ADB Seminar on Microinsurance Sector Development Project in Sri Lanka

1
ADB Seminar on Microinsurance Sector Development
Project in Sri Lanka

• June 28 to June 29 2007 Renuka Hotel, Colombo.
• Strategies to extend Commercial Insurance to the
  poor. Country experience
• Presentation by L.B. Abeysinghe
• Team Leader.
• ADB Microinsurance Sector Development Project
• Sri Lanka

2
Introduction

• Purpose of this presentation
• To explain opportunities and challenges of
  promoting insurance to the poor by commercial
  companies and microinsurance providers in the
  micro finance sector.

3
Development of Microinsurance in Sri Lanka

• Microinsurance emerged as a service support
  activity in the field of micro finance.
• At the outset Microinsurance was mainly concerned
  with Loan Protection Insurance Life Savings.
• Later it developed to provide a wider range of
  insurance covers with linkage to products of
  welfare health services.
• It is only very recently that Commercial
  Insurance Companies commenced to operate
  microinsurance business .

4
Distinguish between Commercial Insurance
Microinsurance in Sri Lanka

• Commercial Insurance Micro Insurance
• Based on insurance principles Based
  on insurance principles
• Regulated
  Unregulated
• High cost
  Low cost
• Distribution by licensed agents
  Distribution by unlicensed agents
• Access to the poor is difficult
  Access to the poor is not difficult
• Policy holders are secured to a
  Policy holders are not well secured
• great extent
• Clients with knowledge
  Clients with less knowledge

5
Strategies adopted to extend insurance to the
poor by Commercial Insurers

• Initially, Commercial Insurance Companies entered
  the microinsurance market with insurance products
  that are linked to microinsurance programmes
  conducted by banks and other
• MFIs/CBOs as follows
• HNB Assurance Microinsurance
  programme of Gamipupuduwa (Village
• 
  awakening ) conducted by Hatton National Bank
• Loan
  Protection Scheme of SEEDS of Sarwordaya
• Ceylinco programmes
  of Grameen ,banks and farmers societies
• Sanasa Sanasa
  Development Bank Sanasa Primary Societies
• 
  
• AIG - Haleys Assurance Accident Insurance to
  Groups of estate labourers
• 
  groups of workers in various organizations

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Strategies adopted to extend insurance to the
poor by Commercial Insurers - contd..

• Details of products linked to a Loan
• HNB Assurance A package of insurance including
  Life, Mortgage Loan
• Protection and
  Property insurance
• Ceylinco Variety of schemes under
  Grameen, Udana, Pawra,
• Ruhunu Saviya, Ceylinco
  support Sahana covering risks of
• death, loss of income,
  sickness and childrens educational expenses.
• These schemes have been
  designed for Farmers, Fishermen, other
• self employed persons,
  housewives and teachers etc.
• Sanasa Variety of covers for the
  benefit of members of Sanasa
• societies, CBOs and the
  public covering risk of death Permanent
• disablement due to
  natural and accident causes.

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd

• Life Insurance
• Commercial Insurance Companies are not much
  concerned with offering life insurance to non
  barrowers of low income groups through an
  appropriate distributional channel.
• They continued to issue traditional life
  insurance policies to the general insuring public
  expanding branch network island wide and
  enhancing the agency force to cover persons in
  middle and lowest strata in rural sector and
  marginalized groups in the urban sector.
• Nevertheless, most of policies sold were lapsed
  due to the high premium and unsatisfactory
  service.

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Strategies adopted to extend insurance to the
poor by Commercial Insurers

• Life Insurance contd..
• Although commercial insurers were able to promote
  sales of life insurance policies through their
  agents most of those policies lapsed due to many
  reasons. The Demand Research Survey conducted by
  the project indicates that 37.7 of total
  households surveyed discontinued their policies
  during last 15 years mainly due to the high
  premium payable and the unsatisfactory service.
  59.3 of them were from low income households.

