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> Posted by Annalisa Bianchessi, Microinsurance Network

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Although Africa has 17 percent of the world’s pastures and arable land, the value of premiums for agricultural insurance in Africa represents less than 0.7 percent of the world’s total. This remarkably low figure is deplorable when one considers that about 60 percent of the active population in Africa is working in the agricultural sector and that with the advent of climate change the risks in agricultural activities are becoming even more frequent and severe. The agriculture insurance sector in Africa is also unevenly distributed, with sector development in West Africa restricted to a handful of countries such as Nigeria, Benin, Senegal, Burkina Faso, Mali, and Ghana. Should governments intervene to support the development of the agricultural insurance sector in Africa?

For smallholder farmers, agriculture insurance offsets risks associated with weather fluctuations. This risk reduction can make it more likely that a farmer will qualify for credit and thus invest in the tools and resources (e.g. seed, fertilizer, labor) needed prior to harvest that would potentially increase crop yields. Furthermore, it also provides farmers with the peace of mind required to invest savings into businesses and increases their confidence to engage in contracts with buyers and processors.

According to Ismaïla Diakité, President of COPROCUMA, a farmer cooperative in Mali, and spokesperson for a network of 500 cooperatives representing over 500,000 Malian farmers, “Microinsurance is an avenue for the people of Mali to develop our country.” Ismaïla recalls that a few years back, COPROCUMA had taken out a loan to sow 10,000 hectares of sesame seed. However due to bad weather the crop failed, and the cooperative and farmers ended up in debt. It was then that they realized the value of insurance. While very lucky (the lending institution cancelled their debt), the farmers embarked on an agriculture insurance scheme, which today is compulsory for all members of their cooperative. Ismaïla says, “Our main objective is to ensure the survival of our farmers, their life and their livelihood.” To this end, he believes that insurance is an essential part of the benefits that the cooperative needs to offer the farmers. When asked whether all farmers are happy with the compulsory insurance scheme he says, “A farmer cannot see the importance of microinsurance until he can see the bigger picture. In the sector I work in there will never be unanimous agreement on anything. However a few years into the insurance scheme, 80 percent of farmers in Mali are now convinced of the importance of agriculture microinsurance.” Read the rest of this entry »

> Posted by Richard Koven, Consultant, MicroInsurance Centre

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Both client value and a business case are needed for microinsurance to be sustainable. In an ideal world, the two ultimately reinforce one another. Value is recognized by clients, leading to greater satisfaction with and demand for insurance, while demand leads to reasonable profits for insurers, enhancing their ability to provide value to clients in the medium and long-term.

In an effort to better understand how profitability and client value complement one another and how they conflict, the MicroInsurance Centre’s Microinsurance Learning and Knowledge (MILK) project conducted extensive research on health microinsurance in Kenya.

Understanding client value and the business case

To understand client value, MILK conducted two “Client Math” studies. These quantitative assessments seek to understand the value of insurance compared to other risk management tools by exploring the differences in how insured and uninsured households cope with financial shocks. We looked at hospitalization insurance products offered by two private insurers: the Afya Yetu Initiative, an NGO that oversees and implements 30 Community-Based Health Insurance schemes, and the commercial insurer British-American Insurance Company Kenya (Britam). We surveyed low-income people (insured and uninsured), asking them about the direct, indirect, and opportunity costs they incurred in connection with a high-cost hospitalization as well as the strategies they used to finance those costs.

Overview of products studied

We found that while both products provided value for clients, the Afya Yetu product offered more generous coverage. Post-claim, Afya Yetu policyholders paid only a quarter of the total costs of hospitalization of their uninsured counterparts. By contrast, Britam’s clients paid 80 percent as much as their uninsured counterparts. In both cases, insured respondents were able to finance their costs more independently than uninsured respondents by reducing spending in the short-term rather than taking out loans. The Afya Yetu product is simpler and was thus better understood by respondents than Britam’s more complex product, which offers eight different levels of coverage. Afya Yetu uses a relatively “high touch” enrollment process that leverages existing relationships with agents from within the communities of the target populations, thereby educating clients and building trust. Britam’s clients, by contrast, struggled to understand their coverage; of the insured respondents in our study, 60 percent reported paying more than they expected to pay for their hospitalization.

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> Posted by Richard Leftley, Chief Executive Officer, MicroEnsure

The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process and highlights findings from “Mapping the Invisible Market.

