuni-ties

Importantly, a diverse set of institu-tions and links have emerged thathave been key to the growth and suc-cess of microinsurance. In particular,linkages between different scales andtypes of insurances have facilitatedshared management systems andharmonisation of practices.

Microinsurance has provided a posi-tive contribution in the context ofstates with weak financial and institu-tional capacity by enabling civil-society participation in the designand management of the schemes,reduced transaction costs andimproved conditions of access tohealthcare.

However, challenges have includedlimited membership which reducesrisk pools, as well as poor manage-ment skills, weak informationsystems and capacity to negotiatewith health-care providers.

At a national level, there has been a lack of coherence and institutionalsupport. Options for addressing thechallenges include the outsourcing of technical management and use ofcomputerised MIS, new financingmechanisms and the development ofa modified legal framework.

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11


13Doubell Chamber-lain, GenesisAnalytics, SouthAfrica

14Jeremy Leach,FinMark Trust,South Africa

11Bénédicte Fonteneau,University ofLeuven, Belgium

12Aly Cisse, ILO,Senegal


Insurers and retailers, South Africa(Regulated-insurance companies;various risks)

In South Africa, 4.2 million peoplehave banking but no insurance, and3.3 million have a mobile phone(most are sophisticated users, linkedto retail distribution and with storecard accounts able to access credit).

Some 2.2 million belong to a burialsociety (which serves as a client-concentration point). Microinsuranceis still largely limited to funeral insur-ance and any compulsory covers(funeral insurance is bought, notsold; other products such as creditinsurance are sold, not bought).

Microinsurance enhances financialplanning for poor households andthe overall ability to find ways out ofpoverty. In South Africa, microinsur-ance clients have proven themselvesto be sophisticated and capable ofapplying complex risk managementtechniques. Retail experience inSouth Africa points to challenges interms of education and marketing at the point of sale. Also evident aresome of the advantages of utilisingtechnologies like mobile phones for uptake and renewal, as well as for premium payments.

Regulators in South Africa are waryof turning airtime into currency, andcompanies are interested in findinglegal ways to make airtime a form ofpayment for financial services suchas premiums. However, a range ofoptions are available to facilitate micro-insurance provision, such as mobilephones linked to bank accounts.

Studies and more data are neededabout the relationship betweenmicroinsurance participation andpoverty reduction efforts. What isclear is that microinsurance does notexonerate the government from asocial welfare role.

The government also has a role inconsumer education. It is in theinterest of insurance companies forclients to be better educated. Insur-ance and other financial servicescompanies and governments shouldwork together to define what finan-cial literacy is and provide a platformfor literacy drives, with the govern-ment taking on a facilitative and coor-dinating role.

Microinsurance can best serve therisk-management needs of its clientsby being based on solid, competitivebusiness models. While there is asubstantial social benefit fromimproving the risk management toolsavailable to poor households, it iscritical that these tools be provided ina way that meets the specific needsof clients. Experience in South Africaindicates that if client needs are metthrough tailored products, poor clientsare willing to pay the premiums.

For voluntary sales, the low-incomeretailer distribution models in SouthAfrica are based on passive salesmodels. Given the fact that most in-surance products are “sold notbought”, the passive sales modelshave not yet proven themselves to be successful. Funeral insurance maybe successfully distributed throughsuch passive models, as it has shownitself to be the exception by beingbought rather than sold. The absenceof advice or even verbal disclosure ofinformation on the product in thesepassive models may, however, unin-tentionally lead to mis-selling.

These passive models rely on havingroom in the current regulations toconduct “tick-box” selling withoutadvice in order to avoid the regula-tory burden placed on advice-basedselling. These models have not beenofficially sanctioned by the regulatorand risk being closed down due tofear of consumer abuse.

Lessons learnt

Funeral insurance is bought, not sold; other products are sold, notbought. The result is that these maysuccessfully be distributed throughretailer models based on passivesales. It must be noted, however,that, due to the absence of advice oreven verbal disclosure, the passivesales model may risk mis-selling.

Government and financial servicescompanies should work together todefine and promote financial literacy.

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Speakers






Samuel LeshabaneGreat North Burial Society, South Africa

Daniel MasemolaGreat North Burial Society, South Africa

Kjell WirénFolksam, Sweden

Richard WalkerGenesis Analytics, South Africa

Yeshasvini Trust, India

Institutional model: Cooperative model


Benefit: Surgeries, outpatient care

Premium range:US$2.72 (half for a child)

Yeshasvini Cooperative FarmersHealth Care Trust is a charitable trustin Karnataka. Its microinsuranceactivities were initiated in 2002 incollaboration with state authoritiesand the cooperative movement. The trust offers health insurance andcovers some 1.5 million people.

The product is distributed throughlocal cooperatives. The trust out-sources certain activities to third-partyadministrators, but manages the riskin-house. The benefits, which areprovided cashless to the clients, canonly be accessed at certified partnerhospitals. Benefits are primarilylimited to surgery, but also includesome outpatient care and tests.

Major surgeries covered are cardiac,vascular, gastroenterology, ortho-paedic and neurosurgery.

There is medical emergencies cover-age for stabilisation after injuriescaused by snakebites, bull goring,electric shocks, drowning, agricul-tural equipment and dog bites.

Acute infections are the most prevalent, but their expenses are not covered by Yeshasvini healthinsurance.

Premium is INR120 (US$2.72) for an adult, and INR60 for a child.Clients are not among the poorest,and have more income and edu-cation than the poor generally. How-ever, dependants are not ofteninsured and the oldest are excluded(there is an age limit of 75). Out-patient drugs are also not covered.

Yeshasvini has a target group of 20million available as well as govern-ment involvement and support. Itsexperience points to a main chal-lenge for similar initiatives: how tosubsidise healthcare without damp-ening the clients’ willingness to pay.

Lessons learnt

Affiliate whole households to reduce adverse selection and preventexclusion.

Adjust the product to the amountclients are willing to pay; do not relyon subsidies which will not last long.

Adjust the product to the clients’needs, not the suppliers’ interests.

Listen to what clients prioritise; cover expensive events rather thanonly rare catastrophic events.

15Left to right:GrzegorzBuczkowski, TUWSKOK, Poland;David Dror,Erasmus Univer-sity Rotterdam,the Netherlands;Kjell Wirén,Folksam, Sweden

16Participants ofWorking Group 5,eager to learnmore about thecooperativemodel

15

Though credit-union pay productslike these overcome one of the mostsignificant challenges of micro-insurance – collecting premium fromlow-income people – MUSCCO hasfound that, in practice, collectingfrom even 57 corporate customerscan be difficult.

Only a third of the credit unions can be described as disciplined cus-tomers; considerable effort has to be made chasing the others forpayment. However, the insurancecontract does provide for benefitpayments to be withheld until thepremium is paid.

MUSCCO, for all intents and pur-poses, is unregulated. The ReserveBank of Malawi, which supervises the insurance sector, claims no juris-diction over MUSCCO as it is regis-tered as a cooperative, and the Regis-trar of Cooperatives lacks theresources and interest to superviseits insurance activities.

