Building Resilience through Access to Insurance
There is increasing recognition that access to a suite of financial services is needed to meet poor peoples’ varied and complex financial needs over their lifetime. In this context, there is increasing talk about insurance as an important financial service to help people mitigate, manage risks and protect assets.
Photo Credit: Ron Londen
More than talk – some significant achievements…
Over the past years, microinsurance coverage has seen tremendous growth all over the world with over 500 million insured low-income people worldwide, from an estimated 78 million people in the 100 poorest countries in 2007. Developments in Asia have driven much of the growth, accounting for over 400 million poor people insured alone. Microinsurance has, however, also seen rapid expansion in Latin America with 45-50 million people insured and in Africa which enjoyed a five-fold growth over the past five years, reaching almost 40 million insured.
Though the large numbers of people without access to insurance remains staggering, this progress is important and reflects the interest—and hard work—of many partners working to bring insurance services to the base of the pyramid market.
The global standard setting body for insurance, the International Association of Insurance Supervisors (IAIS), is deeply committed to the goal of inclusive insurance markets. The IAIS, in collaboration with the Access to Insurance Initiative and the Microinsurance Network, is striving to provide adequate regulatory environments that increase access to insurance while offering the protection clients need. Through its latest Application Paper, it lays out a framework for the supervision of the insurance sector that supports the development of fair and stable insurance markets as well as promotes the effective and globally consistent supervision of the industry.
More providers are starting to innovate beyond credit life. Though credit life remains the dominant product globally, innovations in product design and distribution are starting to lead to breakthroughs in the availability of more affordable services designed for the needs of specific client segments. The ILO's Microinsurance Innovation Facility and the client demand studies from the MicroInsurance Centre have documented some of these innovations. For example, IFFCO-Tokio has introduced radio frequency identification devices (RFID) instead of the traditional ear tags for cattle and buffalo insurance coverage. The use of this technology enables viability while simplifying the claims process for the policyholders.
Harnessing technology shows promise in tackling the distribution challenge of insurance. Technology promises to be an important enabler for microinsurance distribution, especially through mobile phones.The majority of microinsurance clients live in rural areas, making it difficult for insurance suppliers to use traditional methods of distribution to reach them. Mobile phones make it far more cost effective to reach far larger numbers of customers. For example, Tigo and MicroEnsure have partnered so that Tigo offers free insurance to its clients for one year as a loyalty gift. After the first year, clients can extend their insurance coverage by paying an additional fee through their mobile phones. This approach allows clients to become familiar with insurance before committing to pay.
… And yet the remaining challenges cannot be underestimated.
Improving client value. Unscrupulous providers and uninformed clients can make for a very bad combination. Paying for insurance and not getting a financial return if nothing happens is hard enough for many people to grapple with, but paying and not getting value if the insured event does occur is simply not acceptable.The interest from some providers in the mass market may offer opportunities for scale, but also raises serious consumer protection issues. Trust is at the heart of insurance: unfair practices by one dubious provider can seriously damage the market for all the others. The Microinsurance Network has recently teamed up with The Smart Campaign to collaborate on a client protection tool for MFIs that are involved in microinsurance. The tool covers a range of topics from introducing the client to microinsurance, collecting and protecting client information, activating the insurance policy, collecting premiums to responding to claims.
Better meeting demand. There is a mismatch between the current offer of insurance products—primarily life—and the results of demand studies that show significant interest in coverage for health and protection of assets. The Milk Project, run by the MicroInsurance Centre, works with different stakeholders and researchers to advance the understanding on how to remedy this situation. Health in particular is very complex, and often requires not only addressing the financial solution but also the whole ecosystem of services – healthcare infrastructure, access to medication, transportation to hospitals, prevention, etc. This can often not be done without the engagement of local governments with a view to establish complementarities between insurance and social protection mechanisms.
Developing markets and enabling infrastructure. Microinsurance is no longer about merely pushing out products. To create real impact, there is a need for work to develop inclusive markets that includes creating the appropriate enabling and protective policy and regulatory environment and developing the necessary supporting infrastructure and capacity to facilitate offering a wide range of affordable products and services to diverse client segments.
A strong commitment from a multi-stakeholder platform
The Microinsurance Network is poised to leverage recent achievements and tackle the challenges head-on. Started in 2002 as a CGAP Working Group, the Network is now an independent and multi-stakeholder platform. We believe that the world’s poor will not achieve lasting prosperity without access to insurance. We also believe that market-based approaches are the best way to provide access to insurance required by billions of people and small businesses. To accomplish our work, we assemble a range of market participants around the key challenges and get useful knowledge to the organizations that can drive improvements to access to effective insurance.
Look for more on microinsurance over the next few weeks in a blog series featuring global experts, providers and researchers.
Veronique Faber is Executive Director of the Microinsurance Network; Alexia Latortue is deputy CEO of CGAP and a Board Member of the Microinsurance Network.