Last year a statistic was released claiming that there are 6 billion phones in circulation around the world. It is clear that mobile-based delivery channels are perhaps one of the greatest opportunities in working to achieve human and market development goals, including financial inclusion.

Microinsurance is one of the great beneficiaries of mobile-based payments and service delivery innovations, as shown by the rapid growth of mobile microinsurance (MMI) products from an estimated 20 in 2006 to 84 in 2013. Today much of the growth in microinsurance is through partnerships with mobile network operators that are keen to increase sales and retain customers. But demand side obstacles persist and pose a significant challenge to growth and sustainability. Many products are available that are sound and beneficial, but clients are not picking them up. Why is that?

mobile phone

Over the past nine years we have provided microinsurance to millions of clients via a range of distribution channels including banks and microfinance institutions, SACCOs, cooperatives, and even churches. However, our real breakthrough came when we realized that no one wakes up wanting to buy insurance, but people do wake up worried about the risks they face. Through our work with mobile network operators, we have demonstrated that the mass market will radically change their consumer behavior in return for free insurance that addresses their risk.

Recently I stopped a man in the street and asked him if he wanted to buy life insurance. However hard I tried I could not make the sale, but when I asked him how much money he sent home to his mother every month, he became excited about a product that would keep providing that remittance to his mother if he had an accident and died.

Our ability to provide great microinsurance products is driven by our capacity to consider the needs and attitudes of our clients and then integrate these types of insights about choice and value into each product.

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> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Microinsurance matters, especially as we see an increase in climate change related disasters.

On October 28, Alexia Latortue of the U.S. Treasury moderated the opening plenary of the Financial Inclusion 2020 Global Forum featuring two leaders in microinsurance, Michel Khalaf of MetLife and Martyn Parker of Swiss Re. One of Alexia’s remarks at the Global Forum deeply resonates with me today: “The occurrence of a risk event can set a family back an entire generation.” Among other things, she suggested, there are new and emerging risks linked to climate change.

Shortly after the Forum, we saw haunting evidence of this. On November 8, Typhoon Haiyan devastated much of the Visayas region in the Philippines, with the city of Tacloban being the hardest hit. Typhoon Haiyan is a reminder of why we must prepare to face natural disasters. Microinsurance is one form of advance preparation that can prove instrumental in the disaster rebuilding stage.

In a disaster prone country such as the Philippines, where over 41 percent of the population lives on under $2 per day, ensuring greater access to microinsurance could make an enormous impact. In the country’s rural areas, which encompass roughly half of Filipinos and about 80 percent of those living in poverty, agriculture is the primary source of income. Government data from 2009 indicates that poverty among fishermen is at 41 percent, with farmers close behind at 36 percent. Think about the opportunities for providing microinsurance to farmers and fishers, whose livelihoods and families depend on productive land and assets that can be tremendously affected by weather!

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> Posted by Véronique Faber, Executive Director, Microinsurance Network

Konrad Valladares of the Center of Financial Studies and Véronique Faber at the FI2020 Global Forum.

Konrad Valladares of the Peruvian Bank Association and Véronique Faber at the FI2020 Global Forum.

Three months ago, Jeremy Leach from Bankable Frontier Associates rightly asked in this same forum: “Microinsurance: Can the Cinderella of Financial Inclusion Join the Global Ball?” This question rang a bell with many practitioners and advocates in this field. Microinsurance is often the last service listed when talking about financial inclusion tools. However, credit, savings, and insurance work more effectively in combination rather than in sequence. In stimulating and maintaining financial inclusion, it is crucial that those with a limited income have a safety net preventing them from falling into poverty when hit by a crisis, catastrophic or lifecycle related, and become more resilient against future risks.

Since Leach’s blog post, the sector has been granted three wishes (by its fairy godmother or perhaps as a result of good common sense). If these wishes are used well, insurance for low-income people will be an integral part of any global financial inclusion strategy from now on.

The first wish came in the form of visibility and awareness raising. The opening panel at the Financial Inclusion 2020 Global Forum had representatives from MetLife and Swiss Re debating how financial inclusion factors like income growth, new technologies, and government prioritization play out in the context of insurance. For the rest of the conference, insurance was on every participant’s mind when thinking about the possibilities of what can be achieved in the next seven years. This is important because insurance is essential for sustainable development and financial inclusion.