Lessons learnt

MUSCCO needs

reinsurance for its loans and savingsinsurance products, to help sustainits hard-earned reserves;

a higher proportion of its credit unionpolicyholders to live up to theircommitment to submit premiums;

support and supervision fromgovernment.


TUW SKOK



Benefit: Property, savings, AD&D


TUW SKOK is the foremost insuranceprovider for credit unions in Poland.Strictly speaking, its products maynot be deemed micro in scope, but,based on the cooperative model, they in essence yield lessons worthkeeping in mind for the developmentof microinsurance. TUW SKOKstarted operations with two corpor-ate products in 1998 (a predecessorwas created in 1993), and now has 16 products for corporate and indi-vidual needs.

The company offers a property prod-uct, a savings completion productand three accidental death and dis-ability products that can be consid-ered microinsurance. All TUW SKOK’smicroinsurance products are sold asgroup insurance.

Before introducing new products,TUW SKOK used pilot tests to “kill po-tentially bad products”. TUW SKOK’sdefined niche market comprises 72 credit unions, 1,600 branches and 1.5 million members (including some95,000 low-income policyholders). It interacts constantly with creditunions, and works hard with them toimplement loss prevention measures.Products for credit unions them-selves include deposit insurance.

Operating in a fully developed legal environment, TUW SKOK re-quires professional capacity at alllevels of operation. It outsourcesmany activities such as sales, whichare made through credit unions, and actuarial services.

Lessons learnt

Grow with demand, in response to customers’ needs and capacity.

Battle-test products in the market.

Group insurance fits the micro scale.

Focus on loss prevention.

MUSCCO, Malawi



Benefit: Loan and savings insurance

Premium range:US$0.04 per 1,000 sum

At its peak in 2000, Malawi Union ofSavings and Credit Cooperatives(MUSCCO) served 111 cooperativeswith 66,000 members.

It was founded in 1980 with the helpof the Catholic Church and thegovernment, and its credit life andlife savings microinsurance productswere backed by CUNA Mutual (USA)until 1997 when that organizationwithdrew from the market.

Of Malawi’s ten million people, anestimated 20–25% have HIV/AIDS.

Since then, MUSCCO has been run-ning the loans and savings insuranceprogramme on its own without re-insurance, managed by two staff inits head office. A relatively sizeablereserve enables MUSCCO to managethe risk in-house.

MUSCCO’s credit unions target low-income groups, small farmers andgovernment employees. Its productsare exclusively (and compulsory) for its cooperative partners’ mem-bers, now totalling about 55,000 in 57 credit unions.

Both of MUSCCO’s products arecredit-union pay covers, withpremium for all eligible loans andsavings balances submitted to itquarterly in advance.

16


Microcare Ltd, starting in 2000 as a research organisation, led to theformation of Microcare Health Ltd, a commercial health manager, in2004 and a year later to a licensedinsurer named Microcare InsuranceLtd. In 2006, Microcare pursued arapid expansion of micro health busi-ness in Uganda to achieve commer-cial viability. The goal in 2007 is inter-national expansion and replicationthrough strategic partnerships.

Lessons learnt

Microinsurance is more effective ifyou work with a group of people andnot with individuals. Building trustwith the group is very important. This usually takes one to two years.

It is better to work with a relativelystable community or group. Thereare also certain preconditions forproviding microinsurance for healthcare, such as a functioning hospitalsystem.

— Control is very important. Thishelps in cutting out fraud.

— Adapt the technology to fit thesituation.

— There has to be an effective distribution system.

— Do not cover everything as some options are too expensivefor microinsurance to cover.

— A fast turnaround time onpayments is essential.

Microcare, Uganda

Institutional model: Regulated-insurance


Benefit: Accident and health


Microcare has transformed from anot-for-profit background to becomea fully fledged insurance company in Uganda specialising in health insur-ance. It focuses on the low-incomemarket, drawing from the formal andinformal sectors and spanning urbanand rural locations. Microcare’sobjective is to provide “affordableaccess to quality healthcare”.

Malaria is the most common diag-nosis for Microcare’s health insur-ance clients, particularly in ruralareas. Focusing on loss prevention,Microcare has been providing sub-sidised (half-price) insecticide-treatednets to rural clients and has experi-enced a good uptake. It is now pre-paring to target other diseasesamenable to prevention and educa-tion: sexually transmitted infections(including HIV/AIDS), sanitation-related water-borne diseases, andemerging “Western diseases” suchas obesity and the resultant adultonset of (Type II) diabetes.

In its business plans for expansion,Microcare follows a basic principle of sustainability and profitability: that achieving recovery of all costsrequires 25%+ higher premiums.


1817

17, 18Gerry Noble,Microcare,Uganda, explainingthe lessonslearned from the Microcare case in Uganda

Added value of loss preventionPrevention, particularly in health insur-ance, helps neutralise the argument:“I paid my premium, but I didn’tmake a claim,” because the insurercan reply: “The reason you did notget sick and did not make a claim isour prevention programme.”


TATA-AIG, India



Benefit: Endowment and group term


TATA-AIG Life Insurance Company inIndia is a joint venture of a large con-glomerate TATA and the AmericanInternational Group.The 90 TATA com-panies employ 260,000 people andaccount for 1.9% of the country’s GDP.AIG employs 97,000 staff worldwideand has a turnover of US$108bn.

TATA-AIG started microinsuranceoperations in 2001 to comply withIndia’s insurance regulations, andnow offers three voluntary life andsavings products through 50 partnerNGOs and micro-agents – coveringsome 200,000 low-income people. Itsmicro-agents in various communitiesare recommended by the NGOs,which assist them with training andadministration.

TATA-AIG’s individual endowmentpolicies are growing at a rate of over100% per year, and its group terminsurance covers 140,000 low-incomewomen. There are two endowmentplans: sampoorna bima yojana(limited pay term with return ofpremium) and ayushman yojana(single premium assured return).

Delta Life, Bangladesh



Benefit: Endowment insurance


Delta Life in Bangladesh, founded in1986, launched a voluntary micro-insurance product targeted at workersin the informal economy in 1988. Itnow offers a range of endowmentproducts to some one million low-income people, mostly in rural areas.

Clients and staff perceive the prod-ucts more as long-term savings thaninsurance. Certain occupationalgroups are excluded from purchasingsome specific products.

Delta Life relies on the direct salesmodel with door-to-door collection ofpremiums. It grew dramatically in the mid-90s when it provided loansto policyholders. A flaw in lendingmethodology brought huge losses,and it outgrew its capacity. In 2002 itgot back on its feet, and has sincebeen undergoing a re-engineering ofadministrative systems, MIS andinternal controls.

In addition to a with-profits endow-ment plan with ten- and 15-yearterms, Delta offers a biennial plan topay out 20% of the sum assuredevery two years (of a ten-year policy).It also introduced a daughter’smarriage endowment to maturewhen she turns 18 years old. Overall,the product design involves shorterterms, less frequent premiumpayments and more frequent accessto savings.