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Strategies adopted to extend insurance to the
poor by Commercial Insurers

• Life Insurance contd..
• As a result of the survey conducted by the
  project a life microinsurance product was
  designed which included life cover for the
  breadwinner and the spouse with insurance for
  funeral expenses and hospital cash payments.
• This policy is being marketed by Partner Agent
  model (between HNBA SEEDS)
• Another insurance company offers similar type of
  policy to members through a personal agent
  appointed on recommendation of the particular MFI
  .

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd..

• Quick settlements of claims
• Commercial Insurance companies are very prompt in
  settlement of claims.
• It is a normal practice today settling claims of
  Funeral expenses within 24 hours.

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd..

• Conducting publicity awareness campaign
• Commercial Insurance companies conduct extensive
  publicity programmes though mass media and House
  to house awareness programes to promote
  traditional life insurance. But such programmes
  in respect of micro insurance products seems to
  have been restricted possibly with the intention
  of reducing the cost of products.

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd..

• Distribution of insurance products
• Most of Commercial Insurance Companies depend on
  personal agency model that incurs high
  expenditure.
• Through excessive training various other
  motivational programmes efforts are made to
  promote insurance business among persons of all
  income groups.
• At present insurance law allows to operate only
  the personal agency model

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd..

• Distribution of insurance products
• Micro Agent model is not operated in Sri Lanka
• A system similar to micro agents model is being
  operated by appointment of an agent on
  recommendation of the particular MFI / CBO and
  the Commission earned by the agent is arranged
  divided between the agent and the MFI/CBO.
• Some companies operate this system to provide
  insurance to the members of MFIs and CBOs .
• There are drawbacks in this system

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Strategies adopted to extend insurance to the
poor by Commercial Insurers contd..

• The partner agent model is an another system that
  can be operated to promote insurance products
  among the poor. This is a model introduced by the
  microinsurance Sector Development Project
• It is being operated between HNB assurance and
  SEEDS on an experimental basis.
• Through this Partner Agent Model SEEDS acts
  as an intermediary for selling insurance
  policies, collection of premiums and attending
  all policy servicing including settlement of
  claims related to payment hospital cash and
  funeral expenses.
• HNB Assurance company absorbs all the risk of
  insurance and takes responsibility of issuing a
  master policy, maintaining reserve and solvency
  margins paying death claims and complying with
  the regulatory requirements.

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Development of agency model for distribution of
Insurance products to the poor contd..

• Although Partner Agent model appears as a new
  concept Commercial Insurance companies have
  experience from a similar type of model called
  principal agency system which was operated
  between National Insurance Corporation and its
  Principal Agents. Unlike traditional insurance
  agents the principal agents were given wide
  powers to issue cover notes, collect premiums and
  settle claims.
• Through this principal agency model there was a
  tremendous growth of insurance business and
  therefore we can expect considerable improvement
  in microinsurance through this partner agent
  model.
• However lack of MFIs that are qualified to be
  appointed as partner agents (intermediaries) has
  been a major obstacle to develop microinsurance
  sector

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Conclusions

• Although there is some interest shown in
  microinsurance activities in Sri Lanka by
  microinsurance providers in both sectors i.e.
  MFIs /NGOs in the unregulated sector and
  commercial insurers in the regulated sector,
  their covers are restricted to offering
  microinsurance products linked to loans that are
  provided by banks / MFIs.
• Only a few companies are engaged in the sale of
  microinsurance life products where maximum sum
  assured could be obtained for the minimum
  premium.
• Therefore penetration of life insurance in Sri
  Lanka is very low- less than 5.
• Such situation may be overcome by various
  techniques amendments to the insurance law,
  providing financial assistance to pay the first
  year premium and allowing appointment of Partner
  Agents and Micro Agents.

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Conclusions contd..

• With the implementation of ADB Microinsurance
  Sector Development Project, the attitude of the
  insurers regulators, MFIs and other CBOs towards
  microinsurance has been changed.
• It has been now realized that vision of
  microinsurance extends beyond the point of
  providing loan protection cover to holistic
  achievement of mitigation of risk of the poor and
  reducing their vulnerability towards risks of
  life.
• It also has been substantiated that extensive
  awareness campaign on microinsurance need to be
  conducted to convince the poor that
  microinsurance is an acceptable, affordable and
  useful technique for their risk mitigation.
  

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Thank you