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> Posted by Aparna Dalal and Craig Churchill, International Consultant and Team Leader, Microinsurance Innovation Facility, International Labour Organization

New impact evidence shows that microinsurance products can provide financial protection, reduce vulnerability, and improve access to critical services for low-income households. And with innovations in product and delivery, more people now have access to microinsurance. The sector grew from an estimated 78 million clients in 2007 to 135 million in 2009, to 500 million in 2012. Does this mean that microinsurance has finally arrived?

The answer depends on where you look. While we have seen breakthroughs in certain countries (such as India, the Philippines, South Africa, and Colombia), glaring geographic disparities in coverage persist, with vast deserts without coverage amid oases of success. Common challenges facing countries with low coverage include inappropriate regulation, lack of capacity within the insurance industry, lack of infrastructure for distribution, limited data, and insufficient knowledge of insurance among low-income households.

These challenges vary with market maturity. For instance, insurers in a country in the nascent stage of development might have limited capacity to offer mass products beyond credit-life and they often have to develop marketing strategies and distribution infrastructure from the ground-up. They must find ways to reach persons who are unfamiliar with insurance. In contrast, insurers in growing markets are looking for new distribution partners and developing more customized products to address specific client needs.

Stages of Market Development

Stages of Market Development

A systematic approach is needed for countries to address these challenges and accelerate the development of insurance markets. This approach includes two core elements: 1) catalyzing stakeholders and 2) evolving products.

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Alexia Latortue, Deputy Assistant Secretary for International Development & Debt, US Treasury, summarizes the opening session of the day: The Case for Financial Inclusion Now.

Alexia_Latortue

Setting the context for microinsurance
Unfortunately bad things happen in life – to people and to businesses. Houses burn down, people get sick, and the cost can be very high. If we don’t anticipate the possibility of these things happening and put money aside little by little, then we are in less of a position to take care of it when something bad does happen.

A focus on micro-insurance
So, with micro-insurance, we’re “helping the poor weather life’s storms” to quote MicroEnsure. And by doing so in a way where costs are shared with many others, there’s solidarity across large pools of people.

Serving the markets of tomorrow
The two panelists for this session – Michel Khalaf, President EMEA, MetLife and Martyn Parker, Chairman Global Partnerships, Swiss Re – are regarded as leaders in the commercial insurance and re-insurance space.

They have built their businesses in rich countries but are now seeing growing middle-income countries, growing middle classes, and saying ‘we need to also serve those markets’ as they are the markets of tomorrow.

Reaching new countries and understanding client needs
Our panel discussion showed that these big companies think they can actually make it work in the emerging economies. There is a firm belief that they are able to reach both these new countries and customers.

I think MetLife’s story is the global footprint: they are present in many markets, with the proximity to understand client needs and to adapt products that they’ve been doing for years to these new conditions.

Products have to be adapted to the needs of a different culture or group of people – so physical presence and proximity is really critical.

The Challenge of Distribution
One challenge that came up was distribution – how to get the actual products out to people. One example is rural areas where people are more spread out  in places where the premiums are low and it’s hard to recuperate costs. So it’s a cost and technology issue. It’s about having different kinds of distributors, and then figuring out how to create a chain of partnerships that get you to the client in the most cost-effective way.

The need for an integrated response
Another challenge is to get the development folks, the government folks, and the private sector folks, to all really engage upstream. Diana Taylor talked earlier today about different types of communities coming together – this is a space where communities absolutely have to. Health insurance is one of the most striking, because you can have insurance, but if you don’t have good affordable healthcare it doesn’t work. So we really need these communities to talk together and identify the challenges and understand how they each contribute to the solution.

To see what others are saying and posting about the Global Forum, visit the Financial Inclusion 2020 website and follow #FI2020 on Twitter.

> Posted by Alexa Roscoe, Private Sector Advisor, CARE International UK

The Financial Inclusion 2020 project at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”

CARE International promotes microinsurance as part of the range of services and products that the poor need to help overcome poverty and reduce their vulnerability to shocks. However, we also know that as with all products, to be sustainable, any microinsurance model also needs to be profitable. Fortunately for the insurance industry and its clients, it’s being demonstrated that increasing profit and promoting financial inclusion do not have to be mutually exclusive. New research from our work in India shows that microinsurance distribution strategies that prioritize building clients’ financial literacy lead to almost three times as many new enrollments as those that do not.