Both TATA-AIG and Delta Life intro-duced endowments to cater to policy-holders who want more than purerisk covers, and both have voluntary,individual products with various pre-mium payment options. Key differ-ences are that Delta uses communitypricing, and TATA-AIG offers non-participating products and strives tominimise lapses.

20

The two companies’ experienceshows that there is a need in the low-income market to offer long-termsavings/insurance vehicles, but thatinnovations are required to bringdown the costs of delivering andservicing these products and todevelop new products that accom-modate the clients’ unpredictablecash flow.

Lessons learnt from the two cases(TATA-AIG and Delta Life) point to the pros and cons of endowmentinsurance.

Advantages of endowment products

Give low-income people savingsdiscipline and liquidity, and helpthem accumulate assets over time.

Combine savings, insurance andcredit to enhance risk management.

Overcome key complaint about term insurance: no claim, no benefit.

Disadvantages of endowment products

Are difficult to deliver through MFIs.

Require good investment opportuni-ties for the insurer.

Have high expense ratios (more than 40% of premium goes to pay for administrative expenses).

Involve lapses and small surrendervalues.

1919Craig Churchill(left) and VijayAthreye, TATA-AIG, Indiaexplaining theadvantages anddisadvantages of endowmentproducts

20Vijay Athreye,TATA-AIG, India


All options involve challenges. A reg-ulatory change would be timely, butthe process is lengthy and does notaddress the society’s immediate needto recover.

Lessons learnt

A successful partner-agent relation-ship calls for not only generalcompatibility between the societyand the formal insurer, but alsospecific streamlining of systems and processes.

In its business plans and financialprojections, a society disregards itsactuary’s advice at its peril.

The society should pursue an on-going dialogue with policy makersand other players to ensure that there is regulatory support for micro-insurers operating in a sustainableand appropriate manner.

Great North Burial Society, South AfricaInstitutional model: Community-based


Benefit: Funeral insurance

Premium range:US$3.45

The Great North Burial Society(GNBS) is an informal risk-mitigationorganisation that has grown largeenough to potentially become aninsurer in its own right. The chal-lenges it has faced highlight thesupport needed to develop micro-insurance further in South Africa.

The GNBS was established in 1955and registered in 1962 under theFriendly Societies Act. Burial so-cieties are formed where there arecommon bonds; they are not-for-profit and are governed and man-aged by the people.

Following its rapid growth in the1970s and 80s, the GNBS introduceda “super policy” in the mid-90sagainst the advice of its actuary whoconsidered it not financially sustain-able and was proven right. Thesociety then sought backing from anunderwriter, New Era Life (NEL).

The increased payouts from NELattracted greater membership. How-ever, premium revisions and lapseswere treated differently by NEL andthe GNBS, placing strain on the GNBS,which remained liable for benefitsand wanted to remain a caringsociety (it covers some 9,000 lives).

After some time, it also emerged that the Friendly Societies Actsubjected members to a ZAR5,000(US$710) cap on benefits – anamount considered too low for afuneral at today’s prices.

GNBS is no longer supported by an underwriter and faces some deci-sions on how to proceed.

Options include: lobbying for regu-latory change that increases the cap,petitioning for the ability for rein-surers to reinsure it as a friendlysociety, and applying for a dedicatedlicence for assistance business (whichwould enable both an increasedbenefit and reinsurance). GNBS couldalso act as an intermediary that cross-sells other products.

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21

21Working Group 8discussing theexperience ofburial societiesin South Africa

22Left to right:Samuel Lesha-bane, GreatNorth BurialSociety, SouthAfrica; Daniel Masemola,Great NorthBurial Society,South Africa;Richard Walker,Genesis Analytics,South Africa


A burial society’s limitations

The Friendly Societies Act, underwhich burial societies in South Africaare registered, provides for:

— A cap on benefits which is belowwhat a funeral costs today

— An exclusion of investments suchas equities

— A non-forfeiture clause, barringthe treatment of lapses differently(as a “caring” society) to a formalinsurer (profit-driven)


Some 35 million people are coveredby micro health insurance schemesaround the world. There is a range of models and combinations bringing“for-profit” and “not-for-profit”approaches together.

Whenever there is an overbearingprofit motive in social services, theytend to be exclusionary and need tobe regulated. At the level of servingthe poor, the profit motive alone may not be justifiable – but microinsurance units should be “for-profit”insurers; with controls and balances,profit is a good thing.

The real issue in health insurancemay be whether the poor might be excluded from cover. How do we insure those who have little or no income? Is health care a basichuman right?

In South Africa, the constitution pro-vides for health care for everyone.Twenty years ago, people believedthe state should make healthcareavailable and accessible to all. Therewas the question of solidarity – thepooling of risks between the rich and poor. The primary issues noware control, management, qualityassurance and competition betweenprivate healthcare providers. Thehealth financing mechanism issecondary.

To develop micro health insurance,

consider the existing legal frameworkand modify and qualify it, incorpor-ating the specific micro-health context;

define and distinguish roles ofmembers, MIUs, risk carriers and thegovernment;

ensure that client care and servicedelivery are adequate and affordable;

adopt an inclusive approach andconsult regularly with members;

strengthen social insurance prin-ciples, based on the government’sduty to provide for the poor(including co-contribution and supervision).

Salient features of a legal frameworkare: the community health insurancestructure, governance and financingof micro health insurance units(MIUs), design and cost of the bene-fits package, choice of the risk carrier,enforcement and dispute resolution.The provision of healthcare to poorpeople on an insurance basis alsoinvolves enabling affordable pro-viders, reinsuring the risks carried,and direction and supervision by the government.

In earlier years HIV/AIDS was ex-cluded as a self-inflicted injury.Covering AIDS patients is differentnow that the disease can be con-tained with medicines and therapy.

The state’s participation is importantand it is a co-contributor. The realityin Africa is that the state cannotdeliver healthcare in most countries –particularly where “the state”, ruledby warlords, is hard to define.

The provision of healthcare andinsurance is a long-term game. It is a tough issue for developedcountries too.

The strength of Africa is its commu-nities. They should be empowered topool risks and resources.

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

Panellists



Marius OlivierUniversity of Johannesburg,South Africa

FacilitatorDavid DrorErasmus University Rotterdam,the Netherlands

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24

23Left to right:Marius Olivier,University ofJohannesburg,South Africa;David Dror,Erasmus Univer-sity Rotterdam,the Netherlands

24Left to right:Gerry Noble,Microcare,Uganda; Dominic Liber,QuindiemConsulting, SouthAfrica

Microinsurance should pinpoint the specific needs of clients and must be based on solid, competitive business models.

