Rural MicroinsuranceHelping the poor weather the storm

Richard Leftley

President & CEO

Microensure

2009 RBAP-MABS National Roundtable ConferenceMay 12-13, 2009

Hyatt Hotel and CasinoManila

The poor do not buy insurance

 Premiums (in USDmn) 2006

Premiums in % of GDP

2006

Premiums per capita

(in USD) 2006

North America $1,258,301 8.67% $3,804.0

Europe $1,484,881 8.27% $1,745.7

Asia $800,819 6.63% $205.0

Middle East and Central Asia $18,901 1.37% $62.5

Africa $49,667 4.77% $53.6

The Philippines $1,443 1.48% $17.2

World $3,723,412 7.52% $554.8

Industrialised countries $3,390,180 9.18% $3,362.2

Emerging markets $333,231 2.69% $59.8

Source: Swiss Re, Economic Research & Consulting, sigma No. 4/2007

Client Demand: Chutes & Ladders

•The poor face huge risk

•They seek to mitigate risk often informally

•Informal mechanisms are poor value and insecure

•Insurance is safety net

•24% entering hospitals left below the poverty line in India

Supply from insurers is available

• Commercial insurance companies are interested in this market

• Life & property insurance is available from local insurers

• Crop and health harder to secure locally: need global reinsurers

Introducing MicroEnsure

• Started working on microinsurance in 2002

• MicroEnsure established in 2005

• Currently serving 3,500,000 lives globally

• Gates Foundation grant; $25m over 5 years

• Expand into 11 new countries• Serve 25m people by 2012 – life, health, crop

Current Footprint

AMERICA’SMexicoColumbiaHonduras

AFRICAZambiaMalawiUgandaGhanaTanzaniaZimbabweMozambique

ASIAIndiaPhilippinesIndonesia

What’s needed to make it work?

Risk Carrier

Back OfficeFront Office

MicroEnsure model

Risk Carrier

Insurers

Reinsurers

Cell Captives

Mutual Benefit Back Office

IT Systems

Claims mgmt

Product Design

Training

Education

Front Office

Rural Banks, MFI’s etc

NGO’s / Aid Agencies – such as child sponsorship

Retail – e.g. mobile phone kiosks Brokerage

Outsourcing

So what products do the poor want?

What forces unplanned spending on the poor?• Funerals• Medical emergency• Fire or natural disaster• School fees• Weddings• Crop failure in rural areas

Life Insurance

1. Mortgage Redemption – protects the lender

Borrower dies or is disabled during a loan period. The mortgage redemption pays off the outstanding loan plus interest to the lender.

2. Term Life – excellent for funerals

Normally loan linked and can provide a fixed sum insured upon death of borrower, spouse, children or parents.

3. Investment products – provides a saving return

Return of premium plus interest upon maturity – can be problematic to collect the premium over 5 year term

Saturnina Santocildes, Iloilo

•A 57 year old widow fought for her children

•Took 15 loans, the last was P9,000•She died after extracting her tooth

•The P100,000 was split between the children: The youngest remain at school, the oldest started a business; one bought a cow

Property Insurance Products

• Philippines first micro housing product launched last year (Bahay Asenso)

• Protects the house against fire and all natural calamities• Provides cover for death arising from an accident• Provides evacuation benefit to cover costs

• Sold in units of P50,000; maximum of three units per borrower

Weather index products

• Demand from small hold farmers for inputs

• Agri-Agra law could unlock significant funds

• Rural banks are worried about climate risk

• Traditional insurance has issues; claims payment

• Solution is weather index products• Quick and transparent claims trigger• Index available for a range of risks

Philippines Index Products

• Drought for rice farmers• Too little rain triggers a payment• Rainfall measured at an existing rainfall gauge

• Typhoon for rice farmers• Farmers location captured with GPS• Index uses windspeed and distance to measure

impact

• Excess rain (in development)

• Pest & Disease available from PCIC

Livestock Insurance

• Protects against death of the animal

• Biggest issue is the cost of controlling fraud which boosts pricing

• MicroEnsure working on new technology which reduces fraud and price

Health Insurance Products

• High demand due to frequency of use

• Admin cost restricts us to in-patient cover

• Out-patient addressed in normal cash flow

• Needs to be a cashless facility – requires TPA

Indian micro health product

• Provides P22,500 cover for family of four

• Service provided on a cashless basis

• In-patient only cover

• Costs P350 per year for family of four

• Pre-existing and maternity from day-one

• Working with SML – over 1.7m families

Why introduce micro insurance?

1. Provides a competitive advantage in an increasingly competitive lending market

2. Reduced risk for clients leads to lower PAR

3. Additional revenue opportunity for the rural bank from fee income

4. Provides access to new markets (e.g. farm input lending)

How to choose the right product?

• Start by understanding client demand, clarify what is already available and what do regulations allow?

• Balance these three requirements

• Be realistic about operational capability

• Internal & external needs differ

Balancing the conflicts

• Lower premium = lower commission

• Better / cheaper products might attract additional borrowers

• Revenue from insurance will always be lower than from lending

• Insurers needs to make profit..how much?

• Its all about the client – right???

What's the bottom line?

• Revenues from insurance are low• Range from P3 – P50 per policy• Global average is P12 per policy

• Whilst this is incremental income, there is a cost associated with administration

• Complex products require investment or an able partner who can deliver

Communicating: Staff training

•Loan officers need to understand products

•Loan officers train clients

•MicroEnsure uses its own training teams to educate branch staff

•There is no cost to the rural bank

Communicating: Client Education

Conclusions

• The poor want to mitigate risk

• Insurance reduces lending risk and generates revenue

• Demand for; health, life, property, crop

• Needs to be a partnership model

• Back office is key in reducing transactional cost and providing good service

Questions?

Thank you for your attention, more information:

www. microensure.com

richard.leftley @ microensure.com

william.martirez @ microensure.com