There are a number of substantial challenges in marketing and distributing microinsurance products. Frequently, it is less a matter of marketing a product than building a new market from scratch, often in remote, hard-to-reach areas, with a client group without access to formal financial services. These factors make the costs of marketing to, distributing to and servicing clients disproportionate to the resulting margins. A number of strategies are being piloted globally to circumvent these challenges. For example, building off of growing mobile penetration rates among developing country populations, one initiative bundles an insurance product with the purchase of a SIM card. While this requires a lower initial investment, the jury is still out on the long-term value of such products. Unless clients receive thorough product education, such “blended approaches” might hinder awareness of the insurance product, as well as re-enrollment and the building of any brand loyalty.

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> Posted by Jeremy Leach, Director and Head, Insurance, Bankable Frontier Associates

The global financial inclusion agenda continues to place insurance at the back of the queue when it comes to funding and broader financial inclusion strategies, despite the fact that the International Association of Insurance Supervisors (IAIS) has become the leading financial inclusion focused standard setting body with its own financial inclusion implementation arm, A2ii and the significant growth of microinsurance from a low base of 78 million people in 2007 to 500 million people in 2012.

My hypothesis is that this is because of a lack of understanding of the role of insurance in the value chain and the way that it can manage risk and provide benefits for the low-income markets, which includes:

  1. A misplaced view that insurance is the lowest priority in a hierarchy of consumer financial needs – thus less important than payments, savings, or credit.
  2. The desire to directly target the very bottom of the pyramid. Whilst there has been a global recognition that microcredit is aimed at the near-poor, not the absolute-poor, donors have typically focused at the very bottom of the pyramid, often in hard to reach areas sometimes called the “supra-market zone,” and yet expect market-based solutions to work. Whilst this may also have been exaggerated through an irrational optimism by some of the private actors, the impact has been somewhat predictable.
  3. The time it takes to create a viable and dedicated insurance business. As exemplified by the recent business case undertaken on specialist microinsurance intermediaries, there was an unrealistic view of how quickly and easily it would be to create a profitable microinsurance business. A founder of a multinational $1 billion insurer once said that it takes 10 years to create a viable and profitable insurance business in the traditional sector – and yet we have been trying to get there far sooner.
  4. The focus on driving retail-based insurance products, paid for by the consumer. The idealistic view is that through the poor paying the premium from their own pockets they will learn to trust insurance and therefore value it, which will create a market. However, the nature of insurance, with payments due now and returns in a possible future, makes it notoriously hard for a customer to test. This has led to discussions around the need to drive tangibility and in-life benefits in order to assist take-up. The focus could equally be revised to address the portfolio risks of the institutions that serve the low-income market.

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> Posted by Lisa Kuhn Fraioli, Independent Consultant

When Meri was first interviewed by Freedom from Hunger for its impact stories research in 2008, she was a classic microfinance success story. This hard-working mother of five from Huancayo, Peru had a successful business buying grains in the local market, milling them, and processing them into a type of custard that she then sold in Lima at a good price. The loans that Meri received from her local microfinance organization allowed her to buy more grain, invest in new products, and transport them for sale in Lima. The loans had helped Meri grow her business beyond the subsistence level for the first time. She now had a profit that she invested in food, healthcare, and education for her children.

When interviewers returned to Meri in 2011, the story had turned into a tale of desperation and distress. Now, Meri says, “I try to sell underwear and socks, but it almost never goes well. We are hungry. Sometimes there isn’t enough food. It’s very rare that we buy meat, and what I prepare, I give to my daughters and hope that my husband brings something to eat.” She is no longer able to send all her children to school. What happened to Meri?

After the birth of her fifth child, Meri suffered an internal hemorrhage and was hospitalized. The doctor warned her that her condition was very delicate and that she could no longer make the eight-hour trip to Lima to sell her products. Unable to travel, she reluctantly shut her business down. Meri’s family’s sole source of income was now the few soles that her husband brought in as a shoeshine. Meri owes the hospital for her emergency treatment and used money from her business loan to help pay for it. Then she borrowed from a bank, the municipality, and two more microfinance organizations. Meri can’t find any new business that gives her stable income. Meanwhile, her debts weigh upon her heavily. She is still in pain, but she can’t afford the 15 dollars it would cost for an ultrasound. She says, “It seems that the stress is accumulating in my stomach. Every day it hurts me as if the anxiety were taking away my potential.” Meri, overdebted with no means to repay her loans, is now effectively excluded from the financial system as a poor credit risk. She is still struggling to get back to the economic position she was in 10 years ago. She needs to develop a new business, one less dependent on traveling, but she will have to do so without any help from microfinance.

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