27 28

26

29How to evaluatethe demand wasthe question inWorking Group 10

25, 26Networking, a keycomponent of theconference

27, 28 Panel 3 opens thediscussion onchallenges andstrategies toextend healthinsurance


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Jonathan DixonNational Treasury, South Africa


Andreas KleinerHead of Munich Re of Africa, South Africa

FacilitatorJeremy LeachFinMark Trust, South Africa

09.00–10.30 Panel 4Commercialising insurance for the low-income market: Role of regulators, policy makers and insurance/reinsurance companies


11.00–12.00 Parallel sessionsThematic working groups

WG 9Demand

WG 10Managing microinsurance schemes

WG 11Regulation, supervision and policy

WG 12Marketing

12.00–13.30 Lunch


Lemmy ManjeILO, Zambia

Warwick BloomHollard Life, South Africa



Arup ChatterjeeIAIS, Switzerland

Martina Wiedmaier-PfisterConsultant to GTZ, Germany

Brigitte KleinGTZ, Germany


Panel 4 Commercialising insurance for the low-income market: Role of regulators, policy makers and insurance/reinsurance companies

Panellists

Jonathan DixonNational Treasury, South Africa


Andreas KleinerHead of Munich Re of Africa,South Africa

FacilitatorJeremy LeachFinMark Trust, South Africa

The road out of poverty necessitatesincreasing incomes, building assetsand managing risks. Risk is a vitalelement of a broader developmentstrategy.

However, emerging markets imply anenormous economic potential: 86%of the world’s population is in them –including China (1.3 billion) and India(1.1 billion). Despite this, they accountfor only 23% of global GDP. In 2003,they accounted for a mere 10% ofworldwide non-life premiums andonly 11% of life premiums.

Internationally, microinsurancegenerally tends to grow out of credit,but in South Africa it has grown outof funeral insurance.

Risk-management techniques in-clude: self-insuring, pooling throughinsurance, and using reinsurance.

An estimated 25–35% of South Afri-cans are members of a burial society,and 7–15% have funeral insurance. In South Africa, regulation for funeralsavings and risk vehicles is anti-quated and cumbersome, and a formalinsurance licence is burdensome.

The policy maker’s dilemma is: willfinancial inclusion underminesystemic stability, market efficiencyand consumer protection?

The South African approach is avoluntary industry transformationthrough a Financial Sector Charter.Access to finance is defined in terms of: low-income market group,physical access (within a physicalradius of low-income communities),appropriate products (meeting needsof low-income clients), and afford-ability. And a prime objective of thereforms is to simplify, harmonise andclose gaps in the legislation andregulations covering microinsurance(particularly funeral assistance busi-ness) activities.

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31

In South Africa

microinsurance is already on themap, though focused on funeralinsurance;

the Financial Sector Charter holdsgreat potential;

collaboration among domestic stake-holders, coupled with the sharing of experiences made internationally,is yielding a sustainable commercialmicroinsurance market.

30Left to right:Jonathan Dixon,National Treasury,South Africa;Robert Gordon,AIG, South Africa

31Left to right;Andreas Kleiner,Munich Re ofAfrica, SouthAfrica; Jeremy Leach,FinMark Trust,South Africa

32, 33David Dror,Erasmus Univer-sity Rotterdam,the Netherlandsand Ellis Wohlner,Consultant toSIDA, Sweden,challenging the speakers of Panel 4

There are policy trade-offs: new en-trants hold the potential of volatility,but development and stability de-pend on competition and access tofinancial services; access may entailexposure to “risky” products, whichmakes it necessary to ensure thatsufficient consumer protection andsafety nets are in place, and that costsare not excessive.

In India, where industry outreach tothe rural sector is legislated, is finan-cial inclusion affordable and has itcome at a cost to consumers? SouthAfrica’s industry-led voluntary com-pliance with the Charter to improvelow-income access is in contrast toIndia’s “big stick” approach, but is itin effect “a wolf in sheep’s clothing”?

Microinsurance solutions need tofocus on the poor’s priorities:— Sustaining sources of livelihood;

securing food, shelter and clothing— Surviving natural disasters— Maintaining the health of the

breadwinner

Coverages to meet these needsinclude: — Life/health (loss of life, critical

illness, sickness) — Property (agricultural productivity

and returns)— Loss of assets generating income


The low-income market should besegmented into three groups:

1 Casual or seasonal workers in the informal economy withoutformal housing

2 Those with very low regularemployment incomes and with basicformal housing

3 Those with varying amounts ofdisposable income who can affordhousing and transport

There may also be a need to seg-ment the market by gender to protectwomen, for example, when claimpayments may be used by the hus-band’s family.

The second and third categories canbe addressed to penetrate the marketand insurers are targeting them withcredit insurance and funeral insur-ance. The big challenge is the firstsegment, where payment of pre-miums often competes against basicnecessities such as food. Access to individuals is difficult and servicecosts extremely high.

For this first or “bottom-of-the-pyramid” segment, regulators shouldconsider integrating the require-ments of life and non-life lines so thata new microinsurance category canbe sold as a line of business by bothtypes of companies.

They should also amend the insur-ance law to monitor and control entities carrying insurance risk out-side current legislation, and changeconsumer regulation where neededto allow MFIs to provide compulsoryinsurance schemes for borrowers. In addition, access to potentiallyharmful products can be preventedby introducing some parameters for product design. However, in manycases one should not forget that thereis a skills and capacity constraint in regulation, and that enforcement is a key issue of concern.

For low-income markets,

the challenge is insuring the seg-ment in which premium paymentcompetes with necessities such as food;

regulators should integrate life and non-life requirements, creating a new microinsurance category.

Panel 4Commercialising insurance for the low-income market: Role of regulators, policy makers and insurance/reinsurance companies

What (re)insurers can do:

Provide global expertise in risksharing

Develop a statistical base for pricing

Conduct research on demand

Introduce measures to containclimate change and reduce theimpact of catastrophes

Form partnerships with directmicroinsurers

Reinsurance is a business-to-businessmodel protecting peak risks. Indi-vidual financial exposures are low,and direct microinsurers can retainthese on their own balance sheets.Generic reinsurance demand frommicroinsurance is for accumulationrisks, mainly natural catastrophes.

To play a meaningful role in micro-insurance, insurers and reinsurersshould expand the value chain byadding value such as global expertiseand resources, intrinsic local-marketknowledge, pricing capabilities andrisk sharing.

Microinsurance must be commer-cially viable; goodwill alone is notenough to make microinsurancesustainable. Therefore, two principlesgoverning entry into the low-incomemarket are: can the insurer writeenough premium in a given time tojustify the effort, and can it generateenough profit to meet the businesscriteria?

High exposure to natural hazards as well as a high vulnerability is a major problemcommon to many emerging markets.

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Economic stress can be caused by a number of events in varyingdegrees. A demand survey in Zambiafound that for the poor, death andillness produced a high level ofstress, education fees and rentals amedium level, theft and fire medium,and weddings and births low.

The survey also found that potentialmicroinsurance clients used threekinds of coping mechanisms:

— Social assets, mainly social net-works, largely based on reciprocity

— Physical assets such as householditems that could be turned into cash

— Financial assets, for examplesavings under the mattress,savings clubs, and money lenderswho charge high interest rates butprovide quick access

For all coping mechanisms, thestrengths and limitations and thepoor’s preferences must be deter-mined. In practice, most people can afford only one coping strategy –for example, in poor communities in the developing world, people saythey have a hard enough time paying back their loans, let alone an insurance premium.

