Making partnerships work in microinsurance: Lessons and Challenges

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Making partnerships work in microinsurance
Lessons and Challenges

• Microfinance with a mission Learning together
• Joint MFC EMN conference
• 9 June 2006
• Budapest, Hungary
• Michael J. McCord
• President, The MicroInsurance Centre
• mjmccord_at_MicroInsuranceCentre.org
• www.MicroInsuranceCentre.org

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Outline

• A bit on demand
• Defining microinsurance
• Delivery models
• What are some country characteristics for
  potential microinsurance
• Selling and product issues
• Keys for making partnerships work
• Advertisement for the Working Group

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Microinsurance demand

• What risks are faced?
• How are they addressed now?
• What would improve risk management?
• (Qualitative, quantitative, and access frontier)

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Coping strategies
SELF INSURANCE (retain risk) Financial
Services Current income Borrow from
family/friends/Money lenders Sell or pledge
assets Precautionary measures
INFORMAL GROUP- BASED MECHANISMS (share
risk) Welfare associations Burial societies
Church group loans Fund raisers Hiring of
guards
FORMAL INSURANCE (transfer risk) Regulated
insurers Large mutual benefit associations
SOCIAL PROTECTION (transfer
risk) Government Public health services Disability
compensation Pensions
Adapted from Monique Cohen
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Microinsurance
WHAT IS MICROINSURANCE?

• Risk-pooling products that are designed to be
  appropriate for the low-income market in relation
  to cost, terms, coverage, and delivery mechanisms
  
• MicroFinance can help people improve
• MicroInsurance helps them protect the gains

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Microinsurance types
Life Insurance
Transition funds
Funeral
Pensions
Credit Life
Education Life
Endowments
Property
Livestock
Floods
Fire
Rainfall
Theft
Agriculture
Prices
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Towards inclusive insurance markets
WEALTH
Informal Insurance
POPULATION
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Models of MicroInsurance Delivery

• Full service insurers (Delta Life)
• Regulated insurers offering products directly to
  the low-income market
• Mutual model (Tuw Skok)
• Owned by members, professional management
• Partnership Model (Aldagi and Constanta)
• Very limited risk to intermediary, administrative
  burden minimal
• Also community-based, provider, and social
  security models

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Partnership Model Life Insurance
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Partnership Model - Health
Risk
Reinsurer
Insurer
MFP
Insurer/MFP Clients
Sales
Policy Holders
Underwriting oversight Reinsurance
Sales
Product Manufacturing
Service
Insurer Hospital Based Staff?
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Delivery Channels
Institutions are using existing and new channels
to deliver microinsurance products
Adopted from a presentation made by Dr. B Helms,
CGAP
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What makes a country appropriate for
Microinsurance?

• Large population is a benefit, but not the only
  concern (Albania vs. Georgia)
• Deficiencies in the social security structures
• Existence of private insurance industry
• Flexible political conditions enabling
  development of customized products and procedures
• Insurance provision gaps in existence or quality
• Strong demand from the low-income market
• Excited insurers and intermediaries (champions)
• Well managed economy (inflation, currency values,
  stable policies)

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Factors of successful sales

• The size of the agents client base
• Client base is directly proportional to
  penetration rates.
• Management attitudes
• Managements attitude toward the strategic fit of
  microinsurance is a primary factor of sales
  success.
• More successful agents see a strategic benefit of
  insurance and respond with management disciplines
  such as setting sales targets.
• Employee attitudes
• The field or front office agents attitude
  towards insurance is a critical factor in
  achieving positive sales results.
• This agent is often an opinion leader for
  clients, and if they are not enthusiastic about
  the product it is difficult to achieve sales
  success.

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Product Issues

• Must meet demand factors

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More Product Issues

• Compulsory and voluntary
• Compulsory requires direct relationship
• Voluntary has seen limited response
• Life
• Beyond credit life
• Health insurance
• The top need
• Endowments
• Helps clients see benefits
• Competition for MFIs?
• Consistency

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Keys to making partnerships work for MFIs

• Leverage your market to get what you want in
  product and terms.
• Push insurers to offer products that respond
  better to the needs and demands of clients.
• Make insurers compete
• Use multiple insurers, tender offers, and annual
  policy reviews.
• Improve integration of microinsurance with MFI
  incentives and policies
• Generate appreciation, provide sales incentives,
  and ensure client education       
• Recognize the value of a broad range of insurance
  products to MFI clients and indirectly to the MFI
  itself.
• Understanding the full range of benefits to
  client and institution will provide additional
  incentives to push insurers to offer good
  products, and to sell these products in a
  professional manner to clients.  
• Understand your cost structures     

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The importance of MI costing
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Profit sharing vs. Commission / admin fee
BEWARE OF THE RISKS!
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Keys for making partnerships work for insurers

• Insurers must 
• Take a more active role in training and
  incentivising the front line agent staff, in
  coordination with the institutional agent. Some
  insurers have staff responsible for these
  accounts and their interactions must improve to
  make the agents staff more effective.
• Recognize that insurance will never be the
  primary focus of any institutional agent and thus
  focus on making each process simpler to offer,
  simpler to manage, and simpler to transact. If
  the product is simple in every way, the effort
  required by the agent will be reduced, and there
  is greater potential that sales will be
  improved..
• Make sure policyholders are receiving correct
  information. This will improve the potential for
  renewals.
• Although the theory is that there would be
  limited intervention on the part of the insurer,
  it is clear that insurers must have a stronger
  role in guiding the process.

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Keys for making partnerships work for the
low-income market

• Their needs and demands must be the basis for
  products and how they are offered
• Regulators must allow simplicity in policies and
  procedures while protecting the rights of this
  market.
• MFIs must develop ways to include clients in
  their product development and review procedures,
  and then apply the information in their
  negotiations.
• They must appreciate insurance, not just know
  about it this requires significant market
  education

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In general partnerships work best when

• Products are directly related to the products of
  the agent institution
• The MFI agent actually represents its clients in
  negotiations with insurers
• The MFI agent recognizes the benefit of insurance
  not only in protecting the MFIs portfolio, but
  more importantly to its clients.
• Products are simple in all ways from the initial
  entry requirements, to the policy, the
  transactions, and the claims settlement process.
• The products are valued by the MFI clients, are
  mandatory, and are sold to groups
• Premiums are fair to all concerned.
• The agent takes the time to accurately explain
  insurance and the product clients are buying

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Recommendations

• Be knowledgeable
• Be clear about what is demanded
• Ensure good training
• Manage product and process evolution
• Eliminate exclusions
• Agents should manage life claims
• Do not be afraid to switch partners
• Determine the costs
• Experiment with other delivery channels

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Working Group on Microinsurance
Chaired by the ILO
Operations
Demand
Regulation
Dissemination

• Desk study
• IAIS discussion paper
• Future country studies

• Website
• Quarterly newsletter
• Conference

• Donor guidelines
• 20 case studies
• Forthcoming book

• Market research guidelines

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The MicroInsurance CentreDeveloping
partnerships to insure the worlds poor
www.MicroInsuranceCentre.org