USAID has developed a 52-pagepublication called Guidelines forMarket Research on the Demand forMicroinsurance (accessible as aconference document on the confer-ence website). The study providesdonors and technical service pro-viders with a framework for de-signing market research for micro-insurance. It is a step-by-step guideto a process which will generateinformation that can be used todetermine the attributes of a newmicroinsurance product, refine thoseof existing products, and identifyways microinsurance might be bestdelivered.

Questions to ask to assess demandfor a microinsurance product:

— What is your greatest fear?— Do you have assets, things

you own?— What natural disasters do

you fear?— How much are you prepared

to pay to cover your biggest fear?— What are your healthcare costs

on a monthly basis?— What are your demands?

(Do not ask for needs – everyone has many needs.)

— What have been your shocks?— Assess the weights/rankings of

financial shocks and pressures.— How do you manage shocks?— Which shocks will work for insur-

ance (for some you use family savings, for some you use credit, and some are appropriate for insurance)?

— What is the family profile – what type and amount of cover would suit it?

— How would you like to pay premiums?

— How would you like claims to be paid?

Parallel sessionsThematic workinggroups

Demand


Warwick BloomHollard Life, South Africa

Arup ChatterjeeIAIS, Switzerland



Lemmy ManjeILO, Zambia


Brigitte KleinGTZ, Germany


Martina Wiedmaier-PfisterConsultant to GTZ, Germany

34

34How to evaluatethe demand wasthe question inWorking Group 10,led by MoniqueCohen, Microfi-nance Opportuni-ties, USA(centre)

35Lemmy Manje, ILO,Zambia

35

Sometimes women have claimspayments sent to a trusted friend sothey cannot be used by the husbandin ways that do not benefit the family.It may also be possible to structure aclaim payment as an in-kind benefit,if the client prefers.

36Left to right:Denis Garand,Consultant,Canada; Warwick Bloom,Hollard Life,South Africa;Gerry Noble,Microcare, Uganda

37Left to right:Martina Wied-maier-Pfister;Consultant toGTZ, GermanyBrigitte Klein,GTZ, Germany;Arup Chatterjee,IAIS, Switzerland


A key to sustainability is striking, and maintaining, a balance amongcoverage, operating costs and affordability. And that involves fourprincipal strategies:

— Limit benefits

— Focus on efficiency

— Diversify income sources

— Good management

Ways of limiting benefits are to start with credit life, cap benefits,target benefits, and focus on big-ticket items.

To achieve efficiency, use low-costpremium payment methods, rely oninexpensive distribution systems,control costs, and buy benefits inbulk. Steer away from working withcash as this is expensive; rather, usean MFI and other partners to assistwith collection. Often it is better to work with a community or groupand not with individuals as thiscontributes to keeping the cost low.VimoSEWA, for example, increasedits outreach and sustainabilityconsiderably by holding rollingcampaigns in communities to enrolgroups of people.

Income sources can be diversified bycross-subsidising, augmentingincome with that from other productsor markets, using an endowmentfund to subsidise the product andoperations, and by accessing govern-ment subsidies.

Good management means leading a disciplined organisation, bench-marking, and owning the risk.

Control is very important.

Appropriate technology can be usedto implement these controls.

The paper reaches a number of con-clusions. Small adjustments to themainstream regulatory frameworkmay serve better to increase accessthan creating a “parallel universe” ofspecialised regulation (e.g. a newtier). “Microinsurance regulation” isnot one topic, but a range of topics,depending on the type of loss insuredand the distribution channel used. In microinsurance, it is the “credibilityof the market” argument that moti-vates transformation and prudentialregulation and supervision.

The paper recommends nine stepssupervisors can take to adapt regula-tions for promoting microinsurance;for example, seeking a politicalmandate and financial support fromtheir authorities, strengthening theirmicroinsurance capacities, andsouth-to-south dialogues with othersupervisors.

The IAIS-CGAP Joint Working Group says:

“Microinsurance regulation” doesnot necessarily mean an entirelyseparate regulatory framework.

Regulation of microinsurance iscomplex, involving many differentissues and market players.

Microinsurance regulation aims foremost at consumer protectionenhancing financial inclusion.

The IAIS-CGAP Joint Working Groupon Microinsurance, set up in February2006, has drafted an Issues Paper on the regulation and supervision ofmicroinsurance.

Recognising that microinsuranceactivities should not be held to super-visory standards lower than those formainstream insurance, the paperfocuses on prudential, governance,market-conduct and operationalissues. It identifies areas where theIAIS Insurance Core Principles criteriacan be customised to the regulationand supervision of microinsurance.

The paper reviews some microinsur-ance scenarios and suggests whatneeds to be done: funeral and healthinsurance based on associations,mutuals or friendly societies requiresoversight by insurance supervisors;credit life products developed by MFIsrequire formalisation or linkage withinsurers; and products for poor cus-tomers developed by commercial in-surers require regulatory adaptations.

A few emerging markets have spe-cific laws or regulations to encouragemicroinsurance. India has micro-insurance agent regulations to linkformal insurers with village-basedNGOs and MFIs. The Philippines hasintroduced mutual benefit associa-tions (MBAs) as microinsurance institutions under the Insurance Law,supervised by the Insurance Commis-sion. And in Brazil the supervisoryauthorities have created both a lifegroup microinsurance product and anautomobile microinsurance product.

Managing microinsurance schemes Regulation, supervision and policy

36 37

Marketing

38Craig Churchill,ILO, Switzerland(left), and VijayAthreye, TATA-AIG, India,explaining themarketing lessonsfrom TATA-AIG inWorking Group 12



In the low-income market, mostpotential customers are unfamiliarwith insurance and often confuseinsurance with savings. Even thosewho know insurance may alreadyhave had a bad experience with it.They may also not be conversantwith financial planning, and lackdisposable income to buy peace ofmind – instead living day to daywithout thinking about risk or riskmanagement. Illiteracy and a lack ofbanking, transport and communica-tions infrastructure compound themarketing challenge.

Microinsurers often use a combina-tion of four main messages – protec-tion, solidarity, optimism and trust –in a three-step marketing process:raise awareness (about insuranceand the specific insurer), cultivate an understanding of insurance, andactivate the market.

Loss prevention campaigns, branding(logos, tag lines), and public relations(corporate sponsorship) are helpfulin raising awareness.

To cultivate an understanding ofinsurance, provide staff with ap-propriate resources (e.g. brochures,pictorial presentations, FAQ sheets),design simple products that are easierto explain, provide sales training forfront-line staff and encourage themto buy insurance as well, use localconcepts, and consider diverse com-munication channels.

To activate the market, use enrolmentcampaigns, testimonials and pro-motions (raffles, lotteries). An addi-tional technique that can be effective is to set moderate sales targets and balance sales commissions withre-enrolment incentives.

Marketing lessons from TATA-AIG

A microinsurance operation requirestop-management and regulatorycommitment to get established in the market.

Target market awareness is best built through livelihood-based grass-roots capacity-building.

Relevant, affordable products are key to changing prospects intocustomers.

Technology innovation is essential to keep servicing costs down.

Commercial viability in micro-insurance is facilitated by the devel-opment sector’s involvement andsupport.

38



Shadreck MapfumoOpportunity International, Malawi(Drought insurance for Malawi)

Reinhard MechlerIIASA, Austria(Can microinsurance work in natural disasters?)

Leila MoondaSAIA, South Africa(Corporate non-life microinsurance products)

FacilitatorThomas LosterMunich Re Foundation, Germany



13.30–14.30 Parallel sessionsThematic working groups

WG 13Product design

WG 14Organisational development

WG 15Premium collection

WG 16Claims payments


15.00–16.30 Panel 5Beyond life and health: Microinsurance innovations

16.30–17.30 Wrap-up discussion and closing remarks

17.30 End of conference


Shadreck MapfumoOpportunity International, Malawi


Ellis WohlnerConsultant to SIDA, Sweden



Parallel sessionsThematic workinggroups

Product design

Choice is important. People will notpay for what they cannot choose.They want insurance for their biggestexpenses – they will not pay for insur-ance that provides cover for thingsthey do not want.

Hospitalisation is an example of this:people do not want to go to thehospital where often rates of infectionand complication are higher thanhome treatment; they want coveragefor medicine, which is where theyspend the largest portion of their cash.

The three criteria to assess effective-ness of choices are reimbursement,fairness and catastrophic events(outlier cases and coverage).

The key is a group process and group participation in product design.The poor know what they want andthey need a voice in the design ofmicroinsurance products. If designmatches client demand, then salesare greatly facilitated.

At the end of a participatory productdesign activity in India, villagersimmediately demanded to buy theproduct they had just designedthrough the exercise.

Such activities could be partneredwith insurance providers so actual in-surance products could be designed,marketed, and sold following theparticipatory approach. They can beactuarially sound and reflect realprices and costs of risk (prevalence,distribution of risks, and the cost ofalternative benefit packages).

Illiterate people are able to designrelevant products when given achance to define the risks of greatestconcern and when they are facilitatedin explaining the costs of perils interms of their livelihoods (willingnessto pay). This process results inproxies that are useful in designingand pricing microinsurance products.

The participatory approach is alsoimportant for risk pooling and foraddressing the issue of adverseselection.

In the exercise in India, differentinsurance product demand outcomeswere observed when people de-signed the product alone (such asthrough a questionnaire) and whenthey participated in the groupprocess. In the individual process, forexample, the demand for maternitycover was lower than when thegroup designed its own product. In the latter case, women and theirchildren played the game and chose100% cover for maternity risks, pre-sumably a result of group solidarity.

Insurers are worried about adverseselection, but people do not cheat thegroup they network with to survive.This is especially true for the poor inrural areas. There is a strong flow ofinformation at the local level. Gossipis a powerful business tool and it ishow groups shape conduct – whichin turn is important for adverse selec-tion and moral hazards. The issue of information cost is about reachingthe village level because that is whereproduct designers must go to shapeappropriate products.

For low transaction costs, keep the product simple and limit choicesof cover.

Group participation is the key.

People will not pay for what theycannot choose.

Participating as a group in productdesign, they make better choicesthan when asked individually.

The participatory approach alsoaddresses risk pooling, adverseselection and moral hazards.




David DrorErasmus University Rotterdam,the Netherlands



Shadreck MapfumoOpportunity International, Malawi

Ellis WohlnerConsultant to SIDA, Sweden

40

39


41

From the microinsurance perspec-tive, organisational developmentinvolves five factors:

— Organisational structure (wheredoes microinsurance fit in?)

— Recruitment (whom do you hire?)

— Training (how do you providethem with sufficient skills?)

— Compensation (how do youreward them?)

— Institutional culture (how do you strike the microinsurancebalance?)

One point to consider in the organi-sational structure is whether to usespecialists or generalists on the frontline. In diverse organisations, aspecialised department is needed formicroinsurance in the back office.TATA-AIG and VimoSEWA both serveas good examples of such a struc-ture. The role of outsourcing is alsoworth considering, as demonstratedby TUW SKOK.

Choices to be made in recruitmentinvolve the use of policyholders as agents in the front line (e.g. CARD,TATA-AIG), and the balance of tech-nical and development expertise inthe back office.

Organisational development


39Dominic Liber,QuindiemConsulting, SouthAfrica

40David Dror,Erasmus Univer-sity Rotterdam,the Netherlands

41David Dror,Erasmus Univer-sity Rotterdam,the Netherlands,explaining theimportance of participants’satisfaction

Training is not a one-off exercise.Back-office and frontline skills needto be continuously updated. If staffdo not understand insurance and are not sufficiently familiar with theproducts, policyholders will notunderstand them either. Front-linetraining is overlooked, particularlywith mandatory products.

In terms of compensation, a numberof questions need addressing.

— Are there alternative incentives forthe front line to commissions,which may just increase the cost ofinsurance to the customer?

— How do you ensure the front-linerepresentatives pay sufficientattention to insurance sales andservices when these are not theirprimary responsibilities?

— How do you deal with the hugerisk of mis-selling in providing an unfamiliar product to an un-educated market?

— For voluntary insurance, how doyou reward staff for achievinggreater outreach without pushinginsurance on people?

The institutional culture in micro-insurance should strive to achievesocial and commercial objectives.How can this culture be used tominimise staff turnover? And, in adiverse organisation that serves boththe not so poor and the poor, how doyou ensure that the poor market getssufficient attention?

To build trust and overcome scep-ticism in a lukewarm low-incomemarket, microinsurers should focuson relationship-building, after-salesservice, fast claims processing, andminimising claims rejections.

Elements of organisational develop-ment and their role

StructureAccommodate microinsurance.

RecruitmentTo acquire skills needed.

TrainingKeep skills relevant.

CompensationReward approaches sensitive toneeds of the low-income segment.

Institutional cultureEnsure ongoing attention to poorcustomers.

42

43

42, 43ShadreckMapfumo, Oppor-tunity Interna-tional, Malawi(left), and CraigChurchill, ILO,Switzerland,explaining theelements oforganisationaldevelopment and the rolesthese play

Premium collection


Frequency and timing choices shouldinvolve sensitive understanding ofclient preferences and capabilities.While providing a number of choicesreduces the likelihood of cancella-tion/default, it increases insurers’direct costs – and correspondingcosts to clients. Choices should notinclude highly flexible time frames.The payment of a premium beforepolicy activation is a necessary condi-tion of cover. All premium due datesare dates by which (not on which)premiums are due. For example, ifthe due date is 15 March, the insurermust have been paid the premiumbefore the 15th so the policy can beeffective on the 15th.

Three major client considerationsare: providing flexibility in premiumfinancing, achieving simultaneousobjectives of affordability and efficientcollection, and ensuring that renewaland lapse processes are more flexiblethan those provided for commercialclients. Late premium payers shouldbe penalised in some fashion, aspremiums are calculated on the basisof their being paid on time.

Fraud is a major threat in premiumcollection, necessitating tight con-trols from the product design stage.Horizontal controls (where respon-sibility for premium collection isspread across the group) and verticalcontrols (where the insurer is respon-sible for supervision and audit) areboth crucial.

Flaws in the premium-collectionprocess may endanger the entireinsurer-customer relationship. The process has four key elements:collection modes, frequency andtiming, client considerations, andcollection controls.

Four major premium collectionmodes are:

— Piggy-backing premiums bylinking them to loans or othertransactions

— Deducting premiums fromcustomer accounts

— Paying premiums from accountinterest

— Actual physical collection (door-to-door, for example)

Two other options are to include thepremium in other economic transac-tions (besides loans) or in a member-ship fee of some kind.

While the first three modes involvelow transaction costs, they presup-pose the existence of some form of banking or other accounts. Directphysical premium collection is ex-pensive, but achieves strong pene-tration in areas with limited bankingor commercial infrastructure, whereit may be the most realistic and practical option. Additional optionsinclude group-linked collection viacommunity leaders, churches orsavings cooperatives, and workingwith local or corner-shop retailerswith dedicated premium collectionequipment.


44

44GrzegorzBuczkowski, TUWSKOK, Poland(left) and EllisWohlner, Consul-tant to SIDA,Sweden

Claims payments


Realistically, it is still not possible to design an effective mechanism to reach every potential client. Therewill always be people that cannot be reached efficiently to distributeindividual microinsurance products.For people far from formal bankingand commercial infrastructure inparticular, group-linked insurance is significantly more robust and efficient.

Four elements of premium collection:

Collection modes (e.g. linkingpremium to another transaction)

Frequency and timing (must be sensitive to client preferences andcapabilities)

Client considerations (flexibility infinancing)

Collection controls (to curb fraud)

MFIs need to understand the import-ance of the submission of claimdocuments for quick settlement ofclaims. Loan officers should give thesame attention to the provision ofdocumentation as to the collection ofpremiums.

Aside from insufficient documenta-tion, major causes of claim rejectionare misinformation about the productparameters and fraud.

Educating staff and clients aboutbenefits covered by the product andthe claims settlement process is keyto improving service.

Helping clients understand, forexample, how the sickness coverworks for the benefit of all wouldhelp reduce the fraudulent tenden-cies of some.

Insurers should aim at reducing thetime taken to settle a claim by beingmore flexible in the documentationrequirement, and by assessing eachcase on its own merits – taking intoaccount the small values involved.

Where documentation is difficult,they should accept alternativeevidence. And where practical, theyshould issue payments to bene-ficiaries directly instead of MFIs.

Microinsurers should simplify theclaims work process and comput-erise functions. Sometimes,removing exclusions simplifies andaccelerates claims settlement. Acomplicated product and cumber-some process add to the cost ofinsurance.

Any claim rejections must be ex-plained to the community, to preventdamage to the product’s credibility.

In health insurance, it is important to ensure quality care.

Tips on claims

Simplify documentation and process.

Educate MFI staff and clients abouthow claims are settled.

Explain rejections to community.

45

46

45Agnes Chakonta,Madison Insur-ance, Zambia

46Denis Garand,Consultant,Canada


Panel 5 Beyond life and health: Microinsurance innovations

Speakers

Shadreck MapfumoOpportunity International, Malawi (Drought insurance for Malawi)

Reinhard MechlerIIASA, Austria(Can microinsurance work in natural disasters?)

Leila MoondaSAIA, South Africa(Corporate non-life microinsurance products)

FacilitatorThomas LosterMunich Re Foundation, Germany

Insurance serving the poor can be in four scales with different impactsand solutions: micro, meso, macroand other.

The micro scale is most widespreadand focuses on health, life (funeral)and low-end property and crop(home, plough, boat) insurance.

The focus of the meso scale can beserving larger groups of people. Theproducts are derivatives and indexinsurance: weather and drought sofar, mostly established in the devel-oped world but the first index inEthiopia is expected to lead to othersin the poor countries.

At the macro scale are cat bonds,which cover storms, floods andearthquakes, but are only available in the developed world at present.Examples in the other category arepools and funds such as the TurkishCatastrophe Insurance Pool and theClimate Adaptation Fund.

Looking beyond life and health, wewill need to take the micro scale andtouch the higher scales – integratingthe new challenges with the basiccovers. The core principle ofspreading risk would continue toapply: a good portfolio spread over a few regions would, for example,serve as a foundation for protectionagainst a tsunami.

47Left to right:Thomas Loster,Munich Re Founda-tion, Germany;Leila Moonda,SAIA, SouthAfrica;

Reinhard Mechler,IIASA, Austria;ShadreckMapfumo, Oppor-tunity Interna-tional, Malawi

In 2004, the South African InsuranceAssociation (SAIA) started devel-oping a no-frills product calledMzansi that would be “accessible andaffordable” for low-income groups –covering the dwelling, householdgoods and personal effects againstfire, lightning, explosion, storm,flood, impact and theft (sudden andaccidental events). To date, onecompany has introduced this prod-uct, with more companies expectedto follow in 2007.

The target market is 70% of the population – the very poor. Repeatedfires make hundreds of these peoplehomeless every week. Thefts ofhousehold belongings are alsofrequent – the most stolen items arepots and pans. Literacy is a bigproblem, and there can be no ap-plications in writing. These peoplehave no regular incomes and canmake no regular payments.

Access is not the only barrier. Thefirst obstacle to the Mzansi initiativewas regulatory. A standard productwording – not acceptable to theInsurance Commission on account ofundermining competition – had togive way to a set of minimum stand-ards which various companies coulduse to develop their own products.Other challenges being addressedare: changing legislation to allowlower-level intermediaries to sellmicroinsurance products; educationto enable consumers to understandshort-term insurance, e.g. trainingteachers to teach financial literacy inschools; and alternative distributionchannels such as retail stores.

A weather index-based crop insur-ance pilot scheme started in Malawiby Opportunity International for 800 farmers now has 1,800 enrolled.They are smallholder farmers inclubs of ten to 20 members with jointliability for loan repayment, who livewithin 20 km of one of five Class Aweather stations.

47

50 51

Panel 5Beyond life and health: Microinsurance innovations


Microinsurance needs to be scaled up tohigher levels of risk management.

Other stakeholders are the twofinancing banks, the Insurance Asso-ciation of Malawi as the insurer, threesuppliers of seeds and fertilisers, and Malawi National Met Services,which supplies rainfall data.

The project processes include a credithistory check and if a loan is notrepaid two years in a row, farmersare blacklisted. There are cropinspections to help prevent claims for drought.

Poor seed germination, late sowingand the variance between the guar-anteed price and the market price are among the scheme’s challengesand risks.

Such index-based schemes havedemonstrated their value in securingfarmers’ livelihoods, improving their creditworthiness, and facilita-ting disaster recovery. Nonetheless,in the face of large covariant lossesand the need to reduce the imme-diate toll of disasters, the long-termviability of these programmes is in question.

Microinsurance is only viable to theextent that the providers remainsolvent following large-scale losses.If microinsurers with limitedresources choose to indemnify largecovariant and recurring risks, theymust guard against insolvency bydiversifying their portfolios geo-graphically and transferring risks tothe global reinsurance markets.

Public-private alliances are alsoneeded to create partnerships andinstitutional frameworks that mayserve as safety nets for high-risk poorcommunities.

For disaster microinsurance to work,the current pilot and fledgling pro-grammes need to be scaled up. Ideasconsidered should also includecreating warehouses for livestock,bundled products to cover health, life and weather-related perils, and a global index security scheme.

Pooling is demonstrated as a fair andeffective tool and holds substantialpromise. It is a basic insurance con-cept. Looking beyond life and health,we need to think in terms of a “Volks-wagen” of natural disaster micro-insurance schemes, and not get dizzylooking at sophisticated “Rolls-Royce” approaches.

The disaster risk managementcommunity – including reinsurers –has little understanding of micro-insurance. To bridge the gap, theProVention Consortium – a globalcoalition of international organisa-tions dedicated to reducing theimpact of disasters in developingcountries – proposed in February2005 to establish an international taskforce on risk transfer and its potentialfor developing countries. Thisincludes microinsurance and risk-transfer experts, disaster-riskresearchers, and representatives of civil society, governments anddonor institutions.

Eyeing the future

Short-term insurance based on the South African Mzansi model can meet real needs.

The weather index-based crop insurance pilot in Malawi has provedpractical.

Pooling is an effective and promisingtool to help manage risk of naturaldisasters.

A global task force should explorerisk transfer for microinsurance.

50Alesia Rodríguez,Cámara de Aseguradores deVenezuela (CAV)

51Aude deMontesquiou, CGAP, France

4948

48Zahid Qureshi,Consultant, Canada;head of therapporteurs teamat the Microinsur-ance ConferenceReport 2006

49John Pott, Aga KhanDevelopment Net-work, Switzerland


ADA (Appui au Développement Autonome),Luxembourg

African Development Insurance CompanyLimited, Nigeria

African Life Assurance, South Africa

AIG South Africa, Ltd., South Africa

Barnert Global, Ltd., USA

Blue Financial Services Ltd., South Africa

BRS – Belgian Raiffeisen Foundation,Belgium

Cámara de Aseguradores de Venezuela(CAV), Venezuela

Catholic University of Leuven, Belgium

CGAP, USA

Constantia Insurance Company Ltd., South Africa

Cre8 Alexander Forbes, South Africa

Cruzsalud, Caracas, Venezuela

Customer Protection Insurance Company Ltd., South Africa

Denis Garand and Associates, Canada

Die Burger, South Africa

East African Underwriters Ltd., Uganda

Erasmus University Rotterdam, the Netherlands

Federation Nationale Mutualité Française,France

Financial Services Board, South Africa

FINCA International, USA

FinMark Trust, South Africa

Folksam, Sweden

FOS Belgium, Belgium

Foyer, Luxembourg

FSD Kenya, Kenya

Genesis Analytics, South Africa

Gerhardt Consulting, Germany

Great North Burial Society, South Africa

GTZ, Germany

Guardrisk Insurance Company Limited,South Africa

Hannover Life Re Africa Ltd., South Africa

Hollard Insurance, South Africa

IIASA, Austria

ILO/STEP, Switzerland

ILO Zambia, South Africa

Insurance Commission, Philippines

Insurebynet Ghana Limited, South Africa

International Association of InsuranceSupervisors, Switzerland

International Cooperative and Mutual Insurance Federation, United Kingdom

International Development and Communication Services Inc., Canada

International Finance Corporation, USA

International Fund for Agricultural Development, Italy

Just Good Business, Zambia

Kenya Ecolof, Kenya

Kwaaiwater Investments, South Africa

Liberty Life, South Africa

Madison Insurance, Zambia

Metropolitan Life, South Africa

Microcare, Uganda

Microfinance Opportunities, USA

Microhealthinsurance-India.org, Switzerland

Microinsurance and Remittance Research Centre, United Kingdom

Ministry of Finance, Kenya

Momentum, South Africa

MS Life Assurance, South Africa

Munich Re/Munich Re of Africa, Germany

Munich Re Foundation, Germany

Mutual & Federal Insurance CompanyLimited, South Africa

National Treasury, South Africa

Old Mutual, South Africa

Old Mutual Group Schemes, South Africa

Opportunity International Network, Malawi

OUTsurance Insurance Company, South Africa

PEP, a division of Pepkor Retail Ltd., South Africa

PKSF, Bangladesh

PlaNet Finance, France

Quindiem Consulting, South Africa

Real People, South Africa

RGA Reinsurance Company, South Africa

RIMANSI, Philippines

SA Eagle Insurance Company Limited,South Africa

South African Federation of Burial Societies (SAFOBS), South Africa

Safcam Underwriting Managers (Pty) Ltd.,South Africa

Santam, South Africa

SDT, South Africa

SEF-LIFE Trust, South Africa

Seguradora Internacional de Moçambique,Mozambique

Shiekan Insurance and Reinsurance Co. Ltd., Sudan

Sida – Swedish International DevelopmentCooperation Agency, Sweden

Socremo – Banco de Microfinancas,Mozambique

South African Insurance Association, South Africa

Surety Fund, USA

Swedish Cooperative Centre, Kenya

TATA AIG Life Insurance Company Ltd.,India

Aga Khan Agency for Microfinance, Switzerland

The Best Funeral Society, South Africa

The Co-operative Insurance Company of Kenya Limited, Kenya

Legon Financial Services Group, USA

The Life Offices’ Association of South Africa, South Africa

TUW SKOK, Poland

UNIC Insurance plc., Nigeria

United Nations University, Germany

University of Lyon, France

University of Cape Town, South Africa

University of Johannesburg, South Africa

Zurich Financial Services, Switzerland

Participating organisations


AIGAmerican International Group

ATMAutomated teller machine

BOPBottom of the pyramid

CGAPConsultative Group to Assist the Poor

CUNACredit Union National Association

GDPGross domestic product

GNBSGreat North Burial Society

GTZDeutsche Gesellschaft für TechnischeZusammenarbeit (German Agencyfor Technical Cooperation)

IAISInternational Association of Insurance Supervisors

IIASAInternational Institute for AppliedSystems Analysis

INRIndian rupee

ILOInternational Labour Organization

MBAMutual benefit association

MFIMicrofinance institution

MIUMicro health insurance units

MISManagement information system

MUSCCOMalawi Union of Savings and CreditCooperatives

NELNew Era Life

NGO Non-governmental organisation

Q&AQuestion and answer

SASouth Africa

SAIASouth African Insurance Association

SIDASwedish International DevelopmentCooperation Agency

STEPStrategies and Tools against SocialExclusion and Poverty

TUW SKOKMutual Insurance Company of Coop-erative Savings and Credit Unions

US$United States dollar

ZARSouth African rand

Acronyms

© 2007Munich 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 number302-05381

ContactDirk [email protected]

DesignKeller Maurer Designwww.km-d.com

Munich ReFoundationFrom Knowledge to Action

In cooperation withPublished by

InternationalLabourOfficeGeneva

According to recent research from theMicroInsurance Centre, fewer than 3% of poor people in the poorest 100 countries have formal insurance of some sort.

report – 2nd international microinsurance conference 2006 - south africa (